If a 28 year old named Luke Saunders can sell salads at 7 bucks a pop out of a vending machine and make it work, he just discovered a new business model for vertical farms.
Though Saunders hasn’t done it yet (Luke, if you’re out there, get in touch!), he could easily gain complete control of his current supply chain for as little as $40K. I’m pulling that number from an article I found right after reading about Saunder’s company, Farmer’s Fridge. The idea for this post is a simple exercise in running the numbers so people start to get a bit more of a grounded appreciation for the potential of vertical farming. After a pit stop in math land, I’ll get back to the business model I mentioned earlier.
The article with the $40k figure was about a rooftop garden on top of the Jonathan Club in downtown LA. The manager of the garden claims that they built the facility for $40,000 and will be able to make 150K a year. That would be a pretty incredible ROI, regardless of other costs (and I have to guess they already owned the space for instance).
From there, we’ll assume that both the 7$ from Saunders’ vending machine and the 150K raked in by the Jonathan Club are strictly retail figures and that they are scaled up from the cost of production at the same rate. In other words, the assumption I’m making for ease of number crunching is that Saunders and the Jonathan Club mark their vegetables up by comparable amounts. For what I want to show, it doesn’t matter if that assumption is exactly right, I think either way the results would be close, but it makes my math easy.
That math is this: 150k could buy over 24,000 of Saunders’ salads. That means, depending on margins, Saunders could sell at least that many salads without having to purchase the ingredients himself.
For a 40 grand investment, Saunders could earn $168,000 without having to spend money on materials by sourcing from his own garden. Though there is certainly a cost to maintain the garden at that production rate that goes beyond the 40k, the potential is huge.
That potential is my point and it gets into the new business model I mentioned.
A lot of vertical farming articles focus on the potential of farms to supply restaurants and grocery stores, but what if they took out the middle man? Farmer’s Fridge already has its own space. Even if he didn’t build a vertical farm, by exploring building integrated agriculture, Saunders could take out that middle man.
While Saunders has employees and other costs of doing business, if he were able to leverage the rooftop space of his warehouse, or even incorporate vertical farming practices inside of it, he would be able to substantially cut his costs of raw materials and increase his income.
Instead of an intermediary restaurant or grocery store, Saunders would just sell his goods in vending machines throughout the city, with no labor costs.
Do you think that’s a good idea? Are any vertical farms already experimenting with direct-to-consumer businesses? Let me know by signing up for our mailing list and responding with any thoughts you have!
By the way…
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