SOCIAL ENTREPRENEURSHIP IN ZERO FOOD WASTE
What is the environmental impact of food waste?
95% of the spending during the past three decades focused on increasing productivity of our food production system; while only 5% was directed towards reducing food losses. On average, about a third of the food produced globally is lost along the value chain. If food loss is a country, it is ranked third behind China and United Stated as one of the largest CO2 emitters. In terms of CO2 emissions, foods loss accounts for roughly 3.3 gigatonnes of CO2[i]. Production of food uses a large amount of earth’s natural resources, whereby agriculture accounts for 70% of total freshwater usage. Food loss therefore accounts for roughly 20% of the global freshwater use being ultimately wasted. This is bad news considering that weather pattern is also becoming highly erratic due to climate change.
Introduction to different breed of food tech start-ups
The rise and ubiquity of mobile phones in everyday-users and cloud computing has enabled the rise of tech start-ups. Cloud computing has enabled the rise of new business models such PaaS (Platform as a Service), IAAS (Infrastructure as a Service), SAAS (Software as a Service). Food tech start-up is the latest trend in the whole start-up ecosystem that we have grown familiar with. The most popular ones are start-ups which focus on food delivery such as Foodpanda, Uber Eats, Meituan-Dianping, and GrabFood.
Lower down the list in the popularity of food tech start-ups are social entrepreneurships built around the values of zero food waste to address aforementioned environmental concerns, and by extension, reducing social inequality especially in achieving zero hunger and food security. These are social entrepreneurship that are more focused on prevention of food losses. Many of these businesses are providing their services using their own mobile apps which are digital platforms that connect supply and demand sides.
Unlike food delivery start-ups that are not typically bounded by any strong social driver, a start-up that is focused on prevention of food loss is its raison d’etre for delivering value to society. This difference will affect how food tech start-ups go around recruiting F&B (Food & Beverage) businesses to their digital platforms. Social businesses should in principle, maximise their social purposes. Non-profit organisations (surviving on donations and sponsorships) attempting to maximise their social purpose has had issues with scalability. These have caused some organisations to switch to for-profit as they scale, for example Copia based in United States, and OLIO based in UK[ii] (it received USD$2.2 million funding in 2017[iii], and as of 2019, has 1.2 million users globally[iv]). While for-profit organisations do have better scalability, they have to constantly wrestle between two diametrically opposing goals, which are social purpose and profit. For for-profit organisations that are more geared towards VC (venture capital) funded food tech start-up, the dilemma is even more severe as the standard “GROWTH-AT-ALL-COST” mind-set may risk a food tech start-up to side-line its original social purpose.
What are the existing social businesses and their revenue streams?
A) For-profit:
· Upcycling: Grub Cycle (homemade pineapple jam and apple cinnamon in Malaysia), Rubies in the Rubble (jams and chutneys in UK),
· Commission/transaction fee: Grub Cycle (bakeries and restaurants in Malaysia), Too Good To Go (surplus meals from restaurants in Europe and keeps €1.09 per meal sold through the app[v]), Ubifood (surplus from bakeries, cafes and fast food shops in Canada):
· Pickup fee: Copia (charges businesses in United States and Canada a fee per pickup, in return, the companies making the food donations receives a tax write-off)
· Subscription fee: No Food Wasted (charges Supermarkets in Netherlands to utilise its platform to sell surplus)
· AI-as-a-service: Winnow and Leanpath but unlike others aforementioned, these are not digital platforms connecting suppliers to consumers, but rather, helps chefs globally to measure, monitor and cut waste in half using artificial intelligence (AI) technology.
B) Non-profits:
· Digital platform provider: Comida Invisivel (Brazil) whereby access is often free of charge, thus relying exclusively on donations and sponsors to finance the app development and maintenance activities. Transactions are based on surplus food donations without revenue generation.
· Digital platform provider with additional services: FoodCloud (Ireland), 412 Food Rescue (United States), No Food Waste (India), Neighbourly Food (UK). These initiatives expand their value propositions to go beyond food recovery, for example, encompassing food waste prevention, food recycling, raising awareness, transportation, collection hubs, etc. As a result, their operational costs increase significantly and even more reliant on sponsorship and donations.
What are the challenges to scalability?
1) Platform strategy
Having a digital platform or app to connect F&B businesses to consumers is just the icing on the cake. Like all digital platforms, recruiting users to build an interactive ecosystem is a whole new different ball game for many of these social entrepreneurs. The steep learning curve include familiarising themselves with multi-sided platform (MSP) business models, network effect, and the Penguin problem, to name but a few. In the case of food tech start-up, Penguin problem manifests itself when consumers postpone adoption of the platform unless there are F&B outlets on the platform; vice versa F&B outlets postpone their own adoption, awaiting consumers to participate first. Thus, no one joins unless everyone else joins in.
2) “GROWTH-AT-ALL-COST” mind-set:
These entrepreneurs have to familiarise themselves with new metrics to measure health of digital products, such as retention, stickiness, churn users, resurrected users, etc (for more information, please refer to Sequoia’ article here). Understanding measurement of healthy digital products is important because many venture capitalists’ (VCs) investment into start-ups follow the Silicon Valley model, where “GROWTH-AT-ALL-COST” is the predominant mind-set. The problem with social entrepreneurs learning these metrics to adopt “GROWTH-AT-ALL-COST” mind-set is that it may inadvertently make these social entrepreneurs forsake consciously or otherwise, the very social drivers that inspired them into their social entrepreneurial journey. Would these entrepreneurs still have a unique selling point (USP) when their original social drivers were their USPs?
2) Marketing:
One also has to remember that the tech start-up culture that we are familiar with typically has 40–60% of its operating expenditure down to its marketing campaigns. This is why tech start-ups are loss-making in order gain market share via aggressive marketing. While for-profits can justify such a spending in aggressive marketing, the same cannot be said for non-profits. Questions will inevitably arise for non-profits if 40–60% of the money from donations and sponsorship goes into aggressive marketing, when it could be better used to deliver immediate social impact. As such, non-profit would unsurprisingly find it harder to scale. In the age of proliferation of mobile apps, app fatigue[vi] is real (for more information, refer to TechCrunch article here). Hence, in an overcrowded app ecosystem, it is more likely that marketing cost will go up rather than come down in the foreseeable future.
3) Value proposition for F&B businesses:
In order to recruit B2C (Business-to-Consumer) F&B outlets onto any digital platform, one always has to keep in mind that for businesses, revenue generation is always prioritised over efficiency improvement. Due to economic nature of surplus, start-ups of zero food waste can only help F&B outlets to recover their costs or minimise their losses rather than helping F&B outlets generate revenue with proper healthy profit margin. This discount (or loss of income) is borne by F&B outlets not start-ups. Contrast this with food delivery start-ups such as GrabFood, whereby many of the discounts such as free delivery, is borne by the delivery start-up rather than F&B outlets.
As any F&B business has finite marketing budget, spreading butter over too much bread is unlikely to be a viable strategy thus it has to make a decision on which platform to bet on in an over-crowded app ecosystem. Due to the nature of the apps’ functionalities, there should be more bargain hunters on zero food waste platform than that of food delivery platform. Thus, taken as an aggregate on which party has to be responsible for the income loss and the quality of the consumers on the platforms, F&Bs’ cost-benefit analysis will likely be less favourable towards zero food waste platform than food delivery platform. A zero food waste platform incurs onto F&Bs a higher opportunity cost with smaller returns, compared to food delivery platform with lower opportunity cost and higher returns.
Moving forward
A social entrepreneur must understand not only the perspective of F&B businesses for on-boarding, they must also understand consumers. What are consumers’ preferences? What are their priorities given a limited budget to splurge on, and would they actually act on their said priorities? Will it be convenience to eat from home/office without ever going out or getting stuck in traffic? Will it be luxury food at bargained price (e.g. Eatigo), or healthy food, or food with social values such as Fairtrade? Having a better understanding of consumer behaviour, what they believe, and what they actually put into practice may be able to help social entrepreneurs better compete against the ubiquity of food-tech start-ups.
Social entrepreneurship revolving around zero food waste is a very complex endeavour as their path to growth, scalability, and profitability are constrained by the very social values that inspired them to entrepreneurship anyway. As climate change and food security both need our urgent attention, addressing food waste is in itself a possible solution. Would social entrepreneurship require rebranding to be a hot new VC-funded tech start-up? Is this the most appropriate approach to address some of the nagging global issues for long term sustainability?
I hope this article illustrates the myriad experiences that social entrepreneurs face. While this may be a bit different from other tech start-up articles that we are familiar with on Medium, perhaps due to social entrepreneurship not being the major part of our start-up zeitgeist. Yet, the road less travelled may lead us to conscious capitalism for a better tomorrow.
Footnote
“I would like to thank Ms Shirley Chiu for our collaborative social entrepreneurship together. She has also thought me a lot on platform strategy. Without constant discussion and brainstorming sessions with her over the last 18 months, this article would not have been possible. For anyone interested in food waste at consumption, I would highly recommend reading her article “The Crisis of Food Waste at Consumption. Also, thanks to Dr. Daniel Mahadzir for bringing up the importance of behavioural science in addressing consumption behaviour’
References
[i] http://www.fao.org/3/i3347e/i3347e.pdf
[ii] Food Waste Management: Solving the Wicked Problem, Book to be edited by Elina Närvänen, Nina Mesiranta, Malla Mattila & Anna Heikkinen. Chapter 14: Exploring Food Waste Reducing Apps — A Business Model Lens by Fabio de Almeida Oroski
[iii] https://www.gsb.stanford.edu/insights/dont-toss-lettuce-share-it
[iv] https://www.manchestereveningnews.co.uk/whats-on/food-drink-news/olio-app-manchester-food-waste-16647273
[v] https://www.thestar.com.my/tech/tech-news/2019/06/21/tasty-deals-german-apps-help-find-unsold-food-and-reduce-waste
