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Business Analysis Report on Food Connect, through the lens of innovation...

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MGN446 Business in Australia

Assignment 2 Business Analysis Report

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Date uploaded: [01/11/2018]

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Table of Contents INTRODUCTION TO REPORT...............................................................................................3

INTRODUCTION TO FOOD CONNECT...................................................................................3

ANALYSIS OF INTERNAL ENVIRONMENT.............................................................................5

ANALYSIS OF TASK ENVIRONMENT.....................................................................................6

INNOVATION WITHIN FOOD CONNECT...............................................................................8

CHALLENGES OF MANAGEMENT........................................................................................9

RECOMMENDATIONS TO MANAGEMENT.........................................................................10

CONCLUSION....................................................................................................................12

REFERENCES.....................................................................................................................13

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INTRODUCTION TO REPORT The purpose of this report is to understand in greater detail the social enterprise company, Food Connect. This report will utilise the environment model set out by Bartol et al. (2008) to understand in greater depth the company’s task and internal environments. Furthermore, the report will consider the innovative approaches Food Connect has taken to achieve its desired goals, both present and future-related. Finally, the report will consider Food Connects’ current challenges, and those faced by their management team; following from those challenged, possible solutions in order to overcome the potential challenges it may face going forward will be posited.

INTRODUCTION TO FOOD CONNECT Founded in 2005, Food Connect was set up by an ex-dairy farmer, Robert Pekin, with a “mission to democratise the food system” (Food Connect, n.d.), and a goal to “create a fair and prosperous local food system by developing a regenerative place-based community food hub“ (Pekin, 2018). This is done by engaging local farmers in an ethical and transparent manner, to supply fresh and seasonal food to their customers. In an attempt to differentiate from the competition, one of Food Connect’s unique selling points is their ability to provide “local” food that has travelled far less than supermarket equivalents (Food Connect, n.d.a) Although not truly a Community-Supported Agriculture, since there is no direct relationship between the farmers and the end-users (Australian Food Sovereignty Alliance, n.d.), Food Connect acts as food sovereignty activist organisation and forms part of the broader food sovereignty movement. Food Connect has a number of arms to its business (Pekin, 2018): 1. A Retail arm where customers subscribe in advance & notify the company of their food requirements. The week will then consist of these weekly cyclic events: a. Friday: Farmers are notified of the customer requirements. b. Saturday-Monday: Farmers pick produce as required. c. Monday-Wednesday: Farmers then deliver this food to Food Connect.

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d. Tuesday-Thursday: deliveries are made to Food Connects “City Cousins” (more on this in the “Innovation” section later) (Food Connect, n.d.b) for enduser to then pick up and consume. 2. A Wholesale arm, where Food Connect will deliver to “Buyer’s Clubs”, who receive a 30% bulk-order discount, as well as various restaurants, cafes, and other farmers who run their own farm shops and attend farmers’ markets throughout the local area. 3. Most recently, a “Community Kitchen” has been installed in the warehouse where Food Connect are based, offering entrepreneurs and small businesses the facilities to produce in small batches (such as miso soup and hot chilli sauce (Pekin, 2018)) which can then be sold by those small businesses.

As pointed out by Pekin (2018) himself, the main advantages of the model that Food Connect has employed, are that the system: 

is more sustainable for farmers, who are less at the bequest of larger wholesalers’ price offerings,



attempts, and mainly succeeds through the use of durable, reusable boxes, to reduce waste throughout the picking and distribution process,



requires less grading of fruit and vegetables for farmers to undertake (relative to that required by larger wholesalers), thus reducing waste further, and



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builds a much clearer, stronger, relationship with the farmers.

ANALYSIS OF INTERNAL ENVIRONMENT As the system of shared beliefs and values that guide and direct the behaviour of members, culture can have a strong influence on day-to-day organisational behaviour and performance (Wood et. al., 2015). Values and organisational culture are highly intertwined; clearly, articulated organisational values – such as quality, customer service, and innovation – help guide and direct action. When in place & understood, clear and positive values can create a competitive advantage for organisations. When considering Food Connect’s internal environment (Bartol et. al., 2008), one must pay particular attention to the organisational culture and the affect it has on the company’s owners and employees equally. Firstly, an insight into Food Connect’s organisational culture can be seen through their “B-Corp” certification. Certified B Corporations are business that demonstrate the highest standard of transparency and legal accountability whilst maintaining balance to profit and purpose. Food Connect have attained this certification through its transparent supply chain, and their ability to being customers and farmers together (Ms Emma-Kate Rose, personal communication, September 21, 2018). Food Connect’s owner’s goal of getting prospective customers, as well as the wider community, to “fully understand the true cost of food” (Mr Robert Pekin, personal communication, September 21, 2018) demonstrates well his ethical attitude towards how food is produced, sourced and distributed; this is perfectly aligned with the business’ organisational culture, with personal goals of an ethical nature leading to an ethical organisational culture overall (Huhtala, Feldt, Hyvönen & Mauno, 2012). Similarly, a level of trust between owners and employees, as well as the wider community, generates a highly productive working relationship through these high levels of trust. (Kujala, Lehtimäki & Pučėtaitė, 2015). This fact bears itself out well given that there are no less than 84 sets of keys to the warehouse - distributed amongst owners, employees and wider suppliers - in which Food Connect operates and all equipment is stored; yet, there has never been one single reported theft during the company’s existence (Mr Robert Pekin, personal communication, September 21, 2018). Finally, an organisational culture with such a flat management hierarchy, and one that sets in place an ethically-sounding 2:1 pay ratio (Mr Robert Pekin, personal 5

communication, September 21, 2018), and which shows characteristics of collectivism and low power distance ([Hofstede Insights], 2018), benefits from the strategic flexibility the organisation demonstrates (Su, Yang & Yang, 2012). However, it must be noted that nowhere in the organisation’s constitution does it note this wage ratio (Richards, 2018).

ANALYSIS OF TASK ENVIRONMENT The five elements as set out in Bartol’s (2008) model will be analysed individually:

Competitors A simple search of “monthly food delivery” offers a myriad of competitors to Food Connect’s fruit and vegetable delivery service. However, due to the nature of the business model (that is, providing locally-grown fresh produce to a local community), Food Connect need not consider such companies as Organic Angels (Melbourne), Real Food Grocer (Melbourne), or Box Fresh (Sydney) as “direct competitors” (Skilton & Bernardes, 2014) currently. However, organisations such as Charlie’s Fruit Online (based in North Brisbane) and Hello Fresh (nationwide) should be considered as direct competition. This is especially so given the lack of Unique Selling Point between organisations Furthermore, competition in Food Connect’s other business space, their community kitchens, is also prevalent, such as from Wandering Cooks in West End. This is noted by Food Connect themselves (Food Connect Shed Limited, 2018).

Customers Food Connect’s main customer base is the local community to whom they supply the farmers’ produce. The delivery of its produce is streamlined through its use of so-called “City Cousins” (Food Connect, n.d.b), a central hub for product pick-up, thus allowing members of communities to interact more closely with one another. With the addition of retail customers - such as cafes, restaurants and buyers’ clubs - to the business model, Food Connect’s subscription-based business is likely to develop a level of customer loyalty through

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co-creation of value (Cossío-Silva, Revilla-Camacho, Vega-Vázquez & Palacios-Florencio, 2016). Customers of Food Connect’s community kitchen arm are made up of social enterprises looking to cook small batch produce for sale locally. Such customers include Sunshine Organic Miso and Geoff’s Kitchen (Food Connect Foundation, n.d.).

Suppliers Food Connect’s goal is to have their suppliers in mind as much as their customers (Pekin, 2018), by creating personal relationships with individual local farmers and producers. This is true in the case of Neighbourhood Farms, whose owner, Micah Oberon, believes in the same sense of community and symbiotic relationship as Food Connect (Oberon, 2018). This created sense of community has been shows to lead to further success for all stakeholders (Whitham, 2012)

Labour Supply As is noted by Food Connect, 25% of staff come from marginalised backgrounds or long-term unemployment (Food Connect, n.d.c), thus further attempting to offer a point of difference from their competitors, whilst maintaining and highlighting their social responsibility to the local community.

Government Agencies Aside from the requiring relevant approvals from Brisbane City Council (Food Connect Shed Limited, 2018) for renovation work, Food Connect has little collaboration with government agencies. Food Connect has no government grants (Food Connect Shed Limited, 2018) and so does not answer to any government agency in this regarding financially. That said, the new act which came into effect from September 29, 2017 (Corporations Amendment (Crowd-sourced Funding) Act 2017 (Cth)(Austl.)) has meant Food Connect, as an unlisted company, are now able to seek investors to raise up to $5,000,000 via crowdfunding means.

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INNOVATION WITHIN FOOD CONNECT Innovation may be defined broadly as “…changing processes or creating more effective processes, products and ideas” (Department of Industry, Innovation and Science, 2018). However, innovation may take many different forms, some of which Food Connect has attempted to utilise. Through their use of the “City Cousin” system of delivery to their customers (as described above), Food Connect have adopted a form of social innovation. This socially innovative scheme is looking to reduce problems in society by connecting people within their community, for example young mothers who may feel isolated within their community (Pekin, 2018). There is however little to no published, peer-reviewed, evidence offered to back up this claim. The company’s reluctance to approach a bank in order to borrow money to purchase the warehouse they are currently residing and renting (Pledgeme, 2018), demonstrates a high level of frugal innovation, which has been seen to promote social sustainability (Khan, 2016), and continue Food Connect’s deep association with the community around them. By attempting to create a closed-loop community of suppliers (that is, the farmers) and customers, Food Connect is looking to create competitive advantage through experience innovation (Candi, Beltagui & Riedel, 2012). The customer experience of the process, and the wider benefits to their community, is likely to have a positive effect, and lead to greater customer loyalty. The owners’ approach to a new type of business model when the company was first set up, in which no overdrafts were sought from a bank, but instead the company “had an overdraft with the customers” (Pekin, 2018), by which the customer paid in advance for their goods, was an innovative new business model at the time. However, this ‘innovative’ model of not wanting to borrow from banks, has led the company to the position of requiring open source innovation in a bid to purchase the warehouse as described previously. Whilst it is true that crowdfunding has the potential to foster innovation by offering new sources of capital to innovation-driven firms (Hervé & Schwienbacher, 2018), it must be noted however 8

that Food Connect has failed to crowdfund even half of the amount required to purchase the warehouse (as of November 1, 2018), and less than a quarter required to purchase and retrofit the warehouse accordingly (PledgeMe, 2018). The question must therefore be asked if this type of innovation is sustainable in the long term, since many business model innovations fail (Geissdoerfer, Vladimirova & Evans, 2018). Although Food Connect are delivering what could be considered innovative ideas within their business, when looking through the lens of the original definition of innovation as described above, one may consider if these innovative concepts are indeed truly “effective”.

CHALLENGES OF MANAGEMENT A major challenge facing Food Connect currently is the necessity of funds for their proposed expansion. The company’s altruistic tendencies to “want to give back to the community” (Pekin, 2018) - rather than prioritising profit, and therefore reinvestment for growth purposes - has led Food Connect to a position where, albeit innovative, they now are relying heavily on the very community they seek to serve, via crowdfunding, to assist with the purchase and fit-out of the warehouse in which the company’s business is based (Pledgeme, 2018). However, as has been noted above, their required target is unlikely to be reached within the given timeframe (currently $816,127 as of November 1, 2018). It is unknown why the owners chose a New Zealand-based crowdfunding platform that has not a single other project on the Australian-based version of the website. Furthermore, the choice of crowdfunding platform has a definitive effect on users’ willingness to share and contribute (Lacan & Desmet, 2017). Furthermore, the lack of participants in the crowdfunding exercise may potentially lead to an inability to build further customer loyalty within that community (Watson, Beck, Henderson & Palmatier, 2015), leading to further challenges. Another major challenge to the business is the age of one of the founders, Mr Robert Pekin. By his own admission (Mr Robert Pekin, personal communication, September 21, 2018), Mr Pekin will not be running Food Connect forever; it is feared that some of Food Connect’s greatest assets on which the business relies, such as his passion, drive and energy, 9

as well as key relationships with farmers and overall operational knowledge, may not be available to his successor. Finally, Food Connect’s flat hierarchal structure and 2:1 pay ratio (Mr Robert Pekin, personal communication, September 21, 2018), which once again seems very altruistic, may be at the detriment to the business in the long-term. Although it is widely known that a high CEO-to-worker pay ratio negatively impacts both consumer and employee perceptions of a company (Benedetti & Chen, 2018), it may be that a 2:1 pay ratio is equally detrimental to future growth, especially when considering new Directors may need to be recruited on the current owner’s eventual exit from the business. Climate change. (Supply food to flood victims)

RECOMMENDATIONS TO MANAGEMENT Through the analysis conducted within this report, the following recommendations are made to the business:

Short-term First and foremost, it is suggested for the company to switch to a more popular crowdfunding website, such as Gofundme or Indigogo. It may be the case that Food Connect do recognise these options as ethically- or socially-equivalent to PledgeMe, however a greater exposure to their cause will clearly have positive effects and an increased likelihood in achieving their target required to purchase and fit-out their warehouse. When considering Porters Five Forces (Johnson, Whittington, Scholes, Angwin & Regnér, 2017), given the low barriers to entry for new competitors entering the fresh food delivery market, coupled with high bargaining power from both suppliers and buyers, building a competitive advantage through a truly unique selling point is parament for shortterm success and increased customer loyalty potential.

Medium-term

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A greater exposure to the company’s cause is required, and it is suggested this is to be achieved through a stronger social media presence. It has been shown that exposure to a brand greatly influences brand choice (Humphrey Jr, Laverie & Rinaldo, 2017); in this instance Facebook is the chosen social media platform; however, there is very little to assume the same cannot be true for wider social media platforms such as Twitter or Instagram. An option to bring in additional revenue over and above those already seen, would be to open a shop at the front of the warehouse premises, allowing Food Connect to sell produce direct to customers as well as through deliveries. This option could prove to be the company’s unique selling point, as Food Connect can get to know the customer more personally, offer better customer service, and offer another service to the community. Additionally, it has been shown that the “availability effect” (products available through various purchase means) produces a net increase in purchase frequency across channels, producing a net increase in revenues of 20% on average. (Pauwels & Neslin, 2015)

Long term One option for increasing profits would be to outsource certain aspect of the business, thus reducing internal costs, such as their delivery methods. Although this may negatively affect innovativeness (Food Connect’s “City Cousins” framework will likely become redundant), it is likely to positively effect profits (Stanko & Olleros, 2013) in the long term. Furthermore, this option of delivery to the customers door will allow Food Connect to complete more evenly with their closest rivals (Charlie’s Fruit Online and Hello Fresh) who already offer delivery to the door. Finally, dissemination of company information, as well as industry and operational knowledge, to a new incumbent is recommended for when Mr Pekin chooses to exit the company. Ideally, a successor to work alongside Mr Pekin for 6-12 months is advised for them to better understand the operational aspects of the business, and most importantly understand the organisational culture on which the company has been built (Nadler, 2017).

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CONCLUSION In summing up, this report has analysed Food Connect’s task and internal environment, demonstrating the company to be an ethically and socially sound company, with many redeeming features in the way conducts business both internally and externally. Furthermore, through the lens of innovation, this report has highlighted Food Connect’s innovative endeavours, as well as the challenges faced by the organisation. Finally, recommendations have been made to establish short-, medium-, and long-term success for the business.

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REFERENCES Australian Food Sovereignty Alliance. (n.d.). Community Supported Agriculture. Retrieved from https://afsa.org.au/csa/

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