Hi Thomas – thanks for your questions.
1) Regarding out-pricing competitors on waste collection: I think your point about a competitor coming in and undercutting Harvest on the price of organic waste collection is a real risk in the future. Harvest goes to all the trouble to help an entity like DisneyWorld set up organic waste sorting bins (like HBS!), and then somebody else steps in and outbids them on the collection contract once that food waste is flowin’. Today, however, I believe that Harvest has few if any competitors in this space besides landfill haulers, who see food waste as indistinguishable from trash bound for the landfill rather than as a commodity worth separating from trash. Even so, if Harvest does lose a customer to a new competitor in the space, there is also 35 million tons of food waste generated per year in the U.S. to pursue from other waste generators.
2) Regarding hedging energy and agricultural risk: the electricity generated by burning methane sourced from the food waste is considered a renewable energy source (as it is otherwise lost to the environment), and so Harvest is able to secure long term power purchase agreements (PPA) with area utilities that lock in the quantity and price per kwh over a sustained time horizon.
Regarding the agricultural exposure, I think it is fair to say that Harvest doesn’t hedge their soils/fertilizers and are therefore exposed to the greater commodity supercycle (if that’s a real thing). They distribute soils, mulches, and fertilizers via home improvement stores and agricultural coops throughout the nation, so they do diversify their sales across the country, to both home/farm, and both suburban/rural.
Wow Mike! Terrific breakdown of the business and operating models at Paribus.
1) Do you feel that etailers will change their way of doing business in response to this service if it becomes widely used? For example, would we see price changes occur less frequently because Paribus returns the value of the change from the business to the consumer?
2) Could Paribus extend themselves beyond the readjustment rebate claims? If so, to where?
Do you think Spirit Halloween has an opportunity to use this operational model to monetize Xmas, Easter, July 4th in a similar way? Is Halloween unique in some way that makes this model work more effectively?
Thanks for sharing Thomas. A few questions:
1.) Do you feel the everyday low price strategy conveys a reduction in quality, and do you think customers care more about quality or price?
2.) Do you think there is business risk associated with anchoring on a flat price (i.e. $5) like dollar stores while labor and ingredients continue to rise over time. Will they be quick to lift the price when squeezed on margins?
3.) Have you ever negotiated the price of a Little Caesar’s pizza down from $5? If anyone can do it, its you!
Thanks for your questions.
1.) Harvest currently focuses on business who generate large amounts of food waste (i.e. hospitals, amusement parks, hotels) but one day could expand broadly to residences. Having people throw organic waste into their own composts would be a terrific change versus putting the waste in trash bound for the landfill. What a home compost doesn’t do is capture and utilize the methane that is generated from the compost. That’s the incremental value add that Harvest introduces, or what a home digestor system (http://www.homebiogas.com) offers. Regarding the fee Harvest would charge, homeowners currently pay by $/ton for waste hauling, so you could argue they would pay the regular waste hauler less to haul away trash with no food waste in it, and would pay Harvest to cart off the food waste. The total expenditure on waste hauling doesn’t increase.
2.) I think you are correct that Harvest’s model would not grow at scale if they don’t actively recruit waste generators as a source of supply into their model. However, I do believe they are actively addressing this by forming partnerships with these entities that include reduced waste hauling costs, waste sorting infrastructure, and messaging to end consumers that the waste separation is taking place.
Thanks for all your thoughtful questions!
1) Harvest won’t fully replace the need for the landfill (and landfill haulers), as any business will still have inorganic waste that wouldn’t be fit for compost and digestion. Landfill haulers will need to come by much less frequently though!
2) I’m not privy to the exact pricing for Harvest, but the national average for landfill hauling fees is $45/ton ($60-90/ton in Mass!) and will continue to rise as available landfill capacity decreases (source: Mass EPA). Based on customer testimonials that refer to cost savings I believe that Harvest charges slightly less per ton. Since Harvest consumes the waste, they don’t have the same pressure to raise prices in the face of decreasing capacity like landfills do.
3) I think Harvest will continue to target consolidated sources of food waste in the near future (e.g., amusement parks, hotels), but the city of Richmond, BC has instituted a food scraps collection program in which each home has a green bin that is collected weekly and sent to Harvest. Also, a startup called HomeBiogas (http://www.homebiogas.com) is marketing a residential biogas system that produces natural gas and fertilizer from the family’s food waste.