5Vertical farms in Japan
7-Eleven
In Japan, there are now ‘farm factories’ producing high
volumes of lettuces. Within the factory, robots move
lettuce seedlings on to massive racks where they are
grown under LED lights. At full capacity, some of these
factories produce 30,000 lettuces a day. These factories
are known as vertical farms. Plants are grown indoors in
stacked layers, often without any soil. These vertical farms
can be built anywhere and produce whatever the weather.
The scale of production in these farms can reduce unit
costs, enabling the business to be profitable even if prices
are low. These farms operate in very competitive markets.
To generate the returns that investors require, a viable
vertical farm needs big facilities to gain economies of
scale, involving high levels of automation of processes
such as seeding and harvesting, that have traditionally
been labour-intensive. The vertical farms can offer a stable
supply of crops (because they are growing indoors) and,
because conditions are so hygienic, the plants have fewer
blemishes and so waste is reduced. The producers can
also automate the slicing of lettuces, enabling them to
supply fast-food outlets with salad-ready lettuce.
Japanese vertical farmers are now looking to expand
overseas where this process could appeal – particularly in
countries where water supplies are an issue, such as the
United Arab Emirates. The main environmental concern
about these farms is the source of energy for the LED
lights but, wherever possible, solar power is used.
7-Eleven is the world’s largest convenience retailer. Its
business model is that of franchising its name and way of
operating; it is one of the biggest franchises in the world.
The company has grown fast and says its success is
based around the saying of its founder Joe C. Thompson
Junior, which was: “Give the customers what they want,
when and where they want it.” 7-Eleven says that it is
customer obsessed. It always researches its customers
before bringing them solutions they cannot even imagine.
If you want to be a franchisee for 7-Eleven, the investment
required will include:
a) Define internal economies of scale. [2]
b) Explain two possible economies of scale for
vertical farmers. [6]
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the initial franchise fee
the expenses to train staff according to the 7Eleven-way
an investment into inventory to open the store
spending on business supplies
purchases of business licenses and permits
Insurance costs.
Source: franchise.7-eleven.com/franchise/the-financials
a) Define the term franchise. [2]
b) Explain two reasons why 7-Eleven might sell
franchises in its business. [6]
c) A friend has asked you whether she should buy a
franchise in 7-Eleven. Discuss the factors she
should consider when deciding whether to do this.
[10]