Are You a Caterer or Food Manufacturer?

Are You a Caterer or Food Manufacturer?

Many years ago I can remember being asked that question by a wise old man who had been manufacturing smoked salmon for many decades. He was also the landlord of the first catering premises we rented, a nice chap but as crooked as a ten pound note. However that aside, his question was most definitely valid and required some thought provoking thinking and decision making.

We started our catering business from home; our first frozen food product was a 3mm thick circular potato chip, dipped into a spicy batter (massala), deep fried and then blast frozen. We sold the product to pubs in 1kg catering packs and to retailers in 250g branded retail bags.

Now that we had moved our home based catering business into an industrial unit that was fully fitted out for food production we really did need to ask ourselves if we were caterers or food manufacturers?

A caterer can be a food manufacturer without knowing it
The principle difference between a catering business and the food manufacturing company is the different type of business model (strategy) they each use to achieve maximum profits.

Caterer – business model
Sell low volume of product with high profit margin per unit of sale.

Food manufacturer – business model
Sell high volume of product with low profit margin per unit of sale.

As you can see from the two business models above, it doesn’t take a rocket scientist to understand the serious implications if the wrong business model is applied to the wrong business!

Each of the business models requires a different set of resources to enable it to work successfully. In the case of our business we decided that we were food manufacturers; below is a list of a few of the resources we required to make the business model work.

1) Storage space; enable bulk buying of raw ingredients to decrease production costs.
2) Sufficient production space; mechanization (continuous fryer) of elements within the production process will improve production speed and profit margins per unit of sale.
3) Analysis of labour deployment; removal of over lapping tasks and removal of surplus units of labour.
4) Increase capacity of blast freezer to facilitate larger production runs.
5) Increase working capital to facilitate bulk buying of supplies.

Once we had addressed the new resources requirements our small catering business became a well organized food manufacturing company with higher economies of scale within the procurement of raw ingredients and the overall production process.

Generally speaking by definition if, you sell direct to the end user you are a caterer. However if you sell your products to a third party (distributor/retailer etc) who then sells the product onto another party or to the final consumer you are a food manufacturer.