Starting a Food Hub on a Shoe-String Budget

Want to start a regional food hub but on a shoe-string budget? Join the club!

Food hubs are becoming big business. According to a 2019 Michigan State University survey, many food hubs have opened in the last few years and two-thirds of them are breaking even or better. But even so, most food hubs are started on a grass-roots level and they start operations on a slim budget.

The opportunities a food hub brings are apparent. They are a great way to increase local food and farm sales and create a new venue for rural producers to access markets they couldn’t on their own. But finding the funds to open and operate a food hub isn’t an easy task, especially in the early years.

Most farmers and food producers that would participate in a food hub or be inspired to open one are already operating on narrow profit margins. They can’t afford the expensive infrastructure investments needed for funding a food hub — like refrigeration or space for aggregation and distribution. Even paying supply and labor costs may be difficult in the early years.

Sure, having a loan or investment funds, market research, a warehouse and refrigeration would be ideal.  But there are still plenty of creative ways to work around the initial up-front expenses and start building a food hub business.

Many of today’s thriving food hubs started aggregating food and packing up boxes in somebody’s garage. It just takes a little ingenuity!

“Hosted” Aggregation Sites

The highest upfront cost for a food hub is the physical space.

Ideally, the food hub starts with its own aggregation space.  This would include adequate workspace, food handling and processing areas and easy access for drop-offs and pickups.

But, at least in the beginning, many food hub ventures can’t afford to purchase or build their own space. Instead, they may look to the food hub’s farm partners to provide space.

Many farms already have set up a processing and packing area for their farm production. Would they be able to “host” food hub activities? Perhaps they can work it into days they aren’t already using their processing facility. Or maybe they have enough extra room to allocate a small area of their pack shed to the food hub.

As your food hub grows, consider leasing space as the next step before purchasing a site.

Inexpensive Refrigeration Options

Refrigeration is another considerable upfront cost for food hub startups.

A 10×10 professionally installed walk-in cooler typically costs more than $10,000.  And 100 square feet is filled quickly when your food hub starts moving a significant amount of produce.

But there are cheaper options for refrigeration to explore.

  • Purchase a refrigerated container, aka a “reefer” container. A brand new 20′ long refrigerated container has nearly 50% more space than a 10×10 walk-in cooler and generally runs about half the price. Used reefer containers are even cheaper. Just make sure you have an adequate power supply (some reefer containers require three-phase power while others run off one-phase power). An additional advantage to purchasing a refrigerated container is that if your food hub location moves, your refrigeration can move with it.
  • Look for somebody removing a walk-in cooler and offer to take it. Grocery stores, restaurants and other businesses that use refrigeration often are looking to get rid of an old walk-in cooler. They might be going out of business or upgrading to a newer unit. Typically, the refrigeration unit isn’t salvageable, but the insulated panels can be rebuilt at a new location if carefully dismantled. Often companies will give away old walk-in panels to avoid paying expensive disposal costs.
  • Build your own. You can typically build your own insulated room for a lower price than buying a new one.
  • Install an AC unit with a workaround instead of a traditional (expensive) refrigeration unit. Aside from the insulated space, the next most spendy part of a walk-in cooler is the refrigeration unit. However, many small-scale farmers use air conditioner units with a bypass unit to override an AC’s pre-set lowest temperature (62 degrees). Check out the CoolBot options.

Food Hub Aggregation Logistics

Communicating aggregation logistics and packing requirements to participating vendors can reduce labor costs. Ask your vendors to deliver their products in ways that will make aggregation easier.

Set up clear instructions for produce packing that all vendors are asked to follow. For instance, how are individual items packaged? If your food hub sells items by each, should each item be marked with the product name and farm name (to avoid confusion)?  How is the product marked? If your food hub sells items by case quantity, what IS the case quantity, what size of box should a case of a specific product be packed in, and how should it be labeled? Consider providing generic labels to your farm vendors or asking them to follow a particular label format so there can be no confusion.

If you need additional help on aggregation day but can’t yet afford to hire labor, ask your food hub vendors if they can help.  Consider offering to reduce food hub fees in exchange for labor.

Joint Supply Ordering

Boxes, bags and other supply items can be a significant expense for a food hub operating on slim cash flow. However, you can save money by consolidating a large supply order with other farms that meet minimum volume pricing requirements.

Since the food hub vendors will need to use the same size and style of boxes and other packaging supplies like bags (see above point on aggregation logistics), they will need the same boxes the food hub would be ordering anyways. The hub can act as the delivery and pickup location for the supply order, making it easy for everyone.

Mutual Marketing Efforts

Marketing may not be a high up-front cost, but it can eat away hours!

Ask the food hub members to share social media posts and food hub fresh sheets with their farm following. After all, it is hopefully getting them more orders, too.

If there is a need for additional marketing efforts, like building a website or ongoing social media posts, consider trading food hub produce to a community member in exchange for their marketing skills. Or is there a food hub vendor willing to take on these tasks? Offer them a reduced fee structure in exchange for the service.

There’s much involved in starting a food hub.  invariably it will be a lot of work.  But don’t be afraid to start small and be creative. See this USDA case study report for more information on the early stages of starting and building a food hub.

 

For more information on how Food4All can help your food hub with management software developed specifically for food hubs, farmers markets and food cooperatives, check out our new HUB technology. Or, reach out to us online HERE or call us at (541) 604-8129 to request a free demonstration.