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Sweet Things, Small Packages At the Fancy Food Show, family recipes and novel ideas go from kitchen to boardroom. Vegan marshmallows, anyone?
By Bill Barol

(FORTUNE Small Business) – Here's a tip in case you ever attend the winter Fancy Food Show, which spotlights the newest specialty foodstuffs: Balance your sweets and your savories. If a three-day diet of Frick & Frack's DinoS'mores and Splendid Specialties' tea-infused chocolates threatens to spiral you into sugar shock, for heaven's sake, balance it out with some of the Ojai Cook's cheddar-jalapeño-lemon crackers. After all, you'll need your wits about you to deal with the sensory overload of more than 10,000 attendees bellying up to 1,000-plus booths, every one of them throwing elbows and grabbing free samples of 50,000 different products.

With $2.5 billion a year in sales, the fancy-food industry is big business. Yet it is mostly made up of thousands of boutique firms that produce high-quality foods in small quantities. About 80% of the members of the National Association for the Specialty Food Trade run companies taking in $1 million a year or less.

This accounts for a certain entrepreneurial fervor and a liveliness that give the show its intoxicating possibility--the sense that any recipe from somebody's kitchen can be the next big thing. Here's a sampling:

LT. BLENDER'S MARGARITA IN A BAG

LT. BLENDER'S FROZEN CONCOCTIONS, Galveston Island, Texas PRESIDENT: Ralph McMorris X FACTOR: Delicious, potent, and portable

When stationed in the Dominican Republic with the 82nd Airborne in the mid-1960s, Ralph McMorris had a buddy who owned the only blender in the outfit. "He was a popular guy," McMorris says dryly. A frozen-yogurt mix manufacturer in Galveston, McMorris has paid tribute to his Army days with a diversification into dry margarita mixes. His Lt. Blender brand (right), in a unique, tough plastic bag that resembles a hot-water bottle, produces a half-gallon of margaritas when tequila and Triple Sec are added. Lt. Blender has tripled his firm's sales to just under $1 million in 2003, and the reserves--piña coladas and wine coolers in a bag--are ready to hit the beaches.

VEGAN VANILLA MARSHMALLOWS

TINY TRAPEZE CONFECTIONS, Hyde Park, Mass. CO-FOUNDERS: Ayis Antoniu and Suzanne Lombardi X FACTOR: S'more healthful

If you look at a marshmallow and wonder whether it contains gelatin instead of, say, how deliciously crispy it might get when charred, you may be a vegan. Even vegans like sweets, though, so a raft of crankily sugar-starved phone calls from customers led Tiny Trapeze, a year-old fine-candy maker, to market its Vegan Vanillas. Not sure of its wider appeal, it went slowly, first offering the delectables via its website to gauge interest.

"We didn't know how much response we'd get," Antoniu says, "but it quickly became something a lot of consumers were interested in." Tiny Trapeze's founders, who brought in sales of less than $1 million last year, don't think they have the next food fad. Distribution is limited to specialty stores east of the Mississippi, and at around $8 per 7.5-ounce bag, vs. $1.39 for ten ounces of Kraft marshmallows, the morsels aren't cheap. Chalk that up to the R&D costs of finding a substitute for animal-based gelatin. (Seaweed derivative carrageenan was the answer.) But the result is an airier, springier puff, with a prominent vanilla nose. And it floats nicely atop a carob hot chocolate.

MISSISSIPPI MEAT AND BARBECUE SAUCE

SMOKIN' Joe Jones, San Diego FOUNDER: Smokin' Joe Jones X FACTOR: Bigger than life

In the pantheon of regional barbecue specialties, Memphis has dry rub, Texas has mesquite, and Mississippi has hickory and molasses. This cuisine also has a formidable ambassador in Smokin' Joe Jones --a voluble gentleman with a Panama hat, gold tooth, and a nonstop spiel. If personality creates celebrities out of chefs, Emeril had better watch out. Smokin' Joe barbecue sauce is distributed in about 30 states. "People have found out my barbecue sauce does exactly what I say it does," Jones says. "It's a meat tenderizer as well as a marinade, low in sodium no cholesterol zero fat no MSG no junk. It's good on chicken pork rib beef rib tri-tip pork chops steak ham and turkey," he intones without visibly pausing for breath. "It's also good on fish." The two-man company did about $400,000 in sales last year, its fifth. Not bad for a recipe handed down from Jones's grandfather. "He told me, 'Son, if you watch what I do, you can be like me.' And I have." Pause. "Also, we got a sugar-free sauce coming out that is very impressive."

COCOA PETE'S CHOCOLATE

COCOA PETE'S CHOCOLATE ADVENTURES, Campbell, Calif. FOUNDER: Pete Slosberg X FACTOR: Microbrewing chocolate

Remember when Americans who loved eccentric beers had to buy imports? That was before Pete's Wicked Ale and other pioneering microbrewers got us in the habit of paying $6 a six-pack for domestic suds. Now the entrepreneur behind Pete's is trying to pull the same trick for chocolate, producing a U.S. brand as fine as European imports such as Teuscher. Pete Slosberg, who grew his microbrewery to $60 million a year in sales before selling it in 1998, hasn't yet wooed chocoholics en masse. Revenues are in the low six figures. So Slosberg and partner Scott Barnum just debuted fresh packaging, a new dome shape for the candy, and upped the weight 25%, to about 2.5 ounces a box. In focus groups, "people told us, 'Give us a little more value, and you've got a great deal,' " Barnum says. Cocoa Pete's is delicious, but at $2.50, a splurge. Slosberg is positioning it that way, in "wineries, shoe stores, anywhere you have an inkling to treat yourself." An impulse buy that goes with a '46 Latour. Sweet.

STEAZ DIET GREEN TEA SODA

THE HEALTHY BEVERAGE CO., Newtown, Pa. CO-FOUNDERS: Steven Kessler & Eric Schnell X FACTOR: Mmmmm, antioxidant

Steven Kessler and Eric Schnell never figured that a green-tea soda would do better than $1 million in sales its first year. (Who would?) They actually did twice that, creating the kind of problem entrepreneurs dream about. "Our home equity financing isn't going take us to the next level," says Kessler. "So we're looking for angels." In the meantime, the partners are introducing the "world's first organic, green-tea diet sodas." The three flavors (Cola, Black Cherry, and Lemon-Lime) are spiked with a full cup of a Sri Lankan tea, giving the drink a mossy taste that is ... well, better than it sounds. But why soda? Why not just green tea? Magicians call it "misdirection." Says Kessler: "Soda is the vehicle to deliver the benefits of green tea to people who normally wouldn't buy it--kids." A stretch? Maybe. Now if they came up with green-tea pizza, they might really have something.

X-TREME ESPRESSO AND CAPPUCCINO JAVA COOKIES

COFFARO'S BAKING CO., Bellevue, Wash. FOUNDER: Joy Coffaro X FACTOR: Cookie + coffee + chocolate = heaven

Not every woman dreams of owning a 70-foot enrobing line-an automated system to coat cookies with molten chocolate--but it's been Joy Coffaro's dream, and now it's come true. Part of a newly renovated 18,000-square-foot bakery in Kent, Wash., the enrobing line will finally let the Coffaro's Baking Co. fulfill its customers' jittery cries for its cappuccino and espresso Java Cookies, which have been largely unavailable since appearing at Costco over the 2000 holidays. A buttery coffee cookie thickly covered in chocolate that's been mixed with fresh-roasted coffee, the Java Cookie is to bean freaks either the best thing ever or the second best, after coffee itself. Why the delay? The economic downturn that walloped the aerospace-dependent Northwest after 9/11. "We just couldn't afford to go out and market it," Coffaro says. But the company is now projecting sales of just over $2 million in 2004, and with distribution set to spread, the Java Cookie is headed for your town. Pour yourself a cuppa joe and get ready.

GINGER WASABI SAUCE

ROBERT ROTHSCHILD FARM, Urbana, Ohio CEO: Mary O'Donnell X FACTOR: Hot and sweet as sin

You probably remember the Wasabi craze that gripped New York City like a green, mustardy fever last year. No? Maybe it was just inside the Jacob Javits Center, where jurors at the summer Fancy Food Show voted Robert Rothschild Farm's Ginger Wasabi Sauce the best new product over some 37 gazillion other wasabi foods shown. Curious about whether a win at the summer show really does anything to boost product awareness in the marketplace, FSB went back to Rothschild at the winter show and chatted with CEO Mary O'Donnell.

"It was huge," O'Donnell says. "We introduced the Ginger Wasabi Sauce in the summer of 2003, and by the end of the year it had done $500,000 in sales." That adds up to a significant chunk of Rothschild's $10 million in annual sales from 150 products. At some key accounts, O'Donnell says, the Ginger Wasabi even outsold the company's perennial bestseller, Pretzel Dip. The sauce's success has also fueled a significant leap forward in green-mustard technology: the new and exotic Apricot Mango Wasabi Sauce. Pretzel Dip was seen slinking toward the back of the booth, hanging its lid in shame.