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Gluten-free food ventures develop their own business models

Identify a need. Offer a solution. That’s the quintessential advice for starting a small business venture.

Sarah Pulcher, co-owner of Freedom Bakery in Severna Park, bakes gluten-free white bread at the bakery, which opened in April 2009.

But when it comes to advertising techniques, business models and growth strategies for these startup businesses — one size doesn’t fit all. Entrepreneurs looking to occupy a hyper-niche market have their own set of best practices.

Just ask the handful of business owners who have recognized an emerging demand for restaurant-quality, gluten-free food. Multiple eateries specializing in this restricted diet have cropped up in Maryland in recent years, and owners say that following a typical small-business plan is simply not appropriate.

The target market of these businesses is highly defined, said several people who have opened bakeries, delis or cafés, and devised menus that are either exclusively or primarily gluten-free. Each owner has a very specific customer base and does not advertise to the general public because they say they already know who will be coming through their front doors.

“We don’t do any kind of advertising,” said Richard Dsouza, who owns two gluten-free restaurants in Baltimore — Sweet 27 and Meet 27. “It’s all word of mouth.”

Sarah Pulcher, who owns Freedom Bakery in Severna Park with her parents, Alicia and Larry, also relies mostly on talking to people in the community. She said she asks doctors to recommend the shop, spreads the word at celiac disease support groups and uses social media to reach people in nearby states.

An estimated 1 in every 133 Americans have celiac disease, a genetic disorder marked by the inability to digest gluten, a protein found in wheat and other grains. These entrepreneurs said they don’t want to capitalize on the problem, but where there is demand, they will supply.

“This year has been our best year so far,” Dsouza said. “The demand is always growing. Every day people come in and say they just got diagnosed and need to know where to go.”

In a hyper-niche market, maximizing sales potential is crucial. Because many gluten-intolerant people also have other food allergies, many owners said they created recipes free of dairy, egg, soy, casein, peanuts or other common food disorders.

Pulcher said she also decreased her portion sizes because customers usually shop for one or two people, not large groups. She said cupcakes sold better than cakes, for example.

In the gluten-free eatery business, owners’ attitudes toward competition are starkly different from most other entrepreneurs. That’s because there is no competition, or at least they don’t view it that way.

“There’s not a lot of other people in the industry, period,” Pulcher said. “So it’s better to work together rather than try to compete against each other.”

Pulcher said she has friendly relationships with other gluten-free entrepreneurs in the area, such as Maureen Burke, whose Baltimore company One Dish Cuisine has been rapidly expanding since she started starting gluten-free food wholesale in June 2010.

Burke said the camaraderie among business owners is possible because they share a passion for helping the gluten-free community rather than just making money.

“We all help each other out,” agreed Burke. “If I hear something I might say, ‘Hey Sarah, check this out.’ We’re all in this because we have to be, not because we want to cash in on the gluten-free craze. … We’re in it for the right reasons, we’re passionate about it and we want the food to be good, because we have to eat it, too.”

In fact, many owners say that opening their businesses stemmed more from a desire to improve the quality of the gluten-free products on the market than a desire to start a business. Most said they have gluten intolerance or celiac disease, so they understand there was a niche that needed to be filled.

“Our business model was trial and error,” Pulcher said. “We had no idea what we were doing, and it didn’t take us very long to figure out what was not working.”

Pulcher didn’t expect Freedom Bakery to be profitable immediately, but things are looking up. Sales have been increasing steadily almost every month since the store opened in April 2009, she said.

The store typically sells about $300 to $400 worth of cupcakes, breads and other baked goods every day, but around Easter, she said she sold $1,000 per day.

“We haven’t broken even yet, but we have noticed that we’re getting closer and closer, which we’re really excited about,” she said. “We usually judge Thanksgiving and Christmas by Easter … they’re two to three times what Easter is. And this year we were slammed … so now we’re like, wow, what’s it going to be?”

The potential for long-term success is absolutely there, but it will take time, said Bob Aebli, a counselor with the Southern Maryland chapter of SCORE, an association of mentors sponsored by the U.S. Small Business Administration. Cash flow is likely to be a major challenge for the hyper-niche small business owner, he said.

“I think there would be a lot of inertia to overcome before you really got some traction in the industry,” he said. “I think it would take one longer to develop an ongoing clientele than it would selling some other commodity.”

While the gluten-free food industry isn’t an instant gratification endeavor, it’s by no means a black hole.

One Dish Cuisine — though perhaps a bit of an anomaly — has already become profitable for Burke, who said she broke even within the first year. She has a background in sales and said she kept “a business plan in [her] back pocket,” but she also attributed her success to learning the hard way.

When Burke was diagnosed with celiac disease about 20 years ago, she said there were few resources or tasty gluten-free options available. Celiac sufferers experience severe abdominal pain, gas and bowel dysfunction when they eat — or even come into contact with — even a tiny amount of gluten.

“There was just me,” she said. “So I’d already perfected recipes. But also, I feel that the biggest need for people is in the three square meals a day, which I can provide.”

One Dish Cuisine sells ready-made meals to restaurants and markets, while other businesses carry less variety. Her first eatery, a café, deli and bakery, is slated to open within three weeks in Ellicott City.

Additionally, Burke tests her products in an independent lab to verify they are free of whatever allergens the label claims. That extra effort allows her to sell her product to three Maryland hospitals, in addition to local markets and through mail orders to individual consumers.

Pulcher said that’s her next step for expansion down the line. But for the owners of these eateries, raking in the big bucks isn’t their priority. Still, several said they recognize the enormous potential of a niche market.

“I said, you know what? It’s a bad economy, but people gotta eat,” Burke said. “And they will pay more for a good product.”

People on the gluten-free diet have long desired more variety on the market, said a customer who has visited several of the eateries mentioned in this article but asked not to be named. She said she thought One Dish Cuisine was a bit pricey given the portion sizes.

The woman also stressed that having specialized restaurants makes it far easier to feed herself and her sons, as they all have celiac disease. It can be very difficult, she said, to find tasty options that are entirely gluten-free.

“They’re really supportive of the community,” she said. “It’s tough out here in the gluten-free world, but it’s nice that these small businesses really take it seriously and go the extra mile to make sure there won’t be any cross-contamination.”

The specialty shops are particularly nice “because it makes us feel really normal,” said one of the customer’s 12-year-old sons.