Enhancing Profitability and Efficiency at AeroFarms
AeroFarms faces challenges with high financial requirements driving a need to adjust its business model for profitability. Recommendations include reducing operational expenses, introducing new crops, developing a franchise model, and enhancing consumer education and industry organization.
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HC Haskayne Consulting The Future of Farming: #ZeroHunger Mr. David Rosenberg, CEO; Mr. Ed Hardwood: Chief Science Officer; Mr. Marc Oshima, Chief Marketing Officer January 2020 Newark, New Jersey, United States of America Haskayne Consulting: Adam Schwarz, Mahwash Waqar, Gibson Yin, Graham Toombs
How does AeroFarms grow its profitability amidst a business model requiring excessively high capital and operational expenses? AeroFarms biggest challenges to profitability are it s high financial requirements. HC AeroFarms must adjust it s current business model to grow it s profitability. 2
Executive Summary Issue Recommendation Cost (USD) - - - Work with Dell and Harvard to increase LED Spectrum Efficiencies Hire Grants and Subsidies Expert to find greater funding streams Develop locations to increase efficiency: Waste Heat recovery $100,000 High Operational Expenditure Challenges $500,000 $200,000 - - Introduce new non-leafy crops: Bell Peppers, Tomato s, Cucumbers Launch Research & Development to trial new more difficult crops - Berries, Wild Fruits, High Margin Crops Create Franchising Model for International Expansion (including USA) - 10% Revenue; $0 franchise fee for two years as incentive Partner with distribution services - SPUD, Good Food, Fresh X $200,000 $500,000 Increase Revenue - $200,000 - $200,000 - Consumer Education - Instagram, Facebook, Snapchat, Partner with Lifestyle Influencers, YouTube Pop-Up Shops to Create Better Education - Mini-Aeroponic Units for consumers to see and touch still-living crops Organize the industry and create the Vertical Farmers Growing Association . - Lobby USDA to create defined Organic certification $500,000 - Brand and Technology Awareness $200,000/year - HC - Hire Recruiting Firm to acquire greater pool of talent to hire from - Increase Incentives: Give employees ability to conduct research through organization Use Vertical Farmers Growing Association to sponsor Oregan State University to drive talent to the industry in the long-term $500,000 $100,000/year Talent Acquisition - 3 $10,000/year
AeroFarms needs to decrease its operational expenses through technological efficiencies and shifting its growth to a franchise model. Operational Expenses must be decreased in order for the business to remain profitable in the long run. AeroFarms cannot continue to grow with such high capital expenditure requirements. HC AeroFarm must adjust it s business model for profitability and long-term growth 4
We are at a major inflection point globally as we think about the challenges of increasing population and urbanization, loss of fresh water and arable land, worker welfare, food safety, and food security, and AeroFarms is uniquely positioned to address each of these areas with proprietary growing technology and unmatched growing history and expertise. - Mr. David Rosenberg, CEO HC AeroFarms is leading the way to #ZeroHunger through it s revolutionary farming practices. 5
The Path to The Future of Farming New Products, New Sales Channels WasteHeat Recovery Systems LED Spectrum Technology Customer Education and Brand Awareness: Dream Greens Franchise Model for Continued Growth Greater Talent Acquisition HC Focusing on these areas will allow AeroFarms to decrease its operational expenses and grow long-term 6
390x more efficient Marc Oshima Mahwash Waqar HC 7
The Aeroponics Industry Tech-farming, farming 4.0, the circular economy Climate-resistant crop varieties Data-intensive, Infrastructure-heavy Urban centers-focused, driven by population growth issues New technologies (AI, ML, IoT, etc.) and R & D are important HC Feeding the world through environment-friendly business models 8
Challenges Traditional Farming Tech farming Funding issues and capital- intensive Talent building and acquisition Energy efficiency problems Cash flow and profitability Nationalistic legislations Variety- seeking customers Customer education HC Similar struggles across the board explore the way forward for farming 4.0 9
AeroFarms 7 farms in the US, 1 in Saudi Arab, 1 in China Goals Nourishing Communities Global aspirations 25 farms by 2022 Finding sustainability and getting profitable is the first order of business HC Fix the home base first before pursuing global expansion 10
The Customer Retail businesses Airline businesses Restaurants Care about the value it brings to the business Customer 30 year old millennial customer Middle to upper-middle class ($60,000+ average income per annum) Urban Cares about the environment and current politico-social world problems Consumer Finding a way to attract and retain the customer and consumer through new partnerships, education and engagement HC 11
AeroFarms: Critical Look What you do well? Found a place for your product Data-driven environmentally responsible crops (leafy greens) Fast experimentation Perfected the water and fertilizer minimal usage Reduced time to market Lower transportation costs Where can you grow? Energy consumption issues Revenue sources (to address profitability concerns) Marketing efforts, consumer awareness Building a talent pipeline 12
Alternatives Alternative Profitability Growth Capital/Resource Management Product Awareness and Education Energy Consumption Adjust the business model, by focusing on the home base first Yes Yes Yes Yes Expand into aqua- and-hydroponics by acquiring and merging with a competitor No No Yes No Expand into traditional farming No No Yes Yes HC Adjust the business model for sustainability 13
AeroFarms needs to decrease its operational expenses through technological efficiencies and shifting its growth to a franchise model. Operational Expenses must be decreased in order for the business to remain profitable in the long run. AeroFarms cannot continue to grow with such high capital expenditure requirements. HC AeroFarm must adjust it s business model for profitability and long-term growth 14
Recommendation Energy Consumption R & D on LED spectrum efficiencies Grants and subsides through the Urban Farming and Food Security Act Invest in waste heat recovery technology by operating in industrial areas and harnessing the residual heat Revenue Streams Franchising to potential interested parties Zero franchising fee Partner with e-commerce websites like SPUD.com Customer Education Promotions through social media (Facebook, Instagram, Youtube), marketing through lifestyle influencers Pop-up shops in city centers to increase awareness and sample the product Create Vertical Farming Growing Association Talent Building and Acquisition Source from world-wide talent pools within the industry Industry to partner with Oregon State University HC Steps to perfect the US market 15
The Farm of the Future Gibson Yin HC 16
AquaFarms Financials Today $50 million in revenue Operating 7 plants globally Positive profit 2019 Operated with positive cashflow Challenges Growing revenue High operating expense Maintain strong financial footing HC 17
Cost Assumptions One Time Develop waste heat technology 200k R&D in LED spectrum efficiency 500k New product offering 200k R&D for new plant varieties 500k Search for franchise partner 200k HC 18
Cost Assumptions Recurring Hire grant specialist 100k/yr Partner w/ SPUD 200k/yr Pop-up Shop 300k/yr Maintain industry group 10k/yr Lobbying effort 200k/yr Talent search 500k over 2 years University grant - $100k/yr HC 19
Target by 2022 Grow revenue by 30% CAGR (24% expected growth, CAGR) Achieve operating margin of 25% Reduce heat usage by 5% Receive grant funding of $5 million/yr Find 3 franchise partners in 2 years and begin construction HC Achieve growth in topline and bottom line 20
AvoidExpansion into Hydro & Aquaponics Aquaponics Expensive to build and maintain due to involvement of fishes Bottom feeder fishes are difficult to sell STOP Hydroponics Heavy load from hydroponic systems Building needs to be redesigned Different location selection process HC Incompatible technology with little benefits to AeroFarm 21
AvoidExpand Into Traditional Farming No competitive advantage Will eat heavily into cashflow No experience in traditional farming Don t cave into outside pressure to feed the world Achieve your vision at your own pace STOP HC Achieve your vision at your own pace 22
Seeding The New AquaFarm Graham Toombs HC 23
AeroFarms needs to decrease its operational expenses through technological efficiencies and shifting its growth to a franchise model. Operational Expenses must be decreased in order for the business to remain profitable in the long run. AeroFarms cannot continue to grow with such high capital expenditure requirements. HC AeroFarm must adjust it s business model for profitability and long-term growth 24
R&D Short Term (0-6 Months): R&D department to begin hiring for new roles (spectrum efficiency and new fruits) Prelim research into integrating waste heat recovery into new locations Research into anticipated LED spectrum efficiencies Medium Term (6-12 Months): New R&D roles to implement found spectrum efficiencies as they become applicable Begin trials of new berries and fruit aeroponics Integrate waste heat recovery into locations where applicable Long Term (1-2 Years): Run existing data analytics programs on the new berries and fruits Continue refinement of flavors and textures according to data standards Source new locations based on waste heat recovery research HC Find new products, and new avenues 25
Franchise BM Short Term (0-6 Months): Begin sourcing potential new franchisees Continue current management model for currently held locations Medium Term (6-12 Months): Work with potential franchisees on sourcing locations (emphasizing waste heat) Provide help with loan sourcing Long Term (1-2 Years): At the end of 2 years, franchisees begin operation HC The new model helps save cost, and builds revenue 26
Talent Generation Short Term (0-6 Months): HR to hire a local recruiting firm near each current location Specific directions given on employees needed and talents wanted Search entire current industry Head office to begin talks with other vertical farming companies to organize the industry Head office to begin talks with Oregon State University (OSU) Medium Term (6-12 Months): Qualified staff found by recruitment firm Head office to continue talk with other vertical farms, building the blocks to organize Long Term (1-2 Years): Vertical Farming Growers association formed, begins lobbying for organic labelling OSU Partnerships, sponsors new programs and builds future talent long term HC Fix the industry and grow the pool 27
Marketing and Education Short Term (0-6 Months): Medium Term (6-12 Months): Long Term (1-2 Years): Marketing to hire a social media expert Marketing begins sourcing proper locations for pop-up education shops 5 Locations close to current plants (1 each per year) University campuses Malls Current Grocery Stores Continue current marketing efforts to get into more retail stores Social Media expert to Refine Search Engine Optimization (SEO) Build up social media presence (Twitter, Instagram) Develop an education Youtube series around what aeroponics are Social media to begin advertising existence of coming pop up shops Pop up shops to begin rolling out on scheduled times Begin recording feedback and usage on social media HC Interact with your consumers and build up their knowledge 28
Risks and Mitigation Risks Probability Impact Mitigation IP Theft/Cybersecurity M H 2 Factor Authentication Firewalls Digital twinning the databases Low Awareness H M Education HC 29
Suggestions for the future (NOT Right now) Build an observation area into the current vertical farms Partnering with large E-Commerce entities Grain farm R&D HC Suggestions for future expansions 30
You Asked, We Answered Can aeroponics and data science-based vertical farming the future of crop cultivation? Can a sustainable and profitable business model be created? How to combat capital and energy requirement? Can the consumer interest be molded into vertical farming based crops? Can it meaningfully solve the world s food problem without high calorie proteins and grains? How to make vertical farms the future? HC We believe this solution is the future of farming and food generation 31
Nourishing the Communities of Tomorrow Adam Schwarz HC 32
AeroFarms needs to decrease its operational expenses through technological efficiencies and shifting its growth to a franchise model. Operational Expenses must be decreased in order for the business to remain profitable in the long run. AeroFarms cannot continue to grow with such high capital expenditure requirements. HC AeroFarm must adjust it s business model for profitability and long-term growth 33
Executive Summary Issue Recommendation Cost (USD) - - - Work with Dell and Harvard to increase LED Spectrum Efficiencies Hire Grants and Subsidies Expert to find greater funding streams Develop locations to increase efficiency: Waste Heat recovery $100,000 High Operational Expenditure Challenges $500,000 $200,000 - - Introduce new non-leafy crops: Bell Peppers, Tomato s, Cucumbers Launch Research & Development to trial new more difficult crops - Berries, Wild Fruits, High Margin Crops Create Franchising Model for International Expansion (including USA) - 10% Revenue; $0 franchise fee for two years as incentive Partner with distribution services - SPUD, Good Food, Fresh X $200,000 $500,000 Increase Revenue - $200,000 - $200,000 - Consumer Education - Instagram, Facebook, Snapchat, Partner with Lifestyle Influencers, YouTube Pop-Up Shops to Create Better Education - Mini-Aeroponic Units for consumers to see and touch still-living crops Organize the industry and create the Vertical Farmers Growing Association . - Lobby USDA to create defined Organic certification $500,000 - Brand and Technology Awareness $200,000/year - HC - Hire Recruiting Firm to acquire greater pool of talent to hire from - Increase Incentives: Give employees ability to conduct research through organization Use Vertical Farmers Growing Association to sponsor Oregan State University to drive talent to the industry in the long-term $500,000 $100,000/year Talent Acquisition - 34 $10,000/year
