As Walmart (NSYE: WMT), Amazon (NASDAQ: AMZN) battle for dominance in the online grocery wars, a growing number of tech-enabled startups are taking a different approach, aiming to disrupt the conventional food supply chain by using logistics platforms to connect shoppers directly with local farmers and producers.
Portland-based MilkRun, for example, seeks to make buying from small eco-friendly farmers as easy as shopping from Amazon. Its online marketplace features around 100 Oregon producers who sell everything from eggs from pasture-raised chickens and grass-fed beef to locally roasted coffee and handmade noodles.
The startup’s main goal, said CEO Julia Niiro, is to crack the distribution nut — that is, to figure out how to orchestrate a logistics network that supports the MilkRun marketplace, which delivers weekly to Portland-area customers.
“The companies coming to market with online grocery are the companies perpetuating a supply chain that is broken, that make it impossible for small and midsize farms to make a living,” said Niiro, a former digital marketing professional who founded MilkRun in 2017 after purchasing a small farm and seeing firsthand how difficult it was to get products to market.
Seeking to level the playing field, MilkRun uses technology to drive efficiencies in regional food delivery. “We are offering logistics-system solutions to small farms,” Niiro said.
The next big thing in local food
Building a distribution system that supports local farmers is not a new idea. Over the past few decades, a thriving network of farmers’ markets, community-supported agriculture (CSAs) and farm-to-table restaurants have sprung up nationwide to meet consumer demand for local and sustainably-grown food. Plus, more and more retailers are adding products harvested or made by local companies.
That said, the local food space, estimated at around $20 billion, is still mostly an ad-hoc sector that stiffs small producers.
Around 89% of U.S. farms are small farms, yet these small operators bring in only 22% of the total value of agricultural production, said Anuj Mittal, an Iowa State University researcher who studies and develops new technologies to improve logistics for small producers.
“The number of small farmers is high in number, but their profit margin is really low,” Mittal said. Transportation, he said, is one of the major hurdles preventing farmers from building profitable businesses.
Adopting software solutions that support delivery, such as route-matching and inventory management, can help them compete with conventional large-scale agriculture. The key is “making the platforms simple and usable,” Mittal said. “Farmers already have a lot of work to do.”
Uber for farmers
Creating a parallel logistics network for small farms is a hugely complicated task. “We can’t just use UPS,” Niiro observed. MilkRun, an early-stage startup that will open its first venture round in October, is just getting started.
One innovation involves tapping suppliers making wholesale deliveries to run MilkRun routes. Participating drivers upload their restaurant and retail routes, and MilkRun then matches those locations to the addresses of nearby customers. After picking up the grocery totes at one of the company’s three microhubs, the trucks head out for the day, delivering to MilkRun and wholesale customers alike.
“It’s like Uber (NYSE: UBER) for farmers,” Niiro said.
Whereas small farmers selling to retailers typically make only 10 to 15 cents on the dollar, MilkRun’s suppliers get paid 60% to 70% of every dollar, Niiro said. Plus, those who participate in the shared transportation program are getting paid to do what they always do — drive into the city and make deliveries. “We’re basically subsidizing their ability to have a driver,” she said.
A similar solution under development by Mittal’s group envisions a platform that launches as a service for farmers but then expands to include third-party logistics platforms. The 3PLs could fold farm deliveries into less-than-truckload (LTL) shipments, and from there, Mittal said, “we could potentially extend the service to everyone.”
A history of innovation
Many cities are already hotbeds of local food innovation, and MilkRun, which aims to take its marketplace national, starting with a pilot in Seattle next year, doesn’t want to “reinvent the world,” Niiro said. Instead, the goal is to use technology to augment existing networks.
Elaborating on that vision, Niiro said MilkRun is building software that can be distributed to food hubs such as processors, farms, food coops and more. Many of these facilities already have the infrastructure and the cold storage, she explained, and “are placed in a logistically ideal location, and have existing relationships with farms.”
This is where MilkRun steps in, asking “what if you could now use these [facilities] as aggregation points to offer delivery?’”
While MilkRun puzzles through the logistics, another Oregon startup, All The Farms, is building a complementary business, mining and collating farm data to connect producers and consumers. Set to launch Sept. 23 in 10 major cities, the Eugene-based company provides a website featuring small farms within easy access to the user’s address.
“We’re taking all those farms with hard-to-capture data because they are hard to follow, don’t have marketing budgets and don’t have relationships with Whole Foods,” said CEO and co-founder Jim Cupples. “We then aggregate and standardize that data.”
A graduate of the Oregon State University Advantage Accelerator, All The Farms plans to sell its data to a variety of organizations like restaurant groups and supply chain companies looking to satisfy their customers’ sustainability reports. Another market is services like Open Table that might want to add eco-friendly or local food filters to their search platforms.
The information will be available via regular API or in blockchain ledger, said Cupples, noting that a confluence of factors — consumer demand, technology innovation, environmental concerns and a boom in food delivery services — is turning the grocery industry on its head.
“I wouldn’t be in this business if I didn’t think logistics was going to change so much and that the power relationship will shift to the farmer’s favor,” he said. “We’re certainly within 12 months of that happening.”
Solutions like MilkRun hope to tip the balance.
Two years ago, after Amazon bought Whole Foods, noted chef Alice Waters called on the e-commerce giant to restructure the grocery store’s supply chain around local farmers and producers.
“I too was hopeful,” said Niiro. Small farms are at the forefront of today’s environmental and health food trends, she said, and “consumers want more transparency in the food supply; they want to support local farms, practices that are regenerative, biodiverse farming and all that entails.
This is the alternative, and it’s a necessary one.”