Food ‘Accelerators’ and the $10 Bag of Pasta

Food ‘Accelerators’ and the $10 Bag of Pasta

Entrepreneurs Move Out of Their Home Kitchens

By Erica E. Phillips in the Wall Street Journal

LOS ANGELES—A couple of days each week, after dropping off her two toddlers at day care, Leah Ferrazzani hauls a commercial-grade extruder into her kitchen and gets to work shaping and cutting organic pasta. She then carefully dries it on racks in what used to be the family’s laundry room.

Ms. Ferrazzani launched Semolina Artisanal Pasta in October. She said the business quickly exceeded her home kitchen’s capacity of about 250 pounds a week. “In L.A., there are really people who get behind your food,” said Ms. Ferrazzani, who sells her pasta in one-pound bags for $10 each.

As tastes shift toward specialty, local and organic foods, more so-called “food startups” are entering the market. According to PitchBook, a private financial database, close to $570 million in venture capital has been invested over the past five years in companies that produce food for consumption, or prepared foods, with the number of deals involving startup food makers growing to 36 in 2014 from 13 in 2011.

And for good reason: The specialty food business is booming. The National Association for the Specialty Food Trade says the sector hit a record $88.3 billion in sales in 2013, and continued to grow in 2014. The association attributed the sector’s popularity to “growing concern” among consumers about sustainability and health, as well as increased interest in “small-batch production”—knowing where food is made and who made it.

As demand for their products grows, food startups like Ms. Ferrazzani’s—many of which source their ingredients close to home, sell mainly in nearby shops and are restricted to producing limited quantities in their home kitchens—are finding they need to scale up quickly for wholesale distribution. And that can be difficult.

Regulatory requirements have complicated the transition from selling goods at local retail shops to distributing them wholesale to large grocery chains. Wholesale buyers have stricter health standards than local retailers, requiring significant upfront investment by producers.

Los Angeles County’s public health inspectors are now re-evaluating the rules. Some state health codes have already changed in recent years to ease the startup process in the cottage food industry, or businesses that operate out of their home kitchens. New legislation is what helped Semolina Artisanal Pasta first get off the ground, but the law restricts cottage food businesses to less than $50,000 a year in sales.