David preparing to sling the stone at Goliath
The outlook for small businesses in today’s economic climate is worrying. Big business seems to have all the advantages; deep pockets to weather the storm, economies of scale, preferred terms with landlords and councils, easier access to funding, grants and subsidies etc. So it’s no surprise that the high streets are collapsing while the likes of Amazon and Tesco pick up more market share.
BUT, there is one sector of the small business community that has some real and sustainable advantages that may just be the stone in David’s slingshot that topples the giants.
If small-scale ecological farmers play their cards right, they may now have an opportunity to outperform big food on all the key fronts to reclaim market share; quality, freshness, nutrition, variety and convenience, but most importantly, the coup de grâce — PRICE.
If you consider the cost of food, you come to realise that most of the cost in any bite is actually supply chain. For easy calculation, let’s say that you pay £1 for an apple. With a standard supermarket model you’re paying more like 20p for the apple plus 80p to get it from the tree to your hand. This means that you’re paying 4 times as much to get the apple to you as the apple itself.
Now imagine that energy prices go up all of a sudden!
The cost of the actual apple may go up slightly, depending on how reliant the orchard is on synthetic fertilisers, but the supply chain costs will go up significantly because it relies on fuel for transport and electricity for storage. So now you’re paying a whole lot more for the same apple.
Now let’s consider an apple from a small-scale ecological local farm. Firstly, this is probably a much higher quality apple. Historically, food from this type of farm is perceived as boutique and is typically more expensive to produce compared to mega-scale crops. But, when you add extreme energy costs into the equation, the game can change considerably. What if your local independent farmer doesn’t use fertilisers because they practice ecological methods? And what if they deliver directly to you from their farm less than 20 miles away? In this scenario the energy price increase has much less of an impact on the cost of your apple, so now you may find that you can pay supermarket prices (or less) for a much better apple.
The key here is for small-scale ecological farmers to recognise the advantage that they have and act strategically with regard to their pricing and communications.
The temptation is to see rising food prices as an opportunity to follow the herd and make larger margins. But, if instead, they ignore market rates and work out their prices on a cost-plus model, making sure that they have enough margin to cover costs, they may soon discover that their prices are very competitive. Couple this with an awareness campaign to let people know that “the best value food comes direct from local farmers” then it’s fair to assume that they will attract more customers and be well positioned to stay strong over the coming years.
