1. Home
  2. >
  3. Stories
  4. >
  5. Goodbye Underground Market

Jul 15, 2011

Goodbye Underground Market

You may have seen the news recently that the SF Underground Market was shut down by the city and might not happen again. Iso and team are working hard to bring it back, but it may be resurrected in a very different form — if it comes back at all. We feel particularly sad because the underground market had a special meaning to us: it was one of the few places we were able to sell our chocolate — and get early feedback from real customers — before going through the red tape to launch a company.

Just like tech, launching a new product (whether it’s food or software) takes a lot of energy and the earlier you can get your product in front of real people, the better. It’s very expensive and time consuming to become legal to sell at farmer’s markets and retail shops, so the underground market circumvented this by creating a members-only club. Members signed a waiver and paid a small fee, allowing their stomachs access to all sorts of new baked goods and food treats all in one spot.

It was a great event and attracted all sorts of new foodie vendors, created a community around the local food scene, and launched many new businesses. Eventually the health department noticed that thousands of people were showing up to these events (generating a lot of attention) and shut it down. To give you a sense of why the market worked, here’s what we needed to do to become legal:

  • Incorporation ($500-$1000)
  • Business license (~$300)
  • County health permit (~$300 + 1-2 month wait time + food safety class)
  • State health permit (~$300 + 1-2 month wait time)
  • State board of equalization letter
  • Commercial kitchen rental ($500-$1000 / month)
  • Farmer’s market permit (~$300)
  • Farmer’s market fees ($200-$400 application fee + $50/market)

This alone can easily add up to a few thousand dollars. On top of that, California law requires food processing machinery to be NSF certified, but there is no such thing as NSF certified chocolate-making equipment. There are a tiny number of manufacturers at this scale, and not one has gone through the hassle of getting their machinery approved for use in California. For us to become fully legal, this process took three to six months of back-and-forth, hiring consultants (from Canada of all places), and $3,000 – $5,000 per machine. No reasonable person is going to pay these costs until they know they are on the right track.

Some will rightly argue that these food safety practices are important — and we agree. We are happy that there is a system in place that protects the public and provides each vendor with a baseline education in proper food-handling. However, because each state has different food safety laws, the chocolate I can buy in my local shop could have been made outside of California, in a small maker’s home kitchen, as this is legal in many other states. This means that the local consumer is not protected by these laws, while at the same time, small, local vendors are put at a major disadvantage to the benefit of other businesses outside of California.

What might make more sense is to have some exclusions for smaller vendors and let the underground market operate as a food incubator. Let new vendors try out new ideas, ensure a base level of food safety knowledge, make sure people coming to the market are informed, and help the successful ideas graduate to real businesses. This is the de facto role the underground market was fulfilling, and the success of the market only confirmed that this is a very acute need.

In the tech start-up world, if you create something so valuable and interesting that it explodes in popularity and demand, people literally line up to give you start-up funding to help you grow. The underground market was clearly on to something good — it found a huge amount of latent demand, created excitement and community around food, and launched a number of new businesses — including ours. Rather than shutting down this great thing, I hope the city can find a way to make this work while keeping everyone safe.


Leave a Reply

%d bloggers like this: