Commercial kitchens in Oakland serve as incubators for food start-ups

On a rainy Friday morning in a downtown Oakland kitchen, Natalie Pearce, founder of Natty Cakes Bakery, is fussing with a vegan recipe for buttercream icing, which she has been fine-tuning for two months. She is making her own homemade “butter” by mixing a butter substitute and coconut oil, but she said that it’s a finicky recipe and can turn out differently due to unexpected factors like the weather. After mixing it in two large blenders, she tastes it and remarks, “It’s better than the last time.”

Nearby, Pearce’s assistant baker Jenna Brotman is also helping in the kitchen, using a large machine to roll pie dough for what they are expecting will be a busy few weeks before Thanksgiving. On this morning, Pearce’s is the only business working in the kitchen. It is quiet except for the gentle humming of the oven and the occasional whirring noise of the blenders.

This is a normal day for Natalie at Kitchener, one of several commercial kitchens in Oakland—industrial kitchens that rent out space to startup food businesses. Many entrepreneurs start in commercial kitchens because the overhead costs are much lower than building out a kitchen of their own, especially during the early stages. In addition to prep space, commercial kitchens can also provide space for entrepreneurs to test recipes, share resources, and collaborate with other businesses.

Kitchener Commercial Kitchen from Oakland North on Vimeo.

Among the amenities at Kitchener, which any of the 18 businesses currently renting there can use, are an industrial size Hobart blender, four convection ovens, a stove, a walk-in freezer and storage space, four large workstations, and shelves stacked with pots and pans, mixing bowls, and utensils. It’s a small, cozy space that used to be a bakery, so it’s especially appealing to bakers. “I knew it before I walked in the door, but you walk in and there’s pink walls,” said Pearce of her decision to rent space at Kitchener. “I felt immediately comfortable.”

Pearce founded Natty Cakes in 2012, specializing in wedding cakes and dessert bars for special events. She has been baking at Kitchener for the past three years, after using a commercial kitchen in Berkeley. One of the main reasons she chose to work out of a commercial kitchen was financial: “It’s an incubator, so you come in with low startup fees, paying by the hour, and you’re able to grow and expand,” said Pearce.

Preparing food in a commercial kitchen is also a way to avoid some of the strict requirements of the California Homemade Food Act, passed in 2013. The law allows cooks to make certain “cottage” foods in their home kitchens for public sale, but limits the types. “With the cottage food license, I could only do cookies out of my home,” said Pearce. “They don’t want you to refrigerate anything. They have particular rules. For me, it made sense to start in a kitchen.” Additionally, according to Alameda County Health Department regulations, in order to have a stand at a farmers’ market—which Pearce did—food startups are required to work out of a commercial kitchen.

Alameda County has 37 publicly-listed commercial kitchens, 17 of which are in Oakland. One of the oldest kitchens is La Placita in Fruitvale, which opened in 2008. Kitchener has been open since 2012, and one of the most recent to open was Forage Kitchen in 2016.

In recent years, more food businesses are opening in Oakland—according to monthly reports published on Berkeleyside, a local news website, since January of this year, 74 restaurants have opened in Oakland while 29 have closed. Within this increasingly competitive food scene, entrepreneurs need affordable space to test their ideas and the market. Commercial kitchens are becoming more like business incubators, hosting pop-up events open to the public and opening cafes or “snack bars” where entrepreneurs can try out the retail market without committing to a long-term lease. In an industry with low profit margins and a high failure rate, these increasingly public-facing commercial kitchens are helping entrepreneurs find their niches.

“Oakland is really lucky because we have so many commercial kitchens,” said Sophia Chang, founder of Kitchener. “Since I started in 2012, it has grown a lot.” Chang started doing pop-ups early on, but recently she’s shifted her attention to building out the “snack bar,” a small street-facing vendor space attached to the kitchen where foodmakers can serve the public through takeout windows. Similarly, at Forage Kitchen, entrepreneurs can sell out of the cafe space at the front of the kitchen, and the space hosts “Batch Made Markets” in the parking lot on First Fridays, a monthly outdoor event in Oakland.

For Pearce, the social aspect of working in a commercial kitchen appealed to her. She joined because she wanted to build community with other foodmakers and share her baked goods with the public. “I really wanted a pop-up aspect,” said Pearce. “I’d been hearing about a lot of commercial kitchens kind of opening their doors to the public, letting everyone come in. Everyone in the kitchen gets to know the community.”

***

On a typical day at Kitchener, up to four different groups are working at a time, doing things like testing recipes, preparing meals for a catering gig, photographing their food, and packaging products for wholesale. Rental rates at Kitchener are monthly, starting at $250 for 10 hours. The more hours the entrepreneur signs up for, the lower the rate.

Since Kitchener opened, Chang has worked with over 120 foodmakers, ranging from bakers to caterers to candy makers to people who make specialty products like lumpia, a Filipino-style spring roll. “We are all about being accessible and affordable to foodmakers,” said Chang. “Beyond just having foodmakers in the kitchen, it’s about having a chosen group of good, open, kind and friendly people.”

Kitchener, at 1500 square feet, is smaller than many commercial kitchens.  “For people who are starting, they like something smaller. It feels more intimate. It’s a quicker step up from home,” said Chang. “We have the basics like a convection oven, stove, mixer—everything is like an adult version of what they have at home.”

Chang started Kitchener after her own experience running an ice cream business out of her mom’s kitchen. When her mom suddenly decided to renovate, Chang was left with nowhere affordable to make her ice cream. “There weren’t very many options for kitchens in 2007,” said Chang. “A large percentage of people rented out kitchen space from restaurants.”

She moved on to managing a bakery called Teacake Bakeshop, but when the owners decided to put up the kitchen for sale and gave her the right of first refusal, she took the opportunity to start her own enterprise, launching Kitchener in their former bakery space.

Chang said that due to the rising cost of real estate, “brick and mortar” eateries aren’t the only goal for food entrepreneurs now. Many are happy doing catering or delivery-only services, especially with the growing number of large tech companies in the Bay Area, which often serve lunch or cater special events for their employees. Plate Craft Catering, based out of Kitchener, has a growing business catering seasonal and locally-sourced drop-off meals, as well as cocktail hour small bites, to offices in Oakland and San Francisco. Chang estimates that about 30 percent of the foodmakers in the kitchen are doing this type of catering.

“Food businesses are known for really low profit margins. And food retail is changing—the way that people buy food is changing,” said Chang. “What’s new is food delivery—retail isn’t as much in demand.” In fact, she said, retail is more “hit or miss” for entrepreneurs because it’s less consistent than catering. Many food startups are “spending their bandwidth getting their food out to tech companies,” she said.

And small businesses aren’t the only ones trying to adapt. Thanks to rising business expenses, Chang herself is trying to streamline what Kitchener can provide. When Kitchener first opened, Chang organized pop-ups and offered workshops for kitchen members, but she has cut back on programming, and is instead focusing on the snack bar.  “Right now we are going through a lean time,” said Chang. “Our expenses have gone up 25 percent, but we haven’t raised our rental rate for kitchen members in two years. In the past, we funneled our earnings into programming. Nowadays, it’s just running the kitchen.”

Expenses like their water bill went up, even though Chang said usage has remained the same. Also, the annual permit fees from the health department have increased, as well as waste management fees. Chang also opted to increase her property insurance rates after a recent fire at one of the construction sites near her kitchen. While she said she is lucky to be on a five-year lease that ends in 2019, she is unsure what will happen with her rent as the neighborhood develops. Many neighbors have been priced out, she said.

Chang is also pregnant with her first child, which has played into some of her decision making. “A lot changed after I got pregnant—I don’t want to take as many risks,” she said.

However, she is excited to finally open the snack bar, a project she started on Kickstarter in 2014. On a recent afternoon at the kitchen, music was coming out of the speakers mounted on the building’s facade, and pastel blue stools were set up outside. Alex Retodo, chef at The Lumpia Company, was selling his signature Filipino spring rolls out of the snack bar with a special Thanksgiving flavor—turkey filled, with gravy dipping sauce.

Pearce, who sold out of the windows for a trial period, said she thought the experiment was a success. “It was really fun and nice—even in such a small space—to be able to do that,” she said.

But Chang knows success is not guaranteed. The street outside is adjacent to several large construction sites, with noisy concrete trucks and construction workers conducting congested traffic nearby. While the takeout windows are easy to walk up to, Chang said that there isn’t as much parking in the area as there used to be, and the foot traffic is not as consistent.

***

Just a couple of blocks away is Forage Kitchen, which opened in 2016. If Kitchener is on the smaller end of commercial kitchens, Forage Kitchen is the opposite—it’s an open, “industrial-chic” space, with exposed brick, high ceilings and lots of natural light. There is a cafe space in the front for pop-ups, where a startup called Smokin’ Woods BBQ is currently open three days a week. The kitchen has multiple mobile workstations, ovens, two stoves, a walk-in freezer, an industrial-size dishwasher, and a storage room. Upstairs, there is co-working office space. Forage Kitchen has a dishwasher on staff, and provides help with permitting as well as marketing for members.

On a Wednesday morning in mid-November, David Suarez is recipe testing for a restaurant he is opening in Lafayette, a city just east of Berkeley. Today, he is making brunch items, like waffles, French toast and pastrami hash, which is finally steaming on the stove after a two-week brining and smoking process. Pastry chef Andrew Lawrence Schiff of Fig and Oak Bakery is prepping the dough for his hand pies, which will have maple bacon and butternut squash filling for the Thanksgiving holiday. Christina Gutierrez and Anna Jepson are recipe testing Tuscan soup and almond nut bars for their employer, Thistle, a plant-based meal delivery service based in San Francisco. And all of this is on what Suarez calls a “slow day” at the kitchen.

Iso Rabins, co-founder of Forage Kitchen, moves between the co-working space upstairs and the kitchen below, wearing a gray hoodie and chatting with some of the entrepreneurs. “I had been using a lot of shared kitchens throughout my career, so I wanted to create the space I wish I had when I started out,” said Rabins.

Rabins started the Underground Market in San Francisco, a retail event for food entrepreneurs, especially those who couldn’t get permits to operate at farmers’ markets. He wanted to lower the bar to entry by providing space for them to sell their products. The event was shut down due to permitting issues, but it inspired his next venture. “That was the motivation for starting this space,” said Rabins. “Oakland has started to embody the same energy I used to feel in San Francisco.”

Forage Kitchen is also home to the Food Craft Institute, which offers classes and resources to startup entrepreneurs, and provides a discount to Forage members. “A lot of kitchens are black boxes, if you don’t run a food business you don’t see inside them—that’s another thing that makes it intimidating. We wanted to make it more porous,” said Rabins.

To do that, they have the retail cafe at the front entrance, and they also host “Batch Made Markets,” at their space on First Fridays. Rabins said almost 1,000 people come through each time, and some of their members are able to make enough money in one night to pay off a large portion of their monthly kitchen rent.

Angie Lin, founder of Good To Eat Dumplings, who cooks out of Forage Kitchen, said the pop-ups have greatly helped her business. “Our first public event was here with Batch Made Market. After the event, we discussed all the comments and feedback we got until like 2 am, and we started to pivot our menu,” she said.

As founder of a startup that is only six months old, Lin is thankful for the success they have found so far. “We are so fortunate that here in the East Bay we have the customer base, and here in Forage Kitchen we have the right community,” said Lin.

But Forage recently made a big adjustment: moving the event outdoors. Due to potential health hazards, the county health department is requiring that they set up the market in the next-door parking lot. Because it is now an outdoor event, Forage will need new permits, which means they may have to raise the rate for vendors. “It was easy and fun and packed when we did it inside, but in the long term it will be better outside,” said Rabins.

Despite the excitement in his voice when talking about what Forage offers, Rabins emphasizes that it’s not always the right decision to join a commercial kitchen when first starting a business. “It’s a mistake people make when they think, ‘I have an idea, so my first step is to get permits and rent a space,’” said Rabins. “Then they burn through cash before they know if they have a viable business idea. I tell them to start in their house, get their cottage food license, and perfect their product. When they get to the point where they have sales and are ready for more cooking space and a community of support, then they should come to us.”

He also echoes Chang in saying that not all food startups need a brick and mortar storefront these days. “What’s cool about the moment we are in is that there’s a lot of venues to get your stuff out. Before it was: Sell in a store or open a restaurant. Now you can sell your stuff on Grubhub, Postmates, Instagram, even Etsy. We have a girl who is getting all her orders through Instagram. Having your own kitchen doesn’t have to be everyone’s goal now.”

***

Commercial kitchens were set up to address the lack of affordable kitchen space for food startups, but like traditional business incubators, they can also help new entrepreneurs get started by guiding them through the paperwork.

Food permitting is particularly complex. Entrepreneurs need to file their business name with Alameda County and get their EIN (Employment Identification Number). Then, they must get a California seller’s permit from the California State Board of Equalization. Next, they must get general liability insurance, file for a business license from the City of Oakland’s Business License Office, get a California Food Handler Certificate, and apply for the Alameda County health permit. Beyond that, there are different health permits for different operations such as catering or food trucks, plus further steps for entrepreneurs who are wholesaling their products.

“There’s so many documents you need to get to go legal,” said Chang. “It’s probably $3,000 at least, to just get the paperwork.”

Some other typical costs for a startup food business include rent, labor, city and state business taxes, utilities, waste management fees, and buying special equipment like industrial-size blenders. The minimum wage in Oakland is $12.86 per hour. Rent might be something like $4,000 per month for a 1,000 square foot commercial space. The business tax rate in Oakland for retail businesses with sales greater than $50,000 is 0.12 percent, which is the percentage of gross profits that businesses must pay to the city. That means that for every $100,000 a business pulls in, they owe $1,200 to the city.

“Obviously, rents and the costs of doing business here and the costs of labor are rising,” said Lee Lambert, director of the Alameda County Small Business Development Center (SBDC), speaking of the challenges many entrepreneurs are facing. “On the other side, there’s a lot more ways to get capital, through things like crowdfunding or community lending programs. Access to capital is better, but there is less room for error as the cost structure goes up.”

Lambert also mentioned the ever-increasing number of food businesses in the Bay Area and especially Oakland. “It’s getting competitive—you have to do something really special or there is no point doing it these days,” said Lambert.

Many entrepreneurs say they feel pressure to differentiate their products from their competitors.  “I really wanted cookie sandwiches to be my main thing, because at the time I was like ‘I have to have something that’s different,’ and I hadn’t seen that yet,” said Pearce. But after selling cookie sandwiches wasn’t as successful as she’d hoped, Pearce decided to expand her offerings, and said that this was ultimately the best decision for her business. “There’s so much diversity, so you can’t necessarily cater to one crowd specifically. But you can’t open it up to every type of cuisine either. You need to be confident in what you’re selling and listen to your community and what they’re looking for,” said Pearce.

Lin of Good to Eat Dumplings said that they have competition “to a degree” with Oakland’s Chinatown and Chinese restaurants in Berkeley and Albany, but they are confident in their Taiwanese-style dumplings, which are not as common in the Bay Area. “By working with other creative chefs, we have learned how to create our differentiation,” said Lin. But, she continued,

“The challenge is, where do you find your customers and your community?” Lin has found some success partnering with craft breweries like Temescal Brewing, where they do pop-ups— customers interested in craft beer are often also interested in artisanal food. The brewery connection, she said, was thanks to a fellow Forage chef.

Ally Dearman, director of the Food Craft Institute, said that new businesses can actually have the advantage because they are new and buzzworthy. But it’s important for entrepreneurs to sustain their business beyond the initial hype. “Someone being new is actually their best asset—everyone wants to try the new best bagel in the Bay Area or the best new fried chicken,” said Dearman. “But once that newness fades, how are they maintaining that customer base? The returning customer is the person you’re really selling to.”

But Lambert, like Chang and Rabins, points out that there are alternatives to opening a brick-and-mortar restaurant. “There seem to be restaurant spaces popping up in shared spaces—a permanent food-booth-type of model, like at Emeryville Public Market,” a food court and retail center with casual eateries and stores that was recently renovated, said Lambert. “We are seeing more people do business plans to potentially house that type of model. We really need to take down the overhead for a lot of food companies.”

Another issue is the shortage of hospitality labor. “The food and hospitality industry is exploding in Oakland,” said Michelle Scott of Inner City Advisors, which offers business planning classes, an accelerator program, and startup funding to entrepreneurs. “There’s so many restaurants in the Bay Area—tons and tons of those types of service jobs, but a shortage of food service labor.”

“Usually in the food industry, the pay for those types of jobs is not really high. A person would have to have two or three jobs in that industry. It’s really hard to keep people and it’s hard to live here. That seems to a pain point,” Scott continued.

“The problem is that foodmakers have had to keep their prices the same while dealing with rising labor costs,” agreed Chang. While minimum wage is just under $13 in Oakland, Chang said it’s an “unspoken rule” that most groups offer $15 per hour because of the high cost of living in the Bay Area. “There are all these unseen forces that affect these food businesses. Most of them are living month-to-month and barely making it,” she said.

***

While many kitchens attract chefs or founders who would otherwise be working in restaurants, there are some, like La Placita, which cater specifically to mobile food vendors. La Placita was founded by community activist Emilia Otero in 2008. It has been in its new location on International Boulevard since 2012.

Today, they serve 20 to 30 clients, including caterers and those who sell their food out of trucks, trailers, and pushcarts. “We’ve never really turned anyone away,” said Pamela Smith, manager of the kitchen and Otero’s daughter-in-law. While Otero has largely passed on the kitchen responsibilities to Smith due to age and health reasons, she still visits the kitchen regularly and continues to mentor the entrepreneurs there.

More startup owners are looking at mobile food vending as an option, Smith said. “Emilia told everyone back in the 90s, it’s the business of the future,” said Smith. “Now, it’s everywhere, like Oregon and Texas. In the ‘90s it was a stigma, but now it’s a trend. There’s more innovation now, it’s not just about tacos. It’s vegan Filipino food and gourmet stacked burgers. We are keeping our original roots and infusing it with new trends today.”

But dealing with the bureaucracy of applying for the new permits from the city can be a challenge, said Smith. Since the citywide food vending program passed in March, 2017, mobile food vendors can apply to set up a food truck or cart in any district in Oakland, whereas previously they were limited to Districts 5, 6 and 7.

“A lot of this stuff is new—everything was approved in March. On June 5, we got applications. A one-page application turned into 12 pages,” said Smith. “We had one month to complete them, and myself and a lot of other independent trucks asked for an extension window. Now they are processing through all of those.” A new application period for vendors to apply for a mobile vending permit will open in January, 2018.

In addition to the financial barriers many food startups face, Smith adds that there can also be language barriers. “Many of our vendors are Spanish-speaking, and we have some Mandarin- speaking people. There are barriers for them in understanding all of the rules,” she said.

She said that La Placita often plays a mediator role between food vendors and county health and permitting offices. For example, when the health department changed mobile food placarding requirements in 2014, a lot of people didn’t understand them. The county required vendors to display color-coded placards based on the results of health inspections. “We had to let the vendors know why this was important, and also inform community members to look for these placards to know what was safe to eat,” said Smith.

Yet, despite their longstanding presence in Fruitvale, Smith said they are not immune to the changes happening throughout Oakland. “Our rents have increased like everybody else’s—so I have to raise people’s rents as well. It’s a challenge. It’s not a fun conversation,” said Smith.

She also said that because of how La Placita has built its food vending community over the years, Fruitvale is almost at capacity for mobile vendors. “People are having a harder time finding locations in Fruitvale,” she said.

***

As Chang builds out the Kitchener Snack Bar, she is hesitant to say what will happen in the next few years. Her lease is up in June of 2019, and she said the site is up for sale privately. “It is a market for developers,” said Chang of the neighborhood. For now, she’s focused on helping her foodmakers survive the market as they all face rising costs and increasing competition. That means betting on the snack bar—she’s looking for groups to sell there on a semi-regular basis.

At Forage Kitchen, James Woodard of Smokin Woods BBQ will soon be selling out of the cafe six days a week, up from three. Rabins hopes this change will offer more consistency and attract a more regular customer base. Rabins is also starting a podcast interviewing entrepreneurs in the kitchen, which he hopes will help promote their businesses.

And while the concept of food delivery is on the rise, Dearman of Food Craft Institute said it may just be a trend. “Most of the companies that are going to have success in delivery are the ones that have high capital from the get-go and have the infrastructure to do it. Unless you have the capital to buy the equipment and production space and buy a fleet of cars or pay the high markup for delivery, then the traditional models are kind of still the best way to make the profit that you need to still make a living,” she said.

That means that there will still be demand for commercial kitchens among entrepreneurs who hope to eventually expand into full-sized restaurants. Many of the businesses occupying these kitchens today will eventually outgrow them; they are meant to be short-term solutions for entrepreneurs as they build their business. While Pearce loves the flexibility of working from Kitchener and the community it has given her, she acknowledges that she is looking to make the next step. “I’m realizing that expanding is difficult in a commercial kitchen,” said Pearce. “You pay by the hour, so the busier you get—you are not exactly maximizing efficiency.”

She is exploring her options, including her ideal scenario of opening up a retail bakery and cafe, which has been her “goal all along.” She has been collaborating with another Kitchener member, Bonnie Perhac of Plate Craft Catering, in developing a retail concept. “We’ve been looking for a couple months now,” said Pearce. “There’s some good stuff, but it’s just finding a right fit with a landlord, and if you can get the funding, and location is obviously important. So we’re working on it. It’s a lot of work, but it’s definitely the next step.”

Timing is a big factor, too. “We’re technically in our slow season,” she said. “So it would be nice to find a place and do the build out in the slow season. Then, by the time spring rolls around, we’re ready to open our doors.”