Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Food Hub Viability

1,056 views

Published on

James Matson with Matson Consulting along with Micaela Fischer with Michigan State University presented on Food Hub Viability at the 2014 National Good Food Network Food Hub Collaboration Conference. The presentation was part of a plenary session on March 27, 2014 in which presenters take a look at the operating strategies of different food hubs around the country, and explore how increasing financial viability can make their desired community impact become a reality that can be sustained in the coming years.

Published in: Business
  • Be the first to comment

Food Hub Viability

  1. 1. A Presentation on Food Hub Viability Presented By: James Matson Owner- Matson Consulting Micaela Fischer Graduate Affiliate, Center for Regional Food Systems, Michigan State University In Collaboration With
  2. 2. Additional Food Hub Resources Matson, James; Sullins, Martha; Cook, Chris. (January 2013). The Role of Food Hubs in Local Food Marketing. The United States Department of Agriculture Rural Development. Fischer, Micaela; Hamm, Michael; Pirog, Rich; Fisk, John; Farbman, Jeff; Kiraly, Stacia. (September 2013). Findings of the 2013 National Food Hub Survey. Coming Soon: Matson, James. (March 2014). U.S. Food Hub Operations Guide. The United States Department of Agriculture Rural Development.
  3. 3. Food Hub Viability Introduction  Workshop will combine three different data sources:  Findings of the 2013 National Food Hub Survey  Pathways To Food Hub Success: Financial Benchmark Metrics And Measurements For Regional Food Hubs  Matson Consulting Prototypical Food Hub  Each source will have slightly different results.  Workshop intends to create a clearer discussion on typical food hub viability. Presenting ongoing research. Some data presented here is preliminary. Final results will differ.
  4. 4. Discussants  Kathy Nyquist—New Venture Advisors  Erin Pirro—Farm Credit East  Darrow Vanderburgh-Wertz— Wholesome Wave Investments  Provide comments, critique, and context.
  5. 5. Food Hub Viability  Information from the 2013 National Food Hub Survey  Micaela Fischer MSU Center for Regional Food Systems
  6. 6. Food Hubs Emerging and Growing  Over 220 listed on the Food Hub Collaboration website.  62% are 5 years or younger!  32% are 2 years or younger!  More hubs in East/West coast states than in middle America.
  7. 7. Finances Sales Revenue
  8. 8. Financial Success  Most either ―somewhat‖ or ―not at all‖ dependent of grant funding.  Most have revenues that exceed, or are close in value to their expenses. Business Efficiency Ratio= Expenses/Revenue
  9. 9. Financial Viability  Unpublished financial findings and updates with the publication forthcoming.  Unpublished study using data from the 2013 National Food Hub Survey.  Divided food hubs into two groups based on efficiency ratio.  Compared operating characteristics between two groups (logistical regression).
  10. 10. Financial Viability - Scale  Financially viable hubs had median 2012 revenues of $600,000 and sales of $450,000.  Hubs that were not financially viable had median revenues and sales of much less—$200,000 and $137,000 respectively.  Every $100,000 increase in revenue represents a 38% increased odds of being financially viable.  All food hubs classified as not financially viable had 2012 revenues under $500,000.
  11. 11. Financial Viability & Employees Financially Viable  Median number of paid employees = 4  Median salary per paid employee = $15,370 Not Financially Viable  Median number of paid employees = 3  Median salary per paid employee of $14,560 Median % of revenue spent on employee salaries and benefits is 71% more for food hubs that are not financially viable than for food hubs that are (25.33% vs.14.79%).
  12. 12. Financial Viability & Expense Structure  Food hubs that were not financially viable tended to spend nearly twice the proportion of revenue on overhead costs than did financially viable hubs.  Most financially viable food hubs are emulating more traditional food distribution businesses in their expenditure patterns  Closer to 15% of revenue on employee salaries and benefits and  Closer to 70% on food and product purchases (COGS, or Return to Farmer).
  13. 13. Financial Viability & Expense Structure Median Expenses as a Percent of Revenue All Food Hubs (N = 107) Financiall y Viable (N = 63) Not Financiall y Viable (N = 15) Food/product purchases 67% 68% 63% Payments for warehouse or facility space 3% 2% 4% Payments for trucks and equipment 2% 2% 5% Gasoline and tolls 2% 2% 2% Utilities 1% 1% 3% Credit card and bank service charges 2% 2% 3% Employee salary and benefits 18% 15% 25% Consulting services 1% 1% 2%
  14. 14. The Benchmark Study: Pathways To Food Hub Success  Collection of historical financial results and operational information from similar food hub businesses  Comparison to peer group  Analysis of information to identify a range of performance Presented by the Wallace Center and Winrock International
  15. 15. The Scope of Operations  Average Age of Food Hubs: 11 Years  Average Revenue: $1.65 million  Annual Operations: 301 Days  Facilities:  Square Footage 9,018  Number of Loading Docks 2  Delivery Fleet (annual miles driven) 54,001
  16. 16. The Product  Sourcing Distance (miles) 521  Strictly Organic 20%  Grow Some of Own Produce 27%  Buy From Own Incubator Farmers 33%
  17. 17. Sources of Revenue 83.78% Grants/Contribu tions, 8.99% Other Enterprises, 6.3 5% Delivery and Miscellaneous , 0.88% Product Sales, 83.78%
  18. 18. Profit & Loss  Revenue 100% Cost of Goods (67.63%) Cost of Sales (11.04%)  Gross Margin 21.33% Overhead Costs (24.29%)
  19. 19. Operational Efficiency  Markup Multiple 1.24  Gross Margin 21.3%  Labor Costs as a Percent of Sales 17.4%  Labor Costs per Paid FTE $48,867  Sales per Worker Equivalent $286,788
  20. 20. Case Study Introduction  Presenting data from current client work and experience.  Preliminary draft of a generic food hub.  Verified this data with findings from the Benchmark Study and the Food Hub Viability Survey.  Model begins with a level of break-even sales and grows to a point of long term viability.
  21. 21. Case Study Generalities  Food hub is in a suburban locale.  Food Hub is assumed to have access to a variety of producers and members.  Located within 50 miles of customer locations.  10,000 square feet in size (adequate space for storage, handling, and cooler space).
  22. 22. Case Study General Operations  Operations in all months of the year  Product lines have seasonality.  Product will arrive and be handled by general labor employees. Product will then be placed in the appropriate storage area or readied for delivery.  Deliveries/Pickup (six day operating)  Staffing Roles  General labor staff loads delivery vehicle.  Supervisory staff oversees.  Delivery driver arrives and makes route.
  23. 23. Case Study Product Lines  Product examples may include:  Fresh Produce:  Corn  Peppers  Cucumbers  Watermelon  Cantaloupe  Other:  Honey  Jams  Dry Pasta  Dairy:  Liquid Milk  Cheese Other Fresh Produce Dairy Products  Butternut Squash  Tomatoes  Berries  Asparagus  Meat  Eggs  Yogurt  Butter
  24. 24. Case Study Finances  Three year window of financial operations. beginning with when the food hub is approaching operational break-even.  Looking at operating at normal staffing and paid staff.  Food hub has $225,000 loans on books and uses a working capital loan up to $90,000 to cash flow shortages. This case study begins after the start up period has been completed. It may have taken several years to get to this point.
  25. 25. Case Study Annual Sales Projections Operational Break-Even Financial Viability Growth - 500,000 1,000,000 1,500,000 2,000,000 2,500,000
  26. 26. Case Study % Product Sold by Month — Year Product Average — Seasonality Averages 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
  27. 27. Case Study Seasonality by Product 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Fresh Produce Dairy Products
  28. 28. Case Study Variable Costs Variable Costs Break- Even Financial Viability Product Lost in Transport/Handling & Returns (3.2%) (3.3%) Revenue to Farms (0.7) (69.8%) (69.7%) Credit Card Processing (0.2%) (0.2%) Packaging Material Expense (0.2%) (0.2%) Variable Labor & Delivery Expense (5.1%) (4.5%) Total Variable Costs (78.5%) (77.9%)
  29. 29. Case Study Overhead Costs Overhead Costs Break-Even Financial Viability Payments for warehouse or facility space (3.6%) (1.5%) Payments for trucks and equipment (2.5%) (1.7%) Total Selling and Marketing Costs (0.4%) (0.3%) General and Administrative Expenses (11.1%) (9.3%) Unforeseen and Contingency Expenses (4.0%) (4.0%) Overhead Costs 21.5% 17.1%
  30. 30. Case Study Expenses Break- Even Variable Costs Equipment Costs Facility Costs Marketing Costs Gen/Admin Costs Unforseen Costs Depreciation
  31. 31. Case Study Wholesale Profit and Loss Break-Even Financial Viability Revenues (Sales) 100% 100% Total Variable Operating Costs (78.5%) (77.9%) Variable Margin (Loss) 21.5% 22.1% Total Equipment Costs (2.5%) (1.7%) Total Facilities Costs (3.6%) (1.5%) Total Selling and Marketing Costs (0.4%) (0.3%) General and Administrative Expenses (11.1%) (9.3%) Unforeseen and Contingency Expenses (4.0%) (4.0%) Wholesale EBITDA (Loss) 0.0% 5.4% Interest Expense (0.5%) (0.5%) Depreciation Expense (0.7%) (0.8%) Net Income (Loss) (1.3%) 4.1%
  32. 32. Case Study Cash and Income by Month -20000 -15000 -10000 -5000 0 5000 10000 15000 20000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Increase or Decrease In Cash EBITDA
  33. 33. Case Study Labor  5 FTE’s  Labor Roles:  Management  General Manager  Production Manager  Sales Manager  General  Delivery Driver  Line Supervisor  General Labor  Office/Administrative Labor Costs Management General Office/ Administrativ e
  34. 34. Case Study Management Salary 0 20000 40000 60000 80000 100000 120000 140000 160000 Salaried Labor Financial Viability GrowthOperational Break-Even
  35. 35. Scenario: Break-Even with Added Funding $1,210,000 $1,094,374 $1,026,154 $739,713 $493,401 $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 Baseline Added $25,000 Added $50,000 Added $100,000 Added $150,000 SalesLevel
  36. 36. Scenario: Break-Even with Added Costs $1,210,000 $1,327,304 $1,441,389 $1,677,724 $1,791,809 $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000 Baseline Expense of $20,000 Expense of $40,000 Expense of $80,000 Expense of $100,000 SalesLevel
  37. 37. Example – Increase in Hourly Labor Hourly Wage Baseline 20% Increase Driver $13.00 $15.60 General Labor $10.00 $12.00 Line Supervisor $15.00 $18.00 Office/Administrative $16.00 $19.20 If the food hub experienced increases in hourly wages, the food hub would need an nearly $12,000 in direct funding from outside sources or approximately $70,000 of sales to maintain a break-even level of operations.
  38. 38. Break-Even vs. Return to Farmers (% of Sales) $935,009 $1,210,000 $1,717,396 $2,901,422 $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 65% ReturnBaseline: 70% Return75% Return 80% Return SalesLevel (23%) Decrease from 42% Increase from 140% Increase from
  39. 39. Retail vs. Wholesale Differences  Smaller operation with higher gross margins  Reaches operational break even and long term viability at lower gross sales  Direct sales to end consumers  More added cost of direct sales  Set up and operate retail storefront  Different labor requirements  Retail labor should have an expanded skill set to deal with clients.
  40. 40. Preliminary Retail Model  Key Changes to Retail Model:  60% return to farmers  No GAP certification  Addition of shelf stable items purchased from outside producers  Required man hours equivalent to 10 full time employees  No product delivery expense  Lease of a smaller combined warehouse and retail space We created a preliminary retail model to show potential differences between a wholesale and retail food hub and these differences affect the sales level required to breakeven.
  41. 41. Preliminary Retail Model Results In order to reach an operational breakeven with a retail model the food hub must achieve a sales level of$660,000. The gross margin of the business would also increase from 21% in the wholesale model to 28%. $660,000 $1,210,000 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 Retail Wholesale SalesLevel Sales Required to Breakeven (83%) Decrease from Baseline
  42. 42. Conclusion  Wholesale food hubs can achieve financial viability as a medium scale business.  $1.2 M to reach an operational break – even  $2 M to reach longer term viability  Grants or other contributions can significantly lower these thresholds  Higher costs can increase break – even levels so great care needs to be paid to sales levels vs. costs.  Returns to farmers  Labor costs  Balancing cash flow throughout the year requires significant planning.
  43. 43. Want to Know More? Contact Matson Consulting: Contact Micaela: Micaela Fischer Graduate Affiliate Center for Regional Food Systems Michigan State University fisch208@msu.edu James Matson Matson Consulting www.matsonconsult.com (803) 233-7134 jmatson@matsonconsult.c om

×