Being close to retail channels makes a lot of sense, but does Plenty have a good understanding of their unit production costs? This Monday, Plenty announced another funding round which comprised $400 million dollars. Industry players explain what this means for the vertical farming industry as a whole and for Plenty in particular.
‘It validates that the market exists’
“Anytime you have a large investment in a new market, it validates that a market exists”, says Robert Colangelo, CEO with vertical farming company Green Sense Farms Holdings. “The challenge to keeping investment flowing into vertical farm startups will be their ability to generate a return for investors. Profitability has been elusive for most vertical farming operations. The larger the investment and the longer it takes to be profitable the harder it is to generate the double-digit returns VC seeks.”
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According to Robert, Walmart is one of the world’s largest retailers and does a considerable volume of business that is attractive to many vendors. They are skilled at selling dry goods and relatively new to the produce business. “Does Plenty have a good understanding of their unit production costs, and can they provide a year-round consistent supply of produce at a competitive price that meets Walmart’s stringent quality and pricing standards? If they can, this will be great for their business. If they can’t, it will be a challenge to find a new buyer as large as Walmart.”
He added, “My best guess based on available published information is that Plenty has raised more than $900 Million and has a new CEO that is skilled in the capital markets. Plenty has burned through approximately $500 million of investment to date with little revenue.” As Robert explains, the new CEO and infusion of capital should extend their runway, providing more time to execute their business plan. “Their performance will have an impact on the flow of capital into the vertical farm industry, and we all want them to succeed.”
There’s more than leafy greens to invest in for supermarkets
Cindy van Rijswick, Industry analyst at Rabobank (NL) said that having a proper marketing plan is a critical success factor for vertical farms. “Therefore, being closely connected to (potential) marketing channels like supermarkets makes a lot of sense. If vertical farms and retailers exchange data and use predictive modeling they could even make vertical farming production completely demand-driven.”
Despite the opportunities, Cindy does not expect that all retailers will invest in vertical farming as an average supermarket includes over 10,000 different products. Whereas a vertical farm only represents a very small share of total supermarket sales. Therefore, leafy greens (and perhaps other products produced in vertical farms) are not a strategic category for every supermarket, so not everyone will spend their capital on that. “The challenge with vertical farming is still that it requires a relatively high amount of capital,” she added.
Mark Horler, Chairman at UK Urban AgriTech noted that it's clearly another sign that investor interest in large-scale vertical farming continues to grow. “However, we should be conscious that these increased investments will demand payback and so dramatically constrain any space for anything other than total success. Results will be expected rapidly,” he noted. Mark explained that though it is definitely one way, this kind of approach is not the only way. It's about the right tool for the right job.
According to Mark, the Walmart partnership is definitely the most interesting piece of this deal, on the face of it. Assuming successful delivery of their objectives, vertical farms could very soon reach that important threshold of being a major player in the retail marketplace.
“Plenty famously play their cards pretty close to the chest, so it's hard to say exactly where they are channeling the very substantial investment they have raised. But that will very likely have to change in the near future, as this level of funding will undoubtedly require very visible results. I'm excited to see those results,” he added.
Glenn Behrmann, founder of CEA Advisors said that he doesn't believe the Walmart/Plenty alliance will have any real impact on the vertical farming industry. "Plenty has made a lot of noise over the past few years but has so far failed to execute. Did Plenty’s alliance with Albertson’s or Driscoll have any impact on the vertical farming industry? Maybe Walmart is the demanding strategic partner that Plenty needs but only time will tell," he added.
He continues, "I also think the PR was aimed at the capital markets rather than the vertical farming industry. Walmart is a customer that will demand high-quality produce that must be sold at a reasonable retail price and that price point may prove to be a challenge for Plenty."
Is the market accelerating?
In the last few years, Agritech has received substantial investments on a global scale, including in the vertical farming sector. The recently announced $400 million raised by Plenty represents a new high mark. Does this show that the market for vertical farming is maturing? Does this extra-large size of investment help ramp up the industry to a new level?
"We as AVF certainly congratulate Plenty on its fundraising success. We, however, also recognize the challenges that remain for Vertical Farming for which the industry is collectively addressing and finding solutions. And our AVF network is exactly for this purpose of supporting and bringing the industry’s players/stakeholders together to help advance the industry collaboratively in a trustful manner together with the industry’s leading experts. We all wish the Plenty team success in their endeavors," said the AVF team.
Mike Zelkind, CEO of 80 Acres Farms complimented the company by saying, "I think this is great for the industry and a great job by the Plenty team."
For more information:
570 Eccles Ave, South San Francisco
CA 94080, USA
+1 650 735 3737
Robert Colangelo, Founder and CEO
Green Sense Farms
6525 Daniel Burnham Drive, Suite B
Portage, IN 46368-1793
For more information:
80 Acres Farms