An article by Mike Potts with Innovative Agriculture Advisors.
We often look back on events that at the moment appear to be just the normal industry rumblings making the necessary adjustments, only to realize later those rumblings were the start of a seismic shift that has created a profound change in the business landscape, writes Michael Potts with Innovative Agriculture Advisors. In this article, Michael argues that the Walmart-Plenty alliance is such a landmark moment for the industry.
The recent announcement that Walmart invested in the indoor vertical farming company, Plenty, could prove to be that watershed moment that has every player in the food chain from grower to retailer paying close attention.
Walmart’s ethos is based on finding ways to bring more value to their customers with a value proposition built on offering the lowest prices, and there is no reason to believe this mindset has suddenly changed with their investment in Plenty.
Walmart has undoubtedly conducted extensive research on the controlled environment agriculture space, and their aggressive position in the space must show encouraging economics. What can also be assumed is Walmart will be highly motivated to get a healthy return on their investment (ROI) and we can expect rapid scaling of Plenty technology across the US.
Motivation to be a stakeholder
It is important to note that Walmart did not need to invest a dime in Plenty to be able to buy their produce, so what motivated the retail giant to be a stakeholder in the vertical farming arena?
Walmart’s large equity investment should give them some management control and potentially exclusive access to Plenty’s technology. A next logical step could be for Walmart to roll out farms on or near their stores and distribution centers in the US, and then look beyond their domestic borders and take this plan globally.
Walmart could implement demand modeling to coordinate planting schedules to reduce product shrink. Growing crops closer to consumers will equal fresher products; and longer shelf lives may reduce consumer food waste
Many industry experts believe the operational costs of indoor farming will continue to decline, while outdoor farming expenses will continue to increase. Walmart is integrating technology company-wide to drive down their operating costs. Plenty’s high-tech systems are in line with this initiative.
Millennials and their growing families are now the most sought-after buying cohort, and with Walmart embracing technology to bring this target market into their fold, Plenty systems could very well be part of a broader marketing strategy.
Walmart has shown a willingness to invest in various forms of backward integration when they want to gain better control of their supply chains. As recent as 2020 Walmart opened a meatpacking facility in the US to service 500 stores.
What does the alliance mean for Plenty and the broader CEA world?
Plenty has too little commercial history for outsiders to accurately judge them. There is skepticism in some circles and the company is perceived as more sizzle than substance. The reluctance to fully embrace CEA is the cloud of long-term profitability; but apparently, for Walmart, that question has been answered.
Plenty stands to receive the biggest boost from this deal; but it is likely most indoor growers will also see a lift. Walmart’s investment helps to validate the CEA industry and current players may get longer runways to reach profitability. Indoor growers should be ready for inquiries from retailers. And a fresh infusion of capital could potentially come into this space to fund existing and new players.
How will other food retailers react?
Chances are most retailers will adopt a wait-and-see approach. If Walmart looks successful, other retailers will look to follow on the ground they plowed. And if Walmart does in fact put some farms on rooftops and they prove to be successful, does that make rooftops a new revenue stream for all retailers?
This alliance is not without some interesting challenges. Energy might be the most important question. It is well known that vertical farming is energy-intensive. How will Walmart and Plenty overcome the energy challenge? Do they have plans to source renewable energy for their farms? Walmart has aggressive sustainability goals, and they should be applauded for that.
Fresh ideas and new technologies are badly needed. Agriculture has one of the lowest adoption rates of technology, that must change. Technology speeds the pace of change.
Business history is filled with examples where entrepreneurs introduced innovative technologies and disrupted the incumbents. Over the past few decades, a sizable portion of North American tomato production has gravitated to CEA. They launched better and more flavorful products increasing consumption. Will the leafy green industry follow a similar path?
For more information:
Innovative Agriculture Advisors
Cape May, NJ