James Matson with Matson Consulting along with Micaela Fischer with Michigan State University presented on Food Hub Viability at the 2014 National Good Food Network Food Hub Collaboration Conference. The presentation was part of a plenary session on March 27, 2014 in which presenters take a look at the operating strategies of different food hubs around the country, and explore how increasing financial viability can make their desired community impact become a reality that can be sustained in the coming years.

2. A Presentation on Food Hub
Viability
Presented By:
James Matson
Owner- Matson Consulting
Micaela Fischer
Graduate Affiliate, Center for Regional
Food Systems,
Michigan State University
In Collaboration With

3. Additional Food Hub
Resources
Matson, James; Sullins, Martha;
Cook, Chris. (January 2013). The Role
of Food Hubs in Local Food
Marketing. The United States
Department of Agriculture Rural
Development.
Fischer, Micaela; Hamm, Michael; Pirog,
Rich; Fisk, John; Farbman, Jeff; Kiraly,
Stacia. (September 2013). Findings of
the 2013 National Food Hub
Survey.
Coming Soon:
Matson, James. (March 2014). U.S.
Food Hub Operations Guide. The
United States Department of Agriculture
Rural Development.

4. Food Hub Viability Introduction
 Workshop will combine three different data sources:
 Findings of the 2013 National Food Hub Survey
 Pathways To Food Hub Success: Financial
Benchmark Metrics And Measurements For Regional
Food Hubs
 Matson Consulting Prototypical Food Hub
 Each source will have slightly different results.
 Workshop intends to create a clearer discussion on
typical food hub viability.
Presenting ongoing research. Some data presented here
is preliminary. Final results will differ.

5. Discussants
 Kathy Nyquist—New Venture Advisors
 Erin Pirro—Farm Credit East
 Darrow Vanderburgh-Wertz—
Wholesome Wave Investments
 Provide comments, critique, and context.

6. Food Hub Viability
 Information from the 2013 National Food Hub
Survey
 Micaela Fischer
MSU Center for Regional Food Systems

7. Food Hubs Emerging and
Growing
 Over 220 listed on the Food Hub Collaboration website.
 62% are 5 years or younger!
 32% are 2 years or younger!
 More hubs in East/West
coast states than in
middle America.

8. Finances
Sales Revenue

9. Financial Success
 Most either ―somewhat‖ or ―not at all‖ dependent of
grant funding.
 Most have revenues that exceed, or are close in value
to their expenses.
Business Efficiency Ratio=
Expenses/Revenue

10. Financial Viability
 Unpublished financial findings and
updates with the publication forthcoming.
 Unpublished study using data from the
2013 National Food Hub Survey.
 Divided food hubs into two groups based
on efficiency ratio.
 Compared operating characteristics between
two groups (logistical regression).

11. Financial Viability - Scale
 Financially viable hubs had median 2012 revenues of
$600,000 and sales of $450,000.
 Hubs that were not financially viable had median
revenues and sales of much less—$200,000 and
$137,000 respectively.
 Every $100,000 increase in revenue represents a
38% increased odds of being financially viable.
 All food hubs classified as not financially viable had
2012 revenues under $500,000.

12. Financial Viability & Employees
Financially Viable
 Median number of paid
employees = 4
 Median salary per paid
employee = $15,370
Not Financially Viable
 Median number of paid
employees = 3
 Median salary per paid
employee of $14,560
Median % of revenue spent on employee salaries and
benefits is 71% more for food hubs that are not financially
viable than for food hubs that are (25.33% vs.14.79%).

13. Financial Viability & Expense
Structure
 Food hubs that were not financially viable tended
to spend nearly twice the proportion of revenue on
overhead costs than did financially viable hubs.
 Most financially viable food hubs are emulating
more traditional food distribution businesses in
their expenditure patterns
 Closer to 15% of revenue on employee salaries and
benefits and
 Closer to 70% on food and product purchases
(COGS, or Return to Farmer).

14. Financial Viability & Expense
Structure
Median Expenses as a Percent of Revenue
All Food
Hubs
(N = 107)
Financiall
y Viable
(N = 63)
Not
Financiall
y Viable
(N = 15)
Food/product purchases 67% 68% 63%
Payments for warehouse or facility space 3% 2% 4%
Payments for trucks and equipment 2% 2% 5%
Gasoline and tolls 2% 2% 2%
Utilities 1% 1% 3%
Credit card and bank service charges 2% 2% 3%
Employee salary and benefits 18% 15% 25%
Consulting services 1% 1% 2%

15. The Benchmark Study: Pathways
To Food Hub Success
 Collection of historical financial results and
operational information from similar food
hub businesses
 Comparison to peer group
 Analysis of information to identify a range
of performance
Presented by the Wallace Center and Winrock
International

16. The Scope of Operations
 Average Age of Food Hubs: 11
Years
 Average Revenue: $1.65
million
 Annual Operations: 301
Days
 Facilities:
 Square Footage 9,018
 Number of Loading Docks 2
 Delivery Fleet (annual miles driven)
54,001

17. The Product
 Sourcing Distance (miles)
521
 Strictly Organic 20%
 Grow Some of Own Produce 27%
 Buy From Own Incubator Farmers
33%

18. Sources of Revenue
83.78%
Grants/Contribu
tions, 8.99% Other
Enterprises, 6.3
5%
Delivery and
Miscellaneous
, 0.88%
Product
Sales, 83.78%

19. Profit & Loss
 Revenue
100%
Cost of Goods
(67.63%)
Cost of Sales
(11.04%)
 Gross Margin 21.33%
Overhead Costs
(24.29%)

20. Operational Efficiency
 Markup Multiple 1.24
 Gross Margin 21.3%
 Labor Costs as a Percent of Sales
17.4%
 Labor Costs per Paid FTE
$48,867
 Sales per Worker Equivalent $286,788

21. Case Study Introduction
 Presenting data from current client work and
experience.
 Preliminary draft of a generic food hub.
 Verified this data with findings from the
Benchmark Study and the Food Hub Viability
Survey.
 Model begins with a level of break-even sales
and grows to a point of long term viability.

22. Case Study Generalities
 Food hub is in a
suburban locale.
 Food Hub is assumed
to have access to a
variety of producers
and members.
 Located within 50
miles of customer
locations.
 10,000 square feet in
size (adequate space
for
storage, handling, and
cooler space).

23. Case Study General Operations
 Operations in all months of the year
 Product lines have seasonality.
 Product will arrive and be handled by general
labor employees. Product will then be placed
in the appropriate storage area or readied for
delivery.
 Deliveries/Pickup (six day operating)
 Staffing Roles
 General labor staff loads delivery vehicle.
 Supervisory staff oversees.
 Delivery driver arrives and makes route.

24. Case Study Product Lines
 Product examples may
include:
 Fresh Produce:
 Corn
 Peppers
 Cucumbers
 Watermelon
 Cantaloupe
 Other:
 Honey
 Jams
 Dry Pasta
 Dairy:
 Liquid Milk
 Cheese
Other
Fresh
Produce
Dairy
Products
 Butternut
Squash
 Tomatoes
 Berries
 Asparagus
 Meat
 Eggs
 Yogurt
 Butter

25. Case Study Finances
 Three year window of financial operations.
beginning with when the food hub is
approaching operational break-even.
 Looking at operating at normal staffing and
paid staff.
 Food hub has $225,000 loans on books and
uses a working capital loan up to $90,000 to
cash flow shortages.
This case study begins after the start up period has
been completed. It may have taken several years to get
to this point.

26. Case Study Annual Sales
Projections
Operational
Break-Even
Financial
Viability
Growth
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000

27. Case Study % Product Sold by
Month
— Year Product
Average
— Seasonality
Averages
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

28. Case Study Seasonality by
Product
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Fresh
Produce
Dairy
Products

29. Case Study Variable Costs
Variable Costs
Break-
Even
Financial
Viability
Product Lost in Transport/Handling &
Returns (3.2%) (3.3%)
Revenue to Farms (0.7) (69.8%) (69.7%)
Credit Card Processing (0.2%) (0.2%)
Packaging Material Expense (0.2%) (0.2%)
Variable Labor & Delivery Expense (5.1%) (4.5%)
Total Variable Costs (78.5%) (77.9%)

30. Case Study Overhead Costs
Overhead Costs Break-Even
Financial
Viability
Payments for warehouse or facility
space (3.6%) (1.5%)
Payments for trucks and equipment
(2.5%) (1.7%)
Total Selling and Marketing Costs
(0.4%) (0.3%)
General and Administrative
Expenses (11.1%) (9.3%)
Unforeseen and Contingency
Expenses (4.0%) (4.0%)
Overhead Costs 21.5% 17.1%

31. Case Study Expenses Break-
Even
Variable Costs
Equipment Costs
Facility Costs
Marketing Costs
Gen/Admin Costs
Unforseen Costs
Depreciation

32. Case Study Wholesale Profit and
Loss
Break-Even Financial Viability
Revenues (Sales) 100% 100%
Total Variable Operating Costs (78.5%) (77.9%)
Variable Margin (Loss) 21.5% 22.1%
Total Equipment Costs (2.5%) (1.7%)
Total Facilities Costs (3.6%) (1.5%)
Total Selling and Marketing Costs (0.4%) (0.3%)
General and Administrative Expenses (11.1%) (9.3%)
Unforeseen and Contingency Expenses (4.0%) (4.0%)
Wholesale EBITDA (Loss) 0.0% 5.4%
Interest Expense (0.5%) (0.5%)
Depreciation Expense (0.7%) (0.8%)
Net Income (Loss) (1.3%) 4.1%

33. Case Study Cash and Income by
Month
-20000
-15000
-10000
-5000
0
5000
10000
15000
20000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Increase or
Decrease In
Cash
EBITDA

34. Case Study Labor
 5 FTE’s
 Labor Roles:
 Management
 General Manager
 Production Manager
 Sales Manager
 General
 Delivery Driver
 Line Supervisor
 General Labor
 Office/Administrative Labor Costs
Management
General
Office/
Administrativ
e

35. Case Study Management
Salary
0
20000
40000
60000
80000
100000
120000
140000
160000
Salaried
Labor
Financial
Viability
GrowthOperational
Break-Even

36. Scenario: Break-Even with Added
Funding
$1,210,000
$1,094,374
$1,026,154
$739,713
$493,401
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
Baseline Added
$25,000
Added
$50,000
Added
$100,000
Added
$150,000
SalesLevel

37. Scenario: Break-Even with Added
Costs
$1,210,000
$1,327,304
$1,441,389
$1,677,724
$1,791,809
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
Baseline Expense of
$20,000
Expense of
$40,000
Expense of
$80,000
Expense of
$100,000
SalesLevel

38. Example – Increase in Hourly
Labor
Hourly Wage
Baseline 20% Increase
Driver $13.00 $15.60
General Labor $10.00 $12.00
Line Supervisor $15.00 $18.00
Office/Administrative $16.00 $19.20
If the food hub experienced increases in hourly wages,
the food hub would need an nearly $12,000 in direct
funding from outside sources or approximately $70,000
of sales to maintain a break-even level of operations.

39. Break-Even vs. Return to Farmers
(% of Sales)
$935,009
$1,210,000
$1,717,396
$2,901,422
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
65% ReturnBaseline: 70% Return75% Return 80% Return
SalesLevel
(23%)
Decrease
from
42%
Increase
from
140%
Increase from

40. Retail vs. Wholesale
Differences
 Smaller operation with higher gross margins
 Reaches operational break even and long term
viability at lower gross sales
 Direct sales to end consumers
 More added cost of direct sales
 Set up and operate retail storefront
 Different labor requirements
 Retail labor should have an expanded skill set to
deal with clients.

41. Preliminary Retail Model
 Key Changes to Retail Model:
 60% return to farmers
 No GAP certification
 Addition of shelf stable items purchased from outside
producers
 Required man hours equivalent to 10 full time employees
 No product delivery expense
 Lease of a smaller combined warehouse and retail space
We created a preliminary retail model to show potential
differences between a wholesale and retail food hub and
these differences affect the sales level required to breakeven.

42. Preliminary Retail Model
Results
In order to reach an operational breakeven with a retail model the food
hub must achieve a sales level of$660,000. The gross margin of the
business would also increase from 21% in the wholesale model to
28%.
$660,000
$1,210,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Retail Wholesale
SalesLevel
Sales Required to Breakeven
(83%)
Decrease
from
Baseline

43. Conclusion
 Wholesale food hubs can achieve financial viability as a
medium scale business.
 $1.2 M to reach an operational break – even
 $2 M to reach longer term viability
 Grants or other contributions can significantly lower these
thresholds
 Higher costs can increase break – even levels so great
care needs to be paid to sales levels vs. costs.
 Returns to farmers
 Labor costs
 Balancing cash flow throughout the year requires significant
planning.

44. Want to Know More?
Contact Matson Consulting: Contact Micaela:
Micaela Fischer
Graduate Affiliate
Center for Regional Food
Systems
Michigan State University
fisch208@msu.edu
James Matson
Matson Consulting
www.matsonconsult.com
(803) 233-7134
jmatson@matsonconsult.c
om