Thinking of opening a new kitchen space? We’re sharing the 5 key factors you’ll need to consider in order to assess your local market conditions… straight from the Shared Kitchen Toolkit.
Local Market Conditions
It is essential that you analyze market factors that influence demand for your kitchen space, even if your kitchen will be run as a nonprofit facility. If you are charging a fee and counting on that fee to pay the bills, you want to be sure there is enough demand for what you are offering. Kitchen utilization is also key to achieving strong outcomes. To assess your market you will want to look at:
- Interest. The level of interest among target client types (entrepreneurs, producers, expanding businesses, etc.) gleaned from your surveys and interviews/focus groups.
- Competition. Other shared, commissary or community kitchens in your area, as well as alternative production options available to your clients.
- Real Estate Conditions. The overall market for commercial space in your area.
- Entrepreneurial Activity. Trends in food business growth in your area.
- Headwinds. Other factors that could impact demand, such as regulatory changes in food safety and licensing requirements, challenges to formalizing home-based businesses, lack of business support services, hurdles to accessing markets/buyers, etc. Kitchens that fail to understand these market factors are more likely to have insufficient utilization and fall short. Many kitchens underinvest in this research because hiring a consultant can be expensive and founders may lack experience with market data. In our Toolkit, we aim to give you tips to get you started and make the process less intimidating. However, this is an area where bringing in a consultant or volunteer advisor can be very helpful and save you money in the long term.
Defining Your Market Area
When researching your real estate market, start by first defining what geographic area you are likely to draw clients from. This market area will be important to analyzing the potential demand. Consider typical driving distances in your area for the kind of clients you hope to attract, which may be different for rural areas or neighborhoods subject to heavy traffic. Your market area could be a few ZIP codes or an entire city, county, or metropolitan region, depending on your facility, geography, and target business types.
Analyzing Your Competition
Holistically speaking, your competition is other shared or commissary kitchens as well as all the other options clients have for producing their product. These other options are the alternative spaces and methods for meeting their production needs, such as cooking at home, utilizing a friend’s restaurant, or hiring a co-packer. Start assessing your competition by looking for other shared or commissary kitchens in your area and evaluating what they offer. There are a number of different types of kitchens that businesses rent from that could be competition for your space depending on your target business types and their stage of business. You will want to look into:
- For-profit and nonprofit shared kitchens, incubators, and food innovation centers.
- Caterers and packaged food businesses that rent their extra time or space.
- Commissaries designed for food trucks or carts.
- Community kitchens such as community centers, event spaces, and religious centers that can be rented to entrepreneurs.
- Nonprofit meal programs or workforce training facilities that rent their spaces after hours.
- Restaurants and cafés that rent kitchen space when they are closed.
Remember that rental kitchens sometimes do not advertise or market their space, particularly if they are a food business or community facility renting extra space during off hours. Take time to search for them so you understand the landscape of kitchen options in your community. This will help you evaluate the supply of kitchen space and develop plans that position your kitchen as a unique offering in your community.
Tips for Researching Existing Shared Kitchens in Your Market
- Start by looking at kitchen rental sites like:
Keep in mind that listings may not be up to date, so you should verify the information.
- General keyword searches for commissary, licensed, shared, or rental commercial kitchens may turn up more spaces.
- Look at classified ads such as craigslist.org and offerup.com. They often include restaurants and food businesses that rent their kitchens when not in use.
- Ask entrepreneurs at farmers markets, craft fairs, food trucks, etc., where they produce their food and if they know of any shared kitchens in your area. If they are familiar with any kitchens, ask about their experiences or impressions.
- Contact community kitchens in community centers, senior centers, churches, and event centers and ask if they rent space to entrepreneurs for production (not just for on-site events).
- Inquire with your local licensing agencies such as city/county public health and state agriculture departments for referrals to shared kitchens.
- If you are having trouble finding kitchens and are comfortable with spreadsheets, you can make a public records request to your local licensing agencies for the names and facility addresses of business types you are interested in (caterers, food trucks, packaged foods, etc.). Depending on the size of your market area, the data can be time- consuming to sort through, but can identify clusters of businesses at the same address that may indicate businesses are sharing a kitchen. It can also give you a sense of how many of your target businesses there are. By requesting a few years of records, you can look for trends in the number, types, and locations of businesses.
Once you have identified these kitchens, research the following:
- Rates and Pricing Structure. Do they rent hourly or monthly? What are their rates?
- Characteristics. What facilities do they offer? What scale of production do they accommodate? What is the desirability of their location in terms of access to suppliers, markets, parking/ transportation hubs, and security? How clean is the facility? Is the space pleasant to work in?
- Target Businesses. Who are the primary types of renters in the space? Are they the same business types you anticipate serving at your facility?
- Demand. How full are they? Is there a growing or declining number of shared kitchens in your market over the last few years? If kitchens have closed, what are the reasons why?
Keep notes of this research and reflect on how well the current options are meeting the needs of entrepreneurs and producers. Compare these findings to your surveys and interviews. How well is demand meeting supply? Are there gaps in what is available? Are the current offerings unappealing or unworkable in some way (such as high rates, inadequate sanitation, or lack
of truck facilities)? How can you improve on what is available and eliminate some of the key pain points for your target businesses?
You want to look for opportunities to differentiate your facility from others in the area. This may be by offering specialized equipment, serving a different type or scale of entrepreneurs/businesses, or by offering something that is superior to what is available. Some kitchens have found that by differentiating from existing kitchens in the types of businesses they serve, they are able to create collaborative referral relationships with other facilities in their area and better withstand competition from new facilities.
Take notes on your ideas and research findings; you will summarize them in your business plan and marketing plan.
Investigating Factors That Diminish Demand for Kitchen Space
There are a number of economic and cultural factors that can reduce the utilization of shared kitchen space that should be evaluated by all projects, but especially by those without direct competition. A common mistake founders make is to assume that if there is not a shared kitchen in their community, there must be demand for one. A market that does not have shared commercial kitchen space may be an exciting opportunity, or it may be a sign that there is not enough demand for a kitchen. If you discovered there are no direct competitors in your market (such as formal shared kitchens or incubators), or that existing kitchens are not well utilized, you should seek to find out why that is and carefully assess the demand for kitchen space.
Similarly, if you are offering a below-market rate rental, you should not assume that there will be demand simply because entrepreneurs and producers cannot afford other kitchens. Entrepreneurs have formal and informal options and are savvy problem-solvers. Try to look at the choices from the entrepreneurs’ perspective so you can discern how they value shared kitchen space and whether they will use it.
Use the following questions to identify factors that could impact utilization of your kitchen. If there is a lack of shared kitchen space in your area, investigating these factors will help you understand why.
- Entrepreneurial Activity: Is there a limited number of new food businesses or a lack of entrepreneurial activity in the community? This could indicate that the market for commercial kitchen space is too small to support a shared kitchen in your area. You may need to work with community partners to provide more services and supports to build an entrepreneurial pipeline before opening a kitchen.
- Informal and Home-Based Businesses: How easy is it for businesses to make food at home? How permissive are cottage food laws? What is the culture around home food production and licensing compliance in your area? If food made at home can easily be sold to the public, then businesses may find less need for a shared kitchen until they have outgrown their home kitchens or seek to move into formal markets where buyers will expect the business to be licensed.
- Commercial Kitchen Costs: What does it cost for someone to convert a space into a commercial kitchen in your area? Does zoning allow people to build kitchen facilities on their residential property, such as in their basements and garages? Is real estate and construction relatively inexpensive in your market? Are there commercial food service properties available on the market? If converting a space to a kitchen is relatively affordable, it could reduce the need for shared kitchen space. High real estate costs, restrictive zoning, and onerous building and sanitation standards may contribute to demand for a shared kitchen.
- Consumer Market: Is there a weak market for local foods or barriers to reaching buyers? Do local codes prohibit food trucks and other street vending? Do residents lack the income to purchase specialty products? Are there farmers markets? Do local retail outlets purchase locally made food? Is there a lack of distributors for reaching markets outside the community? Investigate the outlook for new small food businesses in your community. See if there is enough consumer and buyer demand for locally made foods to support the businesses you want to serve.
In general, factors that inhibit the growth of small food businesses could impact demand for kitchen space so it is important to understand the barriers businesses face. These can include lack of access to capital for start-up and expansion expenses, high licensing fees or taxes, unfavorable market trends, restrictive food truck ordinances, lack of skilled workers, etc. Since the kitchen’s success is closely tied to its clients’ success, it is important to evaluate the potential impact of these factors on the kitchen.
Surveying and interviewing entrepreneurs and researching food industry trends and local policies will help you identify these factors. The Service Planning chapter provides guidance on developing services to address the hurdles businesses face.
You also should stay alert to changes in food safety and licensing requirements that could reduce the need for your space or place limits on who uses it or how it is used. Examples include: expansion of the kinds of products that can be made under cottage food rules, limitations on the number of businesses that can share a kitchen, or requirements for businesses to have designated rather than shared prep areas.
If you discover barriers or conditions in your community that will diminish demand for shared kitchen space, it is a good time to stop and reflect on your options.
Challenges to Formalizing Home-Based Businesses
If you are targeting small-scale businesses just starting out, or transitioning from a home-based operation, take time to understand how common informal business activity is in your community. Your goal in this outreach is to determine if there are a lot of informal businesses interested in formalizing, or if there is a culture of informal business activity that may be a barrier to signing up clients. Informal businesses are those that operate without health or business licenses and generally do not report their earnings on their taxes. There are many reasons why entrepreneurs choose to operate informally, only one of which is a lack of access to affordable commercial space. It is important to try to understand what motivates entrepreneurs to make this choice so you can determine how likely they are to utilize your space. It also will help you clarify what rates, services, or sales opportunities are likely to motivate businesses to formalize.
Formal businesses have access to greater sales opportunities and growth. However, entrepreneurs may face higher costs, more taxes, and less convenience when they formalize. Some businesses may choose to remain informal despite the availability of a facility or other resources you offer. Here are some reasons why businesses operate informally that you will want to consider:
- Hobby vs. Business. Do people consider their food sales more of a side income or a hobby than a business?
- Exclusion. Are informal businesses common due to discrimination and current or historic exclusion from formal markets or banking?
- Legal Status. Do your target entrepreneurs or their families not have legal immigration status and need to operate under the radar? If you are interested in serving immigrant or refugee entrepreneurs, take time to understand how different immigration statuses affect the ability to formalize a business.
- Convenience. Are there reasons (such as childcare, transportation barriers, or geography) why home preparation is preferable to working in a kitchen outside the home?
- Culture. Is there a culture of informal business in the community? Are there ample sales channels for unlicensed food products or a lax enforcement of licensing rules? Are transactions typically done in cash?
- Tax Avoidance. Are entrepreneurs reluctant to report income in order to avoid taxes?
- High Fees. Are licensing fees or business tax requirements onerous for small businesses?
- Lack of Support. Are there barriers to navigating licensing and tax requirements that education or services might help with?
Interviews and focus groups with informal/home-based businesses as well as those who work with them (service providers, sales venues, etc.) will be your best bet for gathering this information. You can often find informal food businesses by looking on social media, Facebook groups, roadside stands, informal markets like craft or holiday fairs, corner stores, and small ethnic food markets.
Local Real Estate Market Conditions and Trends
Trends in commercial real estate in your market area also play a role in how much demand there will be for your kitchen. If commercial space is in high demand and expensive, then more businesses may be inclined to share space and stay in shared kitchens longer. If commercial space is relatively abundant and inexpensive, or if there are private spaces that can be converted to food facilities fairly cheaply, then businesses may move into their own spaces at an earlier stage and find less value in sharing space. When looking at real estate trends in your market, look at the following factors:
- What is the availability of commercial real estate? How quickly are places leasing?
- How much does it cost for a food business to rent a space for their production needs?
- What are typical lease terms?
- Are there many spaces available for your target businesses?
- What improvements are required by the licensing agencies (such as venting, wastewater management, plumbing, parking, etc.) to make a space food-ready?
- How many new commercial spaces are being constructed compared to the growth of businesses in your market? Is there a surplus or are you likely to have a shortage?
Commercial real estate market reports from brokers can help orient you to your local market conditions. These will give stats on how long it takes vacant spaces to be leased and what the going rates are for different types of commercial space. Brokers sometimes provide interpretive reports on trends in new construction and leasing in the area. Make sure to consider whether your target location is experiencing the same trends as the larger market area since demand can vary between neighborhoods. You can also reach out to experienced brokerage firms in your area and ask them to share their insights about the options for small food businesses in your area. If you are searching for commercial space for your kitchen then you will also want to do this research to inform your site search and budget projections.
It is important to consider the level of entrepreneurial activity in your area to see if there will be an ongoing pool of new businesses to utilize your space. A consultant or advisor experienced with entrepreneurial ecosystems can help you analyze economic data and other indicators of entrepreneurial activity. If you are doing a feasibility study, your consultant will analyze this as part of their report.
If you do not have access to these services, you can reach out to your local economic development agencies, chambers of commerce, and Small Business Development Center (SBDC) to gather their insights. They may also be able to help you find and interpret relevant business data.
In addition, you can search for published reports and articles about trends in food entrepreneurship in your area and your community’s overall startup culture. If you are comfortable interpreting economic data, download business data from the County Business Patterns and other Census Bureau reports available on American FactFinder and analyze the trends in food business growth.
You will also want to look at the services, supports, and incentives your community offers entrepreneurs to understand the resources in your entrepreneurial ecosystem.
If you found this information to be useful, visit the Shared Kitchen Toolkit to read and discover more information for launching and growing your business venture.
Need some advice for operating your shared kitchen space? Check out our Shared Kitchen Operations Manual for more shared kitchen tips and tricks.