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Is the Destruction of the Middle in the Food Business Inevitable?

Is the Destruction of the Middle in the Food Business Inevitable?

As you look across all the aspects of modern life - across work, home, politics, sports, anything really - we see consistent destruction of the "middle." 

In statistical analysis, when looking at data, it is essential to understand its shape. Most of us learned over our careers that most data falls under a relatively normal distribution, often described as a "bell curve." A normal distribution occurs when a small percent of occurrences fall to the population's extremes, and the rest distribute across the middle. Think of historical measures like household income, political affiliation, intelligence levels, to name a few. 

More and more, it looks like we're moving toward bi-modal distributions. A bi-modal distribution is where you have a large group at either end of the spectrum and relatively few in the middle (it looks like two bell curves side-by-side on the same axis). Recent analyses of our economic recovery suggest this redistribution may be happening. The studies note how rewards skew toward wealthier households while suffering skews toward poorer ones. These skews occur across income, wealth, political views, religion, employment, and even business sustainability.

In the food business, brands used to fall across national, regional, and local versions, each with a value proposition that appealed to specific groups. Industry survival, particularly in this pandemic, is now predicated on being super large and having economies of scale or being super local with customization and intimacy advantages. Being large means cost and technology advantages and being able to ride the current situation out. Being local allows products and experiences that can't happen with the large chains, meaning if someone wants what they have, the small place is the only place they can get it, and the business has found ways to engage with their local customers. In both cases, each has strategic leverage. Brands in the middle that don't have the scale to ride it out or the customer intimacy that lets them customize their offering aren't going to make it.

Consumers will move between large and small brands in this bi-modal world, depending on their needs or desires. They'll use Amazon's scan-and-go stores, for example, for things they want fast or cheap and are easily substitutable. Like a quick sandwich, a beverage, or toothpaste. They'll use small, local stores for things that matter to their sense of self, like buying meat from a butcher that only sells from local ranchers, or buying a gift at a local store that carries one-of-a-kind items in sustainable packaging.

Being in the middle is becoming less economically viable, and it seems the only choice is to go one direction or another. I've experienced this as I build a food company during this pandemic and have explored multiple business models. My path has turned out to be a super local one. Production of the first product will be at a small, local facility with home delivery in a tightly defined geographic area: no shipping, no wholesale distribution, no outsourced manufacturing, and with no intent ever to pursue these avenues. 

Why this approach? There are certainly cheaper, more conveniently acquired products in grocery stores or Amazon. While that may be true, they use inexpensive "filler" ingredients, are often processed to deliver more convenience (which removes nutrients), and packaged in non-sustainable materials to offer lower cost and longer shelf-life. On the flip side, my first product will cost more with a limited shelf life because there are no preservatives or processing after cooking. Packaging will be compostable, recyclable containers. Employees will be a part of the community, and 25% of our profits will help rural communities maintain or build senior centers. That is what my health-conscious, environmentally-aware customers want. They can't get that from a national food manufacturer built around centralized production and national wholesale distribution, with no ties to local communities. 

I think more food companies, regardless of size, will be moving toward this local production and distribution model, especially as automation advances and food production transforms to more sustainable models. If you can build small, mostly automated production facilities at a local level, hire local people, and then be home delivered cost-effectively, your choices are very different. It allows you to avoid most of the additives required to bring stability to food products in transit. It also allows regional variation to account for taste and nutritional preferences. It reduces the carbon footprint of moving all the materials and finished products in and out of a central location.

So maybe the destruction of the middle is inevitable and isn't all that bad. If that moves us toward a more sustainable economic model, it is more about transformation than destruction. What then becomes important is how to move anyone working in the more traditional food system to this local, distributed one—getting people and food where they need to be. 

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