Not so long ago, only a restaurant chain with the heft of a McDonald's or an Applebee's or a Red Lobster could get a major food manufacturer to produce ingredients, even entire menu items, just for them. But custom products aren't just for the big guys anymore. In the past five years manufacturers have turned downright eager to do business with smaller, growth-minded chains—even if it means shelving requirements of major production runs right from the start.
Why the change? Because food manufacturers have figured out that getting in on the ground floor might pay big dividends when small chains become big ones. They're so convinced of this that they're even willing, in some cases, to shoulder all the research-and-development expenses associated with a proprietary product.
In fact, for smaller chains, it's rapidly becoming a buyer's market for custom-made products."Manufacturers are really increasing their efforts to become aware of smaller chains, and to meet their needs and challenges," says Ron Paul, president of industry researcher Technomic, Inc. "It depends on the manufacturer, but now many of them are interested in smaller chains that have a story to tell of growth and expansion potential."
That's good news for the chains.
"Unique menu items are always crucial to the success of building a new brand," says Jim Doak, director of menu research and development for Culver's Franchising Systems in Prairie du Sac, Wisconsin. Culver's is a privately held company that operates 295 restaurants, specializing in Midwestern-style frozen custard and the signature ButterBurger hamburger. "Having manufacturers produce key menu items to our specs helps keep the product consistent, takes the labor out of the back of the house and ensures that we have menu items that are unique and distinct to Culver's."
The chain even outsources its frozen custard and ButterBurger patties—the two menu items so fundamental to the brand that they appear on its logo. Culver's has handed over its proprietary formulas to a handpicked cadre of trusted suppliers, who have signed confidentiality agreements to keep those recipes top secret. "Only the president of the company and the manufacturer know what's in that frozen custard," says Doak. "But we're using their R&D resources and production expertise to create a product that delivers a consistent brand experience across a far-flung system. When you think about it, we're having one single plant do the work of nearly 300 separate manufacturing facilities."
It's not just the manufacturing capabilities, either. "The big chains use all the services of their manufacturer-partners extensively," says Kevin Ryan, executive director of the International Corporate Chefs Association (ICCA), formed in 2002 by a group of key chain executive chefs. "That includes a lot of market research, trend analysis, recipe and technical support, and information about how products perform in a variety of different applications.
"Now that more manufacturers are targeting smaller chains," Ryan adds, "there's an awful lot of benefit to it."
And an awful lot of competition. Manufacturers are squeamish to identify their clients, for fear competitors may steal them away. Likewise, many restaurants won't name the suppliers who make their custom formulas.
Competition aside, custom formulation should not be entered into lightly. Issues of confidentiality are paramount. So are cost considerations. And then there's the time commitment.
"A product could take upwards of a year to develop, involving 30, 40, even 50 cuttings," says Keith Fraser, director of purchasing for Orlando, Florida-based Miller's Ale House, with 36 casual-dining locations. While Miller's prides itself on doing as much scratch cooking as possible (such as its signature, breaded-to-order Zingers boneless chicken wings), it will take advantage of a manufacturer's capabilities where warranted, mostly for the sake of consistency. As Fraser puts it, "There's far less likelihood that a manufacturer will make a mistake in large-batch production than 36 individual units will."
Case in point is Miller's best-selling hot spinach dip, which became harder to produce in-house as the company grew. Fraser brought a small batch of the dip to one of his suppliers, to see if it could be duplicated. Many prototypes later—with every iteration sampled against the original—Miller's had its new spinach dip: a frozen product, with a shelf life of six months, which is shipped off through the chain's regular distribution channels. The dip is slacked off in-house, a single ingredient is added (Frazer won't say what it is), and then it's heated to order, yielding a signature menu item that comes in the back door virtually ready-to-use. "This is a crucial volume item to us," Fraser confides, "so it has to be perfect every time."
The R&D process, which in Miller's case included turning a fresh recipe into a frozen format, is typical of what it takes to commercialize a product. "There's a lot of give and take involved in creating the finished product," says Lori Daniel, who holds the title of chief inspiration officer/founding chef and co-chair of Two Chefs on a Roll, a Torrance, California-based company that specializes in custom formulations. About half of Two Chefs' work involves creating new products that meet a chain's marketing goals and operational needs, the other half is replicating existing recipes. "You might start with one concept, and end up with something quite different in order to make it manufacturable." Soup is a prime contender for the custom process. So are sauces and other pumpable products; seasoning and breading mixes; baked goods such as breads and desserts; and protein items such as preformed, ready-to-cook hamburger patties or whole cooked turkey breast with a custom flavor profile. Many restaurants ask for a refrigerated soup, Daniel says, because they believe it's most like what they would make in-store. But the logistics of production, delivery and storage may indicate a frozen format instead. Sometimes operators want—or end up with—a component that they finish themselves onsite, such as a sauce base to which the kitchen adds butter, cream or stock. "A base is more flexible, because you might be able to use it in additional applications," explains Scott Gilbert, corporate executive chef for Custom Culinary in Oak Brook, Illinois. Custom Culinary recently hired several trained culinarians just so it could provide more proprietary menu items to chain restaurants.
With an emphasis on "flavor solutions" such as sauces, gravies and bases, the company is targeting the booming area of speed-scratch recipe components, which allow you to replicate authentic flavors consistently in high volume. "Butter sauce is a good example," notes Gilbert. "A scratch-made butter sauce breaks too easily to be used in a volume foodservice situation. But if you can add a modified starch that will keep it stable when heated, while retaining the delicate flavor and texture—well, you can do a lot of fun things on the menu with something like that."
Such alterations are key to the process. So is an intense back and forth between restaurant and manufacturer until they arrive at a product that works. Personnel at multiple levels of the organization are involved, from marketing, operations and R&D, to accounting, purchasing and quality assurance. There's a lot to consider, from product ideation and testing, to bench work, scale-up and then ramping up the facility for production runs.
And the manufacturer is almost always footing the bill. "From our perspective, the commitment is about developing the item, supporting it and getting it on the menu so that we'll get a sales flow on it," says Kelly Brintle, senior vice president of corporate strategy and business development for Ventura Foods in Brea, California. Ventura specializes in edible oils, shortenings, dressings, margarine, sauces and flavor bases. "We need to develop a reasonable return on every SKU, but if we're providing support that results in proprietary or unique products that build a long-term relationship, we'll get behind it all the way."
In fact, manufacturers typically log the R&D costs against future orders, rather than actually billing operators for the development, explains Robert Danhi, a Los Angeles-based consultant and adjunct faculty member at the Culinary Institute of America. That way, if the deal falls through, the operator can be charged for the development costs. "There needs to be liability on both ends," is how Danhi puts it. Manufacturers are banking on a long-term relationship, so they tend to be flexible. "They'll look at the overall number of SKUs, and they also look at the loyalty factor," says Danhi. "They may be willing to provide x-volume of a custom soup if you also buy all your other soups from them, and they're going to be particularly interested if you can present them with a compelling growth plan. Basically, they'll invest in a chain to get in on the ground floor."
How small is small when it comes to getting manufacturers interested in talking? That depends—and there's ample evidence that small is getting bigger in the eyes of manufacturers who are hungry for custom business. At least one large manufacturer is said to require sales of 10,000 annual cases to custom-produce a proprietary SKU. But a signature product that sells well in a couple dozen sites or that can be cross-utilized into several different menu items, can attain that volume.
Some manufacturers have developed programs to address the needs of smaller restaurant chains. Campbell's Foodservice, for instance, created a Stockpot division aimed at chains in the Technomic Top 250-300 range. Stockpot will produce custom refrigerated soups in minimum batch sizes of 188 cases. "That's not a lot of product," says Jeff Donde, vice president of national accounts for Campbell's. "It allows smaller chains to take advantage of a full production run and be able to keep it in their own distribution system until it's time for the next order." The company has similar initiatives with its sauces and baked goods.
Two Chefs on a Roll routinely works with chains in the 35- to 50-unit range—the point at which many concepts must decide whether to open a commissary or start outsourcing some products, says Daniel. "It can be difficult to break even with less volume than that, but we're always looking at the potential going forward. It's a very opportune time to join the growth track."
Like many manufacturers, Two Chefs will also work with customers to create pack and pallet sizes that will allow them to integrate products into their operations most efficiently. "If we're making a sauce for you that you're drizzling over a finished menu item, for instance, we can put it in a one-cup deli-size container."
Although reluctant to cite a hard-and-fast number, Custom Culinary will work with chains that have "just a handful" of locations, Gilbert says. It will also work with smaller-size chains to create proprietary menu items that utilize existing Custom Culinary products. "Then down the road, when the chain is a little bigger, we can take it to the next level."
"We believe we can make a real difference with a small chain, half a dozen units or less, and we're not afraid to do smaller runs of product," says Jack Civa, director of marketing for Carolina Turkeys, a Mt. Olive, North Carolina, poultry provider which is aggressively targeting custom work. "We understand that by working with smaller, growth-oriented companies, we'll also have the ability to grow."
Civa should know. Carolina Turkeys has been supplying product to several chains that started out small but are now among the Top 100.
Carolina is accustomed to producing different pack sizes, product formulations and flavor profiles, including proprietary smoke levels. "Packaging is a key part of custom work," Civa explains. "You'd be surprised at how much labor can be removed from the back of the house by putting something in a five-pound, color-coded box, for instance."
On the other hand, helping manufacturers save money has its advantages. Civa says that if a customer wanted a special flavor profile and was willing to get it in an eight-pound chub—which the Carolina line is already set up for—that would be an important point of negotiation. So would having only one drop-off location. "And if you were willing to use a part of the bird that's underutilized, like the thigh or scapula?" says Civa. "Well, then, we'd be willing to turn cartwheels for you."
For Pasta Pomodoro, the tipping point into custom formulation came when the now 45-unit casual Italian chain moved beyond the reach of its San Francisco headquarters and central commissary. "When we moved into Southern California and Arizona, we started losing consistency on some of our menu items," says director of purchasing David Bolosan. The solution: outsource products that were either too delicate or too complex to be shipped from the commissary or made in-house.
Pasta Pomodoro worked with Two Chefs on a Roll to create a Caesar dressing base that is completed onsite by adding eggs and oil, and a tiramisu base that's assembled by adding the meringue. Why not pick from the hundreds of Caesar dressings that are already out there? "We wanted a looser, eggier dressing than what you get from a high-speed commercial blender," says Bolosan. "We're known for our Caesar salad…and it was important to keep that profile." As for the tiramisu, the company was determined to avoid frozen product, believing that freezing affects the texture and flavor of the cookies and the coffee. Adding the meringue in-house means that Pasta Pomodoro could use a refrigerated, shelf-stable product instead.
In fact, custom work can take a variety of formats, from simple proprietary pack sizes to entirely bespoke menu items. In between, there exists a huge array of product options that can be finished or manipulated in-house, depending on a company's needs.
In the case of Miller's Ale House, for instance, the made-in-house premise draws a challenging line against the need for consistency and operational simplicity across a very diverse menu. But component items like breadings, spice mixes and sauces are a natural in such operations.
One fresh-oriented Mexican chain, that asked not to be identified, long ago gave up on mixing spices in house—the results were too inconsistent, and the finished product didn't always meet the intense flavor profile that was required. Rather than dipping seasonings out of open bins, then, the company commissioned custom, batch-size spice packs that can be added to site-made salsas, beans and sauces.
Spice blends are actually a pretty big deal in custom formulation, especially with growing interest in ethnic foods. It's also an area that's intensely proprietary in nature. "The benefit of outsourcing ingredients has a lot to do with flavor profiles that are unique and distinct to a particular brand," says David Schy, founder of Schy-Town in Northbrook, Illinois. Schy-Town manufactures a number of Mexican-accented specialty ketchup blends, including Ketchapeno and Ketchipotle, and Schy is a former Lettuce Entertain You corporate chef (he opened Hat Dance in Chicago, one of the country's first high-concept Mexican restaurants). "These secret blends come from spice companies, usually two different companies with neither knowing the other half of the recipe, and are added at some point during the preparation process. The employees of the restaurant company have no idea what's in the blends, thus there is no possibility of anybody letting others know the recipe."
There's no rule of thumb on pricing, but a custom product can carry significantly higher costs. Value is another matter. "A proprietary product could cost two to two-and-a-half times what scratch does," Danhi estimates. "But that's not the issue. Operators need to look not just at the ingredients and labor costs, but also at things like consistency, control, brand message and so on—which you can't really put a price on."
Then, too, with a housemade product there is waste and spoilage. Scratch prep also takes time and seems particularly wasteful on items that have fairly standard ingredients or where dozens of separate SKUs need to be inventoried, like a coconut curry sauce.
"Wouldn't you rather spend an hour figuring out a new menu item that uses that sauce, rather than making a batch of it?" asks Danhi.
Many custom products can be used in multiple menu applications, including specials and limited time offers (a clam chowder base can be used in both Manhattan and New England versions, and in a clam sauce for pasta), further reducing the cost per serving.
"I do work for an upscale burrito chain that uses a very good skirt steak for steak tacos and burritos. It comes to them from a factory that trims and marinates the meat to their specs," explains Schy. To save money, he helped the chain look at cutting and marinating the steak at the stores, but quickly learned that the amount of time, labor and new ingredients needed to duplicate the product was untenable. "The icing on the cake was that the factory tumbled the meat in large vacuum drums that pull the marinade into the meat. We simply couldn't duplicate the product at the store level, so we did what everyone else has to do—we raised menu prices."
Chain R&D executives caution their peers to look at product quality first, not at cost. "Get to the point where you're happy with the product, then figure out what kinds of compromises you can make with ingredients in order to meet your cost goals," advises Goldstein. "Can you use a lesser grade of chilies, for example, since they're going into a sauce that will be blended? Can you do this without compromising your gold standard quality?"
As chains scurry to introduce new menu items at an ever-faster clip, and as manufacturers search for new business, custom formulations can only grow more common.
"Because of the current climate of cooperation, it means that everybody can have access to sophisticated R&D capabilities," says the ICCA's Ryan. "With more chefs getting into product and menu research and development, on both sides of the equation, that pace is only going to accelerate."
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