The Good Food Transformation
www.foodfinanceinstitute.org
Why is This so Hard?
It’s Time to Transform Our Thinking
We Get to Admit We’re Winning
We Get to Thank Consumers
We Get to Get Real About Food
Entrepreneurship
Business is The Problem
Food systems are made up of an ecosystem
of businesses. When the businesses
succeed, the system succeeds. What can
business thinking teach us about how to get
to where we want to be?
Business is Part of the Solution
Food Enterprises That Work
A transformed food system is
made up of economically and
ecologically sustainable
enterprises that share these
business model characteristics.
• Defensibly unique offering
• Sufficient market and business
scale to generate adequate cash
flow
• The right brand, packaging,
pricing, sales and distribution
channels, and promotional
programs
• The right staff, production
facilities, & QA
• Enough appropriate capital to
fund growth
– Businesses need both equity and
debt to differing degrees as they
grow.
– Both can be either slow money or
shark tank.
– Public funding for public benefits
Changing Consumer Demand in an
“Understood Market”
Understood markets already have a dominant business model that determines how
business is done and profits are made; nobody’s product is so healthy or unique that
they won’t have to play by the dominant business model rules.
Defensibly Unique Competitive
Advantage
David can beat Goliath, but the balkanization of food brands is
making defensible differentiation more necessary and harder
than ever.
The Locavore’s Dilemna
Take grass-fed beef…
• 568,593 - 2010 Madison Metro Region
Population
• 240,343 - 2010 City of Madison Population
• 58.4 lbs/yr per capital consumption of beef
• 14,036,031 lbs/yr market in Madison
• 3% of beef consumption US = grass-fed
• 421,081 Lbs/yr; 7210 people = Madison grassfed beef market
• 580 lbs/animal average yield
• 726 animals/yr – 29 local herds of 25 animals
• 60% of beef consumed is ground that can come
from dairy culls so number of beef herds
significantly less
• 15 animals/day – rate small scale slaughter
• 48 days of slaughter/yr
Local is great if it can support a viable food business. Nobody wins
when we encourage local businesses to do things that cannot work.
The Right Distribution
Local Direct to
Consumer
Internet
Food Product
Manufacturer
Distributors (&
Brokers)
Multiple Stores
&/or Restaurants
Large Retailer
DC’s
Multiple Store
Locations
The mainstream food distribution system evolved the way it has to
solve real problems that occur when we take food from farms and get it
to consumers. New enterprise models have to solve the same problems.
The Right Facilities & QA Programs
We’re living in a post-Chipotle-meltdown world. Expect all
customers to require a third party inspection and audit
sometime in the near future.
Enough Cash to Grow
Sources of cash usage in food
companies
• Low volume = high cost
• Pay to play for new accounts
– slotting, free fills, demos
• Delayed payments from new
distribution
• Bulk buying requirements,
unique ingredients
• Low profitability generates
little cash internally to fund
rapid sales growth
Most food companies burn up more of their cash on their balance sheet than on
their income statement. They need help understanding this and raising the
money they really need.
The Right Capital Structure
New Business Models
• CSA’s
• On-farm Processing
• Direct to Consumer Sales
• Consumer Food Brands
New Sources of Capital
• Kick starter
• Micro-lenders – WWBIC,
Seed-to-Table Fund, Willy
Street Loan Fund, FCI
• Crowd funding
• Royalty-model private loans
• Direct investing convertible
debt
• Conventional equity
Packaging diverse capital sources is a key success factor to financing
Public Funding for Public Benefits
Common public benefits
of our work:
• Farmer and consumer
education
• Transportation
infrastructure
• Premium prices to
farmers
• Getting good food to
schools
A private business would never attempt to pay suppliers more for a
higher quality product then try to sell it at a premium price to its most
price sensitive customer. Why do we expect a farmer cooperative HUB to
do this?
A Business Model Path That Works
Go Where the Market
is
Viable Local Food
Business Models That
Achieve Scale and
Cash Flow
Horizontally Integrated
Businesses
Diversify Income
Vertical Integrated
Processors
Stay Small
Most local food companies can be positioned to follow one of
these three paths to success. Each presents different financing
requirements and opportunities.
Go Where The Market Is
Diversify Income
Horizontally
Vertically
Stay Small & Direct
How Much Capital is Enough?
Direct Sales Local Brand
• High percentage of direct
to consumer sales
• Shared use facility
• Often little or no other
labor cost
• High cost of goods sold
• Inventory high % of sales
• AR low (direct model)
• Equity: F & F, Kickstarter,
Prepayments
• Debt: Microloans
Typical Funding Needs for Growth
Other Business Models
• Local Vertical - $500,000 sales, $55,000 equity, $50,000
debt
• Regional Brand - $950,000 sales, $160,000 equity,
$200,000 debt
• National Brand - $10,000,000 sales, $1,000,000 equity,
$300,000 debt
Sources of Funds for Food Companies
Food companies always need both debt and equity, even startups.
Getting clarity about how much a company needs, what sources
are appropriate for what and when, and who to ask, is critical.
Transformation is Up to Us
What I’m doing with
my work & FFI
• Edible-Alpha
program for
technical assistance
providers
• Capital Source
Cultivation
What Will You Do Next?