Cracks in the walls of mainstream consumer food retail: Naked Wines meets Kagio market.

Some time ago, I wrote about the concept of the value chain, and that I couldn’t match it with what I observed in informal emerging markets like in rural Kagio, Kenya. What I observed of the market there was not a neat box in the formal structure of a value chain, but a flexible, multipurpose node in the rural economy’s complex web of human interaction and exchange of goods, services, and knowledge; a value web.

Recently, I revisited this notion when I was reading an article on a company called Naked Wines. This company is by no means serving an emerging economy audience, but it is trailblazing the wine market and working it in the same way as I saw at the farmer’s market in Kenya.

Intoxicating innovation
Founded by an ex-banker and wine aficionado, Naked Wines provides a compelling value proposition to a considerable group of people who are looking for exclusive wines of origin. Naked Wines provides an online market place, where independent wine producers can sell their wines, and connect with the current 200.000 subscribers, as well as with occasional customers, through an online forum and rating system. The company shifts around 10.000 bottles a day.

The value proposition lies in solving a big chunk of search costs that wine lovers usually place into finding their exclusive wine, and offers it to them at a very compelling price point (though still more than what the average consumer pays for). No longer do you need to organise a wine tour to Lombardia each time you want to purchase batches of exclusive wines.

The crux
Many wine-grape growers would dream of being able to sell their own wines. Yet, most are deterred from doing so because of the financial risk. The whole system of the mainstream wine market is based on selling your grapes as fast as you can at moment of harvest to the bidder who will buy as much as possible, or preferably all, of your product. Going at it alone could come with the repercussion of big wine houses boycotting your grapes for good. No banker minding his pinstripes would fund such a move.

Naked Wines has solved this financial risk. By asking an upfront monthly membership subscription to its customers of about 20 euro, the company has a monthly reserve of 6 million euro to pre-finance a winegrower’s full harvest in return for exclusive purchase. Through this pre-finance, growers commit themselves to the platform, and in return customers can buy wines that are not available elsewhere at a discount rate.

For many growers the pre-finance is what convinced them to take the plunge, and is thus the x-factor that makes this business model work. Have a look at this awesome business model in the slides below, compiled with the business model canvas.

http://www.slideshare.net/slideshow/embed_code/32570704

 

The bigger picture
Back to the case of Kenya, I see comparison. The integrated functions of the value web I saw there, are utilised in the same manner by Naked Wines through combining finance and a marketing proposition to growers, into a unique value proposition that can be carried by a specific market niche (“these melons are destined for Mombasa”). Also, in both circumstances the ubiquity of ICT has enabled this distributed, networked type of market, or value web to come into existence.

The big insight here is that in order to create a market, we are not dependent on figuring out what the average person wants on average anymore. Our connecting technologies support endless market re-segmentation possibilities at a global level, and serving them effectively and at low cost. Mainstream targeting is turning into a vulnerable strategy, and is likely be substituted by an endless variety of globally dispersed, yet easily connectable niches. 

There are those that say that the advancement of the modern supermarket, indicates advancement in developing nations. But with the new layout of the competitive landscape, I think that the legacy of the supermarket system in developed economies inhibits newer, and higher forms of value creation. In countries like Kenya, I predict you will not likely see the same pattern of development in consumer retail as in the current developed nations. Instead I expect a surge in food retail innovation that will leapfrog western markets (just like with mobile payments).

There is tremendous market power by coalescing value chain functions. By turning these functions from separate islands of myopic economic optimisation into purposeful networks that are hosted by a common business model, a new market power is unleashed. Cases like Naked Wines, show what can be achieved.

I think that businesses that are able to achieve these type of connections are serious contenders for overturning the status quo in the agriculture and food system. This is a huge opportunity to stab at mainstream retail culture, which has become complacent in providing value to farmers and consumers alike. Risk capital investing in the future of agriculture and food should be on the look-out for this business model pattern.

Take-aways:

  • Difference is not so much made by the product or product technology, but more so by the business model
  • Integrating value chain functions into a network setup, hosted by a common business model, creates a disruptive innovation juggernaut in our food and agriculture economy
  • Yes, you can create tons of value by connecting consumers and farmers. But only if it’s purposeful
  • I think I need to change the title of my blog. Suggestions anyone?

Design for the emerging rural economy

According to the IFAD (International Fund for Agricultural Development), 3 billion people in developing countries live in rural areas. Agriculture is the main source of income for 86% of this population. Within this farming community, smallholder farmers make up the bulk of farmers (for more stats see the FAO rural economy fact sheet). Arguably, they have contributed substantially to the growth that many developing countries have experienced over the recent few years, not unlike SME’s being the motor behind Western economies. Smallholder farmers are thus an important group for working together with in our global ambitions of creating social and economic development (as demonstrated by the UN initiative of proclaiming 2014 to be the year of the family farm).

One of the leading strategies in developing smallholder farmers is providing them with knowledge and information on agricultural practices. The idea is that this will improve practices, make production more sustainable, and improve operations of the market. Given the increase in dissemination of (mobile) technology communication devices, there also appears to be a huge potential for reaching scale with ICT’s in outreach of these information and knowledge dissemination approaches.    

Smallholder farmers
Smallholder farmers by Jeroen Meijer from JAM visueeldenken

Despite the significance of the group of smallholders and the opportunity at hand, there is still a lot we are yet to understand about them. The majority of their lives take place in informal economic settings, where local activities and rules apply that simply do not light up on the formal business development radar. There is no real understanding available on their everyday lives and priorities. For instance the chocolate multinational considers the cocoa farmer, simply because she has a cocoa tree and supplies cocoa to the world market. But this farmer herself might see things differently:

I side-sell some of the milk to keep my husband from spending the earnings on anything other than our kids’ school fees,

I need to learn from a cousin about rearing rabbits to serve the growing number of road side dining stalls opening up in town, which are willing to extend me a loan to start operations,

I’m skipping dinner tonight to save up for airtime so I can call that trader which has recently been asking specifically for that variety of  mangos. It will save me the hassle of getting produce transported on market day and getting a raw deal in any case.

There is thus a huge gap in understanding, aggravated by the sheer number of people we’re talking about, and we have little basis to relate. As there is no substitute to fill this lack in understanding, smallholder farmers are oftentimes unfittingly lumped together in service and development program designs. There is no basis for targeting innovations to specific groups, nor obtaining specific feedback about what works for whom, and what doesn’t. The result can only be that a lot of the available information and knowledge doesn’t arrive or ‘stick’. A majority of smallholder farmers is likely to be underserved and under-utilised in their capacities to contribute to economic and social development.

We need to drastically enhance and update our understanding, if we intend to reach out to the smallholder farmer. And we should start with the basics such as:

  • Different mental models that farmers use for managing and operating their farms, which would reveal particular workflows and basic farm decision making foundations
  • Basic technology usage patterns that would reveal insights on user experience design requirements
  • Rules and systems that apply to the informal economy context, as well as business models that are currently successfully serving farmers.
  • The role of community and networks, and their social conventions and taboos, which make up the existing ecosystem in which the farmer organizes her life.
  • Lastly and most importantly, we need to understand farmers’ aspirations, and how to appeal to those aspirations, to provide an adequate basis of relation.

A proposition
It is evident that such research needs to be done, but it shouldn’t be done for research’s sake. Rather, understanding needs to be turned into actionable insights. What if we could develop processes, tools, and personas which would aid in segmenting farmers in a specific context for targeting innovations? Support materials, which would capacitate companies, CSR initiatives, and dedicated organizations working with smallholder farmers to design and build for their specific purposes in agricultural product and service development.

Tools and processes for segmentation
Process and tools for achieving segmentation by Jeroen Meijer from JAM visueeldenken

The aim would not so much be to directly provide solutions, but more so to put the design process and tools into the hands of the people who are most closely related to the problems at hand. On top of that there would be a need for continuous adaptation, tailoring, and distribution of such a resource to different and changing contexts, as developing country economies are in continuous growth flux.

Boldly stating, I say that such a resource would need to be developed and made available in the form of an organisation with a public purpose of overcoming our current common barriers to purposeful marketing to smallholder farmers. This would be a social venture, which would maintain itself by publically providing, tools, processes, and basic insights to customers. Furthermore this organisation could help out in tailoring to specific business and service development interests, based on agricultural practices, but fanning out into other areas like finance, insurance, farming input sales, sourcing practices, extension services, agribusiness sourcing, etc. To give the vision a name, I have dubbed this organization Ardhi, which is a holistic term in Swahili signifying soil, ground, or suitable (farm)land.

The Farmer
Insight and understanding of the farmer by Jeroen Meijer from JAM visueeldenken

Further idea development
Now I do warn that there is no clear fix for this initiative. We have the basic design tools and technology resources available, but they need to be tailored and refined towards a new market setting through the only way possible: practical experimentation and learning. It will thus be a journey, one which I would like to invite you on to as well.

I am part of a dedicated consortium, which is ready to start this research journey by looking into the space of information and knowledge exchange relating to agricultural practices. Over the past year, we have been enabled through seed funding to conduct a feasibility study in Kenya and India for our research, and compile a research plan (several insights previously published under the VCD category on this blog). We combine the skills of design, technology and agriculture for emerging markets. Leading this consortium are:

Bart Doorneweert, agriculture researcher at Wageningen University
Syamant Sandhir, tech specialist at Futurescape
Ric Edinberg, design researcher at Insitum

Together, we would like to hear from you about your interest for our initiative. Specifically we are looking for people and organizations that can help us on our innovation journey through either:

  • Field work collaboration- Involve us in projects in the early scoping and design stage
  • Testing research process and tool prototypes, and applying preliminary insights- Private sector and NGO parties collaborating with private sector who are interested to obtain and apply early insights and actively co-create methods and materials with us.
  • Providing broad-based funding support for deep-dive research to develop materials and insights, and seek the limits of their application. – Funding organizations that support the idea of strengthening the ecosystem of service and product development for smallholder farmers.

If you are interested to be involved, then do make yourself heard by dropping us a bit on your background and interests here. We look forward to hearing from you, and hopefully engaging with you in the near future! Do keep track with the progress of our journey under the Ardhi category of posts that will come.