BROOKFIELD — For a mom-and-pop confectioner based in a farmhouse, it turns out the best business plan is like the company’s caramel recipe: keep it simple.
After churning through the national supermarket distribution system, Judith Irving and Steve Reid have scaled back production at their 12-year-old Fat Toad Farm. This Christmas, the family will be selling its high-end goat milk caramel topping in about 1,000 stores nationally, and expects to make a profit for the first time in four years.
“The light bulb finally went off in our heads,” said Reid, a former commercial real estate broker who started the company with Irving at their home in Brookfield in 2007. Sales started taking off after they took their caramel to the Fancy Food Show in 2009, and in 2017, after a distributor ordered a large amount of the product, the family started looking into a major expansion.
But last year, after it became clear that the company couldn’t handle the capacity needed for mass distribution, they scaled back.
Working with large national grocery distributors “was a fool’s errand,” Reid said. “We were chasing something that we were in no way capable of managing.”
Irving and Reid took aim at the big time in 2015, after they sold their herd of 80 goats to Ayers Brook Farm, quit making goat cheese, and decided to focus on the caramel that one of their daughters had introduced them to after she lived in Mexico.
The caramel sauce is made from goat milk, sugar and baking soda. It comes in flavors like bourbon, cinnamon, maple and vanilla.
Reid and Irving started making the caramel on the kitchen stove, and their friends and their customers at the Montpelier farmer’s market liked it so much that the pair decided to try to sell it nationally.
About 25 friends and family members invested, and the family worked with a business mentor from the Vermont Sustainable Jobs Fund and with the Vermont Housing and Conservation Board’s farm and forest viability program.
Reid, Irving and two of Irving’s daughters took aim at the Kroger’s market in particular, because Kroger’s had cheese kiosks where a staff member would demonstrate to customers how their caramel could be drizzled on goat cheese.
Distributors told them they liked the product and ordered 40,000 jars — about 25% of the company’s annual production.
“It was all hands on deck for six weeks” getting that order out the door, said Irving’s daughter, Calley Hastings. “We didn’t have systems to do this kind of volume.”
The family prepared for more large orders. They invested in a big new labeler and started mixing up hundreds of bottles of caramel. They talked seriously about opening a manufacturing facility and hiring production staff to expand beyond the 900-square-foot former goat cheese building they had constructed next to their house.
But those big orders didn’t follow.
“You never know, really, what distributors are going to do,” said Hastings. “The naive assumption on our part was that this was what it was going to look like in the next year. It didn’t happen that way; there was a consistent set of smaller orders, but never a big bulk order like that again.”
In autumn 2018, the company sold the new labeler. They eliminated two jobs and didn’t replace two other workers who were leaving, a turn of events that still causes the founders to wince when they recall it.
“From the beginning of 2016 until the fall of 2018, we went through one of the steepest and most brutal learning curves of our business experience,” Reid said. “We had to change this model, and if we didn’t change it quickly enough, the farm was going to cease to exist.”
Distributors
The perils of working with national food distributors are well known to specialty food makers who create small batches in out-of-the-way places. Distributors are vital for producers who want to reach a larger market, but there are steep costs associated with working with them, say experienced specialty food producers.
“The food industry is very much a pay-to-play business, and that’s definitely not something I knew before going into it,” said April Moulaert of Vermont Tortilla in Shelburne. “You’re basically buying your shelf space, which makes it tough for small brands with limited marketing dollars.”
But the rewards are enticing, said Irving. Reid and Irving felt they could handle the complexities of the distribution game. Both were coming off long and successful careers, Reid in large commercial real estate projects and Irving in a variety of administrative positions that included leading the Vermont Commission on Women and serving as an associate academic dean at Vermont Technical College.
Distributors, they learned, don’t help the creators sell the product; they just order it, sometimes too much of it. The caramel, which has a shelf life of a year, sat in the distributors’ warehouses; the distributor discounted it and paid Fat Toad an accordingly lower amount.
“What they do after that is when you send them an invoice, they see how much money they can steal from you before they send you a check,” Reid said.
“They’re in a tough business,” Irving added.
The distributors also mishandled placement of the product, said Irving. It needs to be in a specialty section of the grocery store, not on the shelf next to Kraft and other mainstream brands, she said.
“You hear these warnings about distributors a lot, and you say, ‘OK, fine, we’ll figure it out,’” said Irving. “It’s just that if you don’t know what you are in for, which we didn’t, people can say, ‘Watch out for chargebacks’ and we can say, ‘OK,’ but you just don’t have a sense of what that means and how unexpected and random it’s going to be.”
There are smaller distributors for specialty food products, such as the White River Junction-based Provisions International, and Vermont Roots in Rutland, and the family has worked with them as well. Reid reflected that the ease of working with Vermont Roots probably lulled them into a false sense that they could work with larger distributors too, despite the cautionary tales they heard from other small food producers.
“The small distributors in this region, who we work with to this day, and have for years and years very successfully, perhaps in a sense they contributed to our naivete about who distributors really were,” Reid said.
A new direction
After retrenching in the fall of 2018, Irving, Reid, and Hastings got back to work as a family company with one employee. Now, after a long year of stirring, bottling, labeling and shipping, it looks like demand and production have balanced out, said Hastings.
“The first 11 and a half months, amazingly, for the first time ever kind of played out the way we hoped and predicted,” Hastings said. “In January, our plan is to regroup and say, ‘Here’s what we have learned from this model.’ That gives us time to reevaluate what the next stage is.”
The family still sells through Kroger and through other distributors to specialty food stores, as well as through Amazon. They declined to say how much caramel they’re making this year, or what their revenues are going to look like, though Reid did say they expect to clear a profit for the first time in four years.
“It’s hard for me to imagine any really significant changes to this model,” Reid said. “What we’re going to be contemplating as we go into 2020 are some pretty minor tweaks to something that has worked very, very well for us this year.”
