Australian Fair Food Forum

The Fatal Flaw - "Hub & Spoke Model"

I have been researching Food Hubs, CSAs, Farmers’ Markets, Farm-to-Fork e-commerce, meal box e-commerce, etc., in the U.S. for a few years now and have identified their fatal flaw. I say “fatal” because many of them - even after receiving millions of dollars in investment money - have not been able to achieve either profitability or scalability. I’m calling that fatal flaw the "Hub & Spoke Model.

Briefly, the Hub & Spoke Model is where food is collected from a variety of sources, brought to a central aggregation point (the “hub”), and then distributed from there to end users. This configuration is so ingrained as an “everybody knows” that it goes uninspected, even when it’s killing operations. But have a look at the unnecessarily wasteful, costly and redundant handling maintaining a hub & spoke model requires:

  1. Farmer or market gardener harvests the food.
  2. Farmer or market gardener stores the food.
  3. Farmer or market gardener delivers the food to a hub (farmers’ market, food hub, CSA, e-commerce retailer warehouse).
  4. The hub stores the food (if only into a display)
  5. The hub packages the food (if only into order or meal boxes).
    A. Where there is no home delivery, the customers picks up the food from the hub and transports it home.
    B. The customer picks up the food again from their vehicle and takes it into the house or institution.
    C. Where there is home delivery, the driver picks up the food from the hub and transports it home at a cost of approximately US$0.60 per mile (built into the “free delivery” retail price).
  6. Food that doesn’t pass hub criteria (approx. 40%) gets handled again (for compost or pig feed or for value-added use).
  7. Food that doesn’t get sold by or at the hub must either be restored, resold another way, composted or thrown out.

All this handling, storing, and transporting from pillar to post cost money in terms of labor, energy, plant & equipment, and maintenance.

If this resonates here as idiotic, I’ll do a further installment on what I’m calling the “Circular Model”. :wink:

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Hi
Yes, there are flaws that we have noticed in some of the Food Hub model’s we have researched. I’m not sure all of your critiques are relevant but I get the general jist of what you are saying. There needs to be an added facilitation model whereby the food has gone through a virtual logistic / aggregation Hub to ease some of the negative impacts as you point out, however the conundrum of affordability and true ecological costs are the main barriers to a ‘viable’ Food Hub. Collaborations are really important as well.
The work that OFN and Food Connect along with the multitude of Buyers Clubs is addressing some of these concerns around ‘competition’ but the stakes are much higher than just that. I’m sure we can get there eventually.,

Keen to read your installment on the circular model you speak of.

Robert

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I’m keen to hear the instalment on the circular model too @hquigley2 - there’s certainly room for improvement and continuous innovation in all these models.

I’m not sure about 6 and 7 though - in the hubs I’m familiar with 40% food arriving being rejected would be extremely high. I suspect some things common to food hub models, like a baseline of ‘standing orders’ and close relationships with the farmers helps to minimise this?

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Thank you Robert and Kristen for your interest. As you have correctly stated, Robert, a new model is needed to solve the logistical issues of aggregation that eases the impacts upon affordability, viability and the environment.

What we’ll be experimenting with here in Utah is what I’m calling the “Circular Model”. In brief, aggregation is done right on the pick-up/delivery truck, which acts as the mobile hub. What makes this concept workable is moving the majority of operations to the cloud, immediately eliminating the expense of brick & mortar operations. It works like this:

  1. Food producers (farmers, ranchers, dairies, market gardeners, fisheries, value-added food producers) join a multi-vendor e-commerce/m-commerce food cooperative (like OFN) and open their own online stores (complete with profiles, certifications, methods used and not used, videos of operations, photos of the kids, etc.) on the cooperative’s SaaS platform. This eliminates having to move the food post-harvest to a hub, farmers’ market or warehouse before it is even sold, saving labor, energy, expenses, and environmental externalities.

  2. The cooperative drives buyers to the platform through various ongoing Internet and social media marketing campaigns, and provides a mobile shopping app, a online store management app, and delivery route-planning app.

  3. Consumers, restaurants, and meal-serving institutions (hospitals, schools, etc.) buy directly from the variety of food producers within a given geographical radius (depending upon population density and pick-up/delivery capability) displayed (depending on the buyer’s location) on the virtual food mall platform from their computer or mobile device. This eliminates the time, labor, energy expense, and environmental externalities of having to go to a centralized retail point to purchase the food. It also eliminates operational costs of manning and maintaining a brick & mortar retail point of sale.

  4. The SaaS platform handles electronic payment (instead of a live Cashier), notifies the food producer of what has been ordered from him or her by electronic invoice, enters the order into the pick-up/delivery route-planning database, and sends an electronic order confirmation to the buyer with estimated delivery time.

  5. The food producer either harvests the ordered items post-sale (minimizing storage labor and energy) or pulls them from inventory and matches them with the order invoice containing all buyer particulars.

  6. Local pick-up/delivery subcontractors or freelancers use their route-planning app to stop in an optimized geographical sequence at each food producer from which something has been ordered, pick up what has been ordered, and place it in the appropriate buyer’s box right on the truck. Buyers’ orders from different producers thus get aggregated with minimal handling (only the producer and driver) in this manner.

  7. After all such orders have been picked up and aggregated in this manner (a large refrigerated step van should be able to accommodate approximately 30 buyers’ boxes), the driver uses his route-planning/optimization app to delivery those boxes in the most geographically efficient sequence. Once the order has been delivered, the platform transfers payment (minus a percentage for the co-op) to the food producer’s bank account.

  8. Buyers respond with reviews and star-ratings as to taste, price, quality for each food producer from whom they’ve purchased, thus allowing free market forces to act as quality control and build confidence among would-be buyers. In this manner, good food producers can build trust directly with buyers while the bad ones get weeded out through loss of demand. Also, buyers can do their own due diligence and come to trust various producers personally rather than having to rely upon nebulous government labels (e.g. what does “organic” mean anymore??). “Favoriting” various food producers thus facilitates standing orders or repeat orders (Kristen).

Note: Depending upon population density, it could be home delivery like the old milkman used to do. Otherwise, a number of orders could be delivered at once to an office building for workers to pick up and take home after work, or to central pick-up points close to buyers’ locations (e.g. local schools to be picked up with the kids).

In this manner, the “aggregation hub” (i.e. the pick-up/delivery truck) travels in a “circle”.

I look forward to your comments.

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How are you going with your circle concept, I think you are on the right track with a purpose-built platform that facilitates a more direct method of supply and delivery through shared resources such as hooking up with existing courier routes or geocentric business delivery addresses.

A key element would be payment and inventory control to allow for end-user fulfilment satisfaction.

What is the organization you referenced OFN?
Regards Russell

Hi Russell. Thank you for your interest. We are currently in the process of building the market place platform for farmers, and are forming a strategic alliance with an “UberCargo”-type pick-up/delivery company with their own route optimization software that will interface with our inventory and order fulfillment software. The driver will pick up orders from local farmers, market gardeners, dairies, value-added food producers, etc., aggregate those orders into the appropriate customer boxes right on the truck, and then turn around and deliver those orders to customers’ place of employment or neighborhood pick-up location. Upon delivery, the driver will enter the delivery into his mobile app, which will alert the customer and our inventory/order fulfillment software, as well as trigger payment to the food producer.

The “OFN” organization I referenced is Open Food Network. See https://openfoodnetwork.org.au/

Best regards, Harrison

Thanks for the reply
The open food network site is a good site thanks for the link.
With the era of internet shopping well and truly here … I would like
to think a project such as you are putting together would have
an opportunity to be successful.

Regards Russell

Interesting discussion. Harrison, you may or may not know that there are attempts to get a US version of the OFN software up and running. It sounds to me like you could leverage that and use an app to add value via routing algorithms, etc. Kirsten or I can point you to the people who are working on the US OFN (I’m helping, but only in a minor way.).

Good luck with your concept. I agree and disagree with various points you opened with, but certainly see some value in the circular model you’re suggesting.

@jveilleux: Thank you for the heads-up on the US OFN attempts. Good to know, and would be interested in collaborating. I’d also be interested in getting your feedback on any points in my opening post with which you disagree. As in all such undertakings, it’s an iterative process and specific feedback is it’s life blood.

Best regards, and thank you for in interest and input!

Let’s go through your list, point by point:

Farmer or market gardener harvests the food. ***- No changes here, regardless of model.
Farmer or market gardener stores the food. ***- Again, not much change. Maybe you shorten storage time.
Farmer or market gardener delivers the food to a hub (farmers’ market, food hub, CSA, e-commerce retailer warehouse). ***- Here, I think you need to distinguish outlets, because people LIKE going to farmers markets and interacting with the farmers. Your model is really about more efficient delivery, and perhaps consumer discovery.
The hub stores the food (if only into a display) - *** I think your assumption that you can do away with display is not well grounded. Consumers want to examine what they are getting. You need trust from the buyer before you can deliver based on an online representation - unless you want to deal with returns.

The hub packages the food (if only into order or meal boxes). ***somebody has to package. I’m not sure if you can really get many economies of scale here without some other assumptions being made.

A. Where there is no home delivery, the customers picks up the food from the hub and transports it home.
B. The customer picks up the food again from their vehicle and takes it into the house or institution.??? This is what most people are used to. A nit, IMHO.
C. Where there is home delivery, the driver picks up the food from the hub and transports it home at a cost of approximately US$0.60 per mile (built into the “free delivery” retail price). Interesting statistic. Is it this high because the scale is small? Does your cost reduction depend on LCR (least cost routing)?
Food that doesn’t pass hub criteria (approx. 40%) gets handled again (for compost or pig feed or for value-added use).
Why doesn’t it pass? Assuming the 40% is right (I don’t think so), why would consumers accept online delivery of such goods?
Food that doesn’t get sold by or at the hub must either be restored, resold another way, composted or thrown out.***Not seeing a solution in your model.

I never want to diss a good idea and there’s definitely promise in yours, but I think the core of your idea is cooperative delivery with smart software. I think OFN could be a good backbone for getting a collection of farmers together with consumers and you add the delivery and logistics piece.

Good luck

Thank you for your candid critique. Your input is much appreciated!

The purpose of the original post was simply to show what the conventional “Hub & Spoke” process is from start to finish, and all the work and expenditure of energy required. Indeed, there are some things that won’t change under the proposed “Circular Model”, like the producer having to harvest the food. But the objective of the Circular Model is to minimize or eliminate as much work and energy expenditure as possible, even if just a nit, for the benefit of the cumulative total. So, let’s review point by point:

Farmer or market gardener harvests the food. Indeed, no change here.

Farmer or market gardener stores the food. A possible change is that the Circular Model provides for an opportunity to implement, where appropriate, pre-harvest sale and/or harvest upon demand, eliminating the cost of storage and labor double-handling of product.

Farmer or market gardener delivers the food to a hub (farmers’ market, food hub, CSA, e-commerce retailer warehouse). Although people do like to go to farmers’ markets, they don’t actually do the bulk of their grocery shopping there. They may pick up a few items, depending on price (which is often more than at supermarkets) and quality, but do the rest of their shopping at supermarkets. They also don’t frequent farmers’ markets as often as they do supermarkets. That’s because they DO go for, as you mentioned, product discovery, and primarily for the community social interaction. This is where our model goes beyond merely a more efficient delivery system and includes more efficient public relations, marketing, merchandising, labor, and food waste: Our model is designed not to replace farmers’ markets but to make them more efficient and profitable. Our research indicates that in order for a farmers’ market stall to be profitable here in the West U.S., they need to sell $500 worth of product per day, on average. Why? Because of all the logistics of providing a conventional farmers’ market stand. They have to get up at the crack of dawn, load up the truck with everything they need for the farmers’ market (food products, canopy, scales, payment handling paraphernalia, packaging, promotional signs and banners, business cards, etc.), transport all that to the farmers’ market location, set up the stand and the merchandising of the product, and man the stall for several hours with a community relations/salesperson/cashier/bagger. And what happens to the product they don’t sell? Thus, conventional farmers’ markets become a “do or die” sales event. In our model, we eliminate transport and handling of food product and food waste, except for samples, eliminate merchandising and payment processing labor with a laptop open to the farmer’s online store, eliminate packaging at the farmers’ market, and thus eliminate farmers’ market food waste. Rather than a “do or die” sales event in which everything must be sold during the hours of the farmers’ market, it becomes a community meet & greet product/farmer discovery and community social event - the primary reasons people go to farmers’ markets anyway. Farmers meet new customers, provide samples of their products to taste, refer customers to their online store displayed on the open laptop, and advise that consumer can place an order now from their full line of offerings or at any time 24/7. This gives farmers more time to explain who they are and about their methods rather than on product handling, payment processing, and bagging. And since they’re not under pressure to sell everything on the spot to meet that $500 per day sales target, they can keep their online prices competitive with (or below) supermarkets. And no unsold farmers’ market food product to handle.

The hub stores the food (if only into a display). Display is done with the laptop open to the farmer’s online store and of the samples provided. According to a national survey by the University of Michigan, the primary drivers for making a food purchase are Taste (94%), Price (74%), Healthfulness (%71%), Convenience (58%), and Sustainability (38%). If the samples taste great, the price is competitive, the farmer explains how his product is more healthful than what’s at the supermarket, and that the customer can buy now or at their convenience with local delivery, he’ll capture the majority of his immediate market.

The hub packages the food (if only into order or meal boxes). Of course, someone needs to package the food. But is all the double handling really necessary? 1) Farmer packages the food to bring to the hub. 2) Farmer handles food delivering to hub. 3) Hub handles the food for storage. 4) Hub handles the food for display. 5) Customer handles food being selected for purchased from hub. 6) Hub handles the food when bagging for the customer. 7) Customer handles the food putting it into their vehicle. 8) Customer handles the food from vehicle to kitchen. Why not: 1) farmer bags the food ordered by the customer, 2) driver aggregates the bags into the appropriate customer boxes, 3) driver delivers customer boxes to collection point, 4) Customer handles the food putting it into their vehicle. 5) Customer handles the food from vehicle to kitchen. Eliminating 3 unnecessary handlings reduces labor, transport and energy costs. Indeed, where supermarkets offer “click & pick”, customers can pick up their groceries while returning from elsewhere. But that’s not what the majority do. What they’re used to is making a special grocery shopping trip to and from the supermarket, adding just that more cost and fuel with accompanying environmental and noise pollution.

Much of the food waste (about 30%) is do to food not meeting retail supermarket specifications - and they are VERY specific. Even if it has a bit of dirt on it, it’s rejected. So, most consumers aren’t as picky and/or are never given the option to by out-of-spec food. But in fact, there’s now a growing “ugly food” market. A farmers’ online store can offer an “ugly food” section directly to customers at lower prices even than those supermarkets that are starting to feature “ugly food”. The remaining 10% is from supply chain spoilage, shelf life expiration, and uneaten consumer waste. Not much can be done about the latter, except improving taste. But there are was to minimize wholesale product rejection and supply chain spoilage.

As you can see, more efficient delivery is just one vital component in an entire food production, marketing, and delivery system.

My only reservation about open source projects is that it has been my experience that, after a burst of enthusiasm and productivity, they lose steam and often don’t get completed with iterative Agile diligence required of a bullet-proof system. That’s because GOOD programmers like to get paid, which is why I’ve chosen to get our own IP built. I nonetheless wish OFN all the luck in the world and hope they produce a better system than we do, in which case I’ll partner up. :slight_smile:

Many of your points are valid. My approach is different from yours, but
largely because I’m not interested in replacing the way that 90% of food
gets sold in the US.

With regard to your last point, while I have lots of issues with the OFN
platform, I think it’s pretty good on the whole and the changes I need to
make it work are not enormous. AND, most of the programmers on this
project are getting paid. (I think the OFN Australia folks have raised
over $400K AUS in their efforts.) I know they are managing to a budget and
I know I’m paying my programmer who’s making the changes I need.

Good luck in your efforts! I think we all want a better food system and
I’m all for anyone who’s putting in the work to make it happen.

Thanks.

Thanks again for your feedback. I have no expectation of capturing 90% on the market. Online grocery pentration is in the U.S. is only anywhere between 1% to 3% right now, but projected to at least cross the chasm by 2025.That still represents a sizeable niche market (primarily Millennials and GenXers). Meanwhile, the East Asian online grocery markey is already 37% to 45%. Which is why we also have a branch office in Taiwan. :wink:

That’s fantastic news about OFN! G’donya. I’m totally with you on implementing a better food system. Regardless who pulls it off first, everybody wins.

Best of luck to you.

As for marketing campaign it’s shame the social-media methods are not that spread so much. Take Instagram for example. That’s kinda funny that nowadays you can grow your personal army of followers under the flag of your ideology. solely several tools and BAM!! thousands of people listening to you. funny hah? just a few bucks spent here https://zen-promo.com/free_instagram_followers and your ideological platform or personal media is ready