In nature small organisms typically have short lives, multiply rapidly, and evolve in their changing environments. Small businesses are similarly volatile, come and go quickly, and adapt creatively to the shifting realities of their marketplaces. Our case studies are really stories of small businesses learning and growing while staying locally rooted. Below we describe 15 strategies CFEs have adopted to make themselves more competitive, all of which suggest how CFEs worldwide can build on their comparative advantages.
| Hard Work | Innovation | Local Delivery | Aggregation | Vertical Integration | Shareholder Loyalty | Speed | Better Access | Better Taste | Better Story | Better Stewardship | Better Service | Revitalizing Local Economies | More Community Spirit | More Social Change |
What CFEs lack in experience, capital, and technology they often make up for in hard work. Nearly all the CFE founders we interviewed are 110% committed, 24/7, to their businesses. Boundaries between their personal and professional lives are practically nonexistent. Judy Wicks, who lived above her restaurant, the White Dog Café in Philadelphia, for 25 years, woke up every morning and chanted to her mirror, “Good morning beautiful business!” Mechai Viravaidya, founder of the Cabbages & Condoms chain of restaurants and resorts, is a veritable force of nature who runs around Thailand, and increasingly the world, to prevent the spread of AIDS and advocate his strategy of using social enterprises to fund social change.
For many CFEs, especially those in early stages of operation, the entire family pitches in. That’s the way it is at Akiwenzie’s Fish, where Andrew does the fishing, his wife Natasha smokes the deboned delicacies, and their children pitch in with selling at farmers markets in Toronto. A highly motivated entrepreneur boosts a CFE’s competitiveness in several ways. The passion often translates into a higher quality business. Seeing a model of hard work at the top, employees become more industrious as well. Community members who are dazzled, amused, or impressed by the entrepreneur become more loyal customers.
Being small can facilitate experimentation and innovation. According to the U.S. Small Business Administration, small businesses generate, per dollar of sales, 13-14 times as many patents as large businesses. To be sure, some high-tech innovations, like bioengineered seeds or artificially created flavors, require massive research and development budgets that are only within the reach of big companies. But smaller businesses often pioneer lower-tech or labor-intensive solutions.
Lance Nacio, the sole owner of a limited liability corporation operating near New Orleans, was able to make Anna Marie Seafood a nationally prominent brand by developing a low tech method of flash freezing shrimp onboard his ship. The result, he says, is that “we can give to consumers as close to straight out of the water as possible.” His competitors freeze their shrimp after their boats pull in, when much of the freshness has already dissipated. Lance also designed a device to exclude turtles from his catch, which has won the hearts of animal welfare consumers (they have passed around a video of Lance giving mouth to mouth resuscitation to a turtle he accidentally caught). Purchasers of his product now include Ritz Carlton hotels and the Williams Sonoma catalogue. Sylvia Banda, the impresario of local food in Zambia, relies on appropriate technology. To help small farmers become more competitive, she invented the Sylva Solar Food Dryer which dries food 5-10 times faster than “bare sun drying.” The technology, which she manufactures and sells directly, helps Zambian farmers avoid handling the food and enables them to market their foodstuffs consistent with global sanitary requirements.
The Panchakanya Agriculture Cooperative in Nepal has developed and deployed low tech innovations to help their members all female farmers boost crop yields. The cooperative initiated off season tomato cultivation using plastic tunnels with the technical and financial support of the government’s District Agricultural Development Office. Five farmers took part in the pilot, and all are now seeing greater profits. “We are very encouraged. This technology has enabled us to grow tomatoes during the rainy season (June-September) when we get a good price for the produce,” says farmer Bhoj Raj Fuyal.
For Andrew and Natasha Akiwenzie, their innovation, common to many struggling small businesses, is to creatively use barter. The family barters their time and products for essentials they need. “A couple of pieces of fish for a few baskets of vegetables,” says Natasha. “That’s not a bad trade off. It benefits the farmer and our entire family.”
All these innovations exemplify how CFEs have increased their competitiveness by compensating for an absence of resources with resourcefulness.
A third strategy CFEs are using to beat global competitors is to reduce the huge inefficiency in the mainstream food system. Recall that in the United States 73¢ of a typical food dollar goes for distribution. Shrinking distribution costs, even if production costs are greater, can mean cheaper food. Even in countries with less distributional inefficiency, local food can mean less packaging, reduced refrigeration, shorter delivery runs, fewer middlemen, and greater reliance on word of mouth advertising (which is free).
An example of a CFE lowering its distribution costs is the Oklahoma Food Cooperative, which is pioneering a low tech, low cost food delivery model that involves Oklahoman buyers and producers as members. Consumers place their orders for fresh local food online, where the financial transaction occurs immediately and lets farmers know what products they have sold. Once a month, pre sold products are brought to a central warehouse, where they are sorted, packaged, and delivered to 38 pick up sites across the state. The margin charged by the cooperative, partially to consumers and partially to producers, totals 20% about a quarter of the distribution margin in mainstream food businesses. The model is so simple and compelling that imitators are springing up in Texas, Idaho, Michigan, Iowa, Ontario, and elsewhere.
Outside the United States an example of a CFE that has reinvented food distribution is Cargills in Sri Lanka. By linking farmers more directly with its network of 138 supermarkets, Cargills has squeezed down distribution costs and delivered more income to its 10,000 farmers. As Haridas Fernando, a deputy general for the company, explains, “In a conventional supply chain, the farmer and customer are very far away from each other. There are five or six intermediaries involved...We have freed the farmers from the intermediary.”
CFEs needing greater scale to compete effectively might be tempted to engage in mergers, acquisitions, or explosive growth, all of which could undermine local ownership. Few in fact do. Instead, our case study leaders decided to team up with other CFEs. Most large businesses are actually aggregates of many smaller departments. A company like Toyota, for example, has many different divisions that oversee marketing, sales, design, assembly, parts, and so forth. Each division, in turn, has multiple subdivisions. The parts division might include the makers of wheels, engines, electrical equipment, and chasses. Large companies like Toyota keep many of these divisions within the company, with common management and ownership, but at some point—production of rubber for wheels, for example— they outsource to others. If anything, the trend among larger businesses now is to focus on the “core business,” to become “lean and mean,” to outsource, and to spin off divisions into independent companies. In other words, large companies are increasingly becoming coordinated networks of independent firms.
A number of CFEs are following the exact same model. Take producer cooperatives. For a generation the Indian Springs Farmers Association has enabled three dozen mostly African American farmers in six rural counties in Mississippi to compete effectively through joint distribution. They built for themselves a $500,000 plant where they could collectively sort, wash, package, and then ship fresh fruits and vegetables. Together, they have the resources to evaluate market opportunities and coordinate planting. Most of the member-farmers concede that were it not for the cooperative, they would be out of business. Today the cooperative pumps $5,000-$10,000 per week into one of the poorest regions in the American south.
The other producer cooperatives studied also increase the power of farmers through aggregation. The Cooperative Regions of Organic Producer Pools (CROPP), better known as Organic Valley, does this for more than 1,300 U.S. and Canadian organic farmers involved in the production of milk, soy, cheese, butter, spreads, creams, eggs, produce, orange juice, beef, pork, chicken, and turkey. The efforts of the Ajddigue Women’s Argan Cooperative in Morocco to collect, process, and sell cooking oil from argan trees has increased the returns to their 60 women members more than eightfold.
The National Onion Growers’ Cooperative Marketing Association (NOGROCOMA) in the Philippines provides multiple services to its members. It helps members purchase seeds at reduced prices. It provides access to microcredit and low-interest loans. It has invested in cold storage facilities in four locations across the country, which allows the cooperative to sell on behalf of members at the precise points in the year when prices are high. It engages in political advocacy in vital policy matters such as defining national grades and standards for onions. It has taken its member to Taiwan and Japan, which are major onion exportation competitors, as well as to the United States, to study farming techniques. It has assembled a collaborative network of traders, storage operators, and exporters who are prepared to partner with members at discounted prices.
A producer cooperative makes aggregation easy, but any kind of business structure—a stock company, a partnership, a nonprofit, a public entity, or even an informal association—also can bring together local growers. Appalachian Sustainable Development, for example, is a nonprofit that provides former tobacco farmers with help in growing, packaging, and selling fresh produce to a variety of supermarket and institutional buyers in Virginia and Tennessee.
Another way CFEs can achieve higher economies of scale is to expand. Locally owned businesses need not be small. In fact, they can become huge by vertically integrating within their niche or by diversifying their range of businesses. A good example of a CFE that has done both is the Zingerman’s Community of Businesses.
Zingerman’s started as a delicatessen in Ann Arbor, Michigan. As the business became successful, the original partners, Paul Saginaw and Ari Weinzweig, were committed to not becoming a national chain. They were afraid that franchising would mean losing the very characteristics of their business model that were key to its success—quality control of the food, excellent service, and a strong connection to the community. So they decided, instead, to “grow deep”—to develop their business in new ways that would benefit the people of Ann Arbor. They created new local firms to replace inputs coming into the deli. The Zingerman’s Bakehouse now produces all the deli’s bread locally. The Zingerman’s Creamery localized much of the cheese and ice cream. Paul and Ari also took some of the deli’s products and created new, value-adding businesses. A higher-end restaurant, the Roadhouse, caters to diners prepared to spend more money. A mail-order business sells Zingerman’s seasonal coffee cakes nationally. A consulting business, ZingTrain, helps other small businesses nationwide deliver top-notch customer service.
All eight of the affiliated Zingerman’s businesses are independent partnerships or LLCs. The partners of each assemble for a common meeting where they review, coordinate, and improve their operations around a common set of values and practices. They use the common brand to bring consumers loyal to one business into the others. Together, the Zingerman’s Community of Businesses now employs 550 people and has annual sales of about $30 million in a town with fewer than 100,000 permanent residents. Another example of a CFE that has improved its competitiveness through vertical integration is the Mavrovic Companies, started by former Croatian boxing star Zeljko Mavrovic. The CFE is really an amalgam of four businesses two farms (Eco Estate Mavrovic), a bakery (Eco Klara), a marketing company (Eco Mavrovic), and a research and educational center (Eco Center Mavrovic) each of which buys from and supports the others.
Kuapo Kokoo, a cooperative representing 45,000 cocoa farmers in Ghana, is an example of a CFE that has gone global to deliver better rewards to its members. It recently built a chocolate company in the United Kingdom, in which it holds a 45% ownership stake, giving the company control over marketing and distribution of its product. As the president of the Kuapa Kokoo Farmers Union, Paul “PCK” Buah, says, “Our business is one hundred percent controlled locally. Our farmers control what they produce and sell. This mode of operating allows us to control our own product and how it is marketed in order to optimize our profits and dividends, and through that, sustain our existence and survival.”
Most small business owners treasure their independence. They are wary of bringing in other owners who might threaten their autonomy, and the thought of reporting to thousands of shareholders, as a publicly traded company does, is anathema. But some CFEs are beginning to recognize that broad ownership actually can translate into a competitive advantage.
Consider Weaver Street Market, in North Carolina, a consumer and worker food cooperative with three stores, a restaurant, and several other linked businesses (similar to Zingerman’s). Like a for profit business, a cooperative rewards its owners when it’s successful. But rather than pay a dividend based on a shareholder’s investment, a cooperative pays a patronage fee based on a member owner’s purchases. The biggest shoppers at Weaver Street get the biggest rebates at the end of the year. Would the member owners of Weaver Street shop at the nearby Walmart to take advantage of some grocery bargains? Probably not, since they would lose out on their patronage rebate. Equally important, the member owners turn out to be a powerful (and free) marketing force, since they also benefit whenever their friends and neighbors use the cooperative.
The competitive power of member loyalty also can be seen in our producer cooperative case studies. The Panchakanya Agriculture Cooperative in Nepal helps its 35 members, all women, market organic fruits and vegetables in and around Kathmandu. The push for localization spawned a village inputs center, which supplies seeds and other materials to cooperative members and prevents member farmers from wasting valuable time and money buying from many different sources outside the community. Panchakanya’s vice chairwoman agreed to start the business herself, operating it out of her home. She contributes a certain percentage of her net income to the cooperative and keeps the rest herself.
Larger food businesses must appeal to the mass market, which inevitably means discarding critical information about local preferences. Smaller businesses have the ability to grasp local markets with nuance and to respond with just the right products, delivered just in the right way, at just the right time. A good example of this is Lorentz Meats, based in Cannon Falls, Minnesota.
One of the biggest bottlenecks to food localization in a carnivorous country like the United States is the enormous scale of meat processing, packing, and distribution. Because of the short shelf life of meat, speed is essential. Nearly every type of meat processing beef, pork, chicken, even fish is dominated by a small number of huge industrial players running highly centralized operations. This centralization reflects, to be sure, some of the advantages of deploying expensive technology. But it also reflects outdated food and safety laws which are too expensive for CFEs to comply with and which offer exemptions only for tiny, on farm processing operations.
Lorentz Meats represents a locally owned business that is just large enough to meet the U.S. Department of Agriculture’s health and safety standards and to compete effectively. But rather than process en masse one kind of animal, it processes many species. This enables the company to fulfill the immediate processing needs of a variety of independent producers, some of whom focus on niche markets like elk and bison. The flexibility inherent in this model allows Lorentz to facilitate a regional deal between a farmer, on the one hand, and a retailer or wholesaler, on the other. Mike Lorentz now dedicates considerable time to teaching other entrepreneurs how to replicate this kind of model in their own regions.
Cargills in Sri Lanka also has embraced this model. Part of its strategy of enriching farmers through streamlined distribution has been to develop in house food product processing and manufacturing. The company now has its own lines of meats, dairy products, jams, cordials, sauces, and beverages.
Replicating this CFE model in the global south, of course, may be a mixed blessing, since meat production often depletes natural resources and pollutes local ecosystems. But the point here is that mid scale food processing operations can provide the critical missing link between CFEs and consumers wanting local food. If such models adopt all the food safety and environmental practices of Lorentz Meats, they can operate not just profitably but sustainably.
CFEs have certain competitive advantages in reaching low-income consumers. A common view of local food, at least in the United States, is that it’s a luxury in which only the wealthy can indulge. Indeed, many of the CFEs studied depend, at least in part, on consumers with deep pockets. Zingerman’s, for example, sells a $10 corned-beef sandwich. A dinner at the White Dog Café, with two glasses of the home-labeled brew, “Leg Lift Lager”, can set you back $40 or more. The organic jams sold by Swanton Berry Farm or locally raised pork processed by Lorentz Meats and then sold by
Organic Prairie command prices higher than their mass-market alternatives.
Yet local food is also attractive to poor people who currently only have access to food that is expensive and nutrient poor. Both rural communities and inner cities in the United States are riddled with so-called food deserts, which primarily sell “junk food” through bodegas, filling station marts, or liquor stores. In areas like these, the entry of fresh local foods can offer a competitive advantage over what’s available now. To its surprise, New Seasons, a regional supermarket chain specializing in local food in Portland, Oregon, found that one of its top performing stores is in one of the poorest neighborhoods in the city.
Mindful of this, almost every CFE studied, even those serving primarily rich consumers, dedicates at least some part of its business to low-income consumers with limited food access. A CFE that has made this an integral part of its operation is Greenmarket in New York City. With 49 neighborhood markets operating under its umbrella, Greenmarket is the largest farmers market organization in the country. Half of its markets operate in the winter, and most feature events, festivals, and educational campaigns. Many of the markets target low-income residents, so much so that 14 register most of their sales through SNAP (the Supplemental Nutrition Assistance Program) or WIC (the Special Supplemental Nutrition Program for Women, Infants, and Children).
Cargills in Sri Lanka enjoyed a huge growth spurt in the 1980s when it decided to create supermarkets to sell home¬grown products to lower- and middle-income customers. “In Sri Lanka,” says Ranjit Page, the company’s CEO, “the consumers pay close to sixty percent of the monthly income for food and food related expenses. How could we make a difference with this sixty percent? That’s what we focused on.” The strategy enabled Cargills to grow into a national powerhouse, with more than 5,600 employees and annual sales over $100 million.
CFEs compete by offering products that taste better. Most consumers now associate local food with freshness and natural flavor, which explains why some are willing to pay more for it. Everywhere in the world, people have at least some affection for and some sense of pride in home¬grown food. For several CFEs studied, this strategy was the absolute core of their business.
Andrew Akiwenzie, for example, built Akiwenzie’s Fish around taste. A Native American fisherman, Andrew and his family smoke the fish after he reels them in at Cape Croker, Ontario, drive the smoked delicacies to Toronto, and sell them at farmers markets and other open-air sites. “By the time my competitors are getting the bone off their fish,” says Andrew, “my customers are eating mine.”
A CFE’s quest for great taste contributes to competitiveness indirectly as well. Andrew actually does no coordinated marketing. Instead, he relies on his customers spreading the word and bringing back critical feedback. “The relationships you make are important,” he says. “All the way along the line, we’ve had customers that have pushed us a little bit further, helped us, and opened doors, because they liked the product and wanted to help us. In Toronto, if I say I need something, I only have to speak it a few times and someone will say ‘I know a person for you.’”
Another strategy CFEs deploy to draw customers away from mainstream food businesses is to tell the story of their local products. Eating is an experience that involves all the senses and emotions of a consumer. By evoking stories of real farmers, real entrepreneurs, and real chefs, CFEs enhance consumers’ appreciation for what they are eating. Authentic stories add value to local foods.
One similarity between the White Dog Café in Philadelphia and the Cabbages & Condoms restaurants in Thailand is their menus. Both contain extensive descriptions of where the food served comes from and who exactly was involved in growing, raising, and processing it. Both also explain their own stories—the origins of their businesses, their social missions, their employees, and their calendars of events. Both involve eaters by explaining how the money they are about to spend ultimately supports important projects promoting entrepreneurship, environmental protection, social justice, and public health. These messages reinforce customer loyalty.
Another competitive edge many CFEs have is their commitment to the triple bottom line. By advertising their good practices, for the environment and for their workers, they can draw some consumers away from other food businesses that do not adopt these practices.
Almost all the CFEs we studied engage in good environmental practices, but for a few this was the critical piece of their identity. CROPP has built a successful scaled business by embracing and marketing the values of environmental stewardship, family farms, and rural communities.
Another example is the Intervale Center in Burlington, Vermont. Initially funded through a successful mail order business for household gardening supplies, the Intervale is now home to several CFEs. It ran one of the largest municipal compost projects in the country, collecting organic waste curbside from the residents of Burlington (the county recently took the business over). It also manages a large community supported agriculture (CSA) subscription program where community members purchase monthly “shares” of farmers’ produce assists local farmers interested in converting to organic practices, and teaches local kids about sustainable agriculture. Largely as a result of this CFE, Burlington has made it onto several lists of the “greenest cities in America.”
All our CFE case studies also were eager to tout their labor practices, but again, for some, it was core to their business model. When Jim Cochran, co founder of Swanton Berry Farm on the coast of northern California, decided to invite the United Farm Workers to unionize his labor force, his neighbors thought he was certifiably crazy. But he went further and provided his workers with health insurance, family leave, generous vacation time, even retirement plans. Despite the higher costs, Jim has seen his business of growing strawberries, making jams, and selling these and similar products at their farmstands and farmers market tables grow steadily. Jim would argue that it’s because of the higher labor costs that he has a more loyal, creative, and productive workforce, and Swanton Berry’s consumers know and like this.
A strong emphasis on labor practices also can be found in Zeljko Mavrovic’s organic farms and bakery in Croatia. In the wake of the Croatian War of Independence in the early 1990s, there remains low opportunity for the local workforce. Mavrovic invested in developing training, support systems, and other services for his workers “The main resource of our project is our employees,” he says. “For that reason we pay special attention to practices of respecting workers’ rights. Our motto is that only a happy and content employee can contribute to making a successful business with the products of his labor.”
Food businesses compete not only through food products themselves but also through the excellent services they provide as they present, sell, cook, and serve these products. Food may not seem to be a service oriented industry, but consider that Americans spend roughly half of their food dollars on eating out. Food service, as discussed earlier, is actually an area where CFEs already have a decisive competitive advantage. Local businesses are, at their core, based on close personal relationships with consumers. Successful CFEs learn what their customers want, cater to their needs, evaluate their satisfaction, and continually tweak their services to better serve the locals.
Good service is a centerpiece for many of the CFEs studied. Making customers feel at home, as if they were eating “comfort food,” has given the White Dog Café a competitive edge. Greenmarket in New York City offers a unique experience to its customers by requiring that all its vendors be growers who then can share information about how the food being sold was grown. Good service is so central to Zingerman’s Community of Businesses that its training arm, ZingTrain, is able to charge $1,000 per student to dispense the company’s accumulated wisdom on the subject.
The Self Sufficient Organic Farm School, a high school in Paraguay for future farmers and CFE entrepreneurs, prides itself on giving exceptional service to customers patronizing its student run businesses. Once teetering on the edge of bankruptcy, the school was brought back to life by a nonprofit, Fundación Paraguaya. It now has 16 enterprises, including a restaurant, a farmstand, and a dairy, run by students, that serve both as educational platforms and revenue generators for the school.
Good service attracts not only consumers but also other businesses. For the small ranchers who provide the most profitable contracts in Lorentz Meats’ business, the key to attracting them has been to provide a strong package of marketing services. Our other producer cooperative examples, as noted earlier, also provide multiple services to their members, who are typically low-income farmers.
For some consumers, the competitive edge of CFEs is simply the fact that they are locally owned. The proliferation of “buy local” and “think local first” campaigns worldwide reflects a growing awareness by consumers of the myriad economic benefits locally owned businesses confer on communities. Many CFEs see themselves not only as part of a local food movement but also a local business movement. Assisted by organizations like the Business Alliance for Local Living Economies (BALLE), they are teaming with local businesses across sectors to improve their competitiveness.
When Judy Wicks became a co-founder of both BALLE and a local BALLE network in Philadelphia, she viewed these activities as part of her social mission. But it also wound up helping her business. She was able to develop, with other Philadelphia restaurants, new local supplier relationships that brought down costs. She reaped the benefits of network initiatives like “Buy Local Philly Week,” officially declared by the city council. And her restaurant became more visible to thousands of businesses and consumers participating in these initiatives.
Many CFE entrepreneurs ultimately want to change the world one food system at a time. Will Raap’s original goal for the Intervale Center was to grow 10% of Burlington’s fresh food, and that goal still drives the nonprofit’s expansion plans. Changing the community, though, is not enough. CFE entrepreneurs are experimenters, innovators, and risk takers who wish to promote the local, globally. As Mechai Viravaidya, the pioneer of Cabbages & Condoms in Thailand, says, “We want to beat McDonald’s. And among the best strategies are to be active in finding new markets, and to have our staff trained in special skills to be professionals. We wish to expand our business not only in the country but globally. Right now we are looking for new joint ventures in Singapore, Australia, the United States, and Europe.”
For many consumers, food is not just about nutrition and taste—it’s about memorable experiences and fun. One of the prominent features of CFEs is that the entrepreneurs love their work. They imbue their small businesses with their passions, their personalities, and their visions. A mark of success is that people leave their establishments with much bigger smiles on their faces.
This is certainly part of the attraction of the White Dog Café. Dog paraphernalia can be found everywhere, from the labels on the wine (“Snaggletooth Red”), to the canine paintings on the walls, to the fire hydrants on the restroom doors. Judy Wicks has deployed the White Dog as ground zero for progressive politics in Philadelphia, and features a steady stream of speakers, events, and festivals.
A similar sense of fun can be found at the Mavrovic Eco-Center in Croatia, which is an all-in-one research facility, an educational center, and a community gathering place. The Eco-Center organizes workshops, seminars, and lectures for children, students, businesspeople, and farmers. Topics are diverse, varying from ecological agriculture and sustainable development to personal development and healthy lifestyle habits. It also hosts annual festivals like the Bundevijada (the Pumpkin Festival), which includes 40 other organic and local food vendors from around Croatia.
A final strategy some CFEs embrace to compete more effectively is to position themselves as social-change agents. Like Ben & Jerry’s, United Colors of Benetton, and The Body Shop, these CFEs see their mission as much broader than just generating profits or modeling good business practices. The heads of these firms are fully aware that taking strong stances on controversial issues irritates and frightens some customers—but attracts and impassions others.
Our leading example of this strategy is Cabbages & Condoms. Superficially, its dozen restaurants and resorts provide excellent food and hospitality. But the explicit mission is to generate revenue, currently about $2 million per year, to support public educational efforts in Thailand around AIDS, safe sex, and reproductive rights. Customers descend in great numbers, in part for the great food but also to join its great mission.
Taken together, these 15 strategies are clearly working. The proof is that nearly all of our CFEs are generating net revenue. With this study and others like it, other CFEs worldwide can draw from this tool chest to improve their competitiveness. Yet this is only part of the story. Each CFE we studied also faced serious challenges over its lifetime, many of them threatening the very existence of the enterprise.