For most modern American consumers, produce shopping is pretty simple compared to their ancestors. They travel to their local supermarket, pick out their favorites, and then check out. Meanwhile, behind the scenes, getting that produce to their local supermarket is a complex, global process that faces some serious environmental challenges. Vertical farming might offer a better alternative for meeting future food needs.
In the current produce purchasing system, according to the Center for Urban Education about Sustainable Agriculture, the average distance a typical meal travels to reach one’s plate is about 1500 miles. It is partially grown and then picked. The produce isn’t usually ripe when it is picked, or else by the time it reached the store, it would be rotten. Instead, it ripens along the way, either naturally or artificially, depending on the type of produce. The produce then reaches the distribution center, where it is packaged and sent to the supermarket. From the supermarket, they pick it up and then use it in whatever way you choose.
While on the surface this current system seems to be working, there are issues behind the scenes. First, climate change is going to cause issues for crop growing, so the places that used to grow certain types of produce won’t be able to do that anymore. This will completely disrupt the food supply chain. Second, the current process requires a lot of fossil fuels to transport the produce which causes further damage to the environment. Third, due to the long distances the produce has to travel, the produce isn’t as fresh, safe, or as high quality as it could be. This current system has a lot of inefficiencies, coupled with some looming environmental factors, illustrating that this industry is ripe for disruption.
One potential new method that could help mitigate some of the aforementioned problems with the current produce industry is vertical farming. Vertical farming typically takes place indoors, using vertically stacked layers filled with farm trays. The process controls temperature, environment, and fertilizer. The advantages of this process are a reduced need for farmland, increased crop production, close proximity to consumption, and no weather disruption. However, this process comes with two major problems, economics, and energy consumption. Right now, this process is very costly, but the technology is in its nascent days. As people continue to work on this problem and develop new technologies, the cost will go down. Additionally, the energy consumption of vertical farming is very high, but it can be mitigated using solar panels and natural light. Despite the challenges, vertical farming is definitely something that will become more prevalent in the future.
In this article, I am going to be analyzing four different vertical farming startups: Bowery Farming, Aerofarms, Plenty, and Local Roots. Local Roots has recently gone out of business, but I think their model is interesting and will analyze what could have gone wrong. I will analyze each company, especially their value propositions. Below is a summary of the companies VC traction so far.
Out of the three active companies, Bowery Farming has raised the least amount of money, but are still able to sell a variety of products (12 different greens) to high-end grocery stores in New York and New Jersey. They are clearly a little behind the other two with regard to fundraising, but there is room in this market for everyone. In order to progress, they will have to invest heavily in R&D to enable expansion into new markets, like tree fruits and root vegetables. These have not been grown in vertical farms yet commercially. However, these products are a lot harder to vertically farm, so they will need to raise more capital. Another advantage they have in the NY/NJ market is their partnership with Whole Foods and other high-end stores. Since Aerofarms has been partnering with more mid-tier stores, like Shop Rite, there is an opportunity to enter the high-end east coast market. They should focus on strengthening their hold on the high-end market and raise more capital to continue R&D
Aerofarms is also focusing on New York and New Jersey, but have been expanding to Connecticut, Maryland, and Pennsylvania, in part due to their partnership with ShopRite and in part due to their extra capital. They also have first-mover advantage, being founded in 2004, compared with 2014 and 2015, for Plenty and Bowery Farms, respectively. While they only have 8 green mixes offered, they have created a separate brand for them called “Dream Greens.” Compared with the industrial vibe of the Aerofarms website, Dream Greens is more friendly and focusing on the products utilizing recipes, earthy colors, and more. I really like that they have spun out this brand because it differentiates their online presence from their competitors and creates a D2C brand that is very popular in other spaces, but not right now in the leafy greens space. Now, Dream Greens customers know exactly where to find them and what to do with the products. The extra capital and stronger distribution network have given them a clear advantage
Plenty has raised a lot of capital, but doesn’t produce a lot of products yet. Currently, they have four products available in limited Bay Area stores, and online. But, they are planning to increase their production once their new facility is deemed food safe. As they ramp up, they have the advantage of being the only West Coast-based operation. They also are targeting the China market, which has a growing middle class and a lot of people. Also, they seem to be targeting high-end consumers, so they will compete more with Bowery. This is better for Plenty because they are both early stage, and Plenty has more capital. Finally, Plenty seems very eager to expand beyond herbs and leafy greens, which is a big advantage because none of their competitors have mastered that yet. They should focus on securing their foothold in the Bay Area and innovating their technology to be able to produce other types of produce.
Unlike the aforementioned vertical farms, Local Roots was not operating its farms out of a massive warehouse. Instead, they constructed them in old shipping containers. Their strategy was to co-locate the farms near their partner’s food distribution center, like Walmarts. This strategy is interesting because they are able to cut down on shipping and transit costs, while not having to sacrifice the margins some companies have to. Containers also offer the advantage of being insulated, easy to transport, and standardized. Unfortunately, they are out of business. My hypothesis is that they ran into difficulties manufacturing the containers. Despite their advantages, shipping containers have some structural issues and are difficult to modify. However, this doesn’t mean there won’t be an opportunity for a company utilizing containers or another prefab/modular solution. This new company will just need to be more innovative with the container manufacturing and offer new services, like utilizing the containers as CSAs.
If I were to invest in one company, it would be Bowery Farming because the investment could make the most impact. They have received the least amount of capital, but still, are able to have the same/similar output. The capital will also help them develop new products and technologies. Additionally, they are beginning to lock up the northeast higher-end market, which has a lot of potential customers. Unlike the Bay Area, the produce consumed in the Northeast typically travels a long distance (from California). Compared with Plenty, they are able to produce more products with less capital. I am worried about Plenty because they have a lot of capital and powerful backers, but not many products to show for it. Aerofarms is doing well, but is a little late stage for VC. Overall, I would invest in Bowery Farming because they are targeting the northeast higher-end market, produce more with less capital, and have a huge opportunity for impact with investment