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Report on Co-Packing for Brooklyn Food Manufacturers

Report on Co-Packing for Brooklyn Food Manufacturers

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Published by Stephen Levin
For those of us interested in good food, there is no better place to live than New York City.
Increasingly -- thanks to food manufacturers from the City expanding their businesses -- more and more amazing food products that you could once only get here can now be enjoyed across the country. Brooklyn has been responsible for much of this output and has, over the past few years, been the home to an explosion of local, artisanal food manufacturers who are making a name for themselves not only in New York, but nationally and even globally.

Yet, despite the boom of the Brooklyn food manufacturing industry, I consistently hear from small business owners leading this food movement that they are having difficulty expanding their businesses. There is a demand for more of their products and a desire for their businesses to grow, but there have not always been good answers as to how to make that happen. Brooklyn food manufacturers are outgrowing their current facilities, have limited access to kitchen space and appropriate equipment, or are simply unable to find a manufacturing space that suits their needs.

In order to help meet the needs of Brooklyn food manufacturers -- business leaders who play a vital role in our local economy -- my office has worked with organizations like the Brooklyn Chamber of Commerce, Pratt Center for Community Development, and the East Williamsburg Valley Industrial Development Corporation, along with government partners like Brooklyn Borough President Marty Markowitz, Assemblyman Joe Lentol, the office of NYC Council Speaker Christine Quinn, and the Economic Development Corporation to explore new ideas that can help build on the growth of the industry thus far. This report explores one such idea: a Brooklyn based co-packing facility that can be utilized by food manufacturers from across the borough.

The Brooklyn food manufacturing industry is strong. Whether it is through the introduction of a co-packing facility or the implementation of other innovative ideas, we can make it even stronger. I am proud to work alongside the food manufacturers of Brooklyn and am excited to see how the industry can thrive as we continue to work together.
For those of us interested in good food, there is no better place to live than New York City.
Increasingly -- thanks to food manufacturers from the City expanding their businesses -- more and more amazing food products that you could once only get here can now be enjoyed across the country. Brooklyn has been responsible for much of this output and has, over the past few years, been the home to an explosion of local, artisanal food manufacturers who are making a name for themselves not only in New York, but nationally and even globally.

Yet, despite the boom of the Brooklyn food manufacturing industry, I consistently hear from small business owners leading this food movement that they are having difficulty expanding their businesses. There is a demand for more of their products and a desire for their businesses to grow, but there have not always been good answers as to how to make that happen. Brooklyn food manufacturers are outgrowing their current facilities, have limited access to kitchen space and appropriate equipment, or are simply unable to find a manufacturing space that suits their needs.

In order to help meet the needs of Brooklyn food manufacturers -- business leaders who play a vital role in our local economy -- my office has worked with organizations like the Brooklyn Chamber of Commerce, Pratt Center for Community Development, and the East Williamsburg Valley Industrial Development Corporation, along with government partners like Brooklyn Borough President Marty Markowitz, Assemblyman Joe Lentol, the office of NYC Council Speaker Christine Quinn, and the Economic Development Corporation to explore new ideas that can help build on the growth of the industry thus far. This report explores one such idea: a Brooklyn based co-packing facility that can be utilized by food manufacturers from across the borough.

The Brooklyn food manufacturing industry is strong. Whether it is through the introduction of a co-packing facility or the implementation of other innovative ideas, we can make it even stronger. I am proud to work alongside the food manufacturers of Brooklyn and am excited to see how the industry can thrive as we continue to work together.

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Report on

CO-PACKING
for Brooklyn food manufacturers
october 28, 2013

STEPHEN T. LEVIN
NEW YORK CITY COUNCIL MEMBER 33RD DISTRICT, BROOKLYN

Contributors
Rami Metal
Project Manager

Kimberly Go
Lead Policy Intern

Carina Garcia
Policy Intern

Benedict Joson
Intern

Matt Ojala
Editor

Ashley Thompson
Editor

Antonio M. Rodriguez
Report Design & Layout

Additional Contributors: Harry Rosenblum, Eric Demby, Chris Woehrle, Kari Morris, Miquela Craytor, Lydia Downing, Alissa Weiss, Hunter Goldman, Katie Codey, Monica Foskett, Andrew Steininger, Carlo Scissura and Cailtin Dourmashkin

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Table of Contents
Foreward Executive Summary Introduction Survey Background and Methodology Respondent Profile Survey Findings I. Current Limitations II. Economic Growth III. Brooklyn Matters IV. A Solution
5 7 8 9 9 10 10 11 13 14 15 15 16 17 19 20 22 25

Food Category Profiles Condiments, Sauces, and Syrups Baked Goods

Meats and Seafood Recommendations Conclusion Select Survey Respondents Survey

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Foreword from Council Member Stephen T. Levin
For those of us interested in good food, there is no better place to live than New York City. Increasingly -- thanks to food manufacturers from the City expanding their businesses -- more and more amazing food products that you could once only get here can now be enjoyed across the country. Brooklyn has been responsible for much of this output and has, over the past few years, been the home to an explosion of local, artisanal food manufacturers who are making a name for themselves not only in New York, but nationally and even globally. Yet, despite the boom of the Brooklyn food manufacturing industry, I consistently hear from small business owners leading this food movement that they are having difficulty expanding their businesses. There is a demand for more of their products and a desire for their businesses to grow, but there have not always been good answers as to how to make that happen. Brooklyn food manufacturers are outgrowing their current facilities, have limited access to kitchen space and appropriate equipment, or are simply unable to find a manufacturing space that suits their needs. In order to help meet the needs of Brooklyn food manufacturers -- business leaders who play a vital role in our local economy -- my office has worked with organizations like the Brooklyn Chamber of Commerce, Pratt Center for Community Development, and the East Williamsburg Valley Industrial Development Corporation, along with government partners like Brooklyn Borough President Marty Markowitz, Assemblyman Joe Lentol, the office of NYC Council Speaker Christine Quinn, and the Economic Development Corporation to explore new ideas that can help build on the growth of the industry thus far. This report explores one such idea: a Brooklyn based co-packing facility that can be utilized by food manufacturers from across the borough. The Brooklyn food manufacturing industry is strong. Whether it is through the introduction of a co-packing facility or the implementation of other innovative ideas, we can make it even stronger. I am proud to work alongside the food manufacturers of Brooklyn and am excited to see how the industry can thrive as we continue to work together.

Stephen T. Levin New York City Council Member 33rd District, Brooklyn

410 Atlantic Avenue • Brooklyn, NY 11217 • slevin@council.nyc.gov • (718) 875-5200

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Executive Summary
As one of the fastest-growing industries in Brooklyn, food manufacturing has contributed greatly to the economic growth of the borough in recent years. The strength of the Brooklyn food manufacturing industry is reflected in its gross sales and reach outside the borough, as well as the jobs it has generated in a time of high unemployment. Despite this strength, many Brooklyn food businesses have reported a number of challenges in growing their business. In May 2013, Council Member Stephen Levin sent a survey to Brooklyn food manufacturers to assess their production needs and level of interest in a local co-packing (contract packing) facility, which manufactures and packages foods or other products for their clients, that could potentially address production issues. The businesses were asked about their level of interest in co-packing; business size and labor profile; product, equipment, and ingredient specifications; type of facilities currently utilized for production; shelf stability and storage requirements, and interest in pick and pack services. The results were tabulated in July 2013 with the intent of presenting them to stakeholders for feedback necessary to determine the viability of Brooklyn co-packing. Based on our results, we found that current limitations in facilities, projected growth, and a desire to be in Brooklyn are all contributing factors in a general dissatisfaction among food entrepreneurs with their current situation. We found that food manufacturers do in fact want a co-packing facility allowing them to increase business flexibility and cut overhead costs:

1. 68% of respondents feel their current manufacturing facilities limit their production capacity. 2. 31% of respondents expect their gross sales to fall between $500,000 and $1 million or more in 2013. 62% expect their gross sales to fall within this range in 2015. 3. 60% of respondents said it was “of significance” for their production facility to be in Brooklyn. 4. 45% of respondents are “very interested” in a Brooklyn-based co-packing facility while an additional 16% would “sign up now” if the option were available.

In addition to our findings, this report offers three visions for a co-packing facility based on the food products that had the largest representation in the survey: condiments, sauces, and syrups; baked goods, and meats and seafood. It also offers five paths for the implementation of such a facility:

1. The NYC Economic Development Corporation (EDC) commits to releasing an Request for Expression of Interest (RFEI) to be followed by a Request for Proposals (RFP) for a Brooklyn based co-packing facility. 2. EDC or the NYC Small Business Services (SBS) provides a subsidy to Brooklyn based Victoria Co-Packing in order to allow them to accommodate smaller quantity runs for local food manufacturers. 3. Local not for profit applies for city capital funding to go towards the build out and purchase equipment for a space to be used as a co-packing facility. 4. Private party applies for IDA funding in order to help create a co-packing facility. 5. Food manufacturing cooperative creates a member based co-packing facility.

It is our hope that this report will be informative and highlight the importance of co-packing to Brooklyn and NYC’s food industry and greater economy.

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Introduction
Food manufacturing has become one of the fastest-growing industries in Brooklyn. Once thought of as a niche market, Brooklyn artisanal food manufacturing businesses have integrated into the mainstream. “Brooklyn” has become a brand, and provides a cachet for consumers who wish to buy locally produced and distributed food products. The strength of the Brooklyn food manufacturing industry is evident in its gross sales and its reach outside of the borough. Nearly a quarter of the output of Brooklyn food and beverage manufacturers is sold outside of the borough, with $326 million in domestic sales occurring outside of Brooklyn and $134 million of that output exported outside of the U.S.1 Growth in the industry also means jobs for the residents of Brooklyn. In 2011, there were 372 food manufacturers employing 5,650 workers and an additional 377 Brooklyn food manufacturing businesses who do not report any employees.2 The food manufacturing business in Brooklyn has only continued to grow since 2011. But despite the strength of the Brooklyn food manufacturing industry, these companies still face a number of challenges in growing their business; chief among them is a limited amount of space to manufacture their product. Small food manufacturers’ continual growth is reflected in their long term plans to develop and expand their facilities. In a separate survey conducted by Council Member Stephen Levin in May 2012, 52% of small food manufacturers that responded indicated that their current facility is not sufficient to accommodate their business for the next two years and 60% of respondents are searching for larger or more appropriate production facilities. Respondents to the May 2012 survey also indicated that Brooklyn matters. The importance of having a Brooklyn-branded product was seen as important by 90% of respondents looking for space in Brooklyn. At the same time however, 77% of respondents are having difficulty finding an affordable space in Brooklyn to work from. One respondent said, “We had a 7,000 sq foot warehouse that we outgrew and moved production outside the city due to cost.” While there is a desire to produce in Brooklyn, available spaces are either too costly or have little to no infrastructure. Commercial kitchens require costly capital expenditures and must meet the standards of the US Department of Agriculture (USDA). Most of the available industrial spaces were historically used as warehouses and storage and need a full rehabilitation. With increased interest in Brooklyn neighborhoods driving up market rents, landlords rarely need to offer to make capital improvements in order to draw tenants. These factors have already lured food businesses outside of the borough and, left unchecked, could potentially drive more companies to more affordable cities. When asked about aspects of their business that would be able to grow better outside NYC, one respondent replied, “Everything is cheaper outside NYC so naturally the bottom line is not quite so deep if one moves production outside of the city.” With a desire to stay in Brooklyn and a need for more space, a solution is needed for Brooklyn food manufacturers to allow them to stay in Brooklyn and continue to grow their thriving businesses. One possible solution that has been articulated recently is the establishment of a co-packing facility in Brooklyn that would be able to meet many of the production needs of the burgeoning Brooklyn food manufacturing industry. A co-packer, or contract-packager, manufacturers and packages food or other products for clients under contract with the hiring company to manufacture as though the products were made directly by the hiring company.3 Co-packing allows food manufacturers to increase business flexibility and cut overhead costs as the facility already has the expertise, resources and staff in place.4 To better understand the desire for such a facility in Brooklyn and what it might look like, a survey was sent to Brooklyn food manufacturers by Council Member Stephen Levin in May 2013. This report examines the findings from this survey and outlines recommendations based on the findings.
1 “Brooklyn Labor Market Review,” Brooklyn Chamber of Commerce, Winter 2012, http://www.ibrooklyn.com/CWT/EXTERNAL/ WCPAGES/WCMEDIA/DOCUMENTS/BLMR%20WINTER%202012%20FINAL.PDF 2 Ibid. 3 “Copacker” Wikipedia: The Free Encyclopedia. Wikimedia Foundation, Inc., 13 July. 2013. <http://en.wikipedia.org/wiki/Copacker> 4 Paul Young. “Q & A: Co-Packing As A Competitive Advantage,” Manufacturing.net, August 23, 2011, http://www.manufacturing.net/ articles/2011/08/q-%26-a-co-packing-as-a-competitive-advantage.

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Survey Background and Methodology
Through discussions with many new Brooklyn food businesses, it became clear that the lack of affordable production space and the high capital costs involved in outfitting a space are the most critical inhibitors to strong business growth for Brooklyn-based manufacturers. In May 2013, Council Member Stephen Levin sent a survey to Brooklyn food manufacturers to assess the production needs of Brooklyn food manufacturers and level of interest in a local co-packing facility that could potentially address production issues. The survey was sent out in May 2013 to over a hundred food manufacturers over the internet, of which 70+ responded between May 1, 2013 and July 1, 2013. Participants were identified by telephone, e-mail and in person, by Council Member Stephen Levin and his staff, at Smorgasburg Flea booths and other locations which are representative of the burgeoning Brooklyn food scene. The East Williamsburg Valley Industrial Development Corporation (EWVIDCO), Brooklyn Chamber of Commerce, Brooklyn Kitchen, The Brooklyn Flea, and the office of New York City Council Speaker Christine Quinn were also instrumental in identifying survey participants. The survey contained 53 questions about the nature of the respondent’s business and interest in a co-packing facility in Brooklyn. (See Appendix for the complete survey.) It asked respondents to rank their level of interest in Brooklyn co-packing and how important it is for their production facility to be in Brooklyn. It also asked respondents how many employees they have, the percentage of cost of goods allocated to labor and production, and whether they are interested in additional services such as pick-and-pack for wholesale and online orders. These and other questions are critical to our understanding of whether a Brooklyn co-packing facility would be feasible and desirable -- and if it is, what it should look like.

Respondent Profile
The 70+ businesses that participated in the survey are predominantly emerging companies that employ 10 people or fewer. While the majority of respondents (66%) were companies that either produced in Brooklyn or were based in Brooklyn but produced their project outside of Brooklyn, the survey also attracted a number of respondents from outside the borough. There were nine (9) respondents who either produced in or were based in Manhattan as well as 15 respondents who manufacture their product in Long Island City from incubators such as The Entrepreneur Space and Organic Food Incubator. Of these 15 respondents, six (6) have offices in Brooklyn while three (3) have offices in Manhattan. Of the businesses that were based in Brooklyn, 38% have production facilities outside the borough.

What products do you produce?

Of the businesses that participated in this study, the food categories with the largest representation are Meats/Seafood (22%), Baked Goods (26%), and Condiments, Sauces, and Syrups (38%). This information is important because co-packing operators and food entrepreneurs have advised against a “one size fits all” type of facility, instead advocating for a facility that specializes in one category of food products. A specialized facility would reduce the cost of equipment and increase trust among manufacturers who value efficiency and expertise. A handful of respondents outside the norm of the food manufacturing business opened our eyes to additional possibilities as we looked further into co-packing. These include S.W. Basics, a cosmetics company that uses vegetables exclusively in their products; Bartleby and Sage, which specializes in catering and event planning; and Jersey Lynne Farms, a wholesale food distributor in Canarsie looking to establish a private label. These unexpected responses suggest that other businesses besides those that we are targeting will be interested in using a co-packing facility.

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Survey Findings
In conducting the survey, we sought to determine whether or not a co-packing facility would be a viable solution to many of the challenges local food manufacturers face today. We first sought to identify and understand the nature of these obstacles by asking about the production needs and challenges of Brooklyn-brand food businesses. We found that current limitations in facilities, projected growth, and a desire to be in Brooklyn are all contributing factors in a general dissatisfaction among food entrepreneurs with their current situation.

I. Current Limitations
 52% of respondents felt their current facility could not sufficiently accommodate their business for the next two years, and 60% said they were actively searching for larger or more appropriate facilities.  Limited access to shared kitchen space means that all production has to be done at specific hours and food producers sometimes do not get the shifts that are best for their schedule.  “Our fridge limits the amount of ingredients that we can have ready to go. Our storage space limits the inventory we can have on hand. Our workbench limits how often we can do a production run.”
– Kari Morris, Morris Kitchen

Chief among our findings was that Brooklyn food manufacturers have had difficulty finding needed space in Brooklyn to conduct their business. Our study found that they have had difficulty finding suitable real estate to expand, and are having trouble expanding within the spaces they are currently located as their businesses continue to grow. Food businesses in Brooklyn face many difficulties finding suitable real estate. In the May 2012 survey, which focused more broadly on the Brooklyn food manufacturing industry, 68% of respondents reported that they were looking for space in Brooklyn; however, 52% indicated that finding affordable space was an issue. Citywide, the vacancy rate for industrial space is about 4%, and rents range from about $11 to $20 per square foot.5 Most available kitchen and retail spaces have little to no infrastructure and require costly capital expenditures that can Do you feel your current manufacturing run up to $200,000 or more for stoves, environment limits growth? refrigerators and other required equip6 ment. Meat businesses in particular also need facilities that are USDA-compliant, which necessitates even greater capital investment. Accommodating growth is another contributing factor to the search for new space. In 2012, 52% of respondents felt their current facility could not sufficiently accommodate their business for the next two years, and 60% said they were actively searching for larger or more appropriate facilities. As the suitability of a food business’s space is strongly correlated with the size and frequency of its production runs, it is not surprising that we found in 2013 that 68% of respondents feel their current manufacturing facilities limit their production capacity.

Yes

no

re futu the n i t igh ut m t, b e y Not

e sur Not

5 Stephen Kleege, “A Tight Lid On Food Artisanals,” Crain’s New York, March 10, 2013, http://www.crainsnewyork.com/article/20130310/HOSPITALITY_TOURISM/303109990#article_tab. 6 Kleege, “A Tight Lid On Food Artisanals.”

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Many food entrepreneurs find themselves artificially inhibiting growth because of space and time limitations. When asked what type of facilities they use for manufacturing, 34% of respondents report commercial kitchens and 11% report incubators -- in other words, shared spaces. Limited access to shared kitchen space means that all production has to be done at specific hours and food producers sometimes do not get the shifts that are best for their schedule. One respondent says, “Kitchen closes at 5 so my vegetable deliveries sometimes cannot get there on time and have to be delivered at my apartment. Right now, I can handle that because I am small, but in a couple of months that won’t be possible anymore.” Sometimes the appropriate equipment is unavailable in shared kitchens, which means food producers cannot make as much of their product even if demand is high. One respondent notes, “We do not have a stable temperature room for fermentation. We do not have a comprehensive filtration system, bottling machine, or label machine.” Another says, “We do not have sufficient ovens or racks to bake more than we currently do.” Even if equipment is available, access is often limited because of space and time constraints. With many food manufacturers unable to invest in the equipment they need, they have no choice but to keep runs artificially small. Lack of control over production space also limits the amount of inventory that can be bought and product that can be stored. In situations where ingredients need to be frozen or refrigerated, lack of control could mean spoiled supplies and wasted funds.

II. Economic Growth
 31% of Brooklyn food businesses expect their gross sales to fall between $500,000 and $1 million or more in 2013, and 62% expect their gross sales to fall within this range in 2015. If these businesses remain in Brooklyn, their total gross earnings will double, from $21 million in 2013 to $42 million in 2015.  While only 10% of respondents expect to produce 100,000 units or more in 2013, this number is expected to triple by 2015. Today, 20% of survey respondents are producing daily; this number is expected to more than double by 2015, with 47% of respondents projecting that they will be producing daily within two years.

Our study also found that the Brooklyn food manufacturing industry is growing. Once thought of as a niche market, Brooklyn artisanal food businesses have integrated into more mainstream outlets. Whole Foods recently unveiled a partnership with Smorgasburg to feature a new vendor every month on the second floor of their Bowery location. Central Park’s Summerstage and Prospect Park’s Bandshell use small, Brooklyn-based food manufacturers for their events throughout the summer. Companies such as Morris Kitchen, which began as an artisanal syrups vendor at Smorgasburg, have expanded and are now receiving orders from major retailers such as Whole Foods and Williams-Sonoma. While Brooklyn’s manufacturing sector has suffered significant job losses in recent years, its food manufacturing subsector has managed to retain and even add jobs to the economy. From 2000-2010 Brooklyn lost nearly 24,000 manufacturing jobs7 and yet the food manufacturing sector has consistently employed around 6,000 people throughout that time period. In 2011 there were 372 Brooklyn food manufacturers employing 5,650 workers plus an additional 377 food manufacturing businesses that did not report employees, about one third more than a decade ago.8 And these businesses are growing- when asked about their employment projections in 2012, respondents expected to add a total of 62 new full time jobs and 80 new part time jobs by May 2013, resulting in a 53% growth in full time jobs and 63% growth in part time jobs. The average respondent employs 3 people full time. The strength of the Brooklyn food manufacturing industry is evident in its gross sales and reach outside of the borough. Nearly a quarter of the output of Brooklyn food and beverage manufacturers is sold outside of the borough, with $326 million in domestic sales occurring outside of Brooklyn and $134 million exported outside of the U.S.7 These figures are only expected to increase over the next two years and beyond. 31% of Brooklyn food businesses expect their gross sales to fall between $500,000 and $1 million or more in 2013, and 62% expect their gross sales to fall within this range in 2015. If these businesses remain in Brooklyn, their total gross earnings will double, from $21 million in 2013 to $42 million in 2015.

“Is Manufacturing Back in Brooklyn?” Center for an Urban Future, March 2013 http://nycfuture.org/data/info/is-manufacturingback-in-brooklyn 8 “Brooklyn Labor Market Review,” Brooklyn Chamber of Commerce, Winter 2012
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What do you project your gross sales to be over the next 3 years?

Number of respondents

What is the projected size of your product runs over the next 3 years?

Percentage of respondents

What is the projected frequency of your product runs over the next 3 years?

Number of respondents

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What kind of facility do you currently use to make your products?

The continued growth of Brooklyn food businesses is also reflected in their projections for production capacity. While only 10% of respondents expect to produce 100,000 units or more in 2013, this number is expected to triple by 2015. Today, 20% of survey respondents are producing daily; this number is expected to more than double by 2015, with 47% of respondents projecting that they will be producing daily within two years.

Sustained economic growth requires production facilities and tools that meet business’s varied needs. When asked about the type of facilities they currently use, 34% of respondents report shared commercial kitchens; 27% use co-packers (all outside of NYC), 21% use privately operated kitchens, and 11% use incubators. The five most widely used equipment items are sheet trays (49%), mixers (43%), bottling equipment (38%), a brand of food processor called the Robot Coupe (35%), and speed racks (30%). Packaging options range from glass jars (24%) to plastic containers (22%) to sealed pouches (20%). Storage is important for the growth of food businesses as it ensures the freshness and safety of ingredients and finished products. In addition to the 38% of respondents whose ingredients require room temperature storage, 40% refrigerate their ingredients and 22% freeze them. The breakdown for storing finished products is similar: 44% of respondents need their products to be stored at room temperature, 34% need their products to be refrigerated, and 21% manufacture products that require freezing.

How important is it for your production facility to be in Brooklyn?

Food entrepreneurs are very interested in freeing up time and capital to increase their growth potential. 80% are interested in a wholesale “pick and pack” fulfillment service while 82% are interested in a “pick and pack” service for online orders. If these services were made available, food entrepreneurs would have more time to devote to business development while putting distribution in the hands of a facility that can bring them to market. A respondent says, “As we increase production, we will need to focus less on self-distribution and more on sales and having our product managed/distributed by third party networks.”

III. Brooklyn Matters
1 – Very important 5 – Not important at all

How important is Brooklyn to your brand image?

 “We would love to be close to where our products are manufactured. We started making our product in Brooklyn and we are based here.”
– Jessica Quon & Sabrina Valle, The Jam Stand

Our study found that food producers want their facilities to be in Brooklyn. When asked how important it is for their production facility to be in Brooklyn, 60% of respondents said it was “of significance.” The reasons for this are myriad. By being closer to their product, food entrepreneurs can exercise more control over quality and provide direction to their labor force. Quality control and assurance is a top priority for these businesses, many of whom believe that their business growth is most attributable to the high quality of their products, and therefore believe that being in closer geographic proximity to their production facility enables them to have far more control over the quality of their product. One respondent says, “Distance is very difficult. [Employees] do not understand what we’re trying to do, and they work at a different pace than we do.”

not at all

Extremely

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To what degree do you attribute the growth of your company to the quality of your product?

Moreover, food producers take pride in their identity as Brooklyn-based businesses. When asked how important Brooklyn is to their brand image, approximately 70% said “very important” or “extremely important.” Meanwhile, businesses that do not produce in Brooklyn -- whether they originated there or are eyeing the cache of the Brooklyn brand -- aspire to claim this identity for themselves. Food producers also value the community of like-minded individuals that comprise the entrepreneurial spirit of Brooklyn. No matter how we look at the data, it is apparent that Brooklyn matters to food manufacturing businesses.

IV. A Solution
 When asked how interested they were in a Brooklyn-based co-packing facility, 45% of respondents said they were “very interested,” while an additional 16% would “sign up now” if the option were available.

Would you be interested in a Brooklyn-based co-packing facility?
Not sure [15] (need to know more) Like the idea in general but won’t work for my business [2] Not interested [4]

Interested [7]

The challenges that Brooklyn food entrepreneurs face call for a solution that will better serve their needs and promote the continual growth of the food manufacturing industry. Our findings show that these entrepreneurs want a co-packing facility as that solution.

When asked how interested they were in a Brooklyn-based co-packing facility, 45% of respondents said they Very Interested [33] Sign me up [12] were “very interested,” while an additional 16% would “sign up now” if the option were available. Moreover, at a workshop sponsored by the Brooklyn Chamber of Commerce on February 26, 2013, many entrepreneurs argued that city tax breaks and other incentives were needed to attract co-packing and that having such a facility in Brooklyn “would be wonderful.”9 Further analysis of the survey found that a Brooklyn based co-packing facility would attract the 62% of businesses that currently produce in the borough. Of these businesses, 63% said that they were either “very interested” or answered “sign me up now” for copacking. Moreover, 83% feel their current facilities are limiting growth, leaving them in danger of moving production elsewhere if they cannot find suitable space in Brooklyn. Establishing a co-packing facility in Brooklyn that can accommodate their growth would enable them to continue producing in the borough; otherwise, these businesses will continue to look elsewhere for facilities that do. A co-packing facility in Brooklyn would also attract the 40% of businesses that do not produce in Brooklyn. Of these businesses, 66% would either “sign up now” or be “very interested” in a co-packing facility. Furthermore, half of the respondents who believe it is of significance for their production facility to be in Brooklyn do not currently produce in the borough, and approximately 80% of this group is interested in a Brooklyn-based co-packer. Many of these businesses began producing in Brooklyn but space limitations forced many to leave. Increasing space and production capacity would allow them to return to Brooklyn.
9

Kleege, “A TIght Lid On Food Artisanals.”

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Two companies that currently use out of state co-packers, Brewla Inc. and The Brooklyn Salsa Company, stated that they would “sign up now” if a facility was available in Brooklyn. While these companies are still considered small, employing fewer than 10 employees, they have enjoyed steady growth over the past few years. Brooklyn Salsa is sold in 800+ stores in New York City and has over 1,200 accounts nationwide, including the New York City stores. They are also sold in London, Tokyo and now Thailand. This reflects the enormous growth potential that co-packing has to offer, and why a facility in Brooklyn would be a welcome addition to the borough’s food chain. It is worth mentioning that co-packing already exists in Brooklyn in the form of Victoria Fine Foods. However, Victoria has not, as of yet, been willing to accommodate the smaller production runs of many emerging food businesses. Smaller runs require more frequent production changeover than do larger runs and that turnover accounts for a decrease in profitability for larger co-packers. Emerging Brooklyn food manufacturers have tried to meet the minimum number of units required of Victoria clientele, but their quantities remain too low. Unless this changes, Brooklyn runs the risk of losing out on millions of dollars in economic growth that continues development of the food manufacturing industry would bring.

Food Category Profiles
It should be clear that in advocating for a co-packing facility we are not advocating for one that can meet the needs of every type of food producer and product. Food manufacturers have repeatedly stated that the quality of their product is paramount and that quality suffers when a facility is making baked goods one minute, sauces the next, and some other type of food right after that. Aside from the higher costs associated with equipping a kitchen for manufacturing a variety of food products, the main concern is that in trying to serve every need, product quality will suffer. Specialization is the key in co-packing and therefore we believe that a potential Brooklyn co-packer should specialize in one particular food category. Given that the majority of the companies we have surveyed have been making either condiments/sauces/syrups, baked goods, or meats/fish, it is recommended that one of these three categories be prioritized for co-packing. Further analysis would have to be done by a prospective co-packer to determine which category would be the most viable.

Condiments, sauces, and syrups
What facilities do you use?
Answer Other (please specify) Incubator Privately Operated Kitchen Shared Commercial Kitchen Co-Packing FAcility % 0% 8% 19% 42%
At 38% of respondents, producers of condiments, sauces, and syrups had by far had the largest representation in the survey; it would therefore tap into a very large market. One respondent says, “I feel to help the most people possible you guys should focus on bottling - jams, pickles, sauces and etc. That’s your biggest market - those people will always be popping up.” A co-packing facility for these products would feature the following equipment needs: bottling equipment (74%), mixers (50%), and a type of food processor called a Robot Coupe (50%). Since 55% of condiments, sauces, and syrups producers already use co-packing outside of New York City, it stands to reason that they would be interested in transferring operations to a co-packing facility closer to home.

Meanwhile, the industry will only continue to grow. The average condiments, sauces, and syrups producer expects to increase their run size over the next two years. Whereas only 20% of producers expect to manufacture more than 50,000 units in 2013, 51% expect to fall into this range in 2015. Moreover, the frequency with which producers manufacture is also expected to increase. Only 21% of businesses are producing on a daily schedule in 2013, but 57% expect to be producing daily in 2015. A facility that serves the condiments, sauces, and syrups producers has the greatest potential to contribute to Brooklyn’s economy. These food manufacturers already generate $6.4 million in gross sales; by 2015, this is expected to rise to $9.6 million, an increase of 50%.

46%

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What is your projected run size over the next 3 years?

What is your projected run frequency over the next 3 years?

Baked goods
Baked goods producers face restrictions on equipment that limit their production run sizes. The three most important equipment needs for baked goods producers are sheet trays (89%), speed racks (61%), and mixers (61%), all of which come in varying sizes and quantities and need to be upgraded to accommodate growth. One respondent says, “Our small kitchen-aid stand mixer limits batch size, and commercial licensing is not available at home.” Another says, “We do not have access to anything larger Do you believe your current than 60 quart mixers.” With this in mind, it is no wonder that 77% of baked manufacturing environment goods producers believe their current facilities limit business development.

limits growth?

Answer yes no Not yet but might in the future not sure

% 77% 15% 0% 8%

A co-packing facility that serves baked goods producers would facilitate growth in production capacity. With easier access to suitable equipment, more producers will be able to manufacture on a daily basis. When surveyed about the expected frequency of their production, 33% of respondents said they would be producing daily in 2013, while 57% expect to be producing daily in 2015. This, compounded with the 17% increase in respondents who expect to be producing more than 100,000 units over the next two years, will surely facilitate the rapid expansion of these businesses.

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Based on our respondent projections, baked goods would bring in $7 million annually by 2015, a 23% increase over the current output of $5.7 million. Although this growth is not as large as that of condiments, sauces, and syrups producers, it is still significant enough to warrant consideration.

What is the projected frequency of your product run over the next 3 years?

What is the projected size of your product run over the next 3 years?

Meats and seafood
A facility that serves meat and seafood producers would be the only co-packing facility in New York State for meat. As 47% of meat and seafood producers are already using co-packing, it stands to reason that they would be very interested in utilizing a local facility. Moreover, because of the niche this facility would fill, many businesses in upstate New York or New Jersey would also be interested in utilizing it, bringing additional growth to Brooklyn. Because the majority of meat and seafood products are not shelf stable (67%), it is important that a co-packing facility has ample space for freezing and especially refrigerating. Moreover, many meat businesses have expressed interest in a USDA facility. According to one respondent, “If I could operate in a USDA facility, I could increase my sales 10 fold immediately.”

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Is your product shelf stable?
Answer yes no % 61% 39%

If not shelf stable, what type of storage does it require?
Answer Frozen Refrigerated % 40% 60%

Although there are a smaller number of meat manufacturers than those of the previous two food categories, the industry still has the potential for enormous growth Whereas no respondents reported run sizes of 100,000 units or more in 2013, 20% expect their run sizes to increase to this range by 2015. Likewise, whereas 25% of meat and seafood manufacturers are producing daily in 2013, 63% who are expect to produce on a daily schedule in 2015. A co-packing facility that serves meat and seafood producers would fill a niche and bring in the exiles of an industry that generates $4.7 million in gross sales annually, a figure that is expected to increase by 28% to $6 million in 2015.

What is the projected frequency of your product run over the next 3 years?

What is the projected size of your product run over the next 3 years?

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Recommendations
Food manufacturing is an integral part of NYC’s economy and the increase of new food manufacturing businesses, particularly in Brooklyn, has had a positive impact on local employment and economic growth. What is also clear is that many of these new food manufacturers either lack adequate production facilities right now or will run out of space soonor simply be forced to keep production levels artificially low due to space constraints. In order to grow, many of these businesses have had to manufacture their products outside of New York and this exodus will continue if steps are not taken to address these constraints. Co-packing has become an increasingly appealing option for Brooklyn food manufacturers looking to grow, and stay, in the borough. Given their desire to manufacture in Brooklyn and all that entails- local jobs, better quality control, more centralized operations- it is recommended that the City should work to help create the conditions that would allow a co-packing facility to exist in Brooklyn in the near future. Based on our findings we recommend that this facility produce only one type of food product to optimize quality and efficiency. Outlined below are five ways that we believe that this can be accomplished.

1. The NYC Economic Development Corporation (EDC) commits to releasing an Request for Expression of Interest (RFEI) to be followed by a Request for Proposals (RFP). 2. EDC or the NYC Small Business Services (SBS) provides a subsidy to Victoria Co-Packing in order to allow them to accommodate smaller quantity runs for local food manufacturers. 3. Local not for profit applies for city capital funding to go towards the build out and purchase equipment for a space to be used as a co-packing facility. 4. Private party applies for IDA funding in order to help create a co-packing facility. 5. Food manufacturing cooperative creates a member based co-packing facility.

Option #1 - Economic Development Corporation (EDC) commits to releasing a Request for Expression of Interest (RFEI) to be followed by a Request for Proposals (RFP)
As food manufacturing represents a critical subsector of the NYC economy, we believe that EDC has a material interest in the continued health and success of these businesses. EDC is not only in a unique position to further this policy goal but has in fact been very supportive of the food manufacturing industry over the past few years. In addition to hosting the NYC Food Manufacturers Expo and initiating the NYC Food Manufacturers Growth Fund, among other efforts, EDC has been supportive of efforts t o further explore co-packing in Brooklyn. Given this support and their overall expertise in economic development initiatives, we recommend that EDC put out a Request for Expression of Interest (RFEI) that will help determine the level of interest in the creation of a Brooklyn based co-packing facility. Based on the responses to the RFEI, EDC could then either contract directly with one of the respondents or release a Request for Proposals (RFP) that is guided and shaped by the responses to the RFEI.

Option #2 - EDC or the nyc small business services (SBS) provides a subsidy to Victoria
Fine Foods in order to allow them to accommodate smaller quantity runs for local food manufacturers Victoria Fine Foods is a sauce manufacturer located on E. 100th Street in Brooklyn that, in addition to producing it’s own private label sauces, offers co-packing services to outside companies. Unfortunately, the minimum quantities that Victoria requires have been out of the reach of most of the newer Brooklyn food manufacturers. In order for Victoria to meet these companies’ needs, it would be necessary to provide a subsidy to offset the additional costs of the more frequent

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turnovers that smaller quantities require. As the largest group of survey respondents were businesses that made sauces, syrups, jam, and jellies, utilizing existing facilities, at least in the short term, would be an efficient way to expand production. In order to determine the appropriate level of subsidy, discussions would need to take place between EDC and/or SBS and Victoria Fine Foods. As companies grow, they would be able to increase their quantities, thereby decreasing the amount of subsidy needed. A subsidy to Victoria could also serve as a short-term bridge solution until a permanent facility that meets the needs of smaller manufacturers can be constructed.

Option #3 - Local not-for-profit or development agency entity applies for city capital funding
for the build out of a facility and/or to purchase equipment for a co-packing facility Brooklyn is home to many local development agencies that work to encourage business growth both borough-wide and, more crucially, in the communities where they are located. A co-packing facility that serves local small businesses would create local, blue collar jobs and in so doing will help revitalize communities, particularly those where unemployment is high. A local not for for profit or development agency could apply for city capital funding in order to help finance equipment purchases and space buildout. These funds would significantly lower an operator’s initial capital investment which will then enable them to work with local, growing companies, who produce smaller and less frequent production runs.

Option #4 - A for-profit entity applies for Industrial Development Agency (IDA) financing
assistance in order to help build out a co-packing facility The NYC IDA offers various industrial incentive programs that encourage manufacturing by offering various tax exemptions or tax exempt bond financing on capital upgrades that are deemed necessary to help industrial businesses grow in New York City. In this scenario, a private party would seek funding from the IDA in order to help offset the costs of building out a property that they own to be used as a co-packing facility. One situation in which this might occur is if the private party is already a food manufacturer who is looking to expand the facility that they already have in order to accommodate a co-packing facility or otherwise need help in purchasing the equipment that would allow for the type of production that a particular co-packing facility would require. The private party could then either manage the facility themselves or bring in an outside operator to manage the operations.

Option #5 - Food manufacturing cooperative creates a member-based co-packing facility
This scenario was suggested by a number of the food manufacturing businesses that participated in the survey. A cooperative co-packing facility would be run and managed by a few select businesses that would find a space and purchase the necessary equipment needed to operate a co-packing facility. The group would begin small but include enough members to help spread the capital costs while ensuring that the members were committed and were producing enough runs to justify the costs involved in fitting out and managing a facility of this kind. Once efficiently managed, the membership would increase, thereby lowering the costs for all while also adding additional services.

Conclusion
It is our hope that this report not only quantifies the significant impact that emerging food manufacturers are having on Brooklyn’s economy, but also that it spurs additional investment by public and private stakeholders. As we move towards a new mayoral administration in January 2014, we believe that it is crucial to lay out a framework for creating a Brooklyn-based co-packing facility. We believe that now is the time for action. The longer it takes for a co-packing facility to launch, the more Brooklyn’s talented food entrepreneurs will look to other cities and states to manufacture the products that were inspired by New York City. This is a critical opportunity that the city cannot afford to miss and we hope that this report can play a role in helping these small businesses to grow and succeed in Brooklyn, where they want to be and where they belong.

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Select Survey Respondents

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Council Member Stephen Levin's Co-packing Survey for Brooklyn Food Manufacturers
Dear friends,
After hearing from many of the new Brooklyn food businesses that have started up in the past few years, it has become clear that the lack of affordable production space and the high capital costs involved in outfitting a space are the most critical inhibitors to strong business growth and, in fact, of a Brooklyn food businesses ability to remain and succeed in Brooklyn. One possible solution that has been articulated recently is the establishment of a co-packing facility (a company that manufactures and packages foods or other products for their clients), located in Brooklyn, that would be able to meet many of the production needs of the burgeoning Brooklyn food manufacturing industry. What this survey hopes to assess is what the production needs of Brooklyn food manufacturers are and whether or not a co-packing facility would be a feasible solution that would help meet those needs. Additionally, if co-packing is determined to be a worthwhile option for Brooklyn food manufacturers then what kind of co-packing facility would make the most sense and what types of businesses would it serve? What kind of equipment would be needed? Would it specialize in baked goods or perhaps sauces? How much storage space would be necessary? How many runs would a typical business make in a year and in what quantities? These and other questions are critical to our understanding of whether or not a Brooklyn co-packing facility would be feasible and desirable and if it is, what it would look like. Thank you for taking the time to fill out this survey. If you have any questions please feel free to reach out to my legislative director, Rami Metal, at (212)788-7348 or by email at rmetal@council.nyc.gov. As always, I can be reached by email at slevin@council.nyc.gov.

Council Member Stephen Levin * Required Please provide your name * This is a required question What is the name of your business? * Phone Number * What is your businesses website? * What is your business email address? * Location of where you produce your product (Address and Zip Code) * Where are your offices located (if different from previous answer)?

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How important is it for your production facility to be located in Brooklyn? * Very important 1 2 3 4 5 Not at all important

Select a value from a range of 1 to 5. What kind of facility do you currently use to make your products? *

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Privately operated kitchen Shared commercial kitchen Co-packing facility Incubator Other (please specify)

What product(s) do you produce? Check all that apply. * Baked goods Beer, wine or spirits Beverages (other) Condiments, sauces and syrups Ethnic foods Jams/Jellies Meats/Seafood Picked produce Sweets Other

What major ingredients do you use? Check all that apply. * Fresh Fruits Fresh Vegetables Meat Dry Ingredients Liquid Ingredients Other

What kind of container/packaging does your product come in (glass jar, cardboard box, sealed pouch, plastic, clear saran-type wrap, etc.)?

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Cardboard box Clear saran-type wrap Glass jar Sealed pouch Plastic Other (please specify)

What is the type of closure? Cork Crown Cap Heat sealed or vacuum sealed Plasticol cap (for hot fill) Plastic Sticher Other (please specify)

Is an additional taper evident wrap applied? Yes No

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How many labels are on each unit?

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1 2 3+

Are the cases labeled? Yes No

Is it shelf stable? * Yes No

If so, for how long? * If not shelf stable, what category is it?

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Frozen Refrigerated

Do you apply a "Best by" or "Sell by" date with a sticker or a date stamp? Yes No

What type of storage do your ingredients require? Check all that apply. * Frozen Refrigerated Room Temperature

What type of storage does the finished product(s) require? * Frozen Refrigerated Room Temperature

How many pallets of space do you need for ingredients for an average production run? Frozen Refrigerated Dry (1-3) (4-7) (8-12) (13-20)

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What equipment do you use/require for each product? Check all that apply. *

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Blast freezer Bowl chopper Casing stuffer Commercial smoker Cryogenic freezer Fermentation chamber Filtration equipment Fryer Mixer

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Bottling equipment Brewing/fermentation equipment Colloid mill Conveyor oven Dehydrator Filter concentrator Freeze dryer Grinder Pasta machine

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Plate pasteurizer Reverse osmosis equipment Sheet trays Slicer Stovetop Vaccum chamber Other (please specify)

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Piston filler Robo Coup Speed racks (how many?) Spray dryer Twin srew extruder Vita prep

Do you use HPP (High Pressure Pasteurization)? Yes No

Please describe your typical run size today: (Size of Units (weight or volume), Units per case, Cases or units per run, Gallons of product per run) How many Stock Keep Units (SKU) do you have? What is the projected frequency of your product runs in 2013 What is the projected frequency of your product runs in 2014 What is the projected frequency of your product runs in 2015 What is the projected size of your product runs in 2013 (units, cases, gallons)? What is the projected size of your product runs in 2014 (units, cases, gallons)? What is the projected size of your product runs in 2015 (units, cases, gallons)? How many 'person hours' does it currently take to produce one run of your product? Do you believe that your current manufacturing environment limits your run size/frequency? If so, why? If not, why not? Please estimate the number of pallets of storage you would need for an average production run. Do you have any special requirements? (i.e. gluten free, nut free, allergen free, kosher, halal, etc) What agency/agencies regulate the product(s) you produce?

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NY State Department of Agriculture and Markets Food and Drug Administration (FDA) US Department of Agriculture (USDA) Department of Health and Mental Hygiene (DHMH) Alcohol and Tobacco Tax and Trade Bureau (TTB)

Are there any special factors/issues involved in your production process? If yes, please describe. Yes No

Do you have a business plan? Yes No

What do you project your gross sales to be in 2013?

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What do you project your gross sales to be in 2014? What do you project your gross sales to be in 2015? Would you be able to meet a minimum of 3,000 units per run?

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Yes No

How many full time and part time employees do you currently have? What percentage of your cost of goods sold (COGS) goes to labor?

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20% 30% 40% 50%+

What percentage of your cost of goods sold (COGS) goes to production? 20% 30% 40% 50%

Do you need a Hazard analysis and critical control points (HACCP) plan? Yes No

Would you be interested in producing your product at a Brooklyn-based co-packer? * Sign me up now Very interested Interested Not sure (need to know more) Like the idea in general but won't work for my business Not interested

Would you be interested in a pick and pack service for wholesale? Yes No

Would you be interested in a pack and pack service for online orders? Yes No

Please add any additional comments, concerns, or questions that you might have concerning a Brooklyn based co-packing facility.

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