Farms, Farm Shops and beyond (Part 1)

I call today’s farm shop world the "Third Generation".

First generation was 'Grandad Farmer' who saw an opportunity to sell a bit of surplus to passers-by at the end of the drive.

With the second generation, we advance and now have a proper farm shop, with stock, EPOS tills, chillers, freezers – perhaps a butchery counter and probably even a kitchen and some home made foods. It’s all still however very much a family enterprise using home team labour.

With the advent of the Third Generation the business is quite 'grown up'; with a café, bakery, activities, and additional retail such as gifts and inevitably, employees.

Today, about half of all UK farms use some form of diversified activity in their farming business.

There are few limits on the kind of businesses a farm can diversify into.

Some examples include:

Firstly though, farmers will need to decide what benefits they anticipate diversification will bring. The difficulties of farming are well known, at least by those in the industry and those others that take the trouble to find out.

Constraints of price and controlled markets, challenges with labour, the weather, fuel prices, currency fluctuations, feed costs, competition and probably many more, are factors to deliver a hard life for farmers. Despite this, it still appears to be an attractive career and business for many.

In my world it’s the farmers who think beyond farming, and grasp the value of their land, location and who wish to create a sustainable enterprise for the next generation and beyond that I work with. These are the very same people that I cite as 'on-the-ground' research for this article.

New activities can make better use of a farm’s physical resources and characteristics, find new uses for existing skills and integrate a farm with the rural economy.

Having decided to move into new activities it’s important to try and anticipate the effects on business and life, the implications on time, core farm business activities, cash-flow, staffing, and potential liabilities.

It’s good to have a look around and pick up information about skills, resources and market conditions gained from other farmers who have diversified. As with all new activities, it is important to know how much the diversified business will cost to set up and how it will be financed. It also needs a business plan to understand how profitable it will be and how to market it.

It’s probably good to set a strict set of questions and, if reaching a positive conclusion, this will identify a position to prepare a business plan for diversification from these answers.

However, if after considering all these questions, it becomes apparent that diversification is not ideal, it might clarify a better position to think realistically about the choices to make in the existing farm business.

Financial accounts can help to see how moving in a new business direction would affect turnover. Having agreed to enter this new world, it would be good to have a really good discussion with the team and, even if planning to look at just one activity, there is no harm in developing both a master plan – which might take up to five or more years to develop – and evolve a strategy.

Consider adding new enterprises with a plan; whilst there may be uncertainty as new ideas evolve and some activities are more successful than others, it is always easier and probably cheaper to try and anticipate.

When developing a farm diversification strategy, it’s advisable to develop ideas, prepare a business plan, seek planning permission where required, research funding options and identify and undertake suitable training with the skills that will be needed.

Turning an idea into a functioning business requires detailed research and may need specialist advice.

A modest investment in good, experienced consultancy at an early stage, and perhaps some guidance to help evolve the plan may not only save money but could be the foundation for success. It can also be valuable as the enterprise develops.

The project may also need planning permission for any new development - such as a building - or material change of use of land.

Different business sectors will be governed by their own regulations - e.g. for health and safety, and food hygiene.

Financial assistance in the form of grants/loans may be required to develop plans for farm diversification. Advice on this is available from a wide range of sources.

The economics suggest that keeping customers on site is the key, and the closer to an urban location the site, the greater the offering that can be developed.

Let’s look at some of the options available.

The Farm Shop

Farm retail is probably the most exciting part of food retailing at present.

As the big multiple grocers set to work to undercut each other on price and cut costs through labour and experience, farm shops prove that there’s a market for quality products, ethically sourced with great service and values not only spoken but acted upon.

According to Fabulous Farm Shops there are circa 1000 genuine Farm Shops in England. However, looking UK-wide at all versions, that might be as many as 4500. Defra has assessed that half of farms in the UK engage in some kind of diversified activity with farm shops being the most regularly profitable.

Some 30% of consumers visit a farm shop at least once a year, and 12% shop at a farm shop at least once a month.

Farm shops are seen by consumers as supporting the local economy and customer demand is based on a desire to understand and know the provenance of food, and for the food to be merchandised and sold in an authentic environment, coupled with personal service. There is also evidence of a genuine interest and pride in supporting local producers.

People have never been so interested in quality local food and how it is produced, in freshness and in traceability.

Customers are seeking out specialist producers and, for some, there is a desire to reduce food miles.

Farm shops offer considerable added value to farming by selling products made on the farm but sold at a full retail margin to consumers. Yes, there are production and labour costs, but if the farm already operates at either a profit, or even break even, then this is new business, on site, using home grown produce. You might even consider, when identifying profit by department, that the farm shop be the farm’s customer (a model used by some of the larger farm shops with for example livestock).

Farm shops come in all shapes and sizes, the most sustainable at the moment are those offering what is known as a full basket shop – all the ingredients for a good wholesome meal, thereby making the journey for customers worthwhile.

Above all the farm shop is not seeking to replicate the supermarket. The plan to keep the visitor on site needs to be achieved with a range of offers and activities, building as much a destination as a food shop. However, local use on a regular basis with repeat trade should be planned in particular for the quieter months. As we know, these businesses experience noticeable seasonal variation.

Cafes and Restaurants

In my experience, there are few farm shops of any size that do not now offer some sort of food to eat on site or take away. These are also evolving.

First, we saw fairly simple coffee shops, offering tea, cake and sandwiches with soft drinks. As increasing numbers of customers discovered this place, with its delicious offer, friendly staff, glorious views of the countryside and parking, so the café is swiftly acknowledged as too small, and soon the first extension happens. Now we have a fully staffed cafe with hot food and a license. We are in the restaurant business. I always advise those embarking on this to consider, if space is available, to be prepared for growth.

And what are the rewards? Watching income grow, obtaining not only a retail price for meat, but a much higher margin, overheads trimmed, experiencing more positive cash-flow and raising the value of the business.

Customers will come into a cafe just as much for the service provided as the food and drink served. Enthusiastic employees who are customer-focused are key to ensuring your customers enjoy their experience. Inevitably, this will also have a positive effect on your bottom line.

For those who have little business or cafe experience, the learning curve of running a cafe can be the biggest challenge. It is essential that all employees work together in a hospitality business. Tasks become completed more efficiently and productivity is dramatically increased. Team members motivate and support one another and knowing that a team that can support each other means that the business is in safe hands.

The Coffee 'Thing'

As we know, coffee has come a long way since the dark days of hot held stewing coffee, or worse still instant coffee.

Having worked closely with coffee, I am perhaps not without bias. However, I have also taken time to look at how coffee served in farm shops can add value to the business. Yes, a simple “coffee” made with reasonable quality beans in a simple machine will probably satisfy many. However, with a little thought and planning, it can take the outlet from simply a supplier of a hot beverage to the list of great spots for coffee and build a reputation that can drive footfall.

Let’s look at coffee today – which those who follow it is known as the “Third Wave”.

A quick coffee history lesson for you.

Back in the 1960s, coffee consumption began to grow exponentially. For the first time, coffee became widely accessible; this marked was the first wave. The second wave came with an increase in the quality of coffee readily available. Big companies – such as Starbucks – started running coffee shops as profitable businesses. Coffee started to become a luxury product rather a necessity. What’s more, we started to see more consciousness of the importance of the entire supply chain, from producers to consumers. Green bean buyers started to pay attention to where and how coffee was produced – and this eventually trickled through to consumers.

The third wave is all about making the consumer feel special. Part of that is customer service, but another part is sharing the story behind the cup. This story is one created by producers, importers, roasters, and baristas. It explains why a coffee is distinctive, why a consumer can taste certain notes, and why high quality coffee takes so much work. This consumer education is also enabled by greater channels of communication between production and consumption, including direct trade and social media. It does involve work, a supply of good beans, the right equipment, and training. But if farm shops are leading the way in provenance, and growing their food service enterprise, why not make coffee important?

Craft Booze

The micro-brewery is an attractive proposition.

These can come in quite small formats, and whilst the set up costs can be high, the combination of customer experience, having a ready market and good margin make them attractive. Cider can be a useful vehicle for any surplus of apples.

I am not sure that gin is really to be recommended – it’s a very crowded market, I am already counting the closures and unless you have a dedicated team, you may simply end up with a great deal of unsold stock. Options are to buy finished gin and develop your own flavours using botanicals, or to invest in a still, and make your own. The latter is much more costly to set up, but of course spirit production requires little in the way of expensive ingredients.

The English wine story has grown from limited range determined by the weather and mediocre quality to serious enterprise, and for those that follow it, world class wines.

The wonderful 2018 delivered both substantially increased volumes and terrific quality. Therefore, possibly an interesting time for those with the right soil and aspect to consider going into wine. My work in wine has led me to consider two separate operations in terms of wine production; growing grapes and making wine. The first requires space, patience, good weather and hard work.

The second involves investment in the most inefficient equipment imaginable. Consider this. How many harvests per annum? One. So how often do you use your presses? Fermentation tanks also are filled, then emptied, remaining empty for much of the year. Bottling lines, similar story. So, if you are bold enough to try your hand at wine making, at least for the first few vintages, try and find a winery with surplus production capacity to carry out yours. This is not an unusual system but would normally require somewhere local as trucking picked ripe grapes is not easy and any delay will spoil the fruit. Much of our sparkling wine is made from the traditional champagne black grapes, Pinot Noir and Pinot Meunier, and unless we only want to make rose, need to be treated carefully. Oh, and there’s a third part. You do need to find a way to sell the stuff.

I would recommend finding experts to assess and assist. Or, if you really want to do this yourself, its back to school at one of the agricultural colleges such as Plumpton.

Summary

As a first conclusion, apart from simply taking on new business interests, our adventurous farmers are moving way outside their traditional model, experiences and training.

It is therefore critical to plan ahead as much as possible.

Talk to others, look for advice and be prepared.

It can however be a terrifically rewarding experience from which I have seen great commercial success and fantastic pride.

Look out for Part 2 of Farms, Farm Shops and beyond