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Capitalizing on niche markets to build a business

Sweet Note Bakery baking crew: Alison Vandermay, 25, left, Michelle McDonald, 28, center, and Brittany Nettles, 19. Photo by U.S. Chamber of Commerce.

Young entrepreneurs find success with food-specific operations

By Dan Orlando
For Free Enterprise

Since she was a teenager, Michelle MacDonald has always known she would start her own business. What, exactly, her business would do – well, that was another story.

While watching her grandfather cope with Celiac disease, MacDonald realized that dining options for the gluten-intolerant among us were severely limited. Looking to fill that void, MacDonald started developing a line of gluten free bagels. Flash forward two years later and her dream of starting a business has manifested itself in Sweet Note Bagels, a company she founded that supplies gluten free baked goods to local restaurants and stores.

Like MacDonald, an allergy also spurred Jesse Goldman and his partners to start a business, though their cause hit even closer to home: all four of them were lactose intolerant.

“We were just a bunch of friends that liked to cook together on our off time but we were all lactose intolerant,” Goldman said. As a result, Alchemy Creamery, which produces only gluten free and vegan friendly ice cream, was born.

Though Sweet Note Bagels and Alchemy Creamery certainly don’t ward off a traditional client base, each is aimed at a growing niche of consumers — something both Goldman and MacDonald believe plays to their strengths as entrepreneurs.

“It can be a great advantage to be a part of something small that is growing so rapidly,” Goldman said, adding that it would be extremely difficult to stand out in the already crowded ice cream market. “We absolutely try to be different. One of the challenges of being a dairy free and gluten free product is that the general public can be turned off. We don’t want to cater to just people with gluten intolerance or vegan lifestyles.”

In an effort to appeal not only to its target audience but also to general consumers, Alchemy produces unique flavor combinations, melding ingredients like salt with peanut butter and green tea with coconut milk. These kinds of pairings have struck a cord with all ice cream lovers.

Savvy consumers are also fueling business, Goldman said. With the general public becoming more concerned with the ingredients that are being used in food products, more and more people are looking for foods made with all natural ingredients—the kinds Alchemy specializes in.

“The challenges are not very large,” he said. “We do most of our business in Brooklyn, which is a very food conscious community.”

MacDonald, too, has seen growing awareness help propel her business. She admitted that at times during the company’s first year, “it was certainly a challenge to explain why [vendors] needed my product.” Living a gluten-free lifestyle — either by choice or by necessity — has become much more common in recent years, prompting merchants to see a value in Sweet Note’s product line. This has fueled sales at the bakery, which is on track to report profits for the first time since launching in 2012.

While Alchemy relies on diversification, MacDonald credits her team’s success to its ability to stay focused on a primary component.

“You have to do one thing and do it really well first,” MacDonald told Free Enterprise, explaining that breaking into such a specialized market leaves no room for mediocrity.

Sometimes that requires making tough decisions. MacDonald decided to reduce the bakery’s production of scones so that it could hone in on perfecting the baking and distribution of its flagship bagel line.

“Margins are made up on volume and it’s harder to increase volume with multiple products,” she said. “We’ve opted to focus on bagels, packaging, shelf life, etc.”

Sweet Note now produces 600 bagels per hour as opposed to the 40 that MacDonald and her team could muster at the company’s inception. The bakery supplies restaurants and stores along the East Coast, and MacDonald sees her reach expanding as Sweet Note continues to invest in cold storage technology, which will make shipping her product longer distances possible.

Goldman and his partners are also expanding, with their product set to find a home in the freezer aisle of 12 local New York grocery stores in the coming months.

They may have different philosophies, but both companies share the challenge of building off of the foundation that a specialized based audience provides. Both enterprises believe that they can use this core as a springboard to mainstream success.

Originally published May 2014. Reprinted by permission, freeenterprise.com, June 2014. Copyright© 2014, U.S. Chamber of Commerce.