Many food consumers are starting to expect social responsibility from food companies, voting with their dollars to buy products from companies that reflect their values or at least try to minimize harm to the environment and people. Often, to make an informed decision about the social responsibility of the food company, consumers are demanding transparency about ingredients and ingredient sourcing as well as all the environmental and social impacts of and on all of the actors in the supply chain. Many investors are also signaling that they want to align themselves with brands and food companies that act responsibly and in some cases with a specific social impact in mind.
Having investors and consumers in alignment around issues of social impact and responsibility is a great boon for the growing cadre of food entrepreneurs interested in making a difference through their businesses. However, from a business perspective, social impact isn’t as important as having a viable business model. Food entrepreneurs, when speaking to investors, should to clearly communicate the business model of their company, which means talking about how their business will make money and on what time horizon. This doesn’t mean that food entrepreneurs should hide their social mission or desired impact from investors or anyone else, but rather that they should contextualize their social goals as part of the larger business strategy. For example, when discussing business’ competition, if social impact helps the business stand out in their product category, that is important because it provides one point of differentiation that, when combined with other differentiators, can make the company defensibly unique and thus, more financially viable.
Also importantly, food entrepreneurs should define what they mean by “impact.” Traditional business goals like new customer acquisition metrics, profitability, positive cash flow and percent of market share all have defined measurements and presentations. The formula for net income – i.e. profitability – shouldn’t change depending on who the business is talking to, even if the time horizon for profitability is different for different food business models and thus, needs to be emphasized when talking about the model.
Social impact is often a more complex thing to measure, due in part to conflicting definitions and measurement methodologies. For example, a food brand’s claim to “support sustainable farming practices” could mean supporting regenerative agriculture practices regardless of scale. Or, it could mean purchasing directly from small, family farms in the local community. Social impact funders, whether they use grants, loans or equity investments or a combination will want this definition of impact to be as clear as possible. And, they likely will expect the people they fund to report on the social returns of their activities in regular intervals and standard formats, just like the business’ financial returns.
We help our food entrepreneur clients find a way to achieve their desired impact within the context of a viable business model that meets their target consumer’s real or perceived needs and aligns with the goals of their funders. Because food businesses need to be financially sustainable to achieve their goals, including impact goals, understanding their business model and aligning their efforts behind the model is the best way for these businesses to achieve their impact goals. No money, no impact.
And now, our roundup of the best food and beverage finance news, events and resources from around the web…
Business Model Insights
- Why Business Design Matters for Startups (Startup Nation) – “Articulating what a business stands for, and why it is unique, is the first step in the journey, though it’s also one of the biggest challenges facing entrepreneurs. Additionally, having no entrenched values or established practices means startups are well-placed to design a business model that is future-focused and more flexible – which helps them adapt to changing customer needs. Of course entrepreneurs have vision, but as a founder, you’re also caught up in a whirlwind of fundraising, product development, marketing and recruitment, and it’s easy to lose sight of what your company stands for in the first place. Being able to see the direction beyond those day-to-day hurdles is paramount.”
- Kitchen Talk: To Rent or Buy Your Facility? (The Food Corridor)
- What is Included in Cost of Goods Sold? (RealFoodMBA)
- New ways to think about liquidity for impact capitalism (New Hope Network) – “There are ways to avoid a disconnect between the mission and the exit strategy. Many funders see how important it is to reinvest in the most important drivers of the business and sometimes that is the brand itself, including how the brand stands out for social impact and in supplier relationships (for example, fair trade). Investors often want ongoing measurements of impact, and some impact investors invest for the long term rather than with a quick exit in mind. With an Employee Stock Ownership Plan (ESOP), ownership is captured like a retirement plan, with much of the benefit being cultural, as everyone behaves like an owner. ESOP rewards the company with employee longevity.”
- Build Your Small Business Credit: 4 Key Differences That Matter (SBA Blog)
- 3 Things to Know About Your Small Business’s Working Capital (Investors Community Bank)
- New Land to Market program will give land a voice of its own (New Hope Media) – “Land to Market is the world’s first verified regenerative sourcing solution for meat, dairy, wool and leather. Through its vast global hub network, Savory’s Land to Market program will ultimately provide brands and retailers with access to meat, dairy, wool and leather originating from land that is verified to be regenerating. This is done through Ecological Outcome Verification (EOV), developed in collaboration with major research institutions and soil scientists, an empirical and scalable soil and landscape assessment methodology of its kind to be based on outcomes, not practices. The second component of Land to Market is supply. For the first time in its history, the Savory network’s global supply of meat, dairy, wool and leather, together with its associated data, will be catalogued for ease of access by brands and retailers. Sharing a story of positive change is the final component of the Land to Market program.”
- Albertsons offers analysis of digital ads impact on sales (FoodDive)
- The :05 Rule – Tips for Making Natural Food Packaging Stand out in the Store (Kathryn Mleziva)
- Fulfilling CPG Shoppers’ Desires for Localization (IRI) – “For CPG manufacturers and retailers to be successful in this shifting landscape, they will need to reevaluate the food they are selling, the way it is marketed and even the retailer’s position in the community in order to fulfill consumers’ growing desire to support local food and local businesses. Consumers want to connect with both the land that their food and its ingredients were grown on as well its producers. Of the $62 billion in produce sales in the United States in 2016, $18 billion to $20 billion was spent on local goods. Local is growing two times faster than total produce sales and has seen an eight to 10 percent increase from 2015 to 2016. As technology continues to advance and become more accessible, it will get easier for smaller companies to grow more quickly.”
- 12 Food Trends To Watch In 2018 (CB Insights)
- 3 Trends Spotted at the Winter Fancy Food Show (Project Nosh)
Farming and AgTech
- Net Farm Income Projected to Drop to 12-Year Low (Farm Bureau) – After rebounding slightly in 2017, net farm income in 2018 is expected to fall to $59.5 billion, a 12-year low, according to USDA Economic Research Service’s most recent 2018 Farm Sector Income Forecast. USDA’s ERS data on farm household income indicates that, since 1996, the earliest data available, more than 50 percent of farm households lose money from farming – meaning on-farm income is negative. USDA ERS’s data on median on-farm household income confirms the median farm income has been negative. Median on-farm household income has ranged from a low of -$3,040 in 2008 to -$118 in 2014, and averaged -$1,569. Median farm income in 2018 is projected at -$1,316 per household, down 13 percent from 2017, and the lowest level in the last six years.”
- Farm Sector Shrugs off Trump Proposals for Farm Bill Cuts (Agriculture.com)
- Going beyond ‘sustainable’ with regenerative farming (Food Navigator)
- How sustainability is influencing M&A in the food industry (Just Food) – “Consumer research consistently shows the sustainability of the food industry matters increasingly to consumers, which has prompted unprecedented change in how food companies operate.
As changing consumer priorities and motivations also create growth markets, it follows sustainability concerns must also be influencing food industry mergers and acquisitions, as companies pursue those growth opportunities through deal-making. Nestle’s recent purchase of US plant-based products specialist Sweet Earth is just the latest in a host of deals that suggests this is indeed the case. Meanwhile, as sustainability considerations become increasingly aligned with risk mitigation, a potential takeover target’s engagement and performance on sustainability criteria – for example in areas such as water stewardship, sustainable sourcing and greenhouse gas emissions – is becoming increasingly relevant in the due diligence a company might undertake prior to making an acquisition.”
- Tyson Seeks to Boost Food Brands as It Hunts for Acquisitions (Bloomberg)
- Boom in food M&A just getting started as Kraft looms (The Middle Market)
- Growing Profits on Vegetable and Livestock Farms (MOSES) – $, 2/22 in La Crosse, WI
- Moses Organic Farming Conference (MOSES) – $, 2/23 – 2/24 in La Crosse, WI
- FaBcap Starter – How To Start A Food Business (FaB Wisconsin) – $, 2/27 in Madison, WI
- Expo West (New Hope Network) – $, 3/8 – 3/11 in Anaheim, CA
- Buy Local, Buy Wisconsin Grant Application (Wisconsin DATCP) – Free to apply, 3/9 online
- Good Food Expo (FamilyFarmed) – $, 3/24 – 3/25 in Chicago, IL
- National Good Food Network Conference (Wallace Center) – $, 3/27 – 3/30 in Albuquerque, NM
- Techstars Farm to Fork Accelerator Due (Techstars) – Free to apply, 4/8 online
- Financial Management Boot Camp (Food Finance Institute) – $, 4/9-4/10, 5/7-5/8 in Fairfield, IA
- Optimizing Business Models for Profitability & Growth (Food Finance Institute) – $, 4/19-4/20 in Saint Paul, MN
- Fearless Farm Finances Workshop (MOSES) – $, 4/27 in Wisconsin Dells, WI
- BevNet Live (BevNet) – $, 6/6-6/7 in New York, NY
- Smart Food Expo (Various Orgs) – $, 6/25-6/27 in Chicago, IL