As with any new venture, entrepreneurial spirit and individual enthusiasm is what gets you started. You love the romance of a “lifestyle” business, the excitement of embarking on a new adventure, the potential for success. But it is the process of putting together a plan with realistic expectations that can turn your passion into a profitable business. It is also important to realize that timing is everything. We get many calls from people who have made their first oil four years after planting their trees, asking for bottles and labels. When asked about whom they plan to sell to and where they are going to distribute it, they often have no answers.

So make sure you have a roadmap of where you will be going. You cannot decide on an orchard layout until you choose your olive variety. You cannot choose an olive variety unless you know what type of oil you will try to sell. You cannot know what will sell until you understand what your customer wants or needs. In other words, your business goal will determine the first steps you take (such as planting trees), so it is best to have a well-researched plan.

It is a real challenge to break away from the competition and create a brand that sets your product apart from all the others vying for limited shelf space and loyal customers. A “what if” plan can help you think through issues you may not have anticipated. It should be flexible enough to address changes in market or orchard conditions. As you develop your plan, you will likely come face-to-face with two realities: one, it takes more capital to get started in the business than you would imagine; and two, it takes more time to get to the “turn” (that is, when cash coming in exceeds cash going out, aka profitability) than you may have counted on. To have a good chance of success, the value of a little planning and analyzing your options cannot be understated.

THE EXECUTIVE SUMMARY

The Executive Summary is a one-page synopsis of your entire plan. It is often written last. It is what you would tell a friend or investor over a cup of coffee. While most olive oil entrepreneurs will not go to a venture capitalist, the Executive Summary would be useful for your banker or accountant. It should stand alone, and not refer to other parts of your plan.

COMPANY PROFILE

The Company Profile is a brief (one or two pages) description of the company you have founded or want to found. It will address such things as:

• What is the name of your company?

• Does it currently exist or when will it be formed?

• What organizational structure will it take (e.g. sole proprietorship, partnership, corporation)?

• Is there relevant founder or personnel experience that makes you particularly qualified to succeed in the business?

• How big do you expect it to become?

• Where will it be located?

BUSINESS SCENARIO

This section deals with the most fundamental decision you will make. It defines exactly what area of the olive oil business you will be in.

• Will you grow olives?

• To be sold to other processors?

• To be processed at your own facility?

• To be processed at a public mill?

• Will you buy product from others?

• In raw form (olives) to be processed at your own facility?

• In raw form (olives) to be processed at a public mill?

• In already processed form (bulk oil)?

• Will you sell processed product (olive oil)?

• Wholesale in bulk form to others?

• Wholesale as a “private label” product for others?

• Wholesale or retail as a finished “branded” product?

This is also where a little market research really comes in handy. Knowing answers about market prices (e.g. bulk olives can sell for anywhere from $450 to $1,000/U.S. Ton) and equipment costs (e.g. entry level processing equipment can run upwards of $60,000 for a machine that can process 350 to 500 pounds per hour) will probably help you make some basic decisions about your direction. We provide some other cost examples on our Sample Costs page. You will also find useful numbers on our Useful Number Conversions page.

BUSINESS GOAL OR MISSION

Start with a clear business objective in mind. If you can state the goal in simple terms, you can set measurable thresholds that can track your success and keep you focused. A specific objective will also allow you to quickly recognize when things aren’t “going according to plan”. Some people call this “the mission statement”. It only needs to be a single well-considered paragraph.

Answers to the following questions can help in articulating your business mission:

• What market need will your company address?

• Who are your target customers?

• What products and services will your company sell?

• Where are you going with your company?

• What are the philosophies that will guide your business development?

• Think of it as the big picture view of why you are going into the olive oil business and what you hope to get out of it (the long-term vision). If the answer is “I just want to make a lot of money quickly”, then we might suggest looking elsewhere. The specialty food business is as notorious as the restaurant business in its high rate of failure.

But this section assumes you are serious and dedicated about getting into the olive oil business, so once you’ve got a “mission statement” nailed down, the next step is figuring out how to achieve it - within your resources - and in a way that sets you apart from a tough field of foreign and domestic competitors.

MARKET RESEARCH: INDUSTRY, MARKETPLACE, CUSTOMERS, AND COMPETITOR

Before any business activity begins, market research is essential. Without it, you are operating your business “blindly” with very little chance for success. It helps to have a good grasp of the business environment in order to make smart choices about how you will compete for sales.

Industry Analysis

• How do you define the industry? Food industry, specialty food, or gourmet food business?

• How will you classify your product? Cooking staple or condiment?

• What are current trends and important developments?

• Who are the largest and most important players? Do they matter to your business? How?

• What problems is the industry experiencing: Oil qualities? Supply vs. demand? Oversaturation of new brand entries? Shrinking competition (attrition) from boutique brands?

• What national and international factors influence the industry? Imported volumes? EU subsidies? Weak/strong dollar?

Marketplace Analysis

• How do you define your marketplace? Your sales territory?

• How large is it and how fast is it growing?

• How is it segmented by type of marketplace? Gourmet food stores, health food stores, cheese shops, farmers’ markets, etc.

• What companies currently service this market?

• What trends are important in your marketplace?

Customer Analysis

• Who is your customer? What segment of the market are you targeting? Timid buyers looking for a bland oil? Adventurous types who want something spicy with a lot of bite?

• What characteristics define your target customers? High income, price sensitive, environmentally concerned, health-focused?

• How many types of customers do you have? Distributors, retailers, food brokers, food lovers, restaurants, home cooks? And what are their concerns?

• What motivates buying decisions? Is it price, bottle, color of the oil, label, word of mouth, local connection?

• What evidence do you have that potential customers will want your product?

Competitor Analysis

What are the five top brands you expect to directly compete with? Are they the big multinational players or locally grown brands?

• What are their size, location, target market, and growth history?

• What are their products? How are they priced? What market position do they use to differentiate themselves?

• How is your product different/better? Be realistic and specific. We get several calls a day from people who tell us (and believe) their oil is “the best in the world” or “unique”.

STRATEGIC PLAN

Any good business plan includes short-term (1-2 year) and long-term (5-year+) objectives. The short-term section addresses what it takes to get up and running. The long-term plan lays out what needs to happen in order for you to still be in business five years from now, meeting or exceeding your projections for growth and profit.

But even before you go through the exercise of costing out what it takes to get in business, have a realistic frame of mind about what will make you successful. Remember three things:

What you want to sell will ONLY sell if the consumer wants it. In a business that is too often driven by “product-focused” sales, be “customer-focused” in order to stay ahead. And remember, if you have decided to create and sell a retail brand, you have two types of customers: the sales channel (distributor, food broker, or retail store owner); and the end user.

You must have a clear point of differentiation. Over the past decade, the olive oil business has exploded. There is a lot of competition out there for shelf space and consumer brand loyalty. Figure out the best way to tell your unique story. Otherwise, you are just another “best ever extra virgin olive oil” on the shelf.

Perseverance and pluck can win out. Even if you think you have the perfect plan, continue to monitor the market, stay flexible, and think creatively. The goal might not change, but the best way to get there may.

Short-Term Considerations

There are six key areas that determine what kind of approach to take when creating and retailing a specialty olive oil brand. We have already addressed some of these above, but at this point, we will focus on the “retail and branded” business scenario.

• Will you grow the olives or buy the fruit or oil in bulk?

• Will you process it yourself or hire a miller?

• Will you have one product offering, or plan for expansion into other price points or product lines (extra virgin olive oil, flavored olive oils, dipping oils…)?

• Will you package it yourself or hire a co-packer?

• Will you build your own sales force or use a distributor/reseller to handle sales and distribution?

• Who is your best target consumer? How will you create awareness and demand for your product?

Answers to these questions will guide the direction your business takes and identify inherent costs. Once you’ve assessed the costs, it will be relatively simple to determine profit potential.

Long-Term Considerations

When you start to map out the longer-term plan, you’ll deal with issues like market distribution expansion, realized brand value, and exit strategies.

• Will you try to transition from specialty food stores to mainstream grocery chains?

• Will you create product line extensions to broaden your brand and expand avenues of distribution?

• Will you be interested in capitalizing on the inherent value of a successful brand and consider a “buy-out” by a major packaged goods manufacturer?

So get out a big piece of paper, list the questions above and start creating a decision tree. Then follow the path and fill in some timetables and costs. At the end of the exercise, you will have a pretty clear idea of what you are up against. And, if you are seeking outside funding for your new venture, you’ll already have answers to most questions any investor will ask.

Obtaining the Product

In the olive oil business, you have three choices to procure product:

• Buy olive oil that meets your specifications (extra virgin quality, virgin quality, type of olive, organically-processed, etc) in bulk.

• Buy fruit and either process it at your facility or use an outside production facility.

• Grow your own olives, then self-process or use an outside production facility to create olive oil from fresh fruit. In our Making Olive Oil pages, we provide detailed information about the farming process and all that it entails. The related cost factor of producing your own oil is obviously more complicated than pricing out bulk oil. If you opt for the latter, however, keep in mind that you are now a marketing company, not an olive oil producer, and your sales pitch becomes more difficult. Most importantly, remember to factor in the following costs:

Orchard expenses, including capital expenditures (equipment) and ongoing maintenance (agricultural requirements.

Labor expenses, including wages, workmen’s comp, medical insurance, employee tax. Remember to consider yourself an employee whether you take a salary or not when determining profitability.

Liability insurance (on-site and product).

Farming-related exceptional occurrences (e.g. early freeze, olive fruit fly infestation).

Milling expenses, including fruit transportation costs to and from, actual milling cost, product testing and certification.

Warehousing expenses, including rent, bulk storage containers, freight.

Marketing the Product

Any marketing strategy is all about finding customers. The best oil is useless if you don't have buyers for it. In this section you must prove to yourself, and then the reader, that there is an eager market for your product. In prior sections you have explored the marketplace, competitors, and unmet needs and opportunities. Here is where you will discuss utilizing those opportunities. How is your oil different from your competitors? What unique features and benefits will your products have? Who are your customers? Start with some form of test marketing. It can be an inexpensive tool to gain invaluable insight into what might work and what won’t. Some olive oil entrepreneurs will buy oil made from the variety they intend to plant, bottle it in the proposed container, and sell it at farmer's markets, or do focus groups, give it to friends, etc. to get feedback. This should all be done before you buy an acre of land or plant a single tree. You may be able to set up a card table at your local market if you offer tastings of their other offerings. Try to be objective and don't let your bias toward your product affect your test subject. This is a learning experience. Why does the customer prefer the oil they do? Is it a product attribute you hadn't thought about, like the color or bottle cap/cork?

Once you are confident of a direction, follow the traditional marketing approach of the “four Ps” and focus on four factors: product, price, packaging, and promotion. A more recent and critical addition to this list is “place” or distribution strategy. If you can create the right mix for each of these areas, you’ll have a good chance of success.

• Product Strategy

  The single most important thing you can do to determine the best product configuration is to do your homework. If you have a good fix on what is out there (the competition), what is missing (what consumers may be looking for and not finding), and what your distribution options are (the best channel to push your product through), you can save a lot of expensive trial and error.

  Be as detailed as possible about defining your product. Will you sell one single blended oil or will you have a whole line of single varietals? Some producers press oil at different times of the year to create "early" and "late" versions with different characteristics. While blended oils have traditionally received the highest ratings and appealed to the broadest market, single varietals are interesting and can increase sales out of curiosity and appeal to individual tastes. Some olive oil producers will sell cured olives or olive tapenades. Do you want to sell the oil in different types of packaging, such as stainless fusti or gift baskets? Will you sell olive oil accessories such as tasting or dipping bowls and olive motif tablecloths? Will the product be a condiment, a staple, or be bought as a gift or souvenir? Remember that an important goal is to have repeat customers and to build loyalty.

• Pricing Strategy

  The second area to focus on is the mechanics of determining price. You can approach this one of two ways: work from a cost-basis (aka zero-based budgeting) and calculate a final retail price by building in margins after you compile your costs; or research what is already selling and for how much, and project what you think the final retail cost of your product could be, then work backwards into what your net sales value is after distribution costs. This approach will also give you a very quick way to see if you will be cash-positive or cash-negative after selling a bottle of oil.

  In the specialty food business, most companies try to achieve a 10% net profit margin. So, don’t get infatuated with the “image” of supermarket shelf placement unless your projections show that higher volume can offset lower margins. Just remember there is no quicker way to go out of business than to be wildly successful selling a product at a loss.

  So, what are the margins you can expect in the course of taking your product from ex-warehouse (cost when it leaves your warehouse) to a point of purchase? It will vary a little depending on what channels of distribution you go through, but the following pricing exercise provides some norms for what each point of distribution expects to get as a cut of the final price.