Estimating the business potential for operators in a local food supply chain

Abstract

Purpose Estimating the business potential for local food intermediary businesses, like wholesales and retailing, can be extremely difficult. The purpose of this paper is to present an approach at finding out the possibilities of estimating the business potential of a business idea in advance. Design/methodology/approach In the approach, a model is built based on two data sources. Statistical data on the food expenditure of households and average division of the revenues and margins of the local food supply chain are divided to production, intermediate level (wholesales/distribution) and retailing stages. To estimate the regional local food business potential as a whole, the market share estimations have been made by local food experts. Findings The approach was tested and utilized in evaluating the feasibility of a local food wholesale business in South-East Finland. It produced a credible overview of the business potential and pinpointed the challenges of the local food wholesales. The study indicated also that expressing the feasibility in terms of the required market share for employee count is an easy-to-understand way to depict the feasibility of a business. Research limitations/implications The model gives indicative, industry average-based results: the results of the model should be refined with analyses on the particular business model, especially its cost efficiency and other competitive parameters compared to more traditional way of doing business. Practical implications The model helps local food entrepreneurs and firms as well as their financiers to get a realistic picture of the business potential and the economic feasibility of the targeted business. Originality/value The study introduces a novel approach combining quantitative data and expert evaluation for evaluating the market potential and economic prerequisites of a regional food supply chain operator.