Why Local is Better for Businesses and Institutions

Make/Grow Local is a business-to-business (aka B2B) online platform, connecting local makers and growers with businesses and institutions looking to buy food or other products products from their area. So, this begs the question, how do these businesses and institutions benefit from sourcing locally?

Supporting the Local Economy
By supporting local growers and makers, businesses are putting their money back into the local economy. As a result, the area is economically enriched. The American Independent Business Alliance describes this effect:

On average, 48 percent of each purchase at local independent businesses was recirculated locally, compared to less than 14 percent of purchases at chain stores.”

Over time, this impact can improve quality of life in the community, create a more business-friendly environment, and even bring economic benefit back into the business that sourced locally in the first place.

Local Products are More Environmentally Friendly
Sourcing local products are an easy way for a business to be greener. Shorter distances for deliveries means less energy and fewer resources are used to transport products. For that reason, food products are fresher and taste better too. Additionally, these smaller, local farms are often more sustainable and have more environmentally friendly growing practices.

Take Advantage of Unique Products
Nearly every location has some products, food or otherwise, that make it unique. For example, Maine has blueberries, apples, potatoes, lobster, and more. Incorporating foods native to the area fosters a stronger sense of area identity for locals and tourists alike.

Local Products are More Socially Responsible
Buying local strongly integrates a business with the community. It can create a sense of goodwill with producers, employees, potential customers, local lawmakers, and the public at large. Improved goodwill is valuable to any type of business or institution.

The benefits for businesses buying locally are numerous, and extend beyond even those mentioned here. Make/Grow Local gives businesses and institutions the opportunity to grow their business and their goodwill and along with their community. Whether restaurant, university, hospital, corporation, or other type of business, Make/Grow Local could connect your company with the area producers you need to make local sourcing work for your business. To learn more about how to get involved in our marketplace, contact us today.

The New Economics of Multisided Platforms

In March, the NYTimes posted an interesting article, titled:

Platform Companies Are Becoming More Powerful — but What Exactly Do They Want?  (Source)

It discussed how a “platform business” is “one built around matchmaking between vendors and customers. If successful, a platform creates its own marketplace; if extremely successful, it ends up controlling something closer to an entire economy. ”

A quote that resonates with us at Make/Grow Local is this:

Among them is their tendency to metastasize from transaction enablers to, with sufficient success, participation gatekeepers.

Let’s bring it local: be careful about which basket you place all your farm-raised eggs!

The local movement needs to avoid a platform monopsony

Word of the day: monopsony.

Our mission is to guide the local-made, local-grown movement away from potential online platform monopolies and monopsonies. It’s what happens when an “aggregator” platform grows to dominate the market, thus removing agency and control from the sellers and the buyers.  With Make/Grow Local founded as a non-profit, run by and for the community, this can’t happen.

With other ecommerce platform vendors, it’s what they actually hope happens. Choose wisely!

From wikipedia, Monopsony: In economics, a monopsony (from Ancient Greek μόνος (mónos) “single” + ὀψωνία (opsōnía) “purchase”) is a market structure in which only one buyer interacts with many would-be sellers of a particular product. In microeconomic theory of monopsony, a single entity is assumed to have market power over terms of offer to its sellers, as the only purchaser of a good or service, much in the same manner that a monopolist can influence the price for its buyers in a monopoly, in which only one seller faces many buyers.

At first, today’s online platforms seem great, because they offers a better user experience than individual scattered marketplaces, and don’t the best rise to the top, benefitting all parties?

This monopoly, though, is a lot different than the monopolies of yesteryear: aggregators aren’t limiting consumer choice by controlling supply (like oil) or distribution (like railroads) or infrastructure (like telephone wires); rather, consumers are self-selecting onto the Aggregator’s platform because it’s a better experience.  [Source: Stratechery article on monopolies and monopsonies.]

What happens next, however is the problem: the platform that wins will set the terms of engagement for both buyers and sellers; it owns the middle, and can set prices, change the rules, and exercise unwanted power over the market.

One more implication of aggregation-based monopolies is that once competitors die the aggregators become monopsonies — i.e. the only buyer for modularized suppliers. And this, by extension, turns the virtuous cycle on its head: instead of more consumers leading to more suppliers, a dominant hold over suppliers means that consumers can never leave, rendering a superior user experience less important than a monopoly that looks an awful lot like the ones our antitrust laws were designed to eliminate.

We’ve seen this with every commercial platform, from HomeAway to Elance Uber to Amazon to AirBnB: drive the competition out of business with “free” or low-cost, then raise prices and monetize everything and reap billions of dollars as the next “unicorn” business.

So, to our Maine community of growers and makers, and our kindred local growers in other states: be careful about the platform you choose to sell your B2B goods through… choose the only nonprofit, community-owned ecommerce solution that was built for you.

A lesson about free and freemium

Why was Make/Grow Local founded as a nonprofit? Because “free” doesn’t stay free in a market economy (aka capitalism).

Unless a platform is owned by the participants and communities, the funding forces that created the commercial platform will one day expect large returns on their investments. They do this by “monetizing” their captive audience, once it gains marketshare/traction and possible dominance. The loss leader (the free service) wins participants, and then when they are dependent and can’t easily leave, the fees begin (or increase).

As an example of how this monetization is inevitable, an essay on no-longer free online learning courses studies the trend:

Massive Open Online Courses used to be 100% free. But they didn’t stay that way. As MOOC providers focussed on finding a business model, they started putting certain aspects of the experience behind a paywall, hoping to get more people to pay. MOOCs went from “free” to “free to audit.” This shift to a freemium model — with more and more chances to up-sell — seems to be working for the providers. The top three services earned more than $100 million combined last year.

So in the race between various solutions in the marketplace now, Makers and Growers (and Buyers) should carefully consider in what basket they place all their eggs.

Access to Maine-Grown Food

Here’s a highlight from the Maine Farmland Trusts’ Maine Farmland Trust report, released in 2016, concerning institutional access to Maine-grown foods. It describes the challenge that Make/GrowLocal was created to solve — on behalf the makers and growers.

Almost 30 percent of the buyers participating in this study, across all markets segments, report not knowing where or how to locate farmers or other direct suppliers of Maine grown food and ingredients.

They lack information about how to set to set up and manage direct buy arrangements. Personnel working at locations that are successfully integrating locally sourced food into their operations report that personal relationships with their farmers and local distributors are very rewarding.

A significant barrier to increasing Maine-sourced food and ingredients is related to lack of information about availability of distributor’s Maine-grown lists: many buyers working with broadline distributors are not aware of such lists and don’t know how to access the information.

With our new community-run digital platform “MGL”, buyers of any size can discover new local suppliers, directly order from them, and aggregate orders together across several smaller providers to full larger demands.

Maine-sourced food in the Bangor region

Head over to the Bangor Food Hub Consortium website to read their 2016 report about opportunities for Maine-grown food.

The consortium sought an analysis of the demand in institutions, restaurants, school systems, and other entities that purchase and serve food in large quantities for locally grown and produced food products, within a 50-mile radius of Bangor…. Purchasing and sourcing activity among the fifty-three participants in this study implies that, within 50 miles of Bangor, at least 70 percent of the potential market for Maine-grown food and ingredients is unmet. Among study participants alone this conservatively equates to $5,000,000 of annual opportunity or an average of approximately $94,000 per week.

https://bangorregionfoodhub.wordpress.com

Distribution matters

Local goods and food producers need to be aware of the power of platforms, and strive to make them work for them, not against. A community-owned discovery and distribution platform like MakeGrowLocal is essential.

In the digital world, the distribution of goods and services is essentially free. Amazon, Google, Facebook, Uber, Netflix: They’re are all distributors. But because the internet makes it almost trivial for makers to connect with consumers, these companies are also the world’s best aggregators — the ones that suppliers have no choice but to work with. As of December, the 10 most valuable public consumer internet companies, which together represent over a trillion dollars in value, were all aggregators.

In the physical goods world, where the food growers and local  artisans create and deliver their goods, distribution platforms that aggregate the market’s demand must provide streamlined, friction-free user experiences, for sure, but must also create efficiencies in the sometimes unprofitable business of logistics and last-mile delivery.

distribution and last-mile flywheel

An important thought:

Success doesn’t automatically spring from owning the best interface between a supplier and a consumer, as is the case for most firms in the current era. For the growing number of startups involved in moving physical goods or services, owning and controlling distribution is absolutely a core competency—a vital part of the flywheel—and not just a commodity.

Two articles for further reading: an article discussing networks from FreshDesk, and Ben Thompson’s aggregation theory.

Co-Ops compared to Grocery stores

What is a co-op?

A co-op is a non-profit organization composed of a group of individuals (or organizations) formed for their mutual benefit, generally financial. (See Wikipedia for more details.)

They typically are democratic, volunteer associations. Being created for a specific public benefit, they are non-profit and return any profits back to the members/owners.

They include credit unions, mutual insurance companies, housing co-ops, rural electric power co-ops, consumer goods co-ops (like REI), distribution coops (like Ace Hardware) and producer co-ops (like Sunkist, Land’O Lakes).

Sources: coopdirectory.org and a Maine Biz story, March 2014, and a current directory from Cooperative Maine.

MaineBiz wrote an article comparing Co-Ops to conventional grocery stores. One comparison chart stands out:

co-ops compared to grocery stores

Maine has a growing number of co-ops, 158 as of today according to http://maine.find.coop/

and 16 specifically food-based co-ops:

Barrels Community Market Waterville barrelsmarket.com
Belfast Co-op Belfast belfast.coop
Blue Hill Co-op Community Market & Café Blue Hill bluehill.coop
Eat Local Eastport Co-op Eastport eatlocaleastport.com
Fare Share Market Norway faresharecoop.org
Gardiner Food Co-op Gardiner klfi.org/the-gardiner-food-co-op
Good Tern Natural Foods Co-op Rockland goodtern.com
Island Employee Cooperative Deer Isle, Stonington burntcove.com
Market Street Co-op Fort Kent marketstreetcoop.net
Marsh River Cooperative Brooks marshrivercoop.org
Portland Food Co-op Portland portlandfood.coop
Rising Tide Community Market Damariscotta risingtide.coop
Rosemont Market & Bakery Portland rosemontmarket.com/
Royal River Natural Foods Freeport rrnf.com/
Stone Soup Artisans Saco stonesoupartisans.com
The County Co-op and Farm Store Houlton fb.me/TheCountyCoopandFarmStore

We here at Make/Grow Local aim to serve all the co-ops in Maine and beyond!

Let us know if any are missing from this list. Updated March 1, 2017