Why do local food businesses fail?

(Submitted by Ivory Harlow, Ohio Cooperative Development Center, OSU South Centers)

Farm and Dairy at https://www.farmanddairy.com
By Ivory Harlow – October 16, 2017

Consumer awareness of local food and appreciation for the farmers and food entrepreneurs that produce it is at an all-time high. As the market share of local foods increases, new business opportunities abound. In 2015 sales of local food topped $8.7 billion dollars according to a Local Food Marketing Practices Survey from the USDA National Agricultural Statistics Service.

Successful sales, growing demand, and plentiful public interest seem to create the perfect conditions to start or grow a local food business. But many local foods businesses fail, while others struggle to cover the basic costs of operation. Some rely heavily on loans and grants to keep the lights on and doors open. The failure of these businesses to thrive affects farmers, business owners and employees, as well as the local economy and larger community.

Why local foods fail

James Matson is an agricultural economist and agribusiness advisor. He serves as a consultant with Matson Consulting LLC. Mr. Matson works with local foods businesses to learn the story behind their struggle. He helps foodprenuers regain their footing in the market and achieve profitability.

Matson is the author and co-author of several publications, including “Running a Food Hub: Lessons Learned from the Field” and “Running a Food Hub: A Business Operations Guide.” The two-volume series addresses nine problematic areas that cause many local food businesses to fail:
1. Customers. Know the target customer, and tailor products to fit customers’ needs.
2. Products. Achieve the right product mix based on a thorough understanding of what customers want and appropriate price points.
3. Food Safety. Understand the regulatory environment and food safety certifications.
4. Infrastructure. Purchase building and equipment to support the business’s long-term goals.
5. Profits. Plan for profitability.
6. Labor. Employ skilled labor.
7. Operations. Work with knowledgeable and capable partners.
8. Transportation. Anticipate high distribution costs and budget accordingly.
9. Software. Lack of suitable software creates operational inefficiencies.

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