The bottom line: The first food revolution occurred when agriculture was first developed. It was local and small-scale. The second food revolution was global and large-scale, powered by machinery and chemicals. The third food revolution is local and small-scale. Food will become tastier, healthier, and will give back to the environment rather than extract from it. We're on the cusp of this future, but it's by no means guaranteed.
Meicai, a Chinese startup that connects farmers with restaurants and consumers, has raised $800 million in 5 years. Meicai cuts out the middlemen with its own distribution network and over 4000 "freelance" drivers. Meicai pales in comparison to the American giant, Sysco, with over $55 billion in revenue. Grocery delivery startups across the world like Good Eggs and Ocado have raised $8 billion to change the way consumers buy food.
We're on the cusp of a massive shift in the food supply chain. As with most industries, no one knows what it will look like a decade from now.
I have my own ideas and opinions. Before sharing those, we need to understand the challenges each segment of the industry faces. The main segments are farmers, restaurants, and consumers. Grocery stores and distributors are the glue.
Farmers deal with a lot of uncertainties like weather, prices, and labor. Their margins are squeezed by everyone else in the supply chain. There are many strategies and tools to help farmers deal with these uncertainties, but they come at the expense of control and... margins.
Restaurants are capital intensive and have slim margins. I have a restauranteur friend who became a real estate agent to discourage people from starting restaurants.
Consumers want food that tastes good. If it doesn't taste good, nothing else matters. Beyond taste, consumers are increasingly looking for local, organic, and sustainable food. We've seen the rise of food that teaches, creates connections, and provides novel experiences.
Grocery stores are undergoing a shift from brick-and-mortar to online delivery. Their challenges are closely tied to consumer demands.
Distributors are old school. They rely on face-to-face relationships. Ordering happens over phone or email. Traceability is almost non-existent. Agricultural produce passes through up to 7 layers of middlemen, each one adding a 20 - 30% markup. Distributors engage in price wars with nothing else to differentiate.
There's a lot more to say about each of these segments that I'll cover in future posts.
The Third Food Revolution
We're on the cusp of the third food revolution. The first was local and small-scale. The second was global and large-scale.
Technological advancements are ushering in the third revolution, which is about local, diverse, flavorful, nutritious, and regenerative food. According to the Rodale Institute:
Regenerative organic agriculture improves the resources it uses, rather than destroying or depleting them. It is a holistic systems approach to agriculture that encourages continual on-farm innovation for environmental, social, economic and spiritual well-being.
I think the trend towards restaurant and grocery delivery is missing the goal. Companies in this space control consumer relationships. Everyone else in the supply chain is modular and can be replaced anytime (learn about how this pattern upends industries). Restaurants and farmers exchange relationships for marketing and distribution. This may benefit them in the short term, but it's much harder for them to build loyalty in the long term. That said, I think many restaurateurs and farmers will do well. They can focus on what they do best: cooking and farming.
However, the consumer loses out. They don't know where their food is coming from or the conditions it was prepared in.
These food delivery startups can be likened to Amazon, which is an aggregator that enables merchants to sell on its site. Amazon controls the relationships and merchants are usually forced to compete on price. On the other hand, Shopify is a platform that provides the building blocks for merchants to sell directly to consumers. This differentiation has led Shopify's meteoric rise because their incentives are aligned with their merchants. Amazon's incentives are clearly not aligned considering it competes with its merchants.
We need a Shopify for farmers, restaurateurs, and food processors (brewers, cheesemakers, etc.). My mission is to use the language of food to build stronger local communities that can adapt and respond to a rapidly changing world.
Here's how I'm getting there:
- Start by building relationships with restaurants. Sell low-cost business or inventory management software. This is the Trojan Horse.
- Once we have a critical mass of restaurants, integrate supply ordering capabilities into the inventory management software.
- Build relationships with existing distributors and re-sell their products into the supply ordering software. This can be done at minimal or no cost since it's a transient state.
- Build relationships with farmers based around building their brand for them. Any goods we distribute for them will be under their name. Restaurants can provide direct feedback with the farmers they're ordering from. We empower the farmer to build their brand and customer relationships.
- As we prepare to scale, we need to build an efficient supply chain that glues the entire system together. Software and consulting/ teaching products will be the real money-makers due to their lower or zero marginal cost.
- Help restaurants share the story and value behind the farm-direct food they're ordering. We need to generate consumer interest.
- Leveraging the restaurant-generated interest, build relationships with community organizations such as churches. We're looking to establish consumer clusters to increase efficiencies of scale. It's easier to deliver to single points like community centers or restaurants than door-to-door.
- Consumer demand creates a positive feedback cycle with restaurants. Restaurants raise awareness. Consumers push restaurants to adopt better food.
- Stories only go so far with the modern world's obsession with science. Stories need to be backed by data. Introduce lab nutrient analysis and carbon footprint estimation. We could even sell boxes with both conventionally grown food and regeneratively grown food for consumers to taste the difference for themselves.
- Build connections between consumers, restaurants, and farmers by encouraging dining events, farm-volunteer programs, farm visits, and direct communication pathways. People help each other when there are real relationships. If a farmer overproduces or underproduces, they should be able to communicate that with their customers. If a conventional farmer wants to transition to regenerative, they should be able to find the support and financial backing to do so.
- As we look to expand our consumer base, we need to re-engage those with less of a connection to food. Provide recipes and partner with processors to sell [healthy] processed foods.
- Once we reach a certain scale, we can improve efficiency with software automation. Yields can be forecast and sold ahead of time to customers. If a farmer is out of a certain product, suggest either a replacement or another farmer with that product (but don't undermine the original farmer).
To summarize, we start by building relationships with restaurants, then farmers, then consumers.
Use the language of food to build stronger local communities that can adapt and respond to a rapidly changing world.
This post is the distillation of months of research and chats with people who know a lot more than me about the industry. 2020 is when execution starts. Let me know if you are interested and want to chat.