How to keep your small farm business profitable during COVID-19
With restaurants around the country closing, small farmers are switching to new direct-to-consumer business models.
One of the most tangible ways COVID-19 has wreaked havoc has been the devastation of the food industry. We covered the impact of coronavirus on global supply chains and supermarkets in a previous blog. Today we’re focusing on restaurant closures and the domino effect it has had on small farmers.
In the first three weeks of March alone, the restaurant industry lost an estimated $25 billion in sales and over three million U.S. jobs. Restaurants that haven’t closed outright are offering take-out and delivery only with a skeleton staff. Small farmers who rely on restaurants for regular business are faced with a make-or-break situation: how can they adapt to stay afloat? The answer may lie in direct-to-consumer business models.
Aside from your traditional direct-to-consumer channels, like farmers markets, co-ops, and grocery stores, there's one format that is quickly gaining popularity: the CSA. CSA stands for “Community Supported Agriculture”. CSA subscribers receive an equal share of your harvest as a weekly delivery. Some CSAs offer a variety of share sizes and types, but most CSA users are happy to get whatever the farmer has that week.
Even in “normal” (i.e. pre-Coronavirus) times, CSAs are popular business models for all kinds of small farms. The most attractive part of the model is the customers’ agreement to pay ahead of time for the whole session. This gives farmers operating capital in advance and decreases the risk of having surplus goods after harvest. In the wake of COVID-19’s devastation, CSAs are an excellent emergency business model that can help small farmers weather the storm while also getting the community the fresh food it needs. It’s a win-win.
How to set up a new direct-to-consumer business
We explore the most common options that have proven to be successful for farmers looking for new business amidst pandemic disruptions. They include: CSAs, ‘drive-through’ farmers markets, food hubs, and grocery retail.
CSAs
We’ve seen farmers approach the CSA model from two angles: one is working with existing restaurant partners, and the other is creating their own CSAs.
Option 1
Work with an existing partner
The easiest way to set up an emergency CSA business is to work with your current customers. This creates a great opportunity for both of you to stay relevant and make money until normal business can resume.
As a small farmer, you’re likely selling to restaurants with a customer base that places a lot of value on local food and supporting small businesses. This makes them excellent potential CSA customers. The restaurant can curate a CSA offering by aggregating goods from each vendor, packaging them together, and selling to their usual restaurant guests. For the restaurant, this is an excellent way to keep their relationship with their customers and suppliers. It also gives management a chance to keep some employees on the payroll and bring in a small income.
For a small farmer, this is a no-hassle way to continue to sell your produce. You deliver as usual, and the restaurant assembles the CSA shares. Many restaurants in Boston, Washington D.C., Portland, and other foodie cities are already doing this. If your restaurant hasn't suggested something like this, reach out and try to create a quick and easy CSA program.
Freight Farmers who are working with restaurants
Option 2
Create your own CSA
From Boston to San Francisco, small farmers are taking matters into their own hands and creating their own CSA program. This requires a little bit more work up front, but in return, you will be able to charge a higher price (since the restaurant isn’t taking a cut).
Anyone who runs a full-time CSA will tell you that there's a lot that goes into a successful program. However, if you’re trying to put together something from scratch, your biggest concern is likely how to find customers. Our recommendation is to start with friends, family, neighbors, and all other personal networks. From there, try to get creative.
Some ideas include:
- Contacting someone to be included in a list of CSAs in the area
- Asking your restaurant customers to promote you on their social networks.
- Joining Facebook groups dedicated to connecting consumers to local farmers
- Partnering with another local business to cross-promote yourselves
Freight Farmers who started their own CSA
Check out some additional resources for promoting a CSA:
How to Run A Successful CSA with Oasis Springs Farm
7 Ways to Tell the World About Your CSA
47 Marketing Tips for CSA Farms
Finding and Keeping your CSA Members
“Drive-Through” Farmers Market
A drive-through farmers market is an excellent interim offering, and requires very little infrastructure. Find one or two other farmers–maybe some of your fellow restaurant vendors–and spread the word about your schedule. Patrons can drive up during the day and choose their goods, or you can create a pre-ordering system. The main way this differs from a CSA is that you don’t have to worry about curating shares–instead, each buyer chooses the product and quantity they need. However, unlike with a CSA, you don’t have a guaranteed sale ahead of time, meaning you could end the day with a lot of excess.
Freight Farmers who set up a drive-through farmers market
Food Hub
A food hub is any business or organization that manages the “aggregation, distribution, and marketing of source-identified food products to multiple buyers from multiple producers”. These are typically regional initiatives that work with small farmers to create an online marketplace. In coronavirus times, these digital platforms are not affected by social distancing restrictions.
For the customer, a food hub is a one-stop-shop to find a variety of local products in one location. For the farmer, food hubs take away a lot of the pressure of having to go out and find a customer base, since there’s one that comes with the ‘hub’. Along with distribution, food hubs offer a variety of other services, including branding, market promotion, packaging, storage and more. Check out the USDA’s 92-page guide to food hubs and national directory.
Grocery Store
Grocery retail is a great business model, but can be tricky to set up in a crisis situation since many regional and national chains subject new suppliers to a lot of red tape before they can be featured on the shelves. However, now is a great time to start the conversation if you’re interested in pivoting or diversifying your business. With supply chains heavily undermined, grocery stores are looking to supplement their existing deliveries with less volatile local produce.
5 ways to make your direct-to-consumer business successful
Aside from the right business plan, there are some practical considerations you need to address before you’re ready for business.
1 | Narrow in on your product offering
Decide how much product you have and how many ways you can split it. Consider creating at least two options (big vs. small is the easiest). From there, you will know how many customers you need, the kind of packaging, and what you will need to harvest and plant.
2 | Find the right price
Having the right product mix will also help you narrow in on an attractive price. For farmers markets and food hubs, we recommend shifting from a weight-based pricing structure (typical of bulk supply to restaurants) to a per unit pricing structure.
To find the right per unit price, research good benchmarks in the grocery store and layer in a premium price, or check out how similar small local businesses price their goods and match them. You can also use per unit pricing to establish an overall CSA price. CSAs usually start at $15/week, but you can get a much higher price for higher volume or higher value offerings.
3 | Get the correct packaging
A history of selling to restaurants likely means you’re accustomed to using bulk packaging. Direct-to-consumer channels require individual packaging–it doesn’t need to be sophisticated, but it should be food safe. For CSA’s, individual plastic bags with twist-ties can be a low-cost solution–drive through farmers markets can even use paper bags or encourage customers to bring a reusable bag. For food hubs, you should get information about packaging when you sign up and you can work from there!
4 | Develop the digital tools
Having a complete and reliable digital presence is more important now than ever before. With people isolated at home, this is the most convenient way for them to find your new product offering. Plus, having a well-designed and functioning website makes you appear more reliable–this is especially important if you’re asking for people to pay you ahead of time.
Make sure your website has the following:
- Name, logo, and location
- Product descriptions with pricing
- Contact information: phone number, email, or contact form
- Pick up and delivery information
- A fully functioning ordering and payment portal (For a drive through farmers market, consider a contactless card reader, like Square, or create a business PayPal or Venmo account)
- Links to your social media accounts
5 | Promote yourself as the safer option
Right now, the public’s main concern is staying healthy. As a small, local farmer, you have a lot more control over your supply chain, and likely have few staff members, which limits the exposure of your food. This is your greatest marketing tool, so make sure to use it! Show photos of yourself wearing gloves, face masks, and any other protective clothing, and emphasize your food-safe practices.
OD Greens on Instagram
Make the investment today
We understand that the current situation is rife with uncertainty and stress. We hope that you can consider this pivot as an investment into the future of your business. A lot of people are going to be reconsidering their daily habits after COVID-19 and the increased interest in local food and small farmers will likely remain after the pandemic’s resolution. This is the perfect time for you to make a lasting impression, introduce a new revenue stream, and diversify your business for the future.