The rapid demise of their business is still a sore subject for sisters-in-law Holly Paeper and Monique Prato.
In two years, their Charlotte-based gluten-free foods company, Bumbalooza, rose to prominence in the specialty foods community – winning awards, shelf space at 400 stores, the owners say, and – as the Charlotte Chamber’s most recent Power Up Challenge winner – a $25,000 check.
But less than three months after Bumbalooza won the Power Up prize – bestowed on small-business owners who provide innovative products, earn $1 million or less in revenue and make it through a heated competition – Prato, 37, and Paeper, 41, moved out of their distribution warehouse, cleaned out their offices and stopped selling gluten-free baking mixes.
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The reason, they said: They spent thousands trying to get their products in the aisles of large grocery chains only to feel the sting of delayed and partial payments from the food giants they would not name. Unable to replace the money they lost, Prato and Paeper decided that closing the business was their best option.
“We were bleeding cash,” Paeper said. “We didn’t realize the true costs of getting the shelf space ... would sink a small business.”
The push behind Bumbalooza came from a common thread in Paeper’s and Prato’s lives: Many of their family members – their children included – are gluten-intolerant. Gluten is a protein found in wheat, barley and rye.
“We just saw a need to try and have cleaner food, and there’s just not a lot of products on the marketplace,” Paeper said. “One of the things that happens in the allergy market is that kids are taught to fear food.”
The moms sought to make a change. Together, they created eight baking mixes that came in a variety of flavors, including cookies n’ cream cake, an oatmeal bar with caramel and a “pink lemonade donut.”
“We stuck with mixes that were a little different,” Prato said. “We were trying to hit a market that wasn’t just vanilla cake, chocolate chip cookies or brownies.”
They first started mixing recipes in Paeper’s kitchen. They moved to a shared kitchen in Mooresville and later a facility on Old Statesville Road in north Charlotte. They invested more than $300,000 of their retirement savings to bring the business to life. They hired part-time employees and hosted school field trips. Their own children wore bumblebee outfits to advertise their moms’ products (the company name comes from a children’s song about bumblebees).
Prato and Paeper didn’t want to compete with Betty Crocker or Duncan Hines. Instead, they tried carving their own niche in the $109 billion specialty foods industry. For a time, it worked. The owners said they landed their products in 400-plus small local and neighborhood stores, including Whole Foods. They sold their mixes online and at trade shows. Last year, they started scoring meetings with corporate food execs.
“We made a really good run of it,” Paeper said. “We were so convinced that this was it, that this was the path.”
That path led to them to the Charlotte Chamber’s Power Up competition, where judges critiqued Bumbalooza’s growth plans, leadership and outlook in the marketplace.
On Nov. 20, Prato gave the presentation that secured their winnings: $25,000 they used to invest in more equipment, scale their operations and target larger customers. At the top of the list: corporate food giants.
In order to get on big shelves, food makers typically must pay larger retailers “slotting fees” for shelf space. In Bumbalooza’s case, the owners said they paid grocery chains more than $20,000 each.
They assumed payments for their products would follow. It rarely happened.
Some larger retailers wait 90 days to pay smaller suppliers, said Chris Reedy, executive director of Blue Ridge Food Ventures, a shared-use kitchen and manufacturing facility near Asheville. By then, some small businesses have turned over three cases of product to chain stores before they ever see a payment, he said.
“You can be in the hole for three or four runs (of product) before you ever get your first check,” he said.
For months, Bumbalooza’s checks were either delayed or a fraction of what they expected, the owners said. They started running out of money as they used 30 percent of their sales to keep the brand visible in the stores. Affording their overhead was a struggle.
By January, Bumbalooza’s seams came undone.
Thousands of dollars in the hole, Prato and Paeper faced a tough choice.
“What we thought we were going to need to continue to grow was going to be almost what we already put in,” Prato said. “It didn’t make sense, especially since the risk was so high.”
They officially closed last month. Some products are still in stores. Once they run out, they won’t be replaced.
“Closing the business was one of the most difficult decisions we’ve ever had to make,” Prato said. “We had to put our emotions aside when it came down to the decision. We went by numbers and facts.”
Bumbalooza is the first business to close so soon after winning the 3-year-old Power Up Challenge, said chamber spokeswoman Natalie Dick.
“Many of the finalists over the last three years have continued to advance in their business plans,” she said. “That said, (entrepreneurship) ... is no doubt a challenging environment, and that’s something that needs to be acknowledged.”
Tips for selling to large grocery chains
Ron Tanner of the New York-based Specialty Food Association spoke with ShopTalk about ways business owners can get their products into large grocery chains.
Seek certifications: Several chains do not charge woman-owned or minority-owned small businesses slotting and shelving fees. Seek those certifications, if you can. Prato and Paeper were planning to seek certification as a woman-owned business this year.
Start local: Start selling your products locally first. Tanner advises businesses sell their products to 10 local stores and then to smaller grocery chains with 10 to 20 stores before tackling larger chains.
Make a plan: Have a plan to grow gradually and save enough money to stay afloat. While each situation is different, Tanner said each business will need to have money reserved if it is pursuing some of the larger retailers.