Why Betting on Food and Beverage Small Businesses is Worth the Risk

Chef Cheryl Smith at work in her restaurant, Cheryl’s Global Soul
Chef Cheryl Smith at work in her restaurant, Cheryl’s Global Soul

Every holiday season, we are reminded of two important themes: giving thanks, and the joys of good food.

While we may appreciate how food and beverage small businesses sustain our bodies and souls during this time of year, it’s less understood how they operate on a day-to-day basis and contribute to the growth and sustainability of our local communities and national economy. Many are passionate believers in their craft – no strangers to the uphill battle that they face to bring food and drink to your holiday table.

Why The Industry Matters

The number of food and beverage small businesses is on the rise. In October, the United States Bureau of Labor Statistics found that the food and beverage industry was responsible for the largest job growth across all business industries. Nationally, food and beverage businesses make up about 5 percent of our national GDP.

Considering that small businesses make up 31 percent of private sector employment, food and beverage small business growth has the potential to significantly impact the employment landscape. A new report from the Center for an Urban Future suggests that if only one-third of New York City’s small businesses with five employees or less added one employee, the city would have 55,000 more jobs. In New York, approximately 20 percent of Accion East’s loan portfolio serves entrepreneurs in the food and beverage sector, the large majority of which have five or less employees. Many businesses start in a business incubator to share rental costs, and business types include food carts and stands; informal restaurants; and entrepreneurs active in the craft movement.

Additionally, food and beverage small businesses help create economic opportunity for diverse communities in the U.S. economy. Because there are opportunities within the industry with low barriers to entry as well as strong cultural ties to food and drink that inspire many immigrants to celebrate their roots in the United States, the industry is a natural space for people of diverse backgrounds to start their own businesses. Through the growth of minority-owned small businesses in the sector, these entrepreneurs are able to create a better life for themselves, their families, and their communities.

What Our National Poll Found

In 2013, we at Accion wanted to know more about the needs, motivations, and everyday experiences of very small businesses in the United States, including very small food and beverage businesses. We talked to 650 business owners overall as part of our national poll, 1/3 of which were food and beverage small businesses. Here’s what we found:

  • Only 24 percent of food and beverage business owners reported having industry experience before opening their business. Priscilla Smith, the owner of Corafaye’s Cafe in Denver, opened a soul food restaurant after setting aside her own publishing company for 16 years. Read her story here.
  • Only 9 percent reported having a college degree, and 64 percent attended trade school or some college.
  • 55 percent were family-owned businesses.
  • Their average reported revenue – $231,000 – is two times higher than revenue reported in other surveyed industries including retail, healthcare, and construction.
  • 52 percent of food and beverage business owners applied for loans in the past year, and 56 percent reported having a credit application denied.

Look no further than the brewing industry in Colorado to understand the diverse financing needs of many entrepreneurs in the sector. Many start-up entrepreneurs need large loans – between $100,000 to $200,000 – to buy the brewing equipment necessary to open their businesses.

Helping Food and Beverage Businesses Thrive

So what can be done to support the ambitions of entrepreneurs in the food and beverage small business sector? The top three challenges facing these businesses in our National Poll were accessing loans and money to grow their business; low sales; and not enough time. Given food and beverage small businesses are considered very risky prospects for large banks given their market saturation and high variable costs, many owners cannot access the capital they need to start or expand their businesses. Beyond access to capital, many need coaching and mentoring to create a winning business plan for the future that helps position their marketing and resource strategies.

For this reason, Accion and the Boston Beer Company created the Samuel Adams Brewing the American Dream program in 2008 to help food and beverage small businesses thrive. The program provides access to financing as well as nuts-and-bolts business advice through a series of speed coaching events across the country, including a national Pitch Room Competition that culminates this Thursday at the Centre for Social Innovation. To date, the program has provided more than $3 million in microloans to over 375 small businesses nationwide, coached more than 4,000 entrepreneurs, and helped to create or retain more than 2,000 jobs.

To learn more, visit http://btad.samueladams.com/.

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