Revision of the current and implementation of a new business model, optimization of the production and processing and development of a marketing plan for a quinoa-exporting start-up in Peru

Abstract

This paper is written by Eva, Evelien and Ina and realised by Vlerick Business School and Solid Food. The objectives of the project are to improve the business model, costs structure and marketing strategy of Solid Food. The quinoa market, production and processing have been examined in detail, based on an extensive market study, observations and interviews. The start-up Solid Food is a vertically integrated organization that exist of the two entities Solid Food Peru and Solid Food Europe. Solid Food Peru has control over the production, processing and export of the high-quality crops on the highlands of Ayacucho while the entity Solid Food Europe offers services to European customers. This vertical integration ensures a sustainable cooperation model. Solid Food has a lot of growth opportunities but a revision of their business model is needed in order to stay competitive. First of all, the company faces a lot of challenges in keeping their farmers loyal as there is a lot of competition due to other buyers in the area. Secondly, Solid Food has to buy their complete sales volume for a year in a short period of two months (during harvest) which requires the availability of a lot of cash. We looked into opportunities to improve or change the current business models in order to resolve these challenges. Proposed changes or additions to the existing business of Solid Food: Improvements in the current business model Two options are possible for only minimally changing the current business model so it can be implemented in the short term. The first option is to improve the current model by spreading the costs of buying quinoa more over time. Usually, there is still some quinoa available in the months after the harvest. Depending on the amount of harvest that is still left, prices might be lower in this period. Caution is, however, necessary as there might also be not enough yield left, resulting in higher prices. The second option is to work with farmers further away from Ayacucho, who are often more loyal. However, this will be a more expensive (longer distances, more time) and temporary solution (competition will move to these regions as well).Prefinancing By implementing a system of prefinancing, farmers receive their main inputs for the production of quinoa from Solid Food. This relieves the financial pressure on the farmers and they will not need to look for loans to finance the production. Therefore, it will increase the loyalty and reduce side-selling of the farmers. The costs of Solid Food are more spread over time as they have to finance the inputs during the year. The cost for the prefinancing is passed on to the farmers in the final prices offered to them after harvest. Own production fields Here we propose Solid Food to rent its own production fields to provide a minimal stock margin of quinoa. This is a challenging task as agricultural grounds around Ayacucho are hard to find and widely scattered. Furthermore, it will not be easy to find farmers willing to work for them. Own production fields are more expensive than farmers cultivating quinoa independently because Solid Food needs to hire an extra assessor, hire own workforces, pay the transport to the fields, give the employees some additional incentives to motivate them, etc. It is however very interesting to set this up on a limited scale, as it is an interesting opportunity to improve production and to have total control over the production process. Solid Prime Solid Prime is mainly based on rewarding loyal farmers and disincentivising disloyal farmers. The quinoa producers pay a small fee at the beginning of the campaign to receive additional help from Solid Food in the production of their quinoa. After this project is set up with a small number of farmers, we do believe other farmers will see the benefits and will also want to join and subscribe for Solid Prime. The main objective of this model is to make farmers more loyal to Solid Food and avoid side-selling. Farmers want to recuperate the fee they had to pay and this is only possible by selling their yield to Solid Food during the harvest. Forward contracts This is a long-term vision for when market prices are more stable and Solid Food has strengthened the relationship with the farmers. Forward contracts enable Solid Food to make agreements on the buying price with the farmers at the beginning of the campaign. The agreed price will be paid to the producer at the beginning of the season so they have sufficient cash to finance the production of their quinoa. However, the price per kilogram will be slightly lower than the expected market price. Farmers see the early cash as an advantage and are therefore open to receive a slightly lower price for their quinoa. Solid Food is in this way able to slightly reduce the high costs of buying the raw material. The next problem for Solid Food is the high final price of their quinoa compared to other companies in the market. The cost structure is analysed and there is looked for ways to reduce these in order to lower prices and stay competitive. The purchase of raw quinoa represents 70% of the total cost price of the quinoa. As prices are mainly set by the big players in the market, Solid Food has little power to change these. Alternatively, methods to improve the yield on the production field are investigated. With these methods (like the use of a small sowing tool) farmers are expected to be able to produce more and therefore sell and earn more. A system to divide these benefits between the farmers and Solid Food helps to reduce the cost of the raw material. The second biggest cost of the quinoa production is the processing. In order to reduce this cost, it is investigated how waste can be reduced and hence efficiency increased. There are few options to change the machines at the fully automated processing plant and the investment in better machines is currently too expensive for the young company. Smaller measures (like setting a minimum processing quantity) can be taken to improve the efficiency on the short-term. The last topic that is currently important for Solid Food is marketing and customer relationships. In order to grow, Solid Food has to gain market recognition. Both its direct and end customers have to get to know the brand and where it stands for: high-quality and sustainable quinoa with a social dimension. Therefore, Solid Food should start working with a CRM program to reach a wide public that might be interested in the quinoa. Secondly, a QR code can be introduced to differentiate and share the mission and vision of the company. Lastly, the introduction of a private label might spark brand recognition. Next to marketing, it is essential to make customers engaged to the brand. The company should not only be passionate about its quinoa but also about their customer. By being the middleman and making a direct collaboration between the customers and the farmers, Solid Food can make both parties more loyal.