Food Business Profit Margins: A Founder's Guide to Sustainable Growth

(Listen on Apple or Spotify. Full transcript below.)

a candid conversation with the founder of French Squirrel, Sydney karmes-wainer.

Sydney sits down to share the raw truth about navigating food business profit margins and building a sustainable CPG brand. What makes this discussion particularly compelling is Sydney's willingness to open up about the moments that tested her resolve - from navigating tough pricing decisions to discovering that typical food business profit margins weren't enough to sustain her growing company.

Start with Passion, Build with Strategy

French Squirrel began as what Sydney calls a "happy accident." While working at Erewhon, a high-end grocery chain in Los Angeles, she brought in homemade protein bites that caught her boss's attention. What started as a passion project—creating healthy snacks to manage her PCOS—evolved into a full-fledged CPG food business. However, like many food entrepreneurs, Sydney would soon learn that passion alone couldn't solve the challenge of tight profit margins in the food industry.

As she shares in the full episode with remarkable honesty, "I was not that founder that said, 'I have this business idea, let me create a business plan.'" While passion drove initial growth, building a sustainable food business required developing a deep understanding of industry finances and profit margins.

Understanding Food Industry Economics

One of the biggest challenges for food entrepreneurs is grasping the unique economics of the industry.
In a particularly enlightening part of the conversation, Sydney breaks down several key factors that impact food business profit margins:

1. Razor-Thin Margins: What might be considered poor profit margins in other industries can be standard in food.

2. Complex Financial Tracking: Food businesses have specific elements like promotional chargebacks, trade spend, and free fills that dramatically impact profit margins and require specialized knowledge to track properly.

3. True Profitability vs. Cash Flow: A product can be technically profitable but not generate enough cash to fund the next production run. This creates a constant cash flow challenge for growing food brands.

The Price is Right: Lessons in Pricing Strategy

A crucial turning point for French Squirrel came with the realization that initial pricing was too low for sustainable profit margins. As Sydney reveals in the episode, this journey involved several key insights:

1. Breaking Free from Consumer Mindset: "The previous Sydney was operating in the mindset of external approval," she explains. Worrying too much about what consumers might pay can lead to unsustainable food business profit margins.

2. Pattern Disruption: Sometimes standing out with higher pricing can work in your favor. French Squirrel's $10.99 price point for certain products created "pattern disruption" in the category, and sales actually increased after the price change.

3. Transparency with Retailers: Being open with retailers about costs and needed profit margins can lead to better partnerships. In some cases, retailers were willing to work with French Squirrel on solutions like splitting shipping costs.

Building Strong Manufacturing Partnerships

Finding the right manufacturing partners is crucial for maintaining healthy food business profit margins. In one of the most practical segments of the conversation, Sydney likens the process to dating: "You almost have to date them... It's not about even the number, the price. It's the people."

Key factors in choosing manufacturing partners for sustainable margins:

• Alignment with brand values

• Willingness to grow together

• Communication about future possibilities

• Commitment to quality

• Fair pricing with room for improvement

Balancing Growth with Wellbeing

An often-overlooked aspect of managing food business profit margins is founder wellbeing. As Sydney shares in a particularly vulnerable moment of the episode, she learned the hard way that pushing too hard with tight margins and high stress can impact health. "If Sydney's not well, French Squirrel is not well," she explains.

This realization led to turning down some seemingly attractive opportunities that didn't meet margin requirements. While some advisors pushed for volume at lower margins, Sydney chose to prioritize sustainable food business profit margins that wouldn't compromise her health or the business's long-term viability.

Listen to the Full Episode

While this post captures key lessons about food business profit margins, the full conversation offers so much more:

• Hear the emotional story of Sydney's first major pricing negotiation with a retailer and how it built her confidence

• Learn detailed strategies for approaching co-manufacturer relationships, including actual examples of successful negotiations

• Understand the specific numbers and margins that helped French Squirrel become more sustainable

• Discover the personal health journey that influenced her approach to business sustainability

Building a sustainable CPG food business requires more than just a great product—it demands strategic thinking, strong partnerships, and a clear understanding of industry profit margins. By sharing these lessons, French Squirrel's journey provides valuable insights for other food entrepreneurs looking to build lasting businesses.

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Episode Timeline

Full Episode Transcript

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