Apple Computer Corp and Little Sprouts Farm?

Here's a blog post where my background as an executive in the computer industry shows through.  I still browse the news of the high tech world to keep up with what is happening there. In doing so, I ran across this article

http://gizmodo.com/#!5764680/why-nobody-can-match-the-ipads-price

I have long admired Apple Computer's strategy, which is described nicely in the above article. How does this relate to Little Sprouts Farm? Well, in reading the article I realized that this is the same strategy that we are using at Little Sprouts, and the strategy that makes a small farm successful. Let me explain.

 Apple gains a much higher profit from owning and controlling the end to end process of designing, producing, and selling computer hardware and software. Our farm follows this same principle of controlling or owning every aspect of a food from birth or seed to table.  We have not quite fully accomplished this as of today, but it is our goal. This is very different from what the average American agriculture system do. Factory style agriculture preaches that you must own one segment of the food production, do it in huge volume, and leave the other steps to other business concerns. Family farming like Little Sprouts follows a different approach where we own all steps, do low volume, and do a wide variety of things.

Lets take an example. Lets say we have a food product that sells for $10 at the store. Out of that $10 that you pay, there are lots of steps, or cuts, taken:

Grocery store
shipping to the grocery store
production and packaging of the end product
shipping to the production company
holding and selling the raw material
shipping to the raw material holder
growing of the product on the farm --- the average farm owns only this piece
shipping of the raw growing material to the farm
production of the raw material to grow

It is important to add that  at each step of the way, the government takes a percentage of the value of that step.

So in actuality, the farmer that "grows the product" receives a tiny percentage of the $10 that you the consumer pay at the store, a very small percentage. All the other steps have to show enough profit to support a separate business and group of people. Lets say for the sake of simplicity that the 5 steps aside from shipping are evenly spread. Take perhaps $2 out of hte $10 for all the shipping and then split the rest 5 ways, there is $1.60 or 16 % of the total $10 you paid that goes to the farmer. Less than $2 for every $10 of value that is sold.

Contrast this with the Apple approach of doing everything in house. In this case you can remove most of the "shipping steps" and one company makes the profit on each step. Only one business has to be supported, and that one business profits from each step. In farming, with the $10 example.... it means that $10 goes to the farm.  That's an amazingly significant difference. By taking this approach, the farm makes close to 100% of the price that the consumer pays. Sure there are more cost associated to producing and selling the end product instead of wholesaling raw material, but WE get the profit from each step along the way instead of giving it to someone else.

Consider the difference between selling fresh picked blueberries off the farm to selling farm fresh blueberry pies made from fresh picked blueberries. For a little extra labor, the value gained by growing the berries is much greater if it is packaged in the pies and sold direct to the consumer.  That is the Apple computer approach, the Little Sprouts Farm approach and in our humble opinion this is the only approach that allows a small farm to make both better quality food and a decent profit along the way.

There is another hidden advantage to this approach. When we ( the farmer) keep all the money along the way, then that money can be reinvested back into the quality of the raw materials. For instance... when we sell a hog for $5 per pound, that cash goes back into purchasing much better feed to produce a better quality meat. If the price was split with a grocery store and all the other things along the way, there would be little left to invest in the animals themselves, and we would be struggling to keep the farm going.  This is actually one of the problems at the core of the American agriculture system today.

The mistake made in the common thinking is that volume covers the losses of the farm. If the farm could just be bigger and produce more, the volume will increase profit. That just doesn't work unless you are already making a profit. MY dad had a saying in his retail store. If we bought something for $1 and sold it for $0.90, he would joke that we could "make it up in volume".  In farming it is even worse because volume changes quality and methods to the point where it is impossible to produce a good quality product in volume anyway.

So.. here's the bottom line... to make money on a small farm and produce the best quality food, the model to follow is that one that made Apple Computer so successful:

Own the entire process from manufacturing to consumer sales and be innovative along the way. Sell direct to your customers, and create loyalty through quality.