Ran Goel, founder and CEO of Fresh City.
This is one of a regular series of case studies by a rotating group of business professors from across Canada. They appear every Friday on the Report on Small Business website.
THE CHALLENGE
As part of a trend toward healthy and sustainable living, the local and organic farm-to-table movement has been experiencing significant growth in Canada and the United States. Direct sales at farmers' markets has risen 7.3 per cent annually over the past decade, and in 2012, the Canadian certified organic market was estimated to be worth $3.7-billion – 1.7 per cent of the total market, and up from 1 per cent in 2006. Projections anticipate that customer demand for new and more products within the space will continue.
Large grocery stores are adding more local and organic products to their shelves and local farmers' markets are gaining traction. Most consumers are naturally accustomed to an in-person experience when purchasing their groceries.
Local and organic-food sector e-commerce platforms are changing this long-standing dynamic. Not only are they adding to the existing local distribution systems and larger grocery infrastructures by bringing in new customers, they are also disruptive by competing on price, convenience and quality of product.
Fresh City allows consumers to purchase fresh, local and organic food that is delivered to their doors each week. While shopping online for home-delivered goods is certainly driven by, and tailored for, consumer demand, Fresh City, alongside its peers, must understand and control all aspects of its supply chain in order to deliver on customer satisfaction.
THE BACKGROUND
Ran Goel, founder and CEO of Fresh City, recounts a childhood saturated with stories about farming and food – a grandfather that delivered milk for his father's dairy by bicycle, and a grandmother who watered her orange groves. A few years ago as an investment lawyer in New York, at one of the world's biggest law firms, those visceral stories continued to percolate.
His nostalgia-filled curiosities spilled over into learning more about food systems. "I realized that the food I was eating was not only bad for my health and the planet, but as a final insult, it didn't even taste that good," Goel says.
Fresh City was born. Goel figured the hedge funds he was advising would be just fine without him, and a real chance to move the needle on how communities make and consume food was too good to pass up.
THE SOLUTION
Fresh City aims to combine the trust inherent in the farm-to-table relationship with the convenience of online shopping and delivery.
This method of consumer engagement helps Fresh City and other online platforms – they can obtain data more quickly, allowing for deeper analytics, and testing. "We leverage the online medium to go beyond what is possible with an in-store experience, everything from shopping by recipe or diet type, to reading about a producer, to creating favourites lists," Goel says.
There are a number of online platforms that act as intermediaries, connecting farmers to consumers or businesses (Green Earth Organics of Toronto and Provender of Montreal are two relevant examples). Fresh City offers aggregation, storage, local production and distribution services.
The issue of getting perishables delivered to consumers at a reasonable price was tackled by delivering one day a week per neighbourhood to create dense delivery routes as well as utilizing a network of pickup locations. Fresh City can both nudge customers toward eating with the seasons and project demand through its subscription-based model.
A key comparative advantage is that Fresh City grows much of its own produce right in Toronto. This means it's fresh, it's accessed easily and it's more affordable. It also enables the company to assist in the building of a culture and community that simply appreciates good food.
This capital intense approach is not as easily replicable or scalable as similar business models. In order to succeed with this model, Fresh City needs its farming relationships, distribution network, online platform, as well as its farming facility. This model emanated from Goel's core belief that trust within the food system was lacking. The way Fresh City thought it could build trust within the community was to not just connect farms to tables in a more convenient manner, but also to play a more integral part within the local and organic food market.
The farm is located just off the Downsview subway station in Toronto, enabling its consumers to visit the farm. The company believes that building a connection not just through quality customer service but also a personal connection builds loyalty – and trust.
THE RESULTS
The model is working. Fresh City has seen triple-digit annual growth over its first three years, and it now serves more than 1,500 customers and delivers almost 4,000 orders monthly. Fresh City is Canada's largest commercial city farm and it has the largest aquaponics system in Ontario.
In late August the company launched a new online grocery store featuring its own produce as well as almost 1,000 local and organic products. The company has also increased its capacity six-fold by moving into a custom-designed warehouse.
Fresh City has taken on minimal debt financing from BDC, the Ontario Catapult Microloan Fund and the Youth Social Innovation Capital Fund in order to drive it where it is today. "Their hyper-local food sourcing and sustainable food practices that act as key drivers to attract and build their consumer base" are what were most attractive to YSI's managing director Jory Cohen. Fresh City is currently in advanced talks with an angel investor for its first equity investment.
Goel is pleased with his company's trajectory, and says he looks forward to its next iteration. He is quick to attribute his success to the company's allies within the local and organic food movement, his passionate employees and the early customers who tolerated numerous mistakes in the early days of the business.
Jonathan Hera is course director of the microfinance and social impact investing course at Schulich School of Business at York University and senior portfolio manager for Grand Challenges Canada.
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