Can software loosen Big Food’s grip on institutions?
Originally published at newfoodeconomy.com on February 19, 2016.
Broadline distributors like U.S. Food, Gordon, and Sysco have been slow to address the emerging trend. But an Ann Arbor, Michigan-based software startup, Local Orbit, is in the process of bringing to market a new service that does what Big Food has struggled to accomplish. It provides streamlined access to local and sustainable food sourcing for high-volume purchasers like hospitals, schools, universities and prisons.
Erika Block, Local Orbit’s CEO, sees a crucial window of opportunity. Last year, for instance, local food co-op Maine Farm & Sea Cooperative lost out to food service contracting giant Sodexo in a multi-campus University of Maine contracting bid. Some viewed it as a blow to the local food movement, but to Block, it’s a sign of change.
“The real story here is that Aramark, the incumbent, lost to Sodexo in part because Sodexo was able to make the 20 percent local commitment and back it up,” says Block. “Aramark didn’t have the ability to show that it had been proactive in local sourcing. The fact that [Maine Farm & Sea Cooperative] put the bid together is a promising sign. I give them a lot of credit for influencing the decision in a positive way.”
In 2011, Block, a former playwright and producer, founded Local Orbit after doing research on the food system for a theater project. Block credits her experience facilitating “collaborative learning and action spaces” in the theater and arts community as the inspiration and basis for the company.
In non-commercial food service, $48 billion is spent just on purchasing food every year. It’s a very large market, with the potential to have huge impact
Although institutional food service providers may want (or have) to use local food, it can be disruptive to the way they usually do business. Most are accustomed to using broadline distributors who can get any product, in any season, for which purchasers need only write a single check.
In comparison, procuring local food is complicated — from sourcing to logistics to managing data.
“It’s a lot simpler to call a broadline distributor and get everything you need,” says Block. “But that comes at a cost of transparency and severely limits buyers’ access to local, sustainable products. And it’s not always the best price.”
Local Orbit started by building an online platform for small-to-medium-sized food aggregators, like food hubs and co-ops, to manage their transactions with local growers and producers. To date, Block says, the company has worked with more than 80 emerging local food distribution businesses and suppliers that are re-localizing supply chains in 32 states and provinces.
But Block soon realized she would have to think higher up the supply chain and focus on institutional food service.
“If you’re looking at the big picture, 60 percent of the food that people eat is out of the house. Within the sector of food that we eat out of the house, non-commercial food service is the fastest growing,” she says. “In non-commercial food service, $48 billion is spent just on purchasing food every year. It’s a very large market, with the potential to have huge impact.”
So in 2015, the company launched a new service on the Local Orbit platform: the LocalEyes supplier management service. The service, now in beta, is targeted at high-volume, enterprise food purchasers — from self-operated entities like small hospitals with in-house staff to large contractors like Sodexo operating multi-campus university contracts.
Local Orbit provides updates on procurement, billing, and delivery
LocalEyes provides tools to consolidate orders and payments, track and analyze procurement data and produce detailed purchasing reports. Local Orbit also works with institutions to design and develop their local supply chains.
The product is being tested with a group of high-volume purchasers in the Northeast, Upper Midwest and on the West Coast, according to Block. The company is prohibited by non-disclosure agreements from identifying its initial customers.
“The customer base is a mix of non-commercial corporate dining, universities and K-12 schools, in addition to a large nonprofit,” she says. “We’re changing legacy systems, with multiple supply chain participants — which means there are challenges around change management and getting people to buy in. It doesn’t happen overnight. But the value proposition is really clear to our customers.”
Because Local Orbit is working with early adopters who are at the forefront of local and sustainable sourcing, they have to do more than just supply software — they have to help their customers develop new business processes.
“We work very closely with customers on a phased implementation — it’s part of the beta process,” she says. “We also work closely with suppliers on getting them into the portals, both directly and through integrations.”
Users can track their sustainable purchasing progress through the platform
The service also provides access to Local Orbit’s network of more than 7,200 aggregators, food hubs, independent growers, and food makers. But it’s not an open marketplace like Amazon.
“Institutional food service operators can bring all of their local suppliers into a private, consolidated ordering portal,” says Block. “There’s no automatic access [to suppliers], which is an important distinction from many online marketplaces out there.”
And for suppliers who work with Local Orbit’s institutional food service customers, there is the option to become part of the broader network, gaining access to new buyers. Buyers and sellers can connect across Local Orbit’s network whether they join through an institution’s supplier management portal, or through one of the local aggregators, food hubs, or independent producers that uses Local Orbit to manage their sales and distribution.
Once they are in the network, Local Orbit works to make more connections between buyers and sellers the old-fashioned way, by working one-on-one with each side to ensure a good match. In this way, food service operators are incentivized to maintain long-term relationships with suppliers, while at the same time, suppliers are able to control the rate at which they acquire new business.
Sales through the platform are growing — over 560 percent from 2014 to 2015, according to Block.
Steve Mangan is director of dining at the University of Michigan’s Ann Arbor campus. He’s under a mandate to meet the university’s goals to source 20 percent of its food sustainably. This includes organic, fair trade, humanely raised and grass-fed meats, and locally grown and manufactured food products. Meeting these goals consistently presents substantial logistical challenges, he says.
“It can get complicated and the paperwork can be overwhelming,” says Mangan. “Just with our small vendors, the little local guys, we process over a thousand invoices a semester. Many of them don’t have the technology to make it easy. We still have some handwritten invoices coming in.”
Mangan says that small-to-medium-sized local aggregators like food hubs can’t make a real dent in the volume he needs to buy. So he is considering a service like LocalEyes as a potential solution. The other option, says Mangan, is to try to get Big Food distributors to start taking local sourcing more seriously.
“Another avenue we have is our prime vendors; the Syscos, Gordons and US Foods of the world,” he says. “They are trying to figure out how to develop relationships with local farms and how to communicate the local products to us that are available, versus what’s coming from just anywhere in the food supply industry.”
Block sees those large distributors as part of the solution.
“We’re working with them to optimize their logistics,” she says. “Every distributor has excess delivery capacity that can be leveraged for additional revenue, while at the same time adding value for their customers by delivering local products.”
The potential impact is substantial.
“Our customers also have a lot of leverage with their suppliers, because of the size of their operations and the volume of purchasing,” says Block. “This kind of leverage will significantly increase the ratio of local, sustainable, transparent sourcing. That’s the key to creating change.”
Nina Misuraca Ignaczak is a writer and editor in metro Detroit. Follow her at @ninaignaczak
Originally published at newfoodeconomy.com on February 19, 2016.