LEARNING FROM 

FOOD HUB CLOSURES

Running A

FOOD HUB

 VOLUME4
Service Report 77, Volume IV

Issued August 2017

This report is part of a multi-volume series under the over-arching title of Running a Food Hub. For 

questions or additional copies of this report contact: 

James.Barham@wdc.usda.gov, call 202-690-1411, or email: coopinfo@wdc.usda.gov.

This publication and many others that may be useful to food businesses are posted on the USDA 

Rural Development, Cooperative Programs website at: 

http://www.rd.usda.gov/publications/publications-cooperatives

In accordance with Federal civil rights law and U.S. Department of Agriculture (USDA) civil rights 

regulations and policies, the USDA, its Agencies, offices, and employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, 

age, marital status, family/parental status, income derived from a public assistance program, political 

beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or 

funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary 

by program or incident. 

Persons with disabilities who require alternative means of communication for program information 

(e.g., Braille, large print, audiotape, American Sign Language, etc.) should contact the responsible 

Agency or USDA’s TARGET Center at (202) 720-2600 (voice and TTY) or contact USDA through the 

Federal Relay Service at (800) 877-8339. Additionally, program information may be made available in 

languages other than English. 

To file a program discrimination complaint, complete the USDA Program Discrimination Complaint 

Form, AD-3027, found online at How to File a Program Discrimination Complaint and at any USDA 

office or write a letter addressed to USDA and provide in the letter all of the information requested in 

the form. To request a copy of the complaint form, call (866) 632-9992. Submit your completed form or 

letter to USDA by: (1) mail: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil 

Rights, 1400 Independence Avenue, SW, Washington, D.C. 20250-9410; (2) fax: (202) 690-7442; or (3) 

email: program.intake@usda.gov. 

USDA is an equal opportunity provider, employer, and lender.

Rural Development
Running a

Food Hub

Learning from

Food Hub Closures

By Sasha Feldstein, USDA Research Fellow 

James Barham, Food Systems Specialist, 

USDA Rural Business-Cooperative Service 

Case Study authors:

• Margaret Bau, Cooperative Development Specialist, USDA Rural Development

• Lilian Brislen, Executive Director, The Food Connection, University of Kentucky

• Diane Del Signore, Executive Director, Community Alliance with Family Farmers

• Jonathan Kemp, Founder / CEO, FoodEx

• Caesar Layton, Founder / Partner, Cultivate Ventures

• James Matson, Owner and Principal, Matson Consulting

Additional Contributions:

• Lorraine Armstrong, Community Economic Development Intern, USDA Rural 

Development

• Alex Córdova, Community Economic Development Specialist, USDA Rural Development

• Jeff Farbman, Sr. Program Associate, Wallace Center at Winrock

• Erin Foster West, Management and Program Analyst, USDA Natural Resources 

Conservation Service

• Chris Proctor, Community Economic Development Specialist, USDA Rural 

DevelopmentResources Conservation Service

VOLUME FOUR
Contents

8 Executive Summary

8 Key Lessons for Success

10 Introduction

PART I

11 Food Hub Trends and Contributing Factors of Success 

and Failure

11 Figure 1—Food Hub Locations

12 Table 1—Annual Growth of Food Hubs (2000–2017)

12 Food Hub Annual Growth Rate

14 Table 2—Food Hub Surival Rates (2005–2017)

14 Table 3—Comparing Survival Rates of Food Hubs and Other New 

Businesses4

15 Table 4—Food Hub Growth During Economic Recession

Part II

17 Case Studies

	 ■ Arganica Farm Club

19 Overview

	 ■ Growers Collaborative

24 Overview 
	 ■ Organic Renaissance LLC

30 Overview 

	 ■ Grasshoppers Distribution LLC

35 Overview 

	 ■ Producers & Buyers Co-op

41 Overview 

	 ■ Pilot Mountain Pride, LLC

47 Overview 

PART III

52 Common Themes—Lessons Learned

52 Create a Business Plan

54 Secure a Strong Financial Foundation

57 Start with Expert Staff

60 Focus on Your Strengths 

62 Know Your Customers and Markets

65 Understand the Food Production Process

68 Appendix

68 Variable Descriptions for Logistic Regression Model

68 Results of the Logistic Regression Model (Active versus Inactive 

Food Hubs)
6 RUNNING A FOOD HUB

U. S. Department of Agriculture photo
RUNNING A FOOD HUB 7

Executive Summary 

The goal of this study is to examine factors that have led 

food hubs to close their doors. Many studies have been conducted 

on successful food hubs, but USDA hopes to fill a knowledge gap 

by using national data and case studies to draw general lessons from 

food hub failures. By identifying lessons learned from these cases, 

we hope this information will assist new and existing food hubs 

overcome barriers to success. 

Based on national data on food hubs, statistical analysis on 

active and inactive food hubs reveals that such variables as legal 

status, business model, location, hub competition, and consumer 

demand do not indicate consistent factors as to why some food 

hubs fail while others succeed. What these data and the case studies 

suggest is the most significant factors to food hub success or failure 

include internal management issues (such as the quality of the staff 

and business decisions made by food hub managers) and board 

governance, particularly as it pertains to providing sound advice 

and guidance to the food hub management team. Six case studies 

were conducted in an effort to better understand their development, 

challenges, and the ultimate decision to close. They include:

•	 Arganica Farm Club, Charlottesville, VA (in operation 

2009-2012) 

•	 FoodEx (originally Organic Renaissance), Boston, MA 

(in operation 2010-2014) 

•	 Grasshoppers Distribution, Louisville, KY (in operation 

2007-2013)

•	 Growers Collaborative, Davis, CA (in operation 2004-2011) 

•	 Pilot Mountain Pride, Pilot Mountain, NC (in operation 

2010-2015) 

•	 Producers & Buyers Co-op, Eau Claire, WI (in operation 

2009-2011) 
8 RUNNING A FOOD HUB

Executive Summary

Key Lessons for Success

Based on the case studies, this report identifies key lessons for a 

food hub’s success:

1. Create a Business Plan

Food hubs require a highly complicated and interconnected 

network of production, processing, warehousing, transportation, 

distribution, customer service, logistics, and financial management. 

While social missions are integral to the foundation of a food hub, 

a strong business plan is necessary to articulate its core business, 

achieve financial viability, and prepare for challenges ahead. 

2. Secure a Strong Financial Foundation

Make sure to have the right amount and the right kind of capital 

to support the business, allow for growth, and account for inevitable 

challenges or shortfalls. The level of capital and infrastructure 

investment that a food hub requires will depend on its particular 

business model and plan, which may change over time. Factors 

that may help determine a food hub’s capital and infrastructure 

requirements include the food hub’s core activities and services, 

existing or planned sales and costs, leasing versus owning 

opportunities, and the availability of existing infrastructure through 

partnerships. Furthermore, the type of capital required is just as 

important as the amount; food hubs must determine to what extent 

equity, debt, or grants are suited for their business model.

3. Start with Expert Staff

Food hubs coordinate a wide range of activities, including food 

production, processing, warehousing, distribution, customer service, 

institutional purchasing, and marketing. All of these services require 

specialized knowledge and expertise. Faced with limited capacity, 

however, many food hubs tend to invest too little time and capital 

into hiring, developing, and retaining a professional staff with the 

appropriate skills. Since hiring a full staff at the outset of operations 

may be difficult, food hubs should consider both the human 

resources that are required for daily operations and the duties that 
RUNNING A FOOD HUB 9

can be fulfilled by board members or advisors. 

4. Focus on Your Strengths and Find Partners for the Rest

Food hub managers must understand their core competencies 

and roles in the food system, whether it’s to serve as a facilitator, 

broker, coordinator, logistics manager, processor, or distributor. 

Instead of trying to develop expertise in all areas, food hubs should 

identify and build the right partnerships to meet their needs. A 

common pitfall of food hubs is trying to fill all of the gaps in the 

local and regional food system, which can be extremely challenging, 

if not impossible, especially for an enterprise that is just starting 

out. 

5. Know Your Customers and Markets

Food hubs must understand the market and customers 

that they serve in order to tailor their business to meet their 

needs. Committing to purchasing local foods can often require 

educational, cultural, or operational shifts for institutional buyers 

and individual customers. If buyers are not accustomed to sourcing 

local food, they are necessarily taking a risk by shifting their 

purchasing strategies, especially since quality local foods can often 

cost more than conventional foods. Food hub managers need to 

understand the specific needs and habits of their customers in 

order to determine how to satisfy and increase demand. Therefore, 

before launching, food hubs should do a thorough assessment of 

the current market landscape and assess the needs and habits of 

potential customers. 

6. Understand the Food Production Process

Food hubs need a consistent, reliable supply of quality products 

in order to survive. This requires a firm understanding of crops, 

growing seasons, and the unique characteristics of the farming 

process, which involve an immense amount of time and investment. 

It also requires building positive relationships with producers; food 

hubs must be able to ensure good prices for producers and find 

ways to build their capacity to grow and be successful. 
10 RUNNING A FOOD HUB

The goal of this study is to examine factors that have 

led food hubs to close their doors. Many studies have been 

conducted on successful food hubs, but USDA hopes to fill a 

knowledge gap by using national data and case studies to draw 

general lessons for why food hubs fail. By identifying lessons 

learned from former food hubs, we hope this information will 

assist new and existing food hubs in addressing challenges, 

leading to success. 

Research on food hub-related industries, as well as 

statistical analyses on existing and inactive food hubs, was 

conducted to examine potential factors contributing to food 

hub closures amidst high survival rates. Six food hub case 

studies were conducted across the United States to examine 

reasons for closure.

It is important to note that four of the six hubs studied 

opened their doors during the 2008 recession. However, 

external factors were not always the main reason for closure. 

Food hub leaders, as well as others who worked closely with 

the food hub, provided much of the language and information 

for the respective case studies. In addition to reflecting on 

their own lessons, representatives of each of the food hubs 

gathered to identify common themes. Therefore, this report 

not only provides information that is specific to the context 

of new and existing food hubs, but it also provides general 

insights that may be applied to a variety of cases.

Introduction
RUNNING A FOOD HUB 11

Food Hubs Have Grown Significantly in the Past Decade

USDA defines a food hub as a “business or organization that 

actively manages the aggregation, distribution, and marketing of 

source-identified food products primarily from local and regional 

producers to strengthen their ability to satisfy wholesale, retail, and 

institutional demand.1” Food hubs play an important role in the 

food system by meeting the needs of small and “ag-of-the-middle” 

farmers who lack the capacity to meet the specific volume, quality, 

and consistency requirements of larger scale buyers, such as retailers, 

wholesale distributors, and institutions. An increasing number of 

individuals, organizations, nonprofits, businesses, and cooperatives 

are seeking to occupy this space and meet the rapidly growing 

demand for food hubs. Based on the most current database,2 there 

are approximately 360 active food hubs in the United States threequarters of which were established during the past decade. 

Figure 1—Food Hub Locations

1 Barham, J.; Tropp, D.; Enterline, K.; Farbman, J.; Fisk, J.; and Kiraly, S. 2012. Regional 

Food Hub Resource Guide. Washington, D.C.: U.S. Department of Agriculture, 

Agricultural Marketing Service, April. 2 The food hub database used for this report was developed by USDA Rural Development 

in collaboration with the Wallace Center at Winrock International. This database of 

360 active food hubs and 40 inactive food hubs was used to calculate food hub survival 

rates and identify determining factors for why food hubs cease operations. 

PART I

Food Hub Trends and Contributing

Factors of Success and Failure
12 RUNNING A FOOD HUB

YEAR

Total Number of Food Hubs

FOOD HUBS

New Food Hubs

Food Hubs not Reopening

Operating Food Hubs

Before

2000 2000 2001 2002 2003 2004 2005 2006 2007

46 56 58 61 66 80 93 110 136

Before

2000 2000 2001 2002 2003 2004 2005 2006 2007

46 10 2 3 5 14 13 17 26

- - - - - - - - -

46 56 58 61 66 80 93 110 136

2008 2009 2010 2011 2012 2013 2014 2015 2016

171 208 251 300 342 359 378 394 400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

34 37 40 46 43 17 19 16 6 -

- - 2 4 11 15 3 1 1 1

137 208 249 294 325 326 342 356 361 360

400

350

300

250

200

150

100

50

0

Before

2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

n Total Number of Food Hubs

YEAR

Total Number of Food Hubs

FOOD HUBS

New Food Hubs

Food Hubs not Reopening

Operating Food Hubs

Table 1 Annual Growth of Food Hubs (2000–2017)

Food Hub Annual Growth Rate
RUNNING A FOOD HUB 13

3

 Bureau of Labor Statistics — Business Employment Dynamics http://www.bls.gov/bdm/

entrepreneurship/entrepreneurship.htm

Food Hubs Have High Survival Rates

Building and sustaining a food hub is difficult. A successful food hub 

relies on several moving parts, including coordinating with producers, 

aggregating, processing, and storing product, and distributing to buyers. If 

one piece fails, the whole operation can fail. Additionally, food hubs must 

constantly balance financial viability with other positive economic, social, 

and/or environmental impacts within their communities, and maintaining 

that balance often leaves little room for error. Even though food hubs 

must be extremely meticulous, which requires rigid time management, the 

industry demonstrates very high survival rates. 

Using a national database of food hubs that includes both active and 

inactive food hubs (n=400), analysis was conducted to determine survival 

rates of food hubs, beginning with food hubs established in 2005. Food 

hubs from 2005 to 2011 were tracked from inception through five full years 

of operation to determine the number of these businesses that had ceased 

operations and how many were still operational. For example, a food hub 

started in June 2005 would have its first full year of operation in 2006. It was 

then tracked to see if it continued operations for a full 5 years, which would 

take the hub through 2011, to determine the survival rate (i.e., still being 

open in 2011). The following table reflects this analysis and shows that food 

hubs in all periods have maintained remarkably high survival rates. 

The aggregate survival rate of food hubs since 2005 is about 88 percent, 

well over the survival rate for all types of new businesses, which — over a 

similar timeframe — had a survival rate of only about 53 percent.3

It is important to note, however, that many food hubs are relatively new, 

and the scale of hubs across the country is limited. Therefore, it is possible 

that the survival rate of food hubs may fluctuate as more hubs enter the 

industry.

Food Hubs Are Resilient

In addition to a high survival rate, food hubs have also shown to be 

resilient to changes in overall economic conditions. The U.S. Coincident 

Index provides a comprehensive view of current economic conditions as it 

takes into account several economic indicators, including nonfarm payroll 

employment, average hours worked in manufacturing, the unemployment 

rate, and wage and salary disbursements, deflated by the consumer price 

index. From 2004 to 2007, the Coincident Index saw a steady increase until 

it dipped dramatically in 2008, remaining sluggish until 2011, following the 
Table 3

Comparing Survival Rates of Food Hubs and Other New Businesses4

5-Year Survival Rates: New Business Establishments vs. Food Hubs

14 RUNNING A FOOD HUB

Table 2

Food Hub Surival Rates (2005–2017)

Established in 2005 2006 2007 2008 2009 2010 2011 2012

 13 17 26 35 37 43 49 42

 Inactive by 2010 2011 2012 2013 2014 2015 2016 2017

 1 2 7 5 7 9 2 2

 Success Rate 93% 89% 79% 88% 84% 83% 96% 95%

2005–2010 2006–2011 2007–2012 2008–2013 2009–2014 2010–2015 2011–2016

n New Business Establishments n Food Hubs

93 89

79

88 84 83

96

52.6 49.8 50.2 51.7 54.8 56.0 56.3

economic recession.5

As expected, the economic recession had a negative impact on the 

number of new business established, from 678,095 new businesses in 2008 

to a 20-year low of 560,588 new business in 2010, representing a 17-percent 

decrease over that period. Food hubs, on the other hand, continued to 

show robust growth, suggesting that food hubs may be more resistant to 

shockwaves produced by unfavorable economic conditions.6
RUNNING A FOOD HUB 15

4

 Bureau of Labor Statistics —– Business Employment Dynamics https://www.bls.gov/bdm/

entrepreneurship/bdm_chart3.htm 5

 Federal Reserve Bank of Philadelphia: https://www.philadelphiafed.org/research-and-data/

regional-economy/indexes/coincident 6

 Bureau of Labor Statistics Business Employment Dynamics https://www.bls.gov/bdm/

entrepreneurship/bdm_chart1.htm 7

 For a full description of different food hub business models, see: Matson, James; Thayer, Jeremiah; 

and Shaw,Jessica. 2015. “Running a Food Hub: A Business Operations Guide.” USDA Rural 

Development Service Report 77, Vol. 2, July. 8

 The full description of the variables tested can be found in the appendix.

Assessing factors for food hub success or failure

In an effort to understand contributing factors to the failure or success 

of food hubs, statistical analysis was conducted based on a USDA/Wallace 

Center-compiled database of both active and inactive food hubs (n=400), 

which included legal status, business model, and regional location.7 These 

data were supplemented with wider economic environment variables, 

including institutional demand, consumer demand, hub competition, and 

production capacity to examine the extent that these supply and demandside factors contributed to business closure.8 

Employing logistic regression analysis shows that two variables, 

production capacity and institutional demand, were found to be highly 

400

350

300

250

200

150

100

50

0

Table 4

Food Hub Growth During Economic Recession Number of Food Hubs

n Operating Food Hubs n Coincident Index

Food Hub Growth Versus Annual U.S. Coincident Index

 180

—170

—160

 150

—140

—130

 120

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
16 RUNNING A FOOD HUB

significant factors (p < 0.01) contributing to food hub success or failure. A 

strong relationship exists between institutional demand and the success of 

operating hubs in a given State, which emphasizes the importance of anchor 

buyers that can provide food hubs with a steady market for their products. 

Somewhat counterintuitively, the findings also show that States with 

more acreage in specialty crops corresponded with a higher likelihood of 

food hubs closing. While it is difficult to determine the reasons for this 

relationship, one possibility is that States with more specialty crops have 

a comparative advantage over other regions, both in terms of climate and 

natural resources, as well as food systems infrastructure. Farmers in these 

regions may not need as much assistance accessing markets, inputs, or 

other grower services. They may also have a higher number of agricultural 

enterprises in the region, such as distributors and processors, to work with. 

Beyond the demand and supply variables, another interesting finding 

is that cooperatively structured food hubs are more likely to succeed over 

for-profit or nonprofit food hubs. It should be noted that this variable is 

less statistically significant (p = 0.094), but prior research has shown that 

cooperative food hubs have slightly outperformed other types of food hub 

structures.9 Full results of the logistic regression model can be found in the 

appendix.

While national data reveal some market environment factors for food 

hub performance,10 the case study findings examined in the next section 

suggest that internal management issues (such as the quality of the staff and 

business decisions made by managers) and board governance — particularly 

whether the board offers sound advice and guidance to the management 

team, are more likely to have a greater impact on food hub success or failure. 

9

 The 2013 National Food Hub Survey showed that cooperative food hubs had on average a better 

business efficiency ratio compared to nonprofit and for-profit food hubs. The 2015 National 

Food Hub Survey showed continued strong business efficiency ratios for cooperative food 

hubs, but also that nonprofit and for-profit food hubs had improved their ratios in relation to 

cooperative food hubs. Sources: (1) Fischer, M., Hamm, M., Pirog, R., Fisk, J., Farbman, J., & 

Kiraly, S. Findings of the 2013 National Food Hub Survey. Michigan State University Center for 

Regional Food Systems and the Wallace Center at Winrock International. September 2013. (2) 

Hardy, Jill, Michael Hamm, Rich Pirog, John Fisk, Jeff Farbman, and Micaela Fischer. 2015 

National Food Hub Survey. Michigan State University Center for Regional Food Systems and the 

Wallace Center at Winrock International. May 2016 10 It should be noted that R2 for this logistic regression model was only 0.1123, meaning the model 

only explains a small portion of the observed data. Full results of the logistic regression model can 

be found in the appendix.
RUNNING A FOOD HUB 17

Part II

Case Studies

Post-mortem analysis of six food hubs

To paint a more vivid picture as to why some food hubs fail, case 

studies were conducted to gather lessons learned from food hubs 

that have closed their doors. Six food hubs from across the United 

States, representing distinct locations, sizes, business models, 

and legal structures, were selected to examine their development, 

challenges, and their ultimate decision to close. The following 

provides a brief overview of each food hub:

■ Arganica Farm Club was founded as a mission-driven private 

company in 2009. Arganica customers from around Virginia and some 

neighboring States purchased memberships to receive regular deliveries 

of local value-added products, such as jams and nut products. However, 

Arganica quickly expanded to include local produce, meat, dairy, 

and other products that members could purchase a la’ carte through 

Arganica’s website. Arganica staff sourced, aggregated, packaged, and 

distributed products to central pick-up sites and via home delivery 

throughout the mid-Atlantic region from its Charlottesville-based 

warehouse.

■ FoodEx (originally Organic Renaissance) was started in Boston, MA, 

in 2010 by a group of individuals with a variety of experience in local 

and natural foods, delivery, software, design and engineering industries, 

all of whom had connections to local farmers and restaurants. The 

company operated multiple business lines over time, including an online 

marketplace to connect local buyers to local farmers and producers as 

well as a distribution facility and transport delivery service to provide 

local produce to restaurants and retailers.

■ Grasshoppers Distribution was started by four farmers in Louisville, 

KY, as a private enterprise to assist small farmers in transitioning away 

from tobacco production to local produce. Founded in 2007, the food 

hub’s original business model split its market between supplying highend restaurants and retailers and low-income families in west Louisville, 

although it transitioned through multiple business models, including 

wholesale distribution, CSA subscription, and an online marketplace.
18 RUNNING A FOOD HUB

■ Growers Collaborative was launched in 2004 in Davis, CA, as 

a project of the nonprofit California Alliance with Family Farmers 

(CAFF). The project began in response to growing demand from local 

school districts to increase their procurement of local food and to have 

a coordinated process. Growers Collaborative started by driving its own 

trucks to purchase, pick up, and aggregate product from family farms, 

then sold and delivered it to institutional and retail customers. These 

included schools, hospitals, and a restaurant company. 

■ Pilot Mountain Pride was established in 2010 as a producer-driven, 

not-for-profit LLC in Pilot Mountain, NC, under the supervision of 

a local economic development foundation. Pilot Mountain Pride ran 

a warehouse facility to aggregate, pack, store, and distribute wholesale 

fruits and vegetables to restaurants, colleges, and grocery stores, 

although it also supplied CSAs and operated a retail space. 

■ Producers & Buyers Co-op, based in Eau Claire, WI, was established 

in 2009 to coordinate the production, processing, and delivery of locally 

produced food for two nearby hospitals. Producers & Buyers Co-op 

operated as a multi-stakeholder cooperative, a unique organizational 

format whereby multiple membership classes — which included 

producers, processors, transport providers, and purchasing institutions 

— all share in the ownership, operations, and governance of the 

enterprise. The hospitals pledged to purchase 10 percent of its food 

from local producers. Each member of the cooperative agreed to pay 

a 5-percent fee to the co-op for every transaction, product handled, 

and item purchased in order to maintain membership and finance 

operations.

Leaders of these food hubs, as well as others who worked closely 

with the hubs, provided much of the language and information 

for their respective case studies. In addition to reflecting on their 

own lessons, representatives gathered to identify common themes 

that provide key lessons for food hubs, which are provided at the 

conclusion of this report. Case study profiles are presented in 

alphabetical order.
RUNNING A FOOD HUB 19

■ Arganica Farm Club

Case study by Caesar Layton

Location:

Charlottesville, VA

Business structure:

Mission-driven private company

Business model:

Online membership and buying club

Number of producers served:

~250–450 purveyors, depending on season

Financing:

Private capital from friends, family, family 

 offices and local investors

Sales growth:

$250,000 in 2009 to $2.9 million in 2012

Established:

Summer 2009

Closed:

July 2012 — purchased by Relay Foods 

Overview

Beginnings

Dominique Kostelac, a former real-estate developer, began 

selling maple syrup from his farm in Virginia in 2009. As he 

started developing relationships with other small purveyors in his 

community, Kostelac began selling packaged “tasting” boxes of 

local value-added products, such as jams and nuts. This signified 

the beginning of Arganica’s membership model, in which customers 

purchased memberships to regularly receive a monthly, then weekly, 

selection of goods. 

By early 2010, Arganica expanded to about 400–600 products, 

offering local produce, meat, dairy, and an à la carte selection of 

goods through its own online buyers’ club. Arganica members 

would purchase products on Arganica’s website, and Arganica staff 

would source, aggregate, package, and distribute the products to 

central pick-up sites or deliver to homes throughout the MidAtlantic region. By early 2011, membership grew to over 2,000 

customers. 

To meet growing demand, Arganica’s team grew to 50 fulltime and hourly staff, who oversaw merchandising, sales and 

marketing, aggregation and packing, customer service and finance 
20 RUNNING A FOOD HUB

and accounting. Over 30 part-time contract drivers were also recruited to 

deliver product to members in Washington, DC, Philadelphia, Baltimore, 

Charlottesville, Wilmington, Richmond, and Virginia Beach from Arganica’s 

Charlottesville-based warehouse. 

Challenges along the way

As Arganica expanded, so did its challenges. The complex combination 

of customers changing their orders every week, along with changes in crop 

and product availability, meant that Arganica staff had difficulty predicting 

the quantity of products to purchase. This often left Arganica with either 

an excess or lack of product, driving up overall costs. Compounding this 

problem, Arganica did not have a robust “back-end” technology platform 

to effectively manage inventory, fulfillment, and delivery. As Arganica 

grew, logistics became increasingly difficult to coordinate and predict, 

resulting in orders often being late, misplaced, or inaccurate. When rapid 

expansion occurred in 2011, customer experience suffered. Consequently, 

Arganica customer service rankings on Yelp! (a consumer ratings website) 

and other consumer service measures plummeted, affecting overall customer 

acquisition and sales.

Arganica also embarked on some major and costly projects that 

encroached on the company’s already scarce resources. For example, in an 

effort to make the company fully local and offer a fully recyclable delivery 

system, Arganica began constructing its own locally handmade wooden 

crates to deliver products. The crates 

were beautiful and well received, 

but were vastly more expensive than 

planned. This drove up membership 

costs and resulted in membership 

cancellations. Customers also kept 

many of the crates, driving up 

expenses even further. 

Finally — and most damagingly 

— in an effort to drive customer 

acquisition rates, Arganica 

participated in large Groupon and 

Living Social coupon campaigns, 

starting in late 2010. By 2012, 

more than 7,000 coupons were 

issued. However, the coupons were 

discounted so heavily that each order 

resulted in negative contribution 

As Arganica grew, logistics became 

increasingly difficult for staff (seen here) to 

coordinate and predict, resulting in orders often 

being late, misplaced, or inaccurate.
RUNNING A FOOD HUB 21

margins. Additionally, only a small fraction of coupon users stayed with the 

company post-discount period. A massive surge in membership of limitedtime customers combined with the stress that surge put on operations and 

technology resulted in the company’s precipitous 2011 financial decline. 

In late 2011, Arganica’s principal investor decided that it would no longer 

invest in the company unless new management and outside capital was 

obtained. Therefore, in early 2012, Arganica’s board hired a new CEO to 

turn the company around in an effort to cut costs and refocus the company on 

its core business. Arganica launched its first online procurement platform in 

January 2012 (previously customers were using an email-based excel system); 

cut costs across the board, including reducing staff from 50 to 30; and cut 

several ancillary and unprofitable investments (such as its wooden crates).

Decision to Exit 

Despite Arganica’s complete restructuring and technological updates, 

Arganica realized that it would have to invest heavily to build the necessary 

technology, operations and business model required to achieve profitability 

and scale. With significant capital already invested and an exhausted cadre 

of core capital investors, a decision was made to merge in hope of stabilizing 

Arganica’s customer and farmer partners so they could continue to benefit 

from Arganica’s original mission. 

In the spring of 2012, the CEO (who by this time had become president 

of the company) and the board identified a partner in Relay Foods — a 

competing Mid-Atlantic online grocer that aggregated local food and was 

delivering food from grocery stores such as Whole Foods. Relay Foods 

offered Arganica a strong e-commerce website and a more advanced 

aggregation, fulfillment and distribution system. Relay Foods also had an 

innovative pick-up model that optimized home deliveries and significantly 

reduced “last-mile” delivery costs. Arganica brought Relay Foods its 

nascent D.C. and Baltimore customer base (small ancillary markets in 

Philadelphia and Virginia Beach were closed as part of the merger), a strong 

network of local producers and suppliers, and strong customer service and 

merchandising assets.

In July 2012, Relay Foods completed its acquisition of Arganica. 

Through the deal, Relay Foods was able to diversify its food portfolio with 

more robust local offerings while Arganica was able to maintain most of 

its core business, staff, and purveyors. Since the merger, the Relay Foods–

Arganica shareholders share value increased, revenue was grown to over 

$10 million, and the combined company exited to national organic-centric 

online grocer Door-to-Door Organics in late 2015. 
22 RUNNING A FOOD HUB

L E S S O N S L E A R N E D 

1. Food Hubs need a strong financial model from day one.

Most food hubs are created from both a mission-oriented and 

business standpoint, both of which are important to a food hub’s 

success. However, food hubs must understand their core business and 

create a sound financial model in order to survive. Many food hubs are 

also subsidized by grants or investment deals that seem very attractive 

in the beginning, but may put the food hub at risk when the financial 

supports disappear, or when the enterprise cannot keep up with the 

terms of the agreement.

Therefore, food hubs should be wary of allowing such supports to 

skew the business model in any way. Additionally, costs around every 

aspect of the business should not be underestimated and revenue 

projections should not be overestimated. Since food hubs have very 

thin profit margins, even small miscalculations in costs, margins or 

revenue expectations can result in significant reoccurring losses that 

may even be worsened, not improved, by growth.

2. Understand consumer demand.

While Arganica offered an attractive selection of goods, consumer 

demand was influenced by a variety of external factors that Arganica 

did not take into account. For example, since food is seasonal and 

cyclical, customer buying patterns tended to follow what was in 

season. Frozen foods, meats, and value-added products were in higher 

demand in the winter months. In the summer, Arganica’s sales dropped 

dramatically because customers preferred to shop outside at farmers 

markets, affecting their routine of making weekly grocery purchases. 

Food hubs must understand consumer habits and how seasonality 

affects business cycles. This is critical for making key strategic 

decisions, such as determining procurement cycles, sales campaigns, or 

how often to offer deliveries. 

3. Don’t expand too fast.

Brick and mortar food hubs can only expand as big as their walls. 

However, when a food hub operates online, it is easy to feel that the 
RUNNING A FOOD HUB 23

opportunities for expansion are endless. Every decision to expand 

comes with significant cost increases that can be difficult to predict 

if they are not fully understood. Instead of building a business 

and hoping customers will come, food hubs should focus on the 

profitability of each added customer and only expand when it knows 

it can achieve profitability on a per customer basis. 

With limited capacity, Arganica expanded its operations to 

several different cities before its core business in the Washington, 

DC, area was operating efficiently and profitability. If managed 

correctly, food hubs can be very profitable in a small geographic 

area. It is important to think about the depth of a market before 

thinking about expanding to new ones. 

4. Know your core business.

The main draw of Arganica was its large variety of local 

products. Arganica was known for having a high-quality selection 

of goods from a wide variety of suppliers and customers in 

urban Washington, DC, enjoyed having access to products from 

nearby farming communities that usually were not sold in most 

supermarkets. This was Arganica’s core business, and should have 

remained the main focus of the company’s business decisions and 

investment. 

Redirecting resources to even mission-aligned secondary 

projects can waste time and money, which can have a serious 

negative effect on a young, fragile business. By merging with Relay 

Foods, Arganica was able to focus on its strengths while using 

existing resources (e.g., Relay’s technology platform) to fill other 

critical needs. Instead of attempting to address all of the gaps in the 

local food system, food hubs should assess the current infrastructure 

and landscape in order to determine where they can be best utilized.
24 RUNNING A FOOD HUB

■ Growers Collaborative

Case study written Diane Del Signore1

Location: 

Ventura County, Davis, and Oakland, CA

Business structure: 

Nonprofit, LLC, to nonprofit/private partnership

Business model: 

Multiple business lines over time. Production and packing assistance, marketing, 

distribution and branding for institutional sales as well as direct-to-retail outlets. 

Number of producers served: 

~180

Financing:

Federal and private grants, Community Alliance with Family Farmers (CAFF) own 

nonprofit, unrestricted funds.

Sales growth:

Grew to $1 million in total sales at peak in 2009

Established:

 2004

Closed:

2011, but ongoing as part of CAFF’s 

 Farm to Market Program

Overview

Beginnings

California Alliance with Family Farmers (CAFF) is a nonprofit that 

has been working since 1978 to advocate for small-scale farmers, promote 

the purchase of local food, and help farmers increase their income and 

sustainability. In 2000, the Davis Joint Unified School District asked CAFF 

for help with identifying local farmers who could deliver produce to Davis 

schools. As a result, CAFF began playing a “forager” role, actively procuring 

product (mainly produce) from farmers who could deliver to the district, and 

providing the district with information about product availability, volumes, 

sources and prices. CAFF oversaw the billing and collecting of receivables 

from the district and paid the farmers separately. It did not charge the school 

district for services. 

By 2004, the Davis School District was purchasing directly from 

nine farms, with CAFF’s assistance. However, the transaction costs of 

3

 This case study is largely drawn from “Making the Invisible Visible: Looking Back at Fifteen Years 

of Local Food Systems Distribution Solutions” by Community Alliance with Family Farmers 

(CAFF). The full report can be accessed at http://caff.org/wp-content/uploads/2010/07/ 

CAFF-Lessons-Local-Distribution-102814.pdf
RUNNING A FOOD HUB 25

coordinating with so many farms at the same time made it difficult to 

manage deliveries and invoices, school district officials said. Instead, the 

district wanted a consolidated delivery. Additionally, more school districts 

and other institutions began approaching CAFF about purchasing local 

produce from family farms. CAFF responded to the need by founding the 

Growers Collaborative food hub in 2004, funded through a $210,000 USDA 

Value-Added Producer Grant. 

For the next several years, Growers Collaborative oversaw the 

aggregation, marketing, and distribution of local produce for institutions 

in both Davis and Ventura County. It drove its own trucks to purchase, 

pick up, and aggregate product from family farms, then sold and delivered 

it to institutional and retail customers. These included Kaiser Permanente 

Hospitals, Bon Appétit Management Company, and area universities. 

Growers Collaborative used existing cooler space from local growers and a 

nearby food bank as staging sites. CAFF’s executive director and program 

manager supervised three dedicated staff and one shared bookkeeper for 

both the Ventura and Davis locations. 

Challenges along the way

In 2006, as sales were continuing to grow, Growers Collaborative 

incorporated as an LLC under the umbrella of CAFF to see if it would 

succeed as a for-profit business model. However, without a sound plan 

for long-term financial viability, private investors were skeptical of the 

enterprise’s ability to be profitable, and Growers Collaborative was unable 

to secure private investments. Growers Collaborative very quickly resumed 

financing through public grants and CAFF’s own unrestricted funds. 

Gross sales of Growers Collaborative continued to grow, reaching more 

than $1 million (combined for both sites) annually. It oversaw 122 sales 

accounts and sourced from more than 180 farmers in over 30 counties in 

California. Unfortunately, the Collaborative’s revenue was not sufficient 

to cover the fixed costs of operation, such as labor, truck maintenance, 

and other equipment. This was in part due to its substandard facilities, 

equipment, and trucks, which broke down frequently. The Collaborative did 

not have the equipment, infrastructure, or ordering systems to accommodate 

institutional buyers, who expected homogenous, consistent, fresh-cut and 

packaged product year-round. 

While Growers Collaborative staff had some farming experience, no one 

had real produce distribution experience. Furthermore, the 2008 recession 

slowed overall sales growth. By 2009, CAFF decided to stop operations in 

Ventura and Davis, since the Collaborative was unable to breakeven without 

continued grant subsidies. 
26 RUNNING A FOOD HUB

Instead of closing down altogether, Growers Collaborative restructured 

into a private partnership with L. Cotella Produce, a wholesale produce 

company in Oakland, CA, to form “Thumbs Up, a Growers Collaborative.” 
RUNNING A FOOD HUB 27

This was a private, family-owned business that sold local product to 

larger distributors. Thumbs Up owned and managed business operations, 

using its own warehouse and equipment to source, aggregate, and deliver 

produce. Thumbs Up also used its own proprietary software system to 

allow customers to access all pertinent sourcing information for a specified 

product, including the farm and location. CAFF, in partnership, provided 

support in branding (under its established “Buy Fresh, Buy Local” 

campaign), marketing, and contract negotiations with major distributors to 

offer “Buy Fresh, Buy Local” products through purchasing from Thumbs Up.

Decision to close

Unfortunately, Thumbs Up was never able to reach the scale necessary 

to achieve viability. Without large enough volume, the transportation costs 

of working with multiple small farms and driving long distances to pick up 

and deliver small amounts of produce were too high. Additionally, as local 

produce became more desirable, mainline distributors began going directly 

to the farms themselves. Given that these distributors were gradually 

increasing their capacity to handle and market local specialty items, from a 

business standpoint, it made sense for them to try to do this directly, rather 

than going through an aggregator. Unable to keep up with costs, Thumbs 

Up shut down in 2011, along with Growers Collaborative’s operations. 

While the food hub model effectively closed, CAFF shifted gears once 

again in 2012 by establishing its “Farm to Market” program. This new 

strategy involves CAFF acting as a food value chain “facilitator,” connecting 

farmers to existing mainstream distributors as well as directly to buyers, 

rather than running a parallel distribution system of its own. In this capacity, 

CAFF plays a key role in promoting the increased supply and demand of 

local food by creating shared value among producers and consumers. 

This model is currently being implemented in Santa Clara, the Bay 

Area, the North Coast, Sacramento Valley, and Humboldt County, with a 

CAFF staff person coordinating efforts in each region. In some cases, CAFF 

connects famers directly to institutional and retail buyers and assists with 

production planning. In others, CAFF facilitates the aggregated purchasing 

of local products by working with institutions to aggregate demand, farmers 

to coordinate supply, and distributors to procure, source identify and label 

local products. CAFF also supports institutions, farmers, and food service 

leaders with resources and technical assistance, to assist in the growth of 

both supply and demand of local foods. 
28 RUNNING A FOOD HUB

LESSONS LEARNED

1. Know your context and assess your current resources. 

It is important to understand the gaps that are present in the 

local distribution landscape, and whether existing resources and 

infrastructure can be used to fill those gaps. Further, new food hubs 

take a substantial amount of capital investment and time to develop. 

An assessment of the current distribution landscape, agriculture 

economics, and existing infrastructure is critical to determining 

whether or not new capital investment is needed. 

California agriculture is unique because the State produces 

high volumes of specialty crops year-round. In addition to large, 

corporate-owned distributors, mid-sized regional businesses and 

family-owned operations also aggregate and distribute produce in 

California. Indeed, many farmers have been aggregating product 

and are acting as food hubs themselves. For example, Coke Farms 

in San Juan Bautista, Abundant Harvest Organics in Kingsburg, 

Capay Valley Farm Shop in Esparto and Harvest Santa Barbara 

are technically food hubs, as they add value to the supply chain by 

aggregating and distributing product from local farmers. Therefore, 

in California, new facilities and stand-alone aggregation hubs, 

unless farmer owned and operated, may not be viable enterprises, as 

they may duplicate existing efforts. 

2. Work with multiple stakeholders to bring about long-term food 

systems change, but let farmers lead.

It is important to foster a diverse, committed set of stakeholders; 

commitment and willingness to work through challenges from both 

institutional buyers and farmers is critical. Nonprofit organizations, 

institutional partners, and individuals trying to cultivate food value 

chains should think carefully about what they have to offer and 

where best to apply their skills and expertise. CAFF realized that 

its biggest contribution to the food value chain is as value chain 

coordinator, connector and educator, promoting increased supply 

and demand of local food. Farmers, on the other hand, understand 
RUNNING A FOOD HUB 29

the more nuanced dimensions of their growing seasons. Farmer-led 

models may be more successful for local food aggregation hubs, in 

which farmers work together to aggregate their product for mutual 

benefit, and share in the costs and/or responsibilities of distribution. 

Each stakeholder must understand its own role and expertise in 

meeting current needs. 

3. Focus on your business’s core competencies. Work collaboratively 

to modify existing infrastructure and foster supply chain values.

When establishing a new, stand-alone food hub is not efficient, 

a more effective strategy for local food system development is 

working collaboratively to modify existing infrastructure, fostering 

supply chain values among current food system stakeholders, and 

educating the community about local food. CAFF is a well-known, 

established, and trusted organization in the local food and farming 

community. Therefore, CAFF was most successful when leveraging 

what it was already good at: inspiring institutions to buy more local 

produce, convincing other distribution companies of the potential 

benefits of local food, increasing education and knowledge of local 

food purchasing and marketing, and connecting prospective buyers 

with local farmers who can meet their needs. 

Thumbs Up, as an established wholesale produce supplier, 

understood the produce distribution landscape, and was already 

successful in building source identification of products into its dayto-day operations. By demonstrating the capability of sourcing, 

identifying, and tracking produce from local farms, the practice has 

now become more common as a growing number of distributors 

have adapted their tracking systems to make it easier for purchasers 

to choose local items. Each business and organization within the 

value chain should understand its core business and leverage its 

resources with other stakeholders to promote its values along the 

supply chain.
30 RUNNING A FOOD HUB

■ Organic Renaissance LLC

Case study by Jonathon Kemp

Location:

Boston, MA

Business structure:

LLC

Business model:

Multiple business lines over time. Retail and institutional sales. 

Number of producers served:

~500

Financing:

Debt and private equity

Sales growth:

$200,000 in sales in 2011 to $2.75 million in 2013

Established:

January 2010

Closed:

April 2014

Overview

Beginnings

FoodEx (originally Organic Renaissance) was established by a group 

of individuals with a variety of experience in local and natural foods, food 

delivery, software design, and engineering industries. All of them had 

connections to local farmers and restaurants. Through conversations 

about how to get more local food into the greater Boston area, they 

created FoodEx as a way to develop and streamline local food distribution 

infrastructure. FoodEx’s ultimate goal was to strengthen the region’s food 

system by finding a better path to market for farmers and food producers of 

New England and connecting them with local buyers. 

With its main focus on optimizing logistics, the core business of FoodEx 

was a web platform exchange for ordering local food at all scales. Through 

the platform, farmers or producers could track their inventory and list their 

prices, while buyers could browse local food products and place orders. The 

platform allowed food buyers to make payments through one invoice, even if 

they were purchasing from several different farms. FoodEx also ensured that 

producers complied with food safety handling standards. 

In addition to the online marketplace, FoodEx sought to create its 

own distribution channel by renting 10,000 square feet of warehouse 

space, including 2,000 square feet of cold and frozen storage, along with 

six refrigerated trucks to transport deliveries. Securing funding for the 

, dba FoodEx
RUNNING A FOOD HUB 31

facility proved to be extremely difficult; FoodEx tried unsuccessfully for 

over a year and a half to secure private investments. However, through the 

USDA Business and Industry Guaranteed Loan Program, FoodEx was 

able to use a 90-percent guarantee as collateral for securing a loan from 

MassDevelopment Bank to purchase the facility. With its new infrastructure, 

FoodEx began providing produce to about 30 small- to medium-size 

restaurants and retailers.

Challenges along the way

Unfortunately, FoodEx did not have enough producers or buyers to 

reach profitability. At the time, restaurant buyers were accustomed to 

having in-person relationships with multiple producers to find the freshest 

produce on a daily basis, while smaller farmers were unable to provide 

inventory multiple times per day for several different buyers. FoodEx 

also had difficulty in foreseeing shortfalls; the online marketplace was not 

equipped to track whether a farmer was going to run out of a certain crop 

by a specified delivery date. Furthermore, if FoodEx was able to make a 

guaranteed sale of a crop, and a farmer ran out of the crop by the time 

the delivery was due, FoodEx did not have other producers to cover the 

shortfall. 

In 2011, FoodEx decided to move away from the small restaurant 

business and focus on specialty, value-added products for grocery retailers. 

Again, FoodEx was unable to find enough willing producers in New 

England to fill the trucks needed for its retail store customers, so long as it 

sourced only regional products. FedEx pivoted again in late 2011, entering 

into partnership with Compass USA — one of the country’s largest food 

service companies — to pursue institutional sales. The program started 

with two universities in a 2011 pilot program and grew rapidly to almost 30 

schools and 9 hospitals by the fall of 2013. 

While FoodEx experienced significant growth during this time, the 

misalignment of school schedules and New England farm production 

seasons meant that the trucks were not full for significant portions of the 

year, and FoodEx was continually unable to reach a large-enough scale to 

continue operations at a profit while paying back its loans. In order for the 

low margin sales to reach a sustainable level for the institutional business, 

FoodEx estimated that it would have needed upwards of $30 million in 

capital to raise its scale. This sort of capital was simply not available. 

In early 2014, FoodEx switched gears one final time, developing a 

100-percent, grass-fed beef product line and re-focusing on specialty sales 

to retail grocers. Compromising on its original mission, FoodEx now 

supplemented its regional products sales with “super-regional” products 
32 RUNNING A FOOD HUB

(produced within 500 miles of Boston, or produced by small, sustainable 

companies from outside the region). While the effort began to take hold, 

FoodEx still needed another equity capital infusion to reach profitability. 

Decision to close

By the beginning of 2014, several things became clear. First, FoodEx 

had tried several different ways of developing the food hub, but it was still 

unable to achieve the scale or profitability sought by the investors. Second, 

the business founder and CEO had suffered a series of significant health 

setbacks in the previous years, contributing to a series of performance lapses, 

not all of which were known to the investors and managers at the time. This 

took a significant toll on the company and its financing status in 2012 and 

2013, from which the company could not recover. 

 Finally, FoodEx began falling behind on its loan repayments. For 18 

months, MassDevelopment Bank allowed FoodEx to go deeper into debt 

and continue operations at a loss. FoodEx had secured over $2 million in 

private investment and was in ongoing negotiations for a forbearance with 

the lender for almost a year, which would have allowed new capital to be 

used for the business 

instead of paying down 

the debt. However, these 

negotiations eventually 

broke down and the 

investors moved to allow 

the bank to liquidate the 

company. 
RUNNING A FOOD HUB 33

L E S S O N S L E A R N E D 

1. Beware of taking on significant debt financing without a strong 

business model. 

Acquiring debt makes sense when there are significant capital 

assets to purchase as security and well-proven markets and models. 

Otherwise, the debt load will likely become a significant constraint 

before the venture reaches enough profitability to re-pay the debt. 

FoodEx was unable to secure equity investments in its early years, 

partly due to the economic recession and because food hubs were a 

fairly new concept for most investors. Ultimately, FoodEx agreed 

to take on debt from a lending institution in late 2010. FoodEx 

leveraged its debt to reduce payments and raise additional capital in 

private equity, but it struggled to repay the debt within the terms of 

the original loan.

Therefore, food hubs need to be wary of taking on significant 

debt without a sound business model with a proven track record in 

the industry. If a food hub is unable to secure equity, this should be 

a sign that the timing and circumstances may not be right for the 

hub to exist in the first place. This can be difficult for food hubs to 

accept, as many are eager to get off the ground as soon as possible. 

But without the right type and amount of financing in place, food 

hubs risk falling into further debt from which they cannot recover.

2. Focus on one side of the industry to capture more of the margin.

As an online exchange platform, FoodEx was not originally 

involved in the production or direct sale of products. In order 

to bring a company to scale, food hubs need to capture a larger 

share of either the production margins, by carrying products they 

produce, or the retail margins, by selling aggregated products 

directly to consumers. FoodEx found that, regardless of economics 

or geography, this held true. There was not enough net cash-flow 

in pure distribution of local and sustainable products to support 

growth to scale. Warehousing, fuel, and trucking are expensive. To 

make distribution channels profitable, food hubs need significant 

volumes of product and demand.
34 RUNNING A FOOD HUB

3. Understand the barriers of the industry.

While many wholesale food hubs are currently experiencing 

success, some of the largest food buyers — such as universities and 

national retail chains — are still reluctant to buy through local 

distribution channels because it requires a significant change in 

behavior. These companies are currently able to place one large 

order for all of their purchasing needs through a single distributor 

on a regular basis, and they are able to do so because the distributor 

operates on a vast scale. Until local food hubs are brought to scale 

with significant volume, larger buyers will need to source from 

multiple hubs, each with its own operations and processes. This 

would require a shift in daily operations and a prioritization of local 

foods over profit margins in the short term. Therefore, food hubs 

need to understand that a robust regional food system will not be 

sustainable until the food hub industry can be brought to scale. 

4. Push the envelope, but do not lose sight of your core business.

FoodEx knew that it had lofty goals from the very beginning: 

to overhaul the region’s food system to focus on local foods. It also 

knew that it could have a profitable business with only a few trucks, 

farmers, and small restaurants committed to buying local. But it 

wanted to do more than that. FoodEx wanted to find a way to scale 

its business within a traditional industry, while adhering to a set of 

values based around local food. Even though the company did not 

succeed, it wanted to explore what was possible, and perhaps change 

peoples’ minds of what could be possible. 

However, the company kept reaching for new ideas and 

changing course without paying close enough attention to the daily 

task of ensuring a profitable, sustainable business model. Food 

hubs must not lose sight of the core business that is allowing their 

operations to continue. The core business could be marketing and 

promoting products, brokering relationships between buyers and 

sellers, or raising grant money. Whatever the case, food hubs must 

be able to plan for the future while focusing on what is currently 

keeping them in business.
RUNNING A FOOD HUB 35

■ Grasshoppers Distribution LLC

Case study by Lilian Brislen12

Location:

Louisville, KY

Business structure: 

Farmer-led LLC, then as an investor-led LLC

Business model: 

 Multiple business lines over time. Wholesale, direct market subscription service, 

custom online ordering, value-added products, institutional sales.

Number of producers served:

~70

Financing: 

 Farmer-owner investments and loans, sweat equity, State and Federal loans and 

grants, followed by Series A investments

Sales growth:

$40,000 in 2007 to almost $1 million in 2013

Established: 

May 2007

Closed: 

December 2013 

Overview

Beginnings

The main goal of Grasshoppers Distribution was to assist small 

farmers during a time of market transition for the agricultural economy 

of Kentucky. Due to a 1998 tobacco Master Settlement Agreement and 

the end of a guaranteed price program for tobacco in 2004, Kentucky 

began transitioning away from its primary crop. As a result, small farmers 

needed to find new enterprises. 

Grasshoppers Distribution sought to bridge the gap while also 

improving accessibility of fresh local products in the underserved 

communities of West Louisville. Spurred by a feasibility study for a 

food-based enterprise to serve West Louisville, Grasshoppers was started 

by a group of four farmers who had significant experience in direct 

marketing, organic horticulture, Community Supported Agriculture 

(CSA), operating a mid-sized meat-processing facility, and with integrated 

value chains. The owners were highly involved in the organization and 

3

 This case study is drawn from “Grasshoppers Distribution: Lessons Learned and Lasting Legacy” 

by Lilian Brislen, Timothy Woods, Lee Meyers, and Nathan Routt. The full report can be 

accessed at http://www2.ca.uky.edu/agcomm/pubs/SR/SR108/SR108.pdf 
36 RUNNING A FOOD HUB

operations of the business. However, as operations grew, more responsibility 

fell on Grasshoppers’ four subsequent general managers.

Challenges along the way

The original business model sought to support transitioning farmers 

while simultaneously improving fresh food security for marginalized 

community members in Louisville and tapping the growing high-end 

market for local food through restaurants and other wholesale outlets. 

Grasshoppers Distribution was to “provide an income to family farmers and 

micro-enterprise owners while experimenting with the pricing of products 

so that we can feed a food access-deprived community.” Unfortunately, 

due in no small part to the onset of the U.S. economic recession in 2008, 

Grasshoppers’ nonprofit partners for addressing food security foundered, 

and thus so too did Grasshopper’s ability to engage in those efforts. 

On the wholesale front, early roadblocks in increasing farmer 

production capacity and Grasshoppers’ own in-house logistic expertise and 

infrastructure lead to an inability to adequately supply larger wholesale 

accounts, such as schools or institutions. Despite their professed interest and 

intention to work with Grasshoppers, key wholesale buyers identified in the 

preliminary marketing plan found that Grasshoppers was unable to provide 

an advantage over working with individual growers for convenience, price, 

quality, or selection. Additionally, former employees identified a particular 

challenge in securing farmers who could 

consistently produce wholesale quantities of 

high-quality products handled and packed 

appropriately for institutions.

The difficulty faced in wholesale 

distribution led to the overhaul of the 

business model, which transformed 

Grasshoppers into a subscription program 

marketed as a Community Supported 

Agriculture (CSA) Program. Two years 

into the CSA Program, and still unable to 

achieve financial viability, a decision was 

made to switch the format to an “online 

marketplace” that allowed customers to 

build custom orders on a weekly basis in 

lieu of the pre-packaged, season-long share. 

While this change in services did expand the customer base, it also increased 

weekly “churn” (i.e., there was a lack of consistent week-to-week purchases 

by customers). Many customers opted in and out at will, thereby creating a 
RUNNING A FOOD HUB 37

lack of stability and great uncertainty. 

Additional change occurred in 2010, when a major capital shortfall led 

to Grasshoppers very nearly shutting its doors. To prevent the closure, a 

new general manager (the fourth) led a recapitalization effort through a 

Series A investor offering, which led to the reorganization of Grasshoppers’ 

ownership into an investor board. This board consisted of five voting 

members, including a representative of the original farmer-owners, the 

general manager (whose title switched to president after the investor 

offering), as well as Series A investors and non-voting members. 

In 2013, a consultant was brought on to take over management and 

restructure the enterprise. Again, Grasshoppers switched its business model 

to focus on processing and manufacturing value-added products. But while 

these efforts were met with mixed success, Grasshoppers was under such 

financial constraint that it still was unable to reach viability. While gross 

sales for Grasshoppers grew from $40,000 in 2007 to almost $1 million in 

2013, the venture never was able to generate a profit. Grasshoppers was 

finally compelled to discontinue business at the end of 2013. 

Decision to Close

By providing an all-in-one enterprise serving both buyers and producers 

of regionally produced food, Grasshoppers was envisioned by the four 

initial farmer-owners as a key first step in building a vibrant regional food 

market in the Louisville Metro area. Though Grasshoppers Distribution 

was a trailblazing leader in regional food system and food hub development 

for both Kentucky and in the United States, the enterprise faced significant 

challenges that ultimately resulted in its closure. 

Annual overhauls of its business model and the frequent change of 

top management were central challenges to developing expertise and 

efficiencies. At the start of operations, there were few ready examples of 

successful food hubs to emulate, and a general state of undercapitalization 

restricted up-front investments in adequate infrastructure and expert 

personnel. This was compounded by: the absence of a plan based on sound 

knowledge of existing supply and demand; reasonable benchmarks for 

growth and evaluative metrics; a lack of capacity (technical knowledge and 

built infrastructure), both within the organization and the regional food 

system as a whole; and an inclination to place the social mission ahead of 

the best interests of the enterprise itself. Furthermore, these interconnected 

factors served to exacerbate each other.
38 RUNNING A FOOD HUB

LESSONS LEARNED

1. Food hubs need to invest in expertise and sufficient infrastructure 

when getting started.

Finding and retaining qualified staff in key leadership roles 

was a significant challenge faced by Grasshoppers. This was 

caused primarily by a lack of adequate working capital to invest 

in such expertise and the strain placed on a series of managers 

tasked with developing the enterprise. The complex business 

model that Grasshoppers worked to develop required a high level 

of expertise in a number of specialized fields for tasks such as 

setting up protocols and logistic systems, inventory and warehouse 

management for highly perishable products, and day-to-day 

operations of a subscription delivery service. 

Rather than a learning-by-doing approach to developing the 

business, an early investment should be made in a staff person or 

consultant with intimate knowledge of fresh-produce wholesaling 

and supply-chain management. This person can help the hub 

avoid burning through capital in correcting for early missteps 

and mitigate burn-out of staff and management (a significant 

concern that is not to be taken lightly). However, it is important 

to acknowledge that acquiring expert staff or services comes with 

significant cost, and may present an early and significant fundraising 

hurdle for new enterprises.

2. Clear plans and metrics should be used to help guide development 

decisions.

While the initial values-based mission of Grasshoppers was 

clear in the abstract (to help small farmers and assist underserved 

consumers in accessing local food products), developing and 

implementing a specific plan for how the mission would be achieved 

was challenging. Frequent, almost annual, changes to the business 

in response to capital shortfalls and a changing market environment 

posed a serious obstacle to developing efficiencies and expertise 

within the enterprise. Without a thorough understanding of the 

conditions of available supply, the particular needs and scope of 
RUNNING A FOOD HUB 39

existing demand, and the infrastructure required to connect those 

two, significant portions of Grasshoppers’ time and capital were 

expended in changing up the business model to address challenges. 

These issues were compounded by the logistic complexity of 

housing several different types of business lines without the capacity 

to evaluate and achieve efficiencies within them. In essence, 

Grasshoppers never knew exactly what business they were in, or 

how to evaluate the specific activities they were engaged in, and 

thus were not able to make strategic decisions based on a unified vision.

3. The success of the enterprise needs to be part of the mission.

A consistent challenge across the life of Grasshoppers was 

how to translate the abstract, overarching goal of “helping 

small farmers” into the concrete, day-to-day reality of running 

a wholesale food-distribution enterprise. For the leadership of 

Grasshoppers, the price paid to farmers was a key mechanism for 

realizing producer development. Many producers recognized that 

the prices Grasshoppers paid, while generous, were “too high,” and 

seemed at odds with a business model dependent on tight margins. 

Additionally, Grasshoppers’ leadership adopted a policy 

of avoiding competition with farmers on any front within the 

local food market. For example, while the practice of targeting 

customers outside of the traditional “local food” market, as well as 

encouraging customers to join farm-based CSAs, may have seemed 

ideologically important, it went against the needs of the enterprise. 

Food hub leadership should identify a strategic and frugal set 

of core services that address the highest needs within the particular 

context of that region’s existing agro-food system. Recognizing the 

core competencies of the food hub allows management to focus 

efforts on innovation and efficacies while having the confidence that 

success as an enterprise, in and of itself, is the realization of the food 

hub’s mission. The greatest opportunity Grasshoppers provided for 

farmers was serving as a reliable and high-volume buyer, relative 

to direct marketing channels. Though the additional services were 

appreciated, it was Grasshoppers’ activities as a food aggregator and 

distributor that were, in the end, the greatest help to farmers. 

4. Food hubs need support from other organizations to help develop 

producers, consumer demand, and infrastructure.

While the enterprise was able to secure public and private funds 
40 RUNNING A FOOD HUB

to pay for infrastructure and operations, technical assistance was 

minimal with key partners for the suppliers and customers they 

served. In a very real sense, the staff and owners of Grasshoppers 

had to build the food-system foundations on which their business 

was expected to stand — the necessary preconditions to support 

such an enterprise were simply not there. 

As a values-based enterprise, Grasshoppers’ mission included 

a broad set of social and environmental goals that motivated 

managers and staff to go “the extra mile” in providing technical 

assistance and general support for producers. The variability of 

growers in size, marketing skills, and production expertise required 

a very extensive and costly level of support. The competing 

demands of these goals on staff and management’s time diluted the 

effort on the core business needs of the food hub.

As previous studies have shown, successful food hubs thrive 

within an integrated system of support that includes Extension, 

public health agencies, nonprofits, state services, and national 

programs.13 While there were attempts on the part of Grasshoppers 

to partner with public, private, and nonprofit organizations, 

partnerships fell well short of specific needs. Strategic and 

committed support, beyond financing, from partner agencies and 

organizations allows food hubs to focus on the business at hand, 

and supports the broader development of a vibrant regional food 

system. 

Acknowledging that not all regions have equal access to the 

same level of agricultural support services and technical assistance, 

there will inevitably be instances where a food hub must take on 

additional food-system development activities to fulfil its goals and 

mission. In this case, it is recommended that these activities be 

conceived of as a separate business line and managed accordingly. 

Time spent on these activities should be financially accounted for 

either through grants or other outside investment in such activities, 

or by direct financial subsidization by the other business lines.

13 Pirog, Rich, and C. Bregendahl. “Creating Change in the Food System: The Role 

of Regional Food Networks in Iowa.” Leopold Center for Sustainable Agriculture 

at Iowa State University. Retrieved at: http://foodsystems. msu. edu/uploads/file/

resources/creatingchange. pdf (2012). 
RUNNING A FOOD HUB 41

■ Producers & Buyers Co-op

Case study by Margaret Bau14

Location: 

Eau Claire, WI

Business structure: 

Buyer, producer, processor, and distributor co-op

Business model: 

Institutional sales

Number of producers served: 

~18

Financing: 

 Co-op member fees, institutional buyer investments, patient capital investments and 

equity from members and the local community

Sales growth: 

$180,000 on May 2011, growing to $300,000 by July 2011. 

Established: 

March 2009

Closed: 

July 2011

Overview

Beginnings

The idea for Producers & Buyers Co-op began in January 2008 during 

a value-agriculture conference for small producers in Eau Claire, WI. The 

spark there was a meeting of local farmers with representatives from River 

Country Resource Conservation and Development Council, Inc. (RC&D) 

— a nonprofit that works to conserve natural resources and improve quality 

of life in the Chippewa Valley of northwest Wisconsin — and Sacred 

Heart Hospital, a medium-sized, local hospital. The CEO of Sacred Heart 

acknowledged that institutions such as his were serving low-quality, cheap 

food that was being trucked from distant shores. The hospital wanted to 

improve food quality while supporting the local Wisconsin agriculture 

14 This case study is largely drawn from “Learning from co-op closure: Dissolution of Producers & 

Buyers Co-op holds lessons for others pursuing institutional market” in Rural Cooperatives, 

Jan./Feb. 2012. The article can be accessed at https://www.rd.usda.gov/files/RuralCoop_

JanFeb12.pdf. 
42 RUNNING A FOOD HUB

industry. In June of that year, Sacred Heart pledged 10 percent of the 

hospital’s $2 million annual food budget to buying local food. The next 

month, River Country RC&D was awarded a State grant to “pioneer” a 

local food procurement program for institutions. 

By 2009, the Producers & Buyers Co-op was formed as a multistakeholder cooperative, a unique organizational format in which multiple 

membership classes — including producers, processors, transportation 

providers, and purchasing institutions — all share in the ownership, 

operations, and governance of the enterprise. For example, one member of 

the co-op represented a small trucking firm that transported food products 

between Minnesota and Wisconsin, while another member rented out a 

local meat locker for cold storage. To fund the operation, each member 

agreed to pay a 5-percent fee to the co-op for every transaction, product 

handled, and item purchased. 

In the governance of a multi-stakeholder co-op structure, care must 

be taken to balance the diverse needs of all stakeholders, while unifying 

members under a common mission: to support the local agriculture 

economy by linking local producers and institutional food services. It was 

in this spirit that the Producers & Buyers Co-op began to coordinate the 

production, processing, and delivery of meats, fruits/vegetables, dairy, eggs, 

dry goods, and other locally produced food for Sacred Heart.

Challenges along the way

Rather than taking the time to raise equity with a capital drive, co-op 

members decided to begin operations with limited resources to start 

supplying the hospital as soon as possible. The growing season in northern 

Wisconsin is short, and neither the co-op nor Sacred Heart wanted to wait 

until the next spring to begin distribution. Without sufficient capital to 

hire a skilled team, the co-op hired one part-time operations coordinator 

who lacked significant experience coordinating food logistics. Therefore, 

board members stepped forward, striving to fill operational and managerial 

functions. But with limited staff, board members experienced significant 

“burnout.” The food hub co-op went through three part-time staff members 

within a year; board members were unable to meet increasing time demands 

for intensive governance and policy development. 

Shortly after Sacred Heart joined the co-op, St. Joseph’s Hospital in 

Chippewa Falls, WI, Sacred Heart’s sister facility, joined the co-op as 

buyer-members. Each institution publicly pledged to spend 10 percent of 

its budget on local food. That pledge was then increased to 15 percent. 

However, the board treasurer calculated that the institutions purchased 

only about 7 percent of their food through the co-op. There were several 
RUNNING A FOOD HUB 43

challenges that led to the shortfall. For one, producers had to shift their 

product and packaging to institutional standards, which can often differ 

from general consumer preferences. Without significant communication 

between producers, purchasers, and cooks, the product was on occasion 

substandard. 

Additionally, institutions were not prepared to make firm commitments 

to purchase certain products, such as local meat, which can take many 

months to several years to grow to maturity and become available for 

delivery. By the time a product was ready for purchase, the needs of the 

institution would often change and orders would be cancelled. For small 

farmers, even one cancelation can severely hurt business. As a result, trust 

broke down between producers and buyers. Buyer-members did not agree to 

sign contracts with producers, and producers and processors grew reluctant 

to do business through the co-op.

Decision to close

As staff continued to transition, and as trust between producers and 

buyers continued to break down, the cash-flow situation deteriorated. 

Shortly thereafter, the founding buyer-members announced that their 

health system owner had entered into a contract with a multinational 

corporation to manage dining services for all hospitals within the system. 

While the food hub theoretically could have continued selling to the 

institutions through the 

new dining management 

contractor, it would have 

had to incur substantially 

higher administrative 

costs. These costs made 

continuing business 

with the institutions 

economically infeasible. 

Furthermore, with Sacred 

Heart as the co-op’s largest 

buyer-member, the food 

hub lacked sufficient 

additional buyers to offset 

the loss. It never recovered. 

On July 20, 2011, members 

of the Producers & Buyers 

Co-op voted to dissolve their 

cooperative. 

Vic and Mary Price, seen here on their Wisconsin farm, 

were members of the Producers & Buyers Co-op, which 

worked as a coordinator among producers, processors, 

transporters and buyers.
44 RUNNING A FOOD HUB

L E S S O N S L E A R N E D 

1. Do not let the co-op become identified as one member’s project.

The producers and processors had hoped that the clout of the 

founding hospital would help convince other institutions, such as 

other hospitals, nursing homes, universities, and school districts, 

to join the co-op. However, initial interest from potential new 

buyer-members waned, possibly because the co-op was so closely 

identified with another institution. It is important for food hubs 

to engage multiple members from different producer, processor, 

transportation provider, and buyer classes. Having a diverse range 

of committed members can help a co-op withstand significant 

changes in personnel and membership.

2. Food hubs need to raise sufficient capital before launching 

operations.

The Producers & Buyers Co-op began operations before it 

was able to build a solid equity base. With a prospectus in hand, 

ordinary citizens and community-minded investors could have been 

approached for their financial support. Additional starting capital 

would have allowed the co-op to hire experienced, knowledgeable, 

and innovative full-time staff to manage operations and to solve 

problems. It would have also protected the co-op from unexpected 

shortfalls. If sufficient capital could not be raised within a 

reasonable time window (say 6-to-9 months), this would have been 

a powerful signal to leaders that wider community support did not 

exist for the local food system concept. But, as is often the case, 

several buyer representatives and producers were in a rush to get 

operations off the ground.

Food hubs should have the capacity to invest in infrastructure 

and expertise before beginning operations to prepare for the 

inevitable challenges that arise in any new venture. 

3. Be aware of how each stakeholder is accustomed to operating 

(ordering and pricing).

Small-scale farmers and processors are often willing to 

work based on verbal agreements, while institutional buyers are 

accustomed to placing and cancelling orders with large food service 

providers. Depending on the item, it can take anywhere from 3 
RUNNING A FOOD HUB 45

months to 2 years to raise a product to maturity. As the date for 

processing nears, the food buyer for the institution with whom the 

farmer made that verbal commitment may be long gone.

In most small business interactions, a 50-percent downpayment 

would be made when the order is placed and the other 50 percent 

paid upon delivery. Due to the commodity nature of agriculture, 

shared risk between buyer and seller rarely occurs within the food 

service industry. The initial costs of seasonal inputs are born solely 

by the farmer.

For a start-up food hub, it may be unrealistic to expect 

institutional buyers to step forward to make down payments on 

orders. But for some specialized products (for which there are not 

commodity substitutes from other supplier sources), perhaps the 

food hub could work out a downpayment arrangement. If a food 

hub could eventually develop sales agreements, farmers could invest 

with confidence for inputs and equipment, while institutions could 

have pre-season influence on what items are produced at an agreedupon price. 

4. Provide ongoing training; educate and train members at all levels.

Understanding and valuing local food requires a cultural shift if 

institutions are to make long-term buying commitments to a food 

hub, despite shifts in personnel, policies, and the economy. Quality 

foods may initially cost more than conventional food products, but 

there are numerous rewards for buying locally, which need to be 

continually identified and communicated to buyers. Producer and 

processor members also need continual education to understand 

the differences in wholesale and retail pricing. Great care should 

be taken to facilitate information sharing between producers and 

buyers. 

For example, without communication with kitchen staff, farmers 

and processors did not receive sufficient input in how to package 

product for the institutional environment. Additionally, education is 

needed for menu planners and cooks about how to prepare farmers’ 

products, such as certain cuts of meat or fish. Without a connection 

between producers and buyers, producers felt hampered by their 

inability to gain access to, and information from, key players at 

institutions. At the same time, institutions did not fully understand 

the whole value of committing to local food.
46 RUNNING A FOOD HUB

5. Use the food hub as a coordinator.

The role of the food hub as coordinator among producers, 

processors, transportation providers and buyers worked well. 

Institutional buyers have limited resources and interest in 

identifying individual producers of local food. Further, they are 

usually not aware of what constitutes safe and sustainable growing 

practices at the farm level, nor are institutions interested in setting 

up individual orders and following through on each product all the 

way through production, processing, and delivery. When done well, 

food hubs can ensure an agreed-upon level of quality, aggregate 

product, and ensure follow-through in delivery and invoicing. The 

Producers & Buyers Co-op’s financial design of managing purchases 

directly from institution to producer worked well on paper and in 

practice. This was facilitated by a certified accountant who served 

on the board of the co-op and set up its spreadsheets. Sound 

financial planning in this regard helped ensure that all producers 

and processors were paid in full in a timely manner, despite the coop’s financial troubles and dissolution.

6. Be honest and strategic.

Institutions need to understand that local food will cost more 

and requires a real effort and time commitment. Therefore, 

institutional buyers need to realistically assess their willingness 

to pay for certain products and standards and determine what 

will yield the greatest “bang for the buck” for the institution. 

Understanding and being realistic about the motivations for 

purchasing local foods is also important for transparency with local 

producers. For example, is there an incentive for more nutritious 

and healthy foods within the community? Better traceability? Public 

relations? The hub and its producers must understand the needs of 

the buyers in order to make strategic business decisions.

Farmers also need to understand that wholesale food hubs do 

not necessarily make sense for all farmers. If a producer is not 

already at scale, it will be difficult to meet the volume demands of 

institutional buyers. Farmers should make sure they are capable of 

wholesale production, which requires different skills, infrastructure, 

and capacity from direct-to-consumer sales. And while institutions 

must determine what products are most strategic for their business, 

so must producers be able to determine what products will yield the 

greatest return for their investment.
RUNNING A FOOD HUB 47

■ Pilot Mountain Pride, LLC

Case study by James Matson

Location: 

Pilot Mountain, NC 

Business structure: 

not-for-profit LLC

Business model: 

Wholesale distribution, retail space, and distribution to CSAs

Number of producers served: 

~60

Financing: 

Public and private grants

Sales growth: 

$300,000 in 2010 to less than $125,000 in 2013 

Established: 

April 23, 2010

Closed: 

January 2015

Overview

Beginnings

Pilot Mountain Pride was established to provide farmers within 50 miles 

of Winston-Salem, NC, with access to retail, service and institutional food 

markets. It was funded through the Surry County Economic Development 

Foundation. Pilot Mountain Pride was organized as a producer-driven, 

not-for-profit LLC in 2010, primarily focused on the aggregation, packing, 

storing and wholesale distribution of fruits and vegetables to restaurants, 

colleges and grocery stores. 

Under the supervision of the foundation, Pilot Mountain was led by a 

board of directors, with a staff of one salaried, full-time employee, one parttime worker, and several additional workers and volunteers who assisted 

during peak season with packing and moving product through the food hub. 

Funds for Pilot Mountain Pride’s start-up were provided by Surry 

County and numerous other business partners, as well as by local, State and 

Federal government agencies that provided additional grants. In its first 

year, Pilot Mountain expected to have $30,000 to $50,000 in sales. However, 

gross sales for 2010 soared to almost $300,000. To meet this unexpected 

demand, Pilot Mountain quickly scrambled to upgrade its infrastructure and 
48 RUNNING A FOOD HUB

purchased additional equipment for the large volume of produce. 

The food hub consisted of a 12,000-square-foot warehouse, including 

6,000 square feet of forced-air cooler space, and two, 20x12-foot standing 

coolers. To handle smaller scale local deliveries to customers, the facility 

owned a 27-foot refrigerated box truck, but it also worked with area trucking 

companies to handle larger loads.

Sorting bell peppers at the now-closed Pilot Mountain Pride food hub in North Carolina. Expanding 

the operation to include a retail business, for which its staff had little experience, contributed to the 

closure of the hub.
RUNNING A FOOD HUB 49

Challenges along the way

The hub’s customer base grew to include three grocery store chains, 

two colleges, several restaurants and an e-mail list of 1,500 customers who 

received weekly information about the food hub’s product availability. The 

food hub also regularly supplied two CSAs and worked with another eight 

or nine CSAs on a more limited basis.

Even though Pilot Mountain Pride had a wide and varied customer base, 

sales dropped to $250,000 in 2012 as the food hub struggled to keep up with 

demand. 

Despite the slight drop in sales, the hub expanded by adding a retail 

space in addition to distribution to customers. Unfortunately, the retail 

business lasted for less than a year, opening in June 2013 and closing in 

February 2014. Bad weather contributed to the closure of the retail outlet, 

with North Carolina experiencing heavy rains early in the growing season 

and temperatures that were unseasonably cold. Crop yield was poor that 

year, and there was not enough produce coming in to keep the retail space 

stocked. 

Another reason it failed was poor preparation for operating a retail 

business, which was an entirely new business area for Pilot Mountain Pride’s 

leadership. As a result, sales declined to $125,000 in 2013 and the store 

created additional expenses that could not be covered. Other costs also 

mounted, leading to a continual decrease in sales and revenue. 

In the original business model, Pilot Mountain attempted to maximize 

farmer profits by returning 80 percent of revenue to the producers, leaving 

only 20 percent to pay for labor and other operational costs. Unexpected 

costs, however, made keeping operations within those allocation margins 

very difficult. Packaging costs alone were substantially higher than expected, 

as much as 250 percent above projections, according to some sources. 

Decision to close

Cost increases, combined with a decrease in sales, ultimately led Pilot 

Mountain Pride to close its doors. The reliance on grant money and the lack 

of cash reserves by the second and third years of operation did not allow it to 

offset the sales slump nor the cost of operating a retail space. 

The hub had difficulty with some grant funders, and thus did not receive 

some money it had expected. The small portion of revenue retained by 

the hub to cover its operations was ultimately not enough to sustain the 

business. 

Pilot Mountain Pride decided to close in January 2015, before the start 

of that year’s season, to minimize losses and avoid leaving producers without 

a distributor midway through the season.
50 RUNNING A FOOD HUB

LESSONS LEARNED

1. Reliable income and cash reserves are necessary for growth and 

dealing with unexpected setbacks.

While first year sales exceeded expectations and the majority of 

startup funding was provided by grants, Pilot Mountain Pride faced 

problems of inadequate cash reserves and planning for scale. After 

a successful first year, increased costs were incurred for additional 

infrastructure and the retail store front. When sales dropped, and 

lacking financial reserves, the added costs could not be met. 

Money that is “promised” through grants or other sources may 

not always come through, so more reliable sources of income are 

needed. The 20-percent share taken by Pilot Mountain Pride to 

cover operating expenses had to also pay for packaging and freight, 

a cost which the farmers probably should have shared in. 

2. The food hub must be prepared for day-to-day operations and use a 

sustainable business model.

Pilot Mountain Pride was established by a county foundation, 

not by farmers themselves, nor by an organization familiar with the 

task of organizing the aggregation and distribution of produce. This 

left the food hub ultimately unprepared for the inevitable problems 

and challenges associated with production, growth, and expenses. 

A business model with a larger percentage of sales going to the 

hub, or other ways to offset shipping and packaging costs, may be 

needed for business sustainability and growth. In addition, there 

must be clear procedures, responsibilities and guidelines established 

at the beginning of operation for both the producers and the hub 

so that all parties are aware of their roles and obligations to the 

project.

3. Grant money is not always sufficient, or reliable, to guarantee 

sustainability. 

Pilot Mountain Pride depended heavily on grants to meet 

startup costs. While buoyed by better-than-expected first year 

sales, the grant money base was not enough to offset the steep sales 

declines the next year or to provide for the move into the retail 
RUNNING A FOOD HUB 51

market. Problems can arise when anticipated grants are not received 

and thus should not be relied on. Food hubs need to be prepared for 

an unexpected drop in grant funding.

4. Greater product variety allows for more avenues of income 

throughout the year. 

The decrease in sales due to heavy rain and cold in 2013, leading 

to poor crop yields, could have been offset by more diversification 

in product lines, offering a wider range of items for different 

seasons. Therefore, if one area was impacted, the damage could be 

partially made up during the rest of the year. Offering value-added 

products and having the capacity to do limited processing could 

increase the range of products and extend the growing season.

One of the factors that contributed to the demise of Pilot Mountain Pride was an 

over-reliance on grants to finance its start-up costs. 
52 RUNNING A FOOD HUB

PART III

Common Themes—Lessons Learned

Create a Business Plan

There is no mission without the margin. Before getting started, 

food hubs need a strong business plan and financial model.

All food hubs start with a social mission, such as 

strengthening local and regional food systems, supporting 

small- and mid-size farmers, or increasing public access to 

fresh, local foods. These social missions are not only valuable, 

but integral to the foundation of the food hubs and should be 

kept central to its work. While the social mission is important, 

it is not enough to run a food hub.

Food hubs require a complicated, interconnected network 

of production, processing, warehousing, transportation, 

distribution, customer service, logistics, and financial 

management. Without a business plan to determine how each 

of these processes will be developed, operated, and managed, 

food hubs will be unable to articulate their core business and 

prepare to meet challenges ahead. The food hub will run the 

risk of failure even before opening its doors if a solid business 

plan is not established. 

Furthermore, a strong business plan and financial model 

is critical for garnering equity and investors. A food hub must 

be able to describe its core functions and how it will achieve 

financial viability. This includes an understanding of its general 

purpose, the needs of the market, and how the food hub has 

a competitive advantage in meeting that need. It also includes 

a detailed calculation of how it will generate sustainable 

revenue, manage operations, and mitigate risk. Without 

these components, food hubs will be unable to raise necessary 

start-up capital. Of the six food hub case studies examined in 

this report, five of the hubs (Growers Collaborative, FoodEx, 

Grasshoppers, Pilot Mountain Pride and Arganica) failed, at 
RUNNING A FOOD HUB 53

least in part, due to unsuccessful business plans. 

Growers Collaborative, which operated under the nonprofit 

Community Alliance with Family Farmers (CAFF), incorporated 

as an LLC to see if it could succeed as a for-profit business model. 

However, without a sound plan to reach financial viability, private 

investors were skeptical that the enterprise could be profitable, and 

Growers Collaborative was unable to secure private investments. 

While this should have been a sign of Growers Collaborative’s 

potential failure, the food hub continued to operate without ever 

returning a profit, largely because increased costs were neither 

planned, nor accounted, for; nor did the hub have a plan for 

reaching the optimum scale and generating revenue in the long 

term. 

FoodEx was unable to secure startup equity investments, and 

instead agreed to take on significant debt from a lending institution. 

However, without a secure financial plan for re-paying the debt, 

FoodEx could not meet the terms of the loan. Inevitably, its debt 

load significantly increased. Again, the fact that FoodEx was unable 

to secure equity should have been a sign of the need to rethink its 

business, or perhaps wait until it had developed a model with a 

proven track record in the industry to support its equity search. 

Grasshoppers, which had a clear social mission, struggled with 

developing and implementing a specific plan for how the mission 

would balance with achieving financial viability and future growth. 

While the social mission included offering farmers’ high prices and 

extra technical service, Grasshoppers did not plan for how those 

activities would support the bottom line of the business. Instead, 

Grasshoppers spent most of its time and capital on frequently 

changing its business model as challenges arose. As a result, the 

food hub’s finances suffered. Without the necessary revenue to 

sustain its business, its social mission suffered as well. 

Strong business plans are not only important for launching and 

operating a business; they are also crucial for guiding decisions 

when inevitable changes or shortfalls occur. Pilot Mountain Pride 

had an original business model that allowed farmers to keep a 

significant portion of the food hub’s sales revenue. While this plan 

was viable in the beginning, it did not account for unexpected costs 

or increases in scale of operations. When packaging costs alone 

were as much as 250 percent higher than predicted, the food hub 
54 RUNNING A FOOD HUB

did not know how to account for the costs without either backing 

out of its initial agreement with its farmers or operating at a loss. 

A business model that planned for long-term sustainability and 

growth may have included ways to offset such cost increases. In 

addition, it could have included specific procedures, guidelines, and 

terms that allow for flexibility when such changes occur. 

Business plans are important for ensuring that a food hub stays 

on the course of fulfilling its mission. Arganica expanded into new 

business operations, such as coupon campaigns and new packaging, 

which were neither planned nor fully accounted for in the food 

hub’s original plan. Furthermore, the costs of these new initiatives 

were underestimated while revenue projections were overestimated. 

With thin profit margins, these small miscalculations resulted 

in significant losses. A strong plan can help guide a food hub in 

focusing on the activities that will support its growth.

Therefore, whether a food hub is searching for start-up capital, 

planning operations, determining how to address challenges, or 

seeking to expand, a sound business plan and financial model is 

vital. 

Secure a Strong Financial Foundation

Make sure to have the right amount and the right kind of capital 

to support the business, allow for growth, and account for 

inevitable challenges or shortfalls. 

The level of capital and infrastructure investment that a food 

hub requires will depend on its particular business model and 

plan. It also may change over time according to changes in the 

market or scale of the business. Factors that may help determine 

a food hub’s capital and infrastructure requirements include the 
RUNNING A FOOD HUB 55

food hub’s core activities and services, existing or planned sales 

and costs, leasing versus owning opportunities, and the availability 

of existing infrastructure through partnerships. From the six case 

studies, five food hubs (Growers Collaborative, Producers & 

Buyers Co-op, Grasshoppers, Pilot Mountain Pride, and FoodEx) 

lacked a solid financial foundation.

Growers Collaborative’s insufficient infrastructure investments 

directly impacted the food hub’s ability to keep up with its 

fixed operational costs. Growers Collaborative had substandard 

facilities and equipment, and its trucks broke down frequently. 

The lack of sufficient resources meant that the business had to 

continuously incur costs of maintenance and repairs, spending 

resources that could have otherwise been used for daily 

operations or to expand the business. It also meant that Growers 

Collaborative did not have the tools necessary to accommodate 

the needs of institutional buyers, which expected homogenous, 

consistent, and reliable product year-round. As a result, costs 

remained high while revenue was lost. 

Producers & Buyers Co-op began operations before having 

sufficient infrastructure required for producers to shift their 

product and packaging to institutional standards. Without the 

time and equipment to do so, the product occasionally did not 

meet the standards of institutional buyers, causing them to be 

increasingly reluctant to purchase through the co-op. 

Grasshoppers increased its supply of products even when it 

did not have the cold storage and other equipment necessary 

to effectively aggregate products from multiple producers. 

As a result, wholesale buyers found that Grasshoppers could 

not provide an advantage over working with individual 

growers. Instead of investing in the necessary infrastructure, 

Grasshoppers overhauled its business model to focus on a 

Community Supported Agriculture (CSA) subscription program, 

which required an entirely different set of capital investment, 

infrastructure, and staff that Grasshoppers was unable to provide. 

Pilot Mountain Pride shows numerous examples of the lack 

of financial security needed for a food hub. Food hubs should 

not only consider capital required for current needs, but also 

capital required for planned expansion and unplanned shortfalls. 

For example, Pilot Mountain Pride expected $30,000 to $50,000 
56 RUNNING A FOOD HUB

in sales for its first year, but instead sales soared to almost 

$300,000. It consequently had to quickly upgrade infrastructure 

to handle the larger volume of produce. It purchased warehouse 

space, coolers, and a refrigerated truck and worked with local 

transportation companies to handle increased truck deliveries. 

Since this increase in infrastructure was not planned, Pilot 

Mountain had difficulty meeting the new level of demand, and 

sales began to slightly drop. This sales drop was later exacerbated 

by a seasonal shortfall in crop production. Unfortunately, as sales 

continued to drop, Pilot Mountain Pride did not have enough 

cash reserves to continue to cover the increased infrastructure 

costs and absorb the impact of the slump. Appropriate capital 

reserves would have allowed for the food hub to account for these 

unexpected changes. 

Compounding its lack of foundational financial provisions, 

Pilot Mountain Pride invested significant resources in a retail 

space despite a recent drop in sales and a lack of experience in 

retail operations. In addition to being unprepared for the new 

venture, unseasonably cold weather led to a low crop yield and 

sales continued to decline. Rather than supporting expansion 

of the business, the additional infrastructure created expenses 

which Pilot Mountain Pride was not able to cover. The same was 

found to be true for Arganica, which was able to secure significant 

financial investment but ultimately directed these resources 

toward unnecessary infrastructure, hiring more staff than was 

necessary and offering a fully recyclable delivery system by 

constructing locally handmade wooden crates to deliver products. 

Having more capital than is required for the business can lead to 

misuse of funds that can drive up costs and impede growth. 

The type of capital required is just as important as the 

amount; food hubs must determine to what extent equity, debt, or 

grants are suited for their business model. Pilot Mountain Pride 

depended heavily on grants for startup costs and continued to rely 

on grant funding to sustain its operations. Unfortunately, Pilot 

Mountain Pride faced problems with its grant providers that led to 

funds not being delivered and requirements for funding not being 

met. When this funding failed to come through, the food hub did 

not have enough revenue of its own to maintain its business. Since 

money that is anticipated through outside grants cannot always 
RUNNING A FOOD HUB 57

be relied upon, Pilot Mountain Pride could have been better 

prepared by seeking investment capital from additional sources to 

meet its needs. 

FoodEx relied heavily on debt financing to launch operations, 

and it was able to leverage the debt to raise additional capital in 

private equity. However, due to a series of shortfalls, the food hub 

struggled to repay the debt within the terms of the original loan. 

When it began falling behind on its loan repayments, FoodEx’s 

lending institution allowed the food hub to go deeper into debt 

and continue operations at a loss. This ultimately led FoodEx’s 

investors to allow the bank to liquidate the company. Without 

significant capital assets to purchase as security and well-proven 

models, food hubs should be cautious of relying on debt financing. 

Start with Expert Staff

Invest in a professional staff with appropriate skills in all aspects 

of the food hub, from food production, to logistics and transportation, 

to business management.

Food hubs coordinate a wide range of activities, including 

food production, processing, warehousing, distribution, customer 

service, institutional purchasing, and marketing. All of these 

services require a unique set of knowledge and expertise. Faced 

with limited budget, however, many food hubs tend to invest less 

time and capital than needed for hiring, developing, and retaining 

a professional staff with the appropriate skills. Since hiring a full 

staff at the outset of operations may be difficult, food hubs should 

consider both the human resources that are required for daily 

operations and the duties that can be fulfilled by board members 

or advisors. Producers & Buyers Co-op provides an example of 

placing too little importance on hiring expert staff. 

In the beginning of its operations, the Producers & Buyers 
58 RUNNING A FOOD HUB

Co-op did not have sufficient capital to hire enough staff, 

only hiring one part-time operations coordinator with limited 

experience and knowledge of food logistics. As a result, the co-op 

went through three managers during 2 years of operation, and 

spent an inordinate amount of time dealing with personnel issues 

as inexperienced managers floundered. To fill the gap, board 

members spent much of their time assisting with operational 

duties instead of focusing on the financial management and food 

hub planning. An experienced, full-time professional staff would 

have been able to manage the food hub, respond to operational 

challenges, and allow the board members to perform their 

governing duties. 

Additionally, the board and staff of the Producers & Buyers 

Co-op needed farmer members with the experience to meet 

wholesale expectations. In time, the co-op could have educated 

retail and smaller scale farmers about the expectations of 

wholesale operations. However, the co-op needed a core of 

reliable wholesale suppliers to build initial trust with their 

institutional buyers. Meanwhile, institutional buyers require 

education about benefits of local food, including how to shift 

procurement practices to enable a successful commitment to local 

food. This includes planning seasonal menus and preparing new 

products from farmers. As 

a cooperative that relies 

heavily on the knowledge 

and expertise of its 

members, the Producers 

& Buyers Co-op would 

have done well to 

invest in professional 

development. 

As a second example, 

Grasshoppers lacked 

the capital necessary to 

develop skills required 

for a food hub enterprise. 

Unlike Producers 

& Buyers Co-op, 

Grasshoppers was run 
RUNNING A FOOD HUB 59

by farmers who had a deep knowledge of the food production 

process, but it lacked staff with experience in large-scale business 

logistics, warehouse management, or supply chain coordination. In 

a very short time, the food hub cycled through several managers. 

This frequent staff turnover disrupted day-to-day operations, 

drained time and financial resources of the food hub’s board and 

investors, and prevented the food hub from building institutional 

knowledge. By investing to build the professional capacity of 

its staff and hiring a skilled manager, Grasshoppers could have 

mitigated these risks. 

If a food hub finds that it does not have the required expertise 

for a specific role, the hub may need to rely on other companies 

or organizations to fill the gap. For example, while Growers 

Collaborative staff had some farming experience and strong 

relationships with local farmers, no one on the staff had tangible 

produce distribution experience. Direct marketing is significantly 

different from wholesale or institutional distribution, which 

requires expertise in logistics, warehousing, transportation, and 

wholesale processing and packaging standards. Since Growers 

Collaborative did not have these skills, it quickly learned that 

it either had to invest in the capital required to hire new staff 

or reach out to other companies that could fulfill this role. By 

choosing the latter, Growers Collaborative was able to focus on 

leveraging the expertise of its own staff rather than straining them 

to take on multiple roles for which they were unprepared. 

Determining which roles are required for daily operations, 

which roles can best be served by board members, and which 

roles can be fulfilled through outside partnerships will largely 

depend on the specific needs and capacities of each food hub. 

At a minimum, food hubs need either a producer on staff or 

a coordinator who has relationships with the local farming 

community. For wholesale and institutional marketing, food 

hubs must have a professional with wholesale expertise as well 

as experience in logistics and distribution. A board member 

or advisor can often manage the food hub’s finances and make 

strategic decisions about increasing the scale of operations, but 

the hub’s daily staff must also understand how to track metrics and 

financial information. 
60 RUNNING A FOOD HUB

Focus on Your Strengths 

and Find Partners for the Rest

Food hubs must understand their core competencies and roles in the food 

system, whether it’s to serve as a facilitator, broker, coordinator, logistics 

manager, processor, or distributor. Instead of trying to develop expertise 

in all areas, food hubs should identify and build the right partnerships to 

meet their needs. 

A crucial element for food hub success is identifying the needs 

of the communities while determining how the hub can directly 

address those needs through its unique skills and resources. One 

of the common pitfalls of food hubs is trying to fill all of the 

gaps in the local and regional food system. This is a rather large 

and extremely challenging, if not impossible, task, especially for 

an enterprise that is just starting out. Food hubs often operate 

within very thin profit margins; taking on too many extraneous 

projects can quickly drain resources. Heed the lessons learned 

from the mistakes of Pilot Mountain Pride, FoodEx, Arganica, 

Grasshoppers and Growers Collaborative.

Initially, Pilot Mountain Pride experienced initial success, 

with gross sales in its first year that were $250,000 more than 

expected. However, in an attempt to meet the strong demand, 

Pilot Mountain expanded to include several grocery store chains, 

schools, restaurants, and CSAs. It then decided to open a retail 

space, in addition to its distribution activities, even though the 

food hub’s leadership did not have any background or experience 

in retail. Knowing the food hub staff and management strengths 

and weaknesses can help the business thrive. Pursuing goals 

without adequate expertise or partners can dismantle a business. 

Furthermore, FoodEx changed its business model several times 

over the course of 4 years. What started out as a web platform 

exchange soon expanded to include a distribution channel with 

warehouse space, cold storage, and several refrigerated trucks 

to supply local produce to restaurant buyers. When FoodEx 

struggled to fill its orders, it switched to specialty products 

for grocery retailers. When that failed to work, it decided to 
RUNNING A FOOD HUB 61

change its business again to pursue institutional sales. With each 

passing challenge, FoodEx reached for an entirely new course of 

action, rather than focusing on developing the most profitable, 

sustainable business model given its own set of strengths and 

resources. 

Similarly, Arganica expanded too quickly beyond the scope of 

its own capacities. Arganica operated as an online food hub that 

was known for its supply of select, high-quality local products. Its 

founder had a strong relationship with a wide variety of suppliers 

just outside of Washington, DC, and these customers valued 

Arganica for providing access to products that they would not 

normally find in their supermarket. This was Arganica’s core 

business, as it represented the unique value and service that it 

offered customers. Unfortunately, rather than focusing strictly 

on this business, Arganica quickly increased its aggregation and 

distribution services, expanded into home delivery services in 

multiple cities, launched a recyclable delivery system, and offered 

a large-scale coupon campaign, activities for which Arganica did 

not have the resources, skills, nor capacity to do well. 

Fortunately, Arganica was able to secure a partnership with 

another company that had the unique capacity to handle product 

aggregation, distribution and delivery. This partnership allowed 

Arganica to continue to focus on what it was good at all along: 

building relationships with local producers and merchandising 

quality products while leveraging the partner’s resources to 

compensate for its own limitations. 

When the right partners, resources, and support services 

are not in place, food hubs put themselves at risk by taking on 

too many roles at once. For example, when Grasshoppers was 

first established, it struggled to find partners who could provide 

training, marketing, and technical support for its producers. 

Grasshoppers therefore tried to provide these services itself, 

but with limited capacity and expertise. This attempt placed a 

significant financial and time constraint on the food hub’s staff 

and management, who then struggled to focus on the hub’s core 

business. Indeed, the food hub spent much of its resources on 

changing its business model to address challenges as they arose, 

rather than evaluating and focusing on the needs that it was 
62 RUNNING A FOOD HUB

particularly equipped to handle. 

Food hubs need to have a firm understanding of their own 

capacities and limitations as well as those of their partners. If the 

right supports are not in place, food hubs must determine if they 

can reasonably afford to develop the supports on their own or if 

the food hub can successfully operate without them. Otherwise, 

food hubs may need to reconsider whether the timing is right to 

launch the enterprise. 

Sometimes a food hub may find that its partners are better 

suited to fulfilling the roles of the food hub than the hub itself. 

For example, when Community Alliance with Family Farmers 

(CAFF) established Growers Collaborative as a food hub to 

aggregate, market and distribute local produce for California 

institutions, it quickly found that many food hubs already existed 

in the state. CAFF also discovered that many California farmers 

already had strong relationships with regional businesses and 

distributors. Therefore, it did not make sense for CAFF to own 

and operate a food hub of its own when those resources already 

existed. However, as a well-known and trusted organization 

among California farmers, CAFF realized that it still had a 

unique role to play in the local food system. Instead of managing 

a distribution system on its own, CAFF now partners with 

institutions, distributors, and farmers to increase sales and 

purchasing of local food. 

Know Your Customers and Markets

Food hubs must understand the market and customers that they serve in 

order to tailor their business to meet their needs. 

While the demand for local food has grown over the years, 

it cannot be taken for granted. Commitment to purchasing 

local foods can often require extensive educational, cultural, or 

operational adjustments for institutional buyers and individual 
RUNNING A FOOD HUB 63

customers. If buyers are not accustomed to sourcing local food, 

they are necessarily taking a risk by shifting their purchasing 

strategies, especially since quality local foods can often cost more 

than conventional foods. Food hubs therefore need to understand 

the specific needs and habits of their customers in order to 

determine how to satisfy and increase demand. 

For example, when the Producers & Buyers Co-op established 

its food hub to provide local produce to nearby hospitals, it did 

not necessarily understand the extent to which institutional 

buyers are accustomed to managing orders with large food service 

providers. Cancelled orders are ordinary for institutional buyers 

even when cancellations have a significant financial impact on 

local producers. Knowing this information upfront would have 

enabled the food hub to consider alternatives for satisfying the 

fluctuating needs of the institution while also ensuring a fair 

return for the farmer. 

Furthermore, the institutional buyer-members of the 

Producers & Buyers Co-op did not fully understand the whole 

value of committing to local food. Without this knowledge, 

the Producers & Buyers Co-op struggled to communicate why 

purchasing local food required an increased financial and time 

commitment. Understanding the buyers’ background, experience 

with, and desire for purchasing local food can help inform the 

food hub’s business decisions. 

For example, if a buyer is mainly concerned about traceability, 

the food hub can focus on this as a core function of the 

business. On the other hand, if the buyer is mostly concerned 

with having access to healthier foods, then the food hub can 

focus on communicating the nutritional value of its products. 

While purchasing local food may require institutional buyers to 

shift some of their expectations and practices, food hubs need 

to determine what is most important and desirable to their 

customers, such as packaging and pre-processing standards, in 

order to make the shift as simple as possible. 

When FoodEx pursued institutional sales, it soon discovered 

several barriers in the market. For example, large institutions, 

such as universities, were accustomed to placing one large order 

for all of their purchasing needs through a single distributor. Since 

the food hub was unable to enter the market at a significantly 
64 RUNNING A FOOD HUB

large scale, it was unable to satisfy the institution’s entire order. 

Institutional buyers would have had to purchase through multiple 

hubs or companies to source local food, which required time and 

financial resources that the institution could not afford. 

Even though Grasshoppers paid farmers a competitive price, 

the hub did not spend enough time understanding how it would 

differentiate and provide additional value to its suppliers and 

customers. Farmers were willing to accept a lower price for 

working directly with restaurants, and restaurants did not find 

a real advantage to working with Grasshoppers over buying 

directly from farmers. Understanding the needs of customers 

and suppliers can aid in identifying and articulating the business 

practices necessary to have a competitive advantage. 

Knowing community demand can help sustain business. 

Growers Collaborative realized that distributors in California 

already had the desire and capacity to work with farms directly. 

The prevalence of local food and specialty crop farmers in the 

State meant that it made greater business sense for distributors 

to work with farmers rather than through an aggregator. Once 

Growers Collaborative assessed the current market for local food, 

it determined that the market did not have a need for another 

aggregator and distributor, although it did need an organization 

to foster the connections between producers and buyers. Once 

Growers Collaborative was able to understand the market, it 

adjusted business practices to meet the market’s needs. 

In Arganica’s case, a variety of external factors that influenced 

customer demand were not taken into account in the business 

model. For example, Arganica customers tended to change their 

shopping patterns depending on the season. In the winter months, 

frozen foods, meats, and value-added products were in higher 

demand, while in the summer, customers stopped making regular 

grocery purchases and 

preferred to shop outside 

at farmers markets. This 

seasonality of consumer 

shopping patterns could 

have helped to determine 

procurement, marketing, 

and operation strategies. 
RUNNING A FOOD HUB 65

Therefore, before launching, food hubs should do a thorough 

assessment of the current market landscape as well as the needs 

and habits of its potential customers. 

Understand the Food Production Process

There is no supply without producers! Farmers must be a priority 

and included in every step of the process. 

To survive, food hubs need a consistent, reliable supply 

of quality products. This requires a firm understanding of 

crops, growing seasons, and the unique characteristics of the 

farming process, which involve an immense amount of time and 

investment. It also requires building positive relationships with 

producers; food hubs must be able to ensure good prices for 

producers and find ways to build their capacity to grow and be 

successful. All six case studies show a lack of understanding of the 

food production process and each illustrates why emphasis needs 

to be placed here. 

As a cooperative, the Producers & Buyers Co-op was able to 

ensure that the needs of small-scale farmers were provided for in 

its practices. However, it struggled to ensure that producers were 

not harmed when institutional buyers cancelled their orders at 

the last minute. Producers invested significant time and financial 

resources in growing their crops to maturity and were accustomed 

to using verbal agreements to direct their growing plans. For 

small farmers with limited supply, sales, and customers, even 

one cancelation could severely hurt their business. Therefore, 

there is potentially significant risk for farmers entering food hub 

supply chains. Food hubs need to understand and appropriately 

communicate these risks to producers. Wholesale food hubs may 

not necessarily make sense for all farmers, especially those with 

extremely limited volume, variety, and capacity. 

On the other hand, in order for producers and processors to 
66 RUNNING A FOOD HUB

have a chance of succeeding in the wholesale market, they need 

training, education, and technical assistance. For Producers & 

Buyers, farmers and processors did not receive sufficient training 

in how to package their products for the institutions they were 

serving, which meant that their supply occasionally fell short of 

institutional standards, and sales suffered as a result. Investing in 

the professionalism and expertise of the food hub’s producers can 

help to ensure quality supply and continued buy-in from both 

producers and purchasers. 

In the case of Grasshoppers, the hub’s farmers were 

transitioning from growing tobacco to growing produce, requiring 

significant training and time to make the switch. It was incorrectly 

assumed that producers could seamlessly make this transition with 

little to no technical assistance. Struggles around product quality, 

quantity, and reliability from producers were all a result of the 

inadequate transition support, undermining Grasshoppers’ early 

attempts at wholesale marketing. 

Understanding the inherent risk involved in farming, such as 

poor crop yields due to unforeseen weather patterns, means that 

food hubs need to adopt diverse sourcing practices to increase 

their resilience. For example, Pilot Mountain Pride experienced 

a significant crop shortfall due to heavy rain. Trucks were left 

with empty space and sales declined as a result. This shortage 

could have been offset by including a wider, more diverse range 

of products throughout the year. This includes value-added 

products that could be marketed year-round, or supplemental 

products procured from just outside the bounds of what the food 

hub normally considers “local.” Diversifying product offerings can 

help to prevent short interruptions in supply from hindering the 

business for the rest of the year. 

Pilot Mountain Pride also struggled to balance the needs of its 

farmers with a sustainable business model. In its original model, 

the food hub promised to give farmers 80 percent of the revenue 

while keeping 20 percent for labor and operations. However, 

unexpected costs made this margin unsustainable. Many of Pilot 

Mountain Pride’s farmers said they would have been willing to 

accept a slightly smaller return to save the business. Having a 

trusting, positive relationship and open communication with 

farmers can help to determine a fair producer return that can also 
RUNNING A FOOD HUB 67

meet the business’ needs. 

Growers Collaborative determined that farmer-led models 

for food hubs may be more successful than other models. Once 

farmers understand the needs of buyers, they are poised to have 

the most nuanced appreciation of the investments required 

to scale their operations and tailor their products to meet the 

demand. Farmers may have existing infrastructure and resources 

to share in the costs and responsibilities of distribution. They 

are also more likely to already have relationships with the larger 

growing community, which can be leveraged to grow the food 

hub’s business and supply. Relying on the knowledge, expertise, 

and experience of farmers helps the food hub ensure mutual 

benefit for both the customers and suppliers. 

While Arganica had a positive relationship with its suppliers, 

it did not have a deep understanding of the variability and 

seasonality inherent in the food production process. Without 

this knowledge, and without a producer on staff, Arganica had 

difficulty predicting how much of each product to purchase and 

expect, which often left the food hub with either excess or lack of 

product. 

FoodEx suffered from several supply issues. FoodEx 

operated as an online exchange platform for producers to list 

their inventory and for buyers to browse and place orders from 

multiple farms at once. However, FoodEx did not set up the 

capability to track whether a farmer was going to be unable to 

supply certain crops by the time a delivery was due, which resulted 

in shortfalls. As FoodEx shifted its focus to distributing valueadded products for grocery retailers, it struggled to find enough 

regional producers who were willing to participate. Finally, when 

FoodEx began pursuing institutional sales through universities, it 

did not account for the difference between school schedules and 

New England growing seasons, which meant that trucks were not 

full for significant portions of the year. In all cases, FoodEx was 

unable to provide a significant volume of product. All of these 

challenges required a deeper understanding of the local farming 

community, its capabilities, and its growing processes and seasons. 
68 RUNNING A FOOD HUB

Variable Descriptions for Logistic Regression Model

Variables Categories/Description

Legal Status Nonprofit

Private

Cooperative

Business Model Direct-to-Consumer

Wholesale

Hybrid

Regional Location Midwest

Northeast

South

West

Consumer Demand Farmers markets by State per 100,000 

population

Institutional Demand Percent of school district budget spent 

on local food, excluding fluid milk

Hub Competition Distance to nearest food hub in miles

Production Capacity Acres of specialty crops by State per 

100,000 population

Results of the Logistic Regression Model (Active versus Inactive Food 

Hubs)

Variables Coefficient P value

Midwest Region -0.0109926 0.985

West Region -1.193392 0.205

South Region 0.7138831 0.238

Cooperative legal structure -0.9416512 0.094

Nonprofit legal structure -0.5646352 0.186

Business/Institution Model -0.0249834 0.956

Direct-to-Consumer Model -0.0648244 0.881

Institutional Demand -20.43412 0.005

Consumer Demand 0.1286388 0.144

Hub Competition -0.0061639 0.423

Production Capacity 0.00025 0.002

_cons -2.136971 0.006

Appendix
America’s Co-op Connection

Rural Cooperatives magazine is now in its 84th year 

of helping to increase understanding and use of the 

cooperative, producer- and user-owned form of business. 

 The magazine’s primary target audience includes the 

leaders of the nation’s farm, farm credit and electric coops, ag educators, rural development specialists, rural 

Congressional representatives, Cooperative Extension 

staff and other professionals who work with cooperatives.

 For a free electronic subscription, visit:

http://www.rd.usda.gov/publications/rural-cooperatives-magazine.

More than 10 years of back issues 

are online at that website. 

 For a free hard copy 

subscription, email your address 

to: coopinfo@wdc.usda.gov. 
Ne w Te c h N i c a l Re p o RT

A 

Se R i e S

Running

FOOD HUB

Running a Food Hub: Lessons Learned From the Field, Vol. 1, SR 77

Running a Food Hub: A Business Operations Guide, Vol. 2, SR 77

Running a Food Hub: Assessing Financial Viability, Vol. 3, SR 77

These reports are part of multi-volume, technical report series: Running a Food 

Hub. The first volume compiles a number of best business practices for starting 

or expanding a food hub enterprise. It includes operational profiles of the food 

hubs profiled in the report.

 Volume 2 focuses on operational issues faced by food hubs, including 

organization, infrastructure, and logistics, among others.

 Volume 3 in the series provides financial guidance to food hub managers, 

including benchmarks for established and emerging food hubs to use as a 

comparison for assessing their own financial viability and for making strategic 

business decisions.

 For hard copies (please indicate title, publication number, and quantity 

needed), e-mail: coopinfo@wdc.usda.gov, or call: (202) 720-7395. Or write: USDA 

Co-op Info., Stop 0705, 1400 Independence Ave., SW, Washington DC 20250. To 

download from the Web, visit: www.rurdev.usda.gov/rbs/newpub.htm.