The Worcester Regional Food Hub (Food Hub) is a partnership between the Worcester Regional Chamber of Commerce and the Regional Environmental Council Inc. These two organizations, with funding from the Health Foundation of Central Massachusetts, have joined to form the Food Hub. The Food Hub is a nonprofit organization whose goal is to strengthen the regional food system by providing local small-to-mid-sized farms and food producers access to institutional buyers to increase the amount of locally grown food in the Worcester region. The Food Hub carries out this goal by aggregating produce from individual farmers and producers throughout Massachusetts, and distributing it to local institutions such as the College of the Holy Cross, Worcester Public Schools, and the Regional Environmental Council’s Mobile Farmers Markets (S. Hinman, personal communication, October 25, 2017).
Currently, the Food Hub’s operation costs are covered by sales revenue and grants from the Health Foundation of Central Massachusetts. However, the Food Hub would like to lessen its dependence on grants and increase its ability to rely on sales revenue. The purpose of our project was to research and suggest possible options for a new pricing strategy to help the Food Hub reach this goal.
Food insecurity refers to the lack of access to enough food for an active, healthy life (Berkowitz, Berkowitz, Meigs, & Wexler, 2017). Being food insecure leads to a multitude of health-related issues: children experience health-related problems during their development and adults are more at risk for a number of diseases (Gunderson & Ziliak, 2015; Kimbro & Denney, 2015). Food hubs supplement basic nutritional means by providing access to the healthy food needed for a well-rounded diet that will prevent these health impacts. Food hubs benefit the environment by reducing the food supply chain, which lowers the amount of greenhouse gas emissions caused by long-distance transportation. This reduced supply chain has the added effect of cutting down on food waste from the moving, handling, and storing of produce. Also, the food hubs work with and promote farmers that operate in a more environmentally friendly manner, allowing farms to grow and expand their operations and mission (Kummu et al., 2012). Furthermore, food hubs help to improve local economies by increasing the profits of local farmers, increasing local spending, and strengthening the bond between consumer and producer. By replacing imported produce and labor with local equivalents, food hubs help circulate money through the local system, allowing local businesses to benefit from commerce (Jablonski, Schmidt, & Kay, 2016).
In order to assist the Food Hub in becoming more self-sustaining, we created two goals. The first was to develop a more sustainable pricing strategy for the Food Hub. Our second goal was to create two promotional videos: one to educate farmers about the benefits of working with the Food Hub and one to inform institutions about the quality, community, and economic benefits of purchasing food from the Food Hub.
We achieved these goals by creating two sets of objectives that aligned with each one of our goals. Before focusing on each goal, we had to accomplish our first objective, which was to investigate the purpose and targeted demographic of the Food Hub. This first objective gave us a better sense of the internal operations of the Food Hub and a detailed understanding on which to build the rest of our research.
Develop a Pricing Structure
- Evaluate Current Pricing Strategy of Food Hub
- Identify and Evaluate Pricing Strategies of Other Food Distributors
- Analyze Trends in Food Pricing in Local Food Entities to Assess the Food Hub’s Price Competitiveness
- Analyze and Compare Findings from Previous Objectives and Develop Possible Pricing Strategies for Food Hub
Create Two Promotional Videos
- Assess the Food Hub’s Current Outreach Strategy
- Identify the Strengths and Weakness of the Food Hub’s Current Operations
- Develop Marketing Videos for Food Hub Directed Towards Farmers and Institutions
To accomplish the objectives related to the operations and outreach strategy of the Worcester Regional Food Hub, we first interviewed Brian Monteverd and Stuart Loosemore, the two directors of the Food Hub, as well as their sales manager, Susannah Hinman. We also performed content analysis on the business plan, sales records, and order invoices of the Food Hub from 2016. To get a better sense of the outreach strategy, we analyzed the content on local news sources pertaining to the Food Hub, as well as the Food Hub’s social media pages and website. One of our group members also sat in on a marketing meeting to understand their outreach plan moving forward.
The next step was to interview other food distributors and stakeholders of the Food Hub. We interviewed and performed content analysis on documentation from seven food hubs and other Community Supported Agriculture (CSA) programs across New England, Virginia, and Pennsylvania to evaluate their pricing strategies and assess their potential use at the Food Hub. When possible, we conducted content analysis of feasibility studies, sales reports, business plans, and benchmark studies of other food hubs. We also interviewed three institutions that currently buy from the Food Hub and five farmers that supply produce to the Food Hub. These interviews gave us footage that not only served as testimonials for the promotional videos, but also gave us another perspective on Food Hub daily operations and pricing. To analyze the data, we collected, we developed a comparative matrix. We then coded responses for common themes, condensed the matrices, and created a Strength, Weakness, Opportunity, and Threat (SWOT) chart to simplify and organize potential options for the Food Hub.
After analyzing our data, we found that there were many different components of a pricing strategy to consider. The components are based on the operation of food hubs themselves and their interactions with the farmers or producers, from which they receive produce, and customers buying the produce. We found that a good benchmark for success in terms of covering operational costs was aiming for a profit margin higher than 10%. Of all the food hubs we interviewed that strive for a 10% profit margin, none of them were covering their operational costs (S. Hinman, personal communication, October 25, 2017 & L. Edwards-Orr, personal communication, November 3, 2017). We found that to get a specific margin, a food hub could apply a constant price markup to all items or have different markups based on cost, seasonality, or other selected factors such as volume purchased. Additionally, transportation constituted a substantial part of the cost of acquiring produce. The Food Hub currently has an order minimum of $150 for this reason. Through our research we found that there were different strategies of transportation that could be used to minimize costs such as hiring independent trucking companies, having farmers deliver to food hubs, or coordinating farmers to aggregate produce among themselves so food hubs could pick up a lot of produce at once (L. Edwards-Orr, personal communication, November 3, 2017). Additionally, we found that food hubs benefit from strong communication and relationships with farmers and customers. Food hubs offer fair pricing and timely payments to farmers, and maintain a consistent line of communication with customers to determine demand of produce, opportunities for new produce, and what farmers should plan on growing.
Lastly, we found that there are alternative revenue sources outside of wholesale food distribution. One such example would be programs such as Community Supported Agriculture (CSA), in which individuals commit to purchasing their own produce for a growing season, as well as direct delivery of produce, in addition to wholesale aggregation (K. Webb, personal communication, November 17, 2017).
In order to help create a sustainable pricing strategy for the Food Hub, we recommend using a Microsoft Excel spreadsheet, like the one we developed, to determine price markups on produce to be sold to institutional customers. The spreadsheet determines markups based on factors that the user determines to be the most relevant. The user sets the importance of each factor by assigning a value that modifies the final markup. We recommend determining the markup on a farm-by-farm basis and considering factors such as the Food Hub’s target profit margin, transportation cost, volume, seasonality, supply, and demand for a given time in the season. Furthermore, we recommend that the Food Hub consider other strategies of transportation such as arranging for one pickup of multiple farms’ produce instead of going from farm to farm every time. We also recommend the Food Hub investigate the interest of a potential CSA program, as well as more uses of the incubator kitchen for the purpose of aggregation, as to provide another outlet for produce bought by the Food Hub. For more of our recommendations, see Chapter 5 for all recommendations.
As more food hubs begin to open around the country, they will face the same challenges as the Worcester Regional Food Hub. We hope that the Food Hub’s potential new pricing strategy will provide a roadmap that guides these new hubs towards sustainable operations, and that our videos will inspire a similar approach to bring more produce to local communities in new food hubs. For the Worcester Regional Food Hub, we believe that our recommendations, Excel pricing spreadsheet, and videos will be a strong first step towards sustainable operations and future growth.