The hidden businesses in your grocery store

The hidden businesses in your grocery store

Today, I read a stat that shocked me.

1/3rd of all food created is spoiled.

That is absolutely mind-boggling to me. I understand that some businesses have a defect rate. But a defect rate of 1/3 is crazy for me to hear - and even more so when I see that it's for a common good like food.

Think of it in terms of a common good you have. Imagine if Apple lost 1/3 of their iPhones due to manufacturing issues. Or that 1/3 houses were not habitable because construction defects.

In thinking this problem through, I've come to understand why this is the case, the forces driving this, and where there are opportunities to drive innovation in this space.

First, think of the examples provided earlier. When you think of a high tech manufacturing process with low defects, you are also thinking of items that had high value.

  • Every iPhone that had a defect cost the company hundreds of $
  • Every car that had a defect cost the company thousands of $
  • Every building that had a defect cost the company hundreds of thousands of $

However, think of food. The unit costs are much lower than the items listed above. The fact that these unit costs are much lower is a major contributor to why the lossage is much higher than would be expected in other industries.

In addition, the volume of goods is so much higher than these other industries. Apple might make a million iPhones in a year, but the agricultural sector can be producing millions of apples a day.

Since the volumes are much higher, it's a lot harder to maintain a very stringent supply chain, and ensure that there is high quality control at each stage, and thus the loss is higher.

Now that we understand the large economic force driving this phenomenon, let's think about the business forces at work.

One of the biggest issues facing the agricultural sector today is the fundamental disconnect between two forces.

First, there is a short timespan between the moment the food is produced from the ground and where it can be sold for consumption

Second, there is a huge logistical race to go from the farm to table, and thus the food has to go through many hands and different people.

Let's go through an example - imagine an apple.

The apple is first picked from a farmer.

The farmer sells the apple in aggregate after a few weeks to a local distributor.

The local distributor then ships the apples to a major distributor near an urban center.

A local supermarket then purchases the food from the distributor.

Finally, you - as a consumer, pick up the food from your local super market.

Every single player in this business transaction has their own process, with its own loss %.

And the loss % compounds across each of these different players.

Now that we understand why this happens at a macro level, and how the structure of the business actually creates this phenomenon, let's think about how we can fix this locally.

First, let's synthesize the main themes we are seeing above

  1. Food has a low unit cost; and thus there isn't a strong economic incentive to stop food waste
  2. Food has a limited shelf life once plucked out; and there is a pressure to move quickly over accurately
  3. There is a high number of middle-men between the food and the creation of the goods.

So how do we fix this?

Let's address each of these root causes

Food has a low unit cost

The issue here is that the food that is not as "pretty" is up to standard for the supermarkets, and is unlikely to be sold at the price point provided for the more perfect produce.

One solution here is to create and funnel demand to these products by opening a marketplace for lower quality foods; which is accompanied with substantial discounts and bundling given the lower visual quality.

Food has a limited shelf-life

Here there are a few things that we can think. The first is to continue innovating in preservatives to help extend shelf-life. Second, we can change the way we are organizing produce in supermarkets - where we store more frozen vs. as fresh.

A high number of middle-men

This is the most fundamental issue to solve. A high number of middle-men in the supply chain leaves a lot of efficiency on the table, given the destructive costs in terms of food wastage every time food switches hands. Therefore, the opportunities here are to drive improvements on the supply side.

One main thing that comes to mind is thinking through how we can variablize food sourcing from farm to table. There hasn't been a successful model for this previously, but perhaps there is a future where a new business model comes about that is able to cut out the huge number of middle-men and instead provide a more direct consumer experience.

There's a huge number of possibilities in terms of business ideas. The grocery story has a huge number of services, and there is likely many more business ideas to explore.

If you can think of other potential business ideas, put them down in the comment section!