Switching Costs
Quick Recap: Prasenjit and I are students at Cornell Tech building a platform to connect farmers with institutional buyers like hospitals or schools. We want to compare local vs. non-local food on price and food miles. Our goal is to show that by buying directly from local farmers, buyers can save on both. I used to be a farmer in Upstate New York.
So far our adventure has included Qualitative Interviews, exploring the Ag Census, and finding data on the Origin of Every Product. We’re building an algorithm that matches farmers and buyers using some dummy data. Setting prices is tricky. This is our second contextual enquiry, our first is here.
Right before Thanksgiving we took a road trip to the Hotchkiss School in Lakeville, CT. They probably have the coolest dining program in the country and are pushing the boundaries for sourcing locally for institutions.
We had the privilege of sitting down with Mike Webster the dining director, Lee Morton the chef de cuisine and Ellie Youngblood the school’s farmer. First Ellie gave us a tour of the school’s farm and then we sat down with Mike and Lee in the office and took a tour of the kitchens.
We’ve interviewed Mike, Lee and Ellie on the phone a few times before and going there in person gave us more information than another phone call would have. One of the biggest things to notice was the amount of storage both on the farm and at the dining hall. There are many walk-in coolers, a separate walk-in freezer for each type of meat and dry storage for grains and storage crops like winter squash and potatoes.
Cold storage was always tight on my farm (I have nightmares about meat thawing and thousands of dollars of product being wasted). But my farm did not approach the scale of storage that the Hotchkiss School uses.
Mike does a lot of buying in bulk in order to get better prices and that requires having freezers the size of small studio apartments. The Hotchkiss School is fancy and they can invest in their infrastructure, but for most places storage should be treated as a major limiting factor.
Mike does his planning with all of his farmers in January and June — he plans for the upcoming semester. With meat specifically, he is planning years in advance with farmers. When possible he sources one product from one farm to have better consistency.
His supply chain is smaller and stronger now than when he first started purchasing from local farms. This validates us using a quality score for farmers in our algorithm.
Sourcing meat locally is more complicated because you have to deal with a processor. But it is also an opportunity to save more money for the Hotchkiss School. They save money on meat by buying whole animals and optimizing their cut sheets. For example if you buy a whole cow for $4/lb, that’s a reasonable price for ground beef, but an incredibly low price for tenderloin.
They also make products in-house that they used to have to buy, like stock. It took two years for them to really make it efficient (they reduce it to a demi-glace so it takes up less space).
Switching costs are high anytime they change how they’re sourcing a product (like stock) and then they level off once they’ve figured out a new system. It is impressive that the Hotchkiss dining team has gone through their whole menu changed how they source most of their products.
Talking to Mike again after we had met Louie at Stony Point helped us have more perspective on how important the role of purchaser is in institutional settings. Purchasing is the exciting part for us because that is where decisions about sourcing food happen. Louie is not an employee of the Stony Point Center and he acts as the purchaser for Donna. Mike is the dining director and he is the purchaser for Hotchkiss Dining in-house.
Our biggest takeaways from the Hotchkiss visit about storage, switching costs, and pricing.
Storage is a major limiting factor in sourcing locally, especially if buying in bulk is a part of your strategy.
Switching costs are our biggest hurdle. How do we make switching to local products easier for dining halls? Is there a way to get feedback from buyers without it being burdensome? Asking a dining hall to change their routines is not a small ask.
We need to consider lead time and volume in our pricing heuristics. This is a big part of how Mike saves money by buying local. We need to figure out how to quantify planning ahead and buying in bulk and how that applies to each product.
This is different from most e-commerce because we’re asking people to invest time in this relationship before they can get the product. This is another piece of the puzzle.
