Vertical farming promises to be one of the most impactful trends to food in the coming years. In fact, it was listed as the No. 1 trend in Whole Foods’ list of top food trends in 2022. I am also excited about the potential for growth in vertical farming, and I made that the topic of The Stockout show the past two weeks on which I interviewed supply chain executives from Plenty and Freight Farms. Those two companies are taking widely different approaches to vertical farming: Freight Farms sells equipment in the form of hydroponic containers to enterprising small farmers, whereas Plenty is building its own large-scale indoor farms, leveraging its own research on growing conditions and selling produce through retail channels.
Vertical farming intrigues me due to the potential environmental benefits (reduced diesel usage, reduced water usage, lack of pesticides) and the potential for improvements in living standards (being able to deliver fresh produce to locations that are underserved and/or have poor natural growing conditions). At some point, with enough scale and with further cost reductions to LED technology, vertical farming could become more economical than traditional farming, benefiting from efficiencies in labor, transportation and other inputs, such as pesticides. In addition, vertical farming output has the potential to be higher-quality and more consistent since growing conditions can be optimized perfectly without interference from adverse weather or pests.
Much of the indoor farming done to date has been leafy greens, such as lettuce, since that is the food category for which it is easiest to “make the numbers work.” But, it is clear that the larger companies are also pursuing higher-value produce, as seen in Plenty’s partnership with Driscoll’s to grow strawberries indoors. Another development in vertical farming that I find interesting is that a cluster of vertical farming startups are located in Israel, presumably a result of poor growing conditions and remoteness from agricultural regions.
Spot rates to move produce from central California have been highly inflationary. In traditional farming methods, lettuce requires very specific growing conditions and must be hauled in temperature-controlled trailers. The limited areas where it can grow include the Salinas Valley (included as part of the San Francisco metro area in SONAR) in the spring and summer and Yuma, Arizona (part of the Phoenix market in SONAR data). The chart below shows that, in the past five years, the all-inclusive truckload costs to move produce from central California to Chicago have been as low as $4,000 a load but reached a high of $8,550 this year. With vertical farming, that cost and volatility could be reduced by growing lettuce closer to consumption centers.
The biggest news in the CPG industry the past few days has been The Coca-Cola Co. acquiring full ownership position of sport drink company BodyArmor. The acquisition price is $5.6 billion for the remaining 85% of the company that Coke did not already own. BodyArmor will be managed as a separate business and will retain its New York headquarters. Coke expects BodyArmor to have sales of about $1.4 billion this year, which gives the brand an 18% share of the $8.4 billion U.S. sports drink market. This acquisition is consistent with Coke’s strategy of becoming a “total beverage company” that also included its 2018 acquisition of Costa Coffee and its 2017 acquisition of Topo Chico. In addition, the acquisition provides an avenue for growth; the $1.4 billion in expected sales of BodyArmor sports drinks this year reflects sharp growth from $250 million in 2018 sales.
Direct-to-consumer brands may have to adapt to new data privacy rules. Brian Straight, managing editor of Modern Shipper, explains why changes to data policies regarding cookies could be an issue for many consumer goods companies, particularly those that rely on the internet for their marketing. According to e-commerce company BigCommerce, the most important role for a cookie is to keep users logged to a particular website while they browse other sites. A user’s browsing history then becomes part of a database, which the original website uses for more customized and targeted output. Recent policy changes by many of the large tech companies differentiate between first-party cookies (websites you visit) and third-party cookies (outside sites that track your data). Consumer goods companies need to adapt to no longer relying on third-party cookies now and can do so by enhancing their loyalty programs, newsletters and other actions that can personalize customers’ experiences without making customers feel like they are constantly being watched.
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