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What can we learn from Farmdrop?
4 min read
It’s a sad day for 450 local and small-scale British farmers and artisan food producers. Farmdrop, a darling in the ethical food sector, shut its doors today leaving hundreds of family food producers out of pocket and without a route to market.
Having been in this game for over a decade we, at Ooooby, can categorically say that it’s a very hard business to make viable. Good intentions are essential to even get started on this path, and from what I’ve observed the founding team at Farmdrop were good people with plenty of good intentions and a bold vision for a better food system, but there are so many ways things can go wrong and there is very little margin for error.
No doubt a lot of people who put their trust in Farmdrop; farmers, artisans, staff, crowdfunders, institutional investors, and customers, are now licking their wounds and wondering if ethical food from independent small-scale producers is just fantasy in the today’s centralised and globalised world.
This piece is a response to these doubts and a call to look rationally at how it went wrong and how we can keep moving forward without falling into the same traps.
So, what were the traps?
Of course, there are many dynamics over many years that will have played a role in Farmdrop’s demise, and in my experience, I think that three overarching factors stand out.
Centralised business model. Farmdrop was a centralised online food retailer competing head on with massive players at their own game. They tried to run the same model as the Big Boys just with a different product story. The problem with this is that centralised systems require very high sales volumes to reach breakeven because of high overheads. Farmdrop didn’t have any operational advantages so they were relying on their marketing story to win the day.
Staff Gearing. Farmdrop had over 175 staff with retail sales of £12m. Based on our operational experience, £12m annual sales would require approx 20 packing staff, 20 drivers and maybe up to 10 admin and management staff, less than one third of the staff on Farmdrop’s books. However, if you have an imperative to grow as fast as possible to get to viability, there is the need to invest in more staff to drive that growth, so it can sometimes be an unavoidable trap that some are able to get out of but many aren’t.
Focused on rapid sales growth. With £30M of investment from a variety of funders, there would most likely have been an imperative to either grow super fast to achieve economies of scale or to become an attractive acquisition target for much larger players. This focus on speed burns capital fast and typically requires aggressive expensive customer acquisition tactics with diminishing returns. Unfortunately rapid market capture is a very common strategy often encouraged by venture capital money, but usually means needing much more money than originally anticipated.
What will prevent Ooooby from falling into the same traps?
While from the outside Ooooby may appear to be in the same category as Farmdrop (both sites enable you to shop for local and small-scale food delivered to your door), Ooooby is entirely different in fundamental ways.
Decentralised business model. Ooooby facilitates many independently owned and operated micro-scale packing hubs with very low overheads, often times in barns on the very farms where much of the food is produced.
Leveraged staff. Ooooby has a core team of 4 people (1 full time and 3 part time) with retail sales of over £4m. That’s greater than an order of magnitude of sales per staff member (14X) as compared to Farmdrop. All the packers, drivers and operational coordinators are employed by the independent hubs and are often farm workers getting extra hours on the packing line or running deliveries. So granted, Ooooby doesn’t employ the operational staff directly, but that means a much higher proportion of the retail pound stays with the producers and the workers are all paid fair wages.
Focused on accelerated systems deployment. Ooooby is not focused on rapid sales growth, we’re focused on rolling out a networked system that collaborates with and enables many small-scale producers to serve their local regions. We exist to enable independent food producers to remain independent and to prosper in the long run. Our model is about putting high quality direct-to-consumer tools into the hands of the many thousands of small-scale producers out there, bypassing the need to rely on a centralised channel to market. We’re in for the long game and are planning to become a user-owned platform, meaning that the farmers, artisans, hub workers and customers will be dominant owners in the long term.
In summary, what we can learn from Farmdrop is that liberating small-scale and independent farmers requires a decentralised system that leverages the existing farm based infrastructure and workforce with a focus on keeping costs under control for long term success.