Small is beautiful. Maybe.

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There’s lots to like about Alter Eco, a San Francisco-based food company that aims to do social and environmental good. The company supports poor farmers, sources from cooperatives, offsets its carbon footprint, etc. Better yet, its products are tasty. I’m partial to the organically-grown, fairly-traded Dark Quinoa Chocolate Bar, which you could think of as a politically correct (and pricey) version of Nestle’s Crunch.

There would be even more to like about Alter Eco if it was a bigger company. The challenge for its founders,  Mathieu Senard and Edouard Rollet, who I visited last fall in San Francisco, is to figure how to drive growth without compromising their values.

My story about Alter Eco, which ran this week at  Guardian Sustainable Business, begins like this:

What would a truly sustainable food company look like? That’s hard to say, but a small company called Alter Eco, which sells quinoa, rice, chocolate and sugar grown in Latin America, Asia and Africa, offers a clue or two.

Striving to hit the very highest environmental and social standards, Alter Eco sources only Fair Trade commodities, buying from small-farm co-operatives. Its products are certified organic. It offsets its carbon emissions. And, when the founders could not find packaging that satisfied them, they designed their own: a bio-based, backyard-compostable package with no petroleum or chemicals or genetically modified corn.

“We are trying to push the envelope towards full sustainability,” CEO Mathieu Senard says.

The trouble is, Alter Eco is small – it reported just $7m in revenues in 2012. When I visited co-founders Senard and Edouard Rollet at Alter Eco’s headquarters in San Francisco, they told me that sales topped $10m in 2013 and are expected to jump 44% to $14.5m this year. “We can go to $100m in the next five to 10 years,” Senard claims.

That said, big food companies measure their sales in billions, not millions. General Mills booked sales of nearly $18bn in the 2013 fiscal year, meaning it does more business in a day than Alter Eco does in a year. For small, socially responsible companies like Alter Eco to have a big impact, they either need to grow rapidly, or influence their much larger competitors, or both.

Part of the problem facing Alter Eco is pricing. Paying Fair Trade prices, sourcing from smaller coops and carbon offsets all cost money, costs which have to be passed along to consumers. (That 2.82 oz. quinoa bar retails for about $3.50.) Higher prices, of course, limit demand–and growth. This is a challenge that has been overcome by a handful of values-driven food companies, including Starbucks and Stonyfield Yogurt. But not many.

You read the rest of my story here.

Comments

  1. Bruce Klafter says:

    I had the pleasure of visiting Alter Eco as part of a local sustainability awards program. There business model is admirable and the individuals are dedicated and enthusiastic. Any values-based company is going to face the challenge of how to retain its values as it attempts to scale the business. Even acquiring greater supplies of the product from its coop partners might have unforeseen effects in South America. I am pulling for them to succeed and others should study their approach.

  2. If AlterEco is able to build strong distribution networks and get into stores like WholeFoods or TraderJoes and/or get into the organic aisles of more mainstream grocery stores, it would solve a lot of their growth challenges.

  3. It’s great to see a piece like this as it creates an opening to address many of the issues that confront food companies like ours (www.EqualExchange.coop ), Alter-Eco, & others who are trying to both operate at a very high ethical & environmental bar AND scale up so as to maximize impact.

    First, we’re familiar with Alter-Eco’s aspirations and challenges as we’ve much in common. Both Equal Exchange & Alter-Eco sell only Fair Trade food products sourced from small-farmer co-ops. We both sell a variety of foods and beverages (and we actually compete side-by-side in the organic chocolate category).

    We both know what’s it’s like to create small-farmer supply-chains from scratch.

    We both know what’s it like to operate with low volumes, no economies of scale, and little-to-no funds for the kind of marketing that dominates the food business. We both know what it’s like to try to raise capital that won’t threaten our missions.

    Consequently I worry that some readers may mistakenly leave w/the overly simplified notion that ethical prices for farmers = higher prices for consumers = a low ceiling on a company’s potential size.
    As just one counter-example there’s Organic Valley, the farmer-owned co-op that pays good prices to its farmer members and who in 26 years has grown to $800,000,000+ in annual revenue and is still growing 20% annually.
    We at Equal Exchange are smaller than that, but larger than Alter-Eco. In 28 years we’ve grown to $52 million and are still growing.

    There are, of course, many components in the shelf price, and the prices paid to farmers for the raw ingredients is only one. For example, as we grow we begin to achieve greater efficiencies & some economies of scale. We both invest a lot up front to create our supply chains – which lessens as a financial ‘hit’ over time. Marketing becomes – per unit of sales – less expensive with growth. As business people at relatively young companies we learn and we get better at the job. The list goes on.
    The point is high road companies like ours can continue to pay farmers above-market prices AND grow AND – over time – offer consumers more attractive prices.

    But the other half of that equation are the low prices that consumers have come to expect and that Alter-Eco is competing against. As your readers know (but maybe don’t always think about) those low prices are often (usually?) _artificially_ low. They’re low not only thanks to great logistics or scale or cheap capital, because also because of a host of truly unacceptable, unsustainable business practices. So, yes, there is some price floor for sustainable products that will be always be above the mass market.

    Which leads to my next point. Thanks to pioneering work of ethical & sustainable & Fair Trade brands some of those bad practices are slowly becoming less acceptable and the mass market companies – up & down the supply chains – are being cajoled, or legislated, to gradually up-their-game. This will further shrink the gap between, say, the price of Uncle Ben’s and Alter-Eco rice.

    And then there are, indeed, some large brands like Ben & Jerry’s (owned by Unilever) who are proactively improving their practices. For ex, Ben & Jerry’s has switched all their non-dairy ingredients to Fair Trade sources, and today we provide their Fair Trade banana purée. And their milk continues to come from the same Vermont farmers co-op as always.

    We think the record is clear, especially when one looks at the European market since 1990, that the high-bar Fair Trade brands have clearly influenced our larger competitors for the better. We call that being ‘the mosquito on the back of the elephant’. Neither Alter-Eco nor Equal Exchange might ever be ‘large’, but we can continue to champion an idea, prove its viability, and be a ‘vector’ to introduce it to an industry. Equal Exchange did this with Fair Trade in the US coffee industry, and we think we’re on a similar path in other categories like chocolate and bananas. In short, if companies like ours can hang in there long enough we will slowly change the nature of these industries a bit – which may be our biggest impact no matter how much we grow in volume or revenue.

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