New business models for food producing SMEs : toward a tasteful taxonomy

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New business models for

food producing SMEs

Toward a tasteful taxonomy

Magreet Schijvens-Timmermans, Msc

mschijvens@fnli.nl student number: 0414247

due date: 5 August 2016

Amsterdam Business School:

Executive Programme in Management Studies Thesis supervisor: dr. ir. Jeroen Kraaijenbrink

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Statement of originality

This document is written by Magreet Schijvens-Timmermans who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business (University of Amsterdam) is responsible solely for the supervision of completion of the work, not for the contents.

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Preface

Seven years ago I finished my Master’s degree in political science at the University of

Amsterdam, with a research study about different behaviour between citizens and consumers. Although both roles are incorporated in the same person, the first one worries about issues like the environment, animal welfare, and healthy choices, whereas the last one prefers products of good quality for a low price. I would not have thought this relatively abstract and sociological subject would lead in my daily work years later, as a communications manager at FNLI (Federation for the Dutch Food and Grocery), nor that I would write another thesis where this theme plays an important role.

Five years later, I decided to aspire to a second Master’s degree—this time in business studies—which brings me to thanking Philip den Ouden and Murk Boerstra (FNLI’s

management), who allowed and stimulated me to follow this study alongside to my fulltime job. I am grateful to work for an employer who gives room to and is willing to invest in its people. I also thank my other colleagues who respected the hours I dedicated to this education and who were always happy to offer inspiration for this thesis.

The next words of thanks are for my thesis supervisor, Jeroen Kraaijenbrink. Jeroen’s solid, quick, and pragmatic feedback provided a push in the right direction when needed. Moreover, this research could not have been conducted without the commitment of the experts and entrepreneurs who were willing to spend time on the interviews. It was not only useful, but also fun and inspiring talking to them, so many thanks go to Ad van Olphen, Bart Merkus, Danny van den Burg, Dirk Mulder, Edwin Lambregts, Frans Egberts, Hans van Haaren, Jan Paul Rutten, Karin Lowik, Rob Morren, and Stephanie Wagenaar.

On a personal level, the years I studied this program (Autumn 2014 to Summer 2016) were marked by several life-changing events. Without Jan-Pieter standing next to me, I probably would not have found the dedication to finish all the courses within two years.

Magreet Schijvens-Timmermans ‘s-Hertogenbosch, August 2016

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Abstract

Business model innovation is a hot topic in management literature: It is considered to be key for companies to survive in today’s fast-changing world. The food industry—the largest manufacturing industry in the Netherlands—currently faces rapid developments, including the rise of e-grocery and a changing consumer’s DNA. In particular, smaller food producers, who generally have a lack of scale and resources to invest in new knowledge and technologies, are struggling with uncertainties. They are often characterized by more traditional business models focusing on operationally excellent manufacturing processes to sell their quality products for a reasonable price to their large-sized clients, mostly being food retail. In this thesis, a framework is developed to inspire food producing small and medium-sized entrepreneurs (SMEs) with key trends around the food industry and with a taxonomy of 12 viable business models. This taxonomy is developed by means of explorative field research, using secondary (literature, media articles, trend reports, websites) and primary (ten open interviews with different experts and food producing SMEs) research. In the business model taxonomy, two common themes occur. Firstly, companies should seek a clear focus, targeting either the higher end of the market by offering high quality and unique products with an authentic story behind their business or on the lower end of the market by producing as efficiently as possible for the lowest costs. Within the first option, especially, opportunities for growth are embedded. Secondly, companies should be aware that the traditional value chain is changing toward a value network where the consumer is positioned at the centre: Food producing SMEs are recommended to adopt a more output-driven perspective. With direct to consumer communication being more accessible than ever before, smaller food producers, who usually lack the large marketing budgets, can embrace this as a chance to tell their authentic stories through new channels in order to build a unique position in the market.

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1. Introduction

Nowadays, the food and fast moving consumer goods (fmcg) industry and its distribution processes are changing extremely quickly. In 2015, Dutch consumers had the opportunity to discover many developments in e-grocery, a new food-retailing concept: Picnic started a free delivery service; Albert Heijn launched its “food delivery boxes”; and Jumbo started a pilot on home delivery. A true “home delivery war” was proclaimed by the Dutch press1. What food experts predicted many years ago seems to become reality now: Online distribution is turning the Dutch food-retailing landscape upside-down.

In July 2015, Syndy published a report that shows how the grocery industry is reaching a digital tipping point, with much of its growth expecting to come from online2. ING refers to figures from GfK considering the growth of online grocery shopping: In November 2015, consumers spent 2.7% of their grocery budget on the Internet, versus 1.7% in November 2014. Moreover, the online market share of Dutch supermarkets has risen from 0.7% to 1.6% in 2015. ING states, “Our expectation is that online continues to grow towards a revenue share of 10 to 15 percent in 2025”3.

Food companies are currently dealing with many developments driven by (technological) innovations, for instance the trend toward omni-channel strategies, changing consumer DNA, pressures on the value chain, and platform organisations responding to the rise of the sharing economy. These developments will definitely have their impact on the manufacturers of food products, which are the subject of this thesis. These companies generally are positioned in the supply chain as the producing link between suppliers of commodities, on the one hand, and supermarkets, restaurants/foodservice/out-of-home shops, on the other. The traditional agro and food value chain in the Netherlands is recognized as follows, the bold part being the subject of this research:

1_{Logistiek.nl (27 december 2015). ‘Iedereen aan de E-commerce in 2015’.} http://www.logistiek.nl/supply-

chain/nieuws/2015/12/iedereen-aan-de-e-commerce-in-2015-101141222?utm_content=buffer749bd&utm_medium=social&utm_source=linkedin.com&utm_campaign=buffe r#.VoJWgK8hKvJ.linkedin

2_{Syndy (8 July 2015). ‘The State of Online Grocery in Europe’.}

3_{ING Economisch Bureau (December 2015). ‘Supermarkten: zelfde snelheid, andere koers’.}

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65,000 farmers > 6,500 manufacturers of semi-finished products, ingredients, and

consumer products > 1,550 suppliers of end products > 5 purchasing consortia > 25

supermarket chains > 4,850 supermarkets > 7,000,000 households (17,000,000 consumers).4 This position in the value chain, however, might now be changing because of the expansion of e-commerce activities or new distribution opportunities. Nutricia (Danone), for example, sells its early life nutrition products online directly to consumers, in addition to their more

traditional distribution channels, like supermarkets.5

Clearly, the world is changing for Dutch food producers and their suppliers and customers. Companies should adapt their business models to online distribution strategies and should decide how to capitalize on fast moving developments. Much is said and written about e-commerce trends in food retailing, with many experts trying to see things inside of a crystal ball: Some being very progressive (for example The Consumer Goods Forum & Capgemini in their joint report “Rethinking the Value Chain”6), some more conservative (for example Jef Colruyt, CEO of the leading Belgian supermarket7). When experts and media consider trends in the food industry, most obviously attention is paid to the bigger players in the market. Moreover, multinational companies, like Nestlé, P&G, and PepsiCo, often have appointed managers to their boards who are specialized in e-commerce. Meanwhile, more small and medium-sized food producers also show inspiring cases of business model innovation. Fruit and vegetable supplier The Greenery recently announced it would test direct delivery to consumers8, and Henri van de Bilt meat products started its own web shop for food

professionals9. A recent initiative is Shopall24.com: An online platform, initiated in Denmark (with the intent of capturing the Dutch market) that offers a marketplace for grocery suppliers and brands to sell directly to households10. These are some examples that may signal the end of the traditional value chain.

4_{Bosatlas van het voedsel (2014). Noordhoff Uitgevers, Groningen.} 5_{www.nutriciavoorjou.nl}

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Capgemini & The Consumer Goods Forum (2015). “Rethinking the Value Chain”.

7_{De Tijd/FD (1 February 2016). ‘Topman Colruyt: “Ik geloof niet in het model van Bol.com”. Authors: Piet}

Depuydt & Jens Cardinaels. http://fd.nl/ondernemen/1137601/topman-colruyt-voelt-nog-geen-zenuwen-over-ahold-delhaize

8_{Foodclicks.nl (21 August 2015). “The Greenery test op een beperkte schaal online distributie”.} http://foodclicks.nl/nieuws/greenery-test-op-beperkte-schaal-online-distributie.html

9_{Foodclicks.nl (5 January 2016). “Henri van de bilt gaat rechtstreeks aan koks leveren”.} http://foodclicks.nl/nieuws/henri-van-de-bilt-gaat-rechtstreeks-aan-koks-leveren.html

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VoedingNu.nl (8 March 2016). “Online supermarkt steeds populairder”.

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In addition to the rise of new distribution channels, the food industry has to deal with new consumers’ habits, preferences, and demands—in other words, a changing consumer DNA. A lack of trust in food production and ingredients has become an increasing issue.11,12

Consumers are increasingly concerned about origin and ingredients of their food (hot topics are currently additives and sugar) and critical regarding issues including health, safety, animal welfare, and sustainability.1314 Simultaneously, consumers become more sensitive to

convenience and quality products15 and price still seems to play a prominent role in the purchasing process16. In short, grocery shopping becomes less of a common habit, and food businesses should increasingly do their best to seduce the consumer.

Although smaller companies, in general, dispose of fewer resources, compared to bigger players, for innovation and strategic planning they are nonetheless affected by the rapidly changing, uncertain environment. Small and medium-sized enterprises (SMEs) deserve more attention regarding these challenges since they account for 64% of employment and 47% of total amount of sales of the Dutch food industry. Of all the companies within the Dutch food industry, 87% have less than 20 employees17. This thesis will therefore focus on SMEs, as the so-called backbone of the food industry.

The Dutch market will be central in this research. The agro-food sector is considered one of the main drivers of the Dutch economy, contributing 10% to the economy and employment. The sector is responsible for a proportionally greater share of national industrial production than any other country in the European Union. In 2015, Dutch food manufacturers together gained 63.9 billion euros of output value, 13.9 billion euros of added value, and provided

11_{Berenschot (2014). “De Vertrouwensformule. Agri & Food Trends rapport 2014”. Retrieved from:} http://www.agrifoodtrends.nl/

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Edelman (June 2015). “The State of Trust in Today’s Global Food Environment”. Retrieved from:

http://newsroom.edelmanpr.nl/vertrouwen-in-levensmiddelenindustrie-daalt-in-70-procent-van-de-landen 13_{FNLI & Motivaction (April 2016). “Waarderingsmeter Levensmiddelenindustrie. Inzicht in waardering en}

vertrouwen van consumenten in de Nederlandse levensmiddelenindustrie”. Retrieved from:

www.spreeksmakelijk.nl

14_{ING Economisch Bureau (November 2015). “Een Gezonde Toekomst. De kansen van de gezondheidstrend}

voor foodbedrijven”. https://www.ing.nl/media/ING_EBZ_themavisie-food-een-gezonde-toekomst_tcm162-92903.pdf

15_{ABN AMRO Economisch Bureau (5 February 2016). “Foodsector Prognoses. Hongerige consument vindt het}

groeipad weer”. Author: Frank Rijkers. Retrieved from: https://insights.abnAMRO.nl/2016/02/hongerige-foodsector-vindt-groeipad-weer-2016-en-2017/

16_{FNLI & Roland Berger (April 2016). “Spreek Smakelijk. Een open gesprek over voedsel”. Retrieved from:} www.spreeksmakelijk.nl

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work and income for more than 134,000 people.18 Moreover, the Netherlands is the world’s second largest exporter of agro-food products, after the USA.19

When addressing the unpredictable business environment food companies cope with, business model innovation comes into play. This concept increasingly gains attention in literature, perceived as a way for companies to survive turbulent times. As stated later, current literature assumes that business models need to change over time if firms want to stay successful. In order to retain a sustainable competitive advantage, firms should continuously adapt their business models to environmental changes. In the context of the food industry, many questions regarding change can be addressed. Considering technological, economic, and societal trends, what new strategic options do food suppliers have? Should they perceive the rise of e-grocery as threat or opportunity? Is there any room for branded and processed food products in home delivery meal boxes? How can small food suppliers survive while giant platforms, like Amazon and AH.nl, conquer the market? Should the small suppliers focus on niche products and utilize capabilities regarding distribution and e-fulfilment that giant

platforms have, or on the other side of the spectrum, will food producers still need the (online) retailer in the future? Will the supermarket keep its raison d’être or should suppliers establish their own online distribution channels and start selling directly to consumers? In short, how should smaller suppliers reinvent their business models in order to survive?

More guidance is required for smaller food producers adapting their business models in order to prepare themselves for the future. This thesis aims to develop a framework for small and medium-sized enterprises in the Dutch food industry that reduces complexity and offers a classification and evaluation of business model patterns that occur within the food industry. Although this research field is still relatively young, several studies have presented different business model typologies or taxonomies. These classifications are mostly generic, while there is a lack of research regarding business models in specific industries. The food industry is characterized by specific developments, particularly in distribution processes, which are increasingly changing with the rise of e-grocery and platform organizations. A framework of viable business model patterns could help answer the question how food producing SMEs can make money in the future while dealing with a highly uncertain environment, which is

fundamental in the concept of business model innovation. Gassmann et al. (2014) show, by elaborating on the most popular business models patterns, that only a few phenomena are

18_{FNLI (2015). Monitor Levensmiddelenindustrie 2015.} http://www.fnli.nl/wp-content/uploads/2015/10/FNLI_Monitor_2015_def_LR_WEB.pdf

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really new. To coin the phrase “there’s no need to reinvent the wheel”, the classification and evaluation of business models could offer a managerial framework specifically for food producing SMEs.

This research offers a taxonomy of business models for food producers and evaluates the given business model patterns, in particular, for SMEs. What models have been used already by food producing SMEs, which ones have been proven to be successful, and which ones have not? All these elements are abstracted in the following research question:

What kinds of business models are viable for food producing SMEs in order to be successful in an era of e-grocery and changing consumer DNA?

This question will be answered by means of explorative field research, based on secondary (literature and media articles and trend reports) and primary (ten open interviews with experts and entrepreneurs) research. The next chapter (2) will start with a literature review, explaining the concepts of business models and business model innovation and exploring existing

classifications of business model patterns. Chapter 3 describes the research design, explaining the analytic strategy and techniques used, how the interviews were conducted, and the

strengths and weaknesses of this research. Chapter 4 involves the first part of the research results and gives an overview of major trends in food retail, based on both the primary and secondary research. In the following chapter (5), the second part of the results are presented: The taxonomy of viable business models for food producing SMEs. This thesis, of course, finishes with a conclusion (6), where an answer is given to the research question, scientific and practical implications and limitations of this research are discussed, and suggestions for future research are presented.

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2. Literature review: business model innovation

The internet era, and in parallel the increasing supply and demand of “intangible products”, has raised awareness of the question how companies can create revenue streams when customers expect services to be free (Teece, 2010). This question gave the relevance of business models a prominent position on the agenda of strategic management. Since then, many articles in the strategy field have been published on this topic. This thesis aims to develop a classification of business models for the food industry and to offer a framework for food producing SMEs in particular. I will first concisely describe the concepts of business models and business model innovation and explore what classifications already exist.

Business models: the quest for a common definition

Despite the fact that between 1995 and 2011 over 1000 articles were published in peer-reviewed academic journals (Zott et al., 2011), scholars do not agree on the definition of a business model. In their extensive literature review Zott et al. (2011), found (using many references) that the business model has been referred to as a statement, a description, a representation, an architecture, a conceptual tool or model, a structural template, a method, a framework, a pattern, and a set (p. 1022). Still, several definitions are used, and literature on business models is relatively young. I will highlight some of the most cited descriptions and definitions as a starting point.

Magretta (2002) simply describes a business model as a story that explains how enterprises work (p. 4). This story involves two parts of the generic value chain: The first part includes activities associated with making something (designing, purchasing raw materials,

manufacturing), and the second includes the activities associated with selling something (finding and reaching customers, transaction, distribution). Teece (2010) concisely captures the many definitions for the term business model as the essence of defining the manner by which the enterprise creates and delivers value to customers, entices customers to pay for value, and converts those payments to profit. A business model is often outlined as a guide to how to create and deliver value or as an architecture of revenues, costs, and profits (Teece, 2010, p. 173).

Chatterjee (2013) adds the division between a business and a business model to these insights, referring to the first as “selling what you make for a profit” and the second as “a configuration (activity systems) of what the business does (activities) and what it invests in (resources) based on the logic that drives the profits for a specific business” (p. 97).

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Mitchell and Coles (2013) make a distinction between business model improvements and replacements, while defining a business model as the combined elements of “who”, “what”, “when”, “why”, “where”, “how”, and “how much”. Improvement involves the change of a single element, while replacement means changing at least four elements. Both have the intention of outperforming the competition (Mitchell & Cole, 2003, p. 16).

Osterwalder and Pigneur (2010) describe a business model through nine basic building blocks that cover the four main areas of a business (customers, offer, infrastructure, and financial viability) and together show the logic of how a company intends to make money. The following nine building blocks compose the business model canvas that nowadays is much practiced by consultants and managers: Key activities, key partners, key resources, cost structure, customer relationships, customer segments, value propositions, channels, and revenue streams (Osterwalder & Pigneur, 2010). Gassmann et al. (2014) also use an applicable definition of business models that consists of different dimensions, in this case four: The customer (who?), the value proposition (what?), the value chain (how?), and the profit mechanism (why?). In this thesis, such a practical description works well since it can be discussed easily with interviewees, especially with small and medium-sized entrepreneurs who generally are characterized for their hands-on mind-set. Since the four-dimensions model of Gassmann et al. (2014) can be considered more straight-forward, but at the same time includes and overlaps with the nine building blocks of Osterwalder and Pigneur (2010), this “magic triangle” is chosen as leading in this research and in the interviews to result in practical recommendations for SMEs.

Several authors underline that the business model concept is more than just a buzzword (Magretta, 2002). Chesbrough (2010) even argues that a company has at least as much value to gain from developing an innovative new business model as from developing an innovative new technology. The importance of innovating business models will be discussed in the next section.

Business model innovation: survive uncertainties and capture competitive advantage

Teece (2010) points to the importance of business models being differentiated and hard to replicate: Developing a successful business model alone is insufficient to gain sustainable competitive advantage. At this point, Teece (2010) divides the generic concept of a business model from a business strategy, the latter being essential in the prevention of imitation by competitors (p. 180). In short, a business model should be more than just a logical way of

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doing business; it should be designed to fulfil certain customer needs, and it should be difficult to replicate in certain respects. In order to remain unique, not only products and services, but also business models, should be innovated continuously.

Recent business model literature acknowledges the insight that business models need to change over time if firms want to achieve sustained value creation. Successful companies should adapt their business models to changes to stay competitive, to achieve new

opportunities for value creation, and to reduce the risk of inertia (Achtenhagen et al., 2013). Business model innovation is key for companies to survive in today’s fast-changing world. Voelpel et al. (2005) elaborate on how business model thinking can help companies to avoid the traps of the “Red Queen effect”, which means that in a (competitive) place one always has to run faster than one’s rivals. The authors state, however, that nowadays businesses cannot survive by just running faster, but rather by running differently and “smarter” than

competitors.

Mitchell and Coles (2003) explain that continuing business model innovation enables companies to outperform the competition. In their annual study of 100 public companies in the 1990s, they found that the most effective companies made fundamental, multidimensional shifts in their business models. Separating business models from strategies, the authors add that any generic strategy may become more effective through business model improvements. Mitchell and Coles (2003) elaborate that business model innovation involves the replacement of at least four core elements of the business model.

While asking why more organizations do not conduct experiments with potential new business models, Chesbrough (2010) draws attention to the significant barriers companies generally experience (p. 358). Amit and Zott (2001) point to the conflict between business model innovation, including novelty, lock-in complementarities, and efficiency, on the one hand, and more traditional configurations of firm assets, whose managers are likely to resist experiments that might threaten their ongoing value to the company, on the other. Another barrier for business model experimentation includes “dominant logic” (Prahalad & Bettis, 1995): The success of an established business model strongly influences the information that does or does not enter corporate decision processes (Chesbrough, 2010, p. 358).

Teece (2010) shows that the internet has not only provided easy access to information, it also has changed ways of distribution, forcing many “bricks and mortar” companies to rethink their distribution strategies, if not their whole business models (p. 174). While he exemplifies

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this statement using the music industry, it is not hard to imagine the consequences for the sector that is subject of this thesis: The food industry. At first glance, food products can be identified as “tangible products”, that Teece (2010) holds responsible for traditional thinking and the lack of theory on business models in economics (p.175). In a standard approach, there are no puzzles about how a business should be designed since the assumption is that firms capture value by selling output and customers will always pay a competitive market price for it. No matter how disruptive innovations in the market are, people will always need to eat and drink, and a demand for food products will remain. Even when people start 3D-printing their own food, they will still need the ingredients, so why bother about business models? The next chapters will address the concept that the food industry is no longer only about tangible products, but business model innovation does matter today, more than ever. In particular, the question how food producing SMEs can successfully innovate their business models in turbulent times of platform organizations, e-grocery, and changing consumers’ habits is of relevance here.

As Chesbrough (2010) explains, business model innovation is vitally important but extremely difficult to achieve. Tools such as maps like Osterwalder and Pigneur’s canvas (2010) are helpful, yet they are not enough. Organizational processes have to change; companies should adopt an effectual attitude toward business model experimentation and have to accept that experiments can also fail. Achtenhagen et al. (2013) explore, in their article, what strategic actions, capabilities, and activities are crucial for achieving business model change.

Unfortunately, this research has limited space to address the change process, including leadership and organizational cultures. Rather, it gives thought to the first step in business model innovation: Choosing a business model pattern.

Classifications of business models

To explore the field of business models and to generate insights into the practical implications of these concepts, it can be useful to examine prevailing business models of real organisations and describe similarities and differences between them. Grouping the variety of business models can be helpful to evaluate which ones do and do not work in specific industries. It will reduce complexity and can help entrepreneurs by providing a managerial toolkit. A general classification scheme could enhance the understanding of the business model as an abstract and complex concept (Lambert, 2006).

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When developing a business model classification and evaluation for food producing SMEs, a distinction should be made between the terms “typology” and “taxonomy”, which are often used interchangeably. Bailey (1994) describes a classification as the ordering of cases in terms of their similarity and breaks the concept down into two essential approaches: Typology and taxonomy. The former is primarily conceptual, the latter empirical. Bailey (1994) states, “A typology is generally multidimensional and conceptual. Typologies generally are

characterized by labels or names in their cells. […] The cells of the typology represent type concepts rather than empirical cases” (1994, p. 4-5). The main difference in the term

taxonomy is that a taxonomy is a classification of empirical entities. Bailey (1994) points to the finding that the term taxonomy is more generally used in the biological sciences, while typology is used in the social sciences. The process of taxonomy construction consists of first identifying and measuring various aspects of empirical cases, and then grouping these cases by overall similarity. Baden-Fuller and Morgan (2010) describe the difference between taxonomy and typology as a preliminary to understanding the difference between kinds and types:

The usual way to differentiate them is to think of a taxonomy as being the classes (or kinds) of things observed in the world, and as being developed from empirical work, bottom up. A typology is usually understood as delineating types of things (or events) where the types are decided theoretically or conceptually by the scientist, top down. (p. 161)

Both techniques can be used to analyse different business models. Many scholars have been searching for a general taxonomy or typology of business models, but progress has been slow and classifications often lack empirical or theoretical foundation (Lambert, 2006). According to Baden-Fuller and Morgan (2010), many articles on business models share a common feature:

They describe typical kinds of organisations and behaviours by firms (or perhaps units within multi-business firms) in such a way that we can label different kinds of

behaviour and then classify individual firms accordingly. Thus, the general idea of business models is intimately linked with notions of taxonomies and “kinds”. (p. 2) Since this research will study real-life, exemplar cases of business models (prevailing within the food industry and mentioned in media articles, reports, and interviews), the terms

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Zott et al. (2011) show that, especially, scholars focusing on e-business as an area for research on business models have defined and represented generic (e-)business models and/or

developed typologies and taxonomies. The frequently cited article of Timmers (1998) (one of the first business model classifications) provides a framework for the classification of Internet electronic commerce business models. The author presents 11 generalisations of specific business models that have been implemented online in practice and maps them along two dimensions: Degree of innovation and the extent of integration of functions.

Chatterjee (2013) proposes a comprehensive, more general categorization, using Porter’s generic strategies, as business models driven by efficiency or by perceived value. In addition to these two generic types, Chatterjee (2013) introduces a network-based variant of business models, extending either the efficiency (network-based efficiency) or the value (loyalty

based) of the business (p. 98). The author uses this taxonomy as a first step for business model design: Firms should determine which category (efficiency-based, perceived value-based, network value (loyalty-based), or network efficiency) best describes the business. Secondly, the generic value capture logic of a business model should be translated to core objectives: Business-specific and measurable deliverables. The last step is mapping the activity system needed to deliver the core objectives (Chatterjee, 2013, p. 100). Using the taxonomy as a first step on a checklist when businesses consider new opportunities, the most obvious pattern, the legacy business model, can be challenged. This thesis gives thought to Chatterjee’s (2013) first step but will use a more extensive taxonomy of business models.

Osterwalder and Pigneur (2010) sketch five business model patterns with similar characteristics: Unbundling, the Long Tail, Multi-Sided Platforms, FREE, and Open

Business. A more extensive and quite recent classification is The St. Gallen Business Model Navigator (Gassman, Frankenberger, & Csik, 2014), which presents 55 patterns of business models that served as the basis for new business models in the past. According to the authors, these 55 patterns are responsible for 90% of the world's most successful businesses, from the Add-On model used by Ryanair to the Subscription model used by Spotify.

Although this extensive classification seems to be complete at first glance, there is a risk that sight will be lost and the applicability of a business model will become more diffuse.

Nespresso, for example, could be placed in many models described by Gassmann et al. (2014), including Direct Selling (having its own retail stores and web shop), Experience Selling (combination of fancy boutiques, wide range of “Grand Crus” capsules, the ability for customers to join the Nespresso Club, and George Clooney campaigns), Licensing (former

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patent on exclusive coffee capsules), and Lock-in/Razor and Blade (once consumers have purchased a Nespresso coffee machine, they are bound to use the capsules and switching costs are high due to this exclusive fit). This brings back the question when can one label a certain pattern as a business model or when is it more suitable to use the concept of “strategy”? Although this thesis aims to develop a managerial framework for SMEs, with a taxonomy that is understandable and pragmatic, the kinds developed in the taxonomy should be less specific than the models Gassmann et al. (2014) use. Therefore, I assume that business models should have impact on both the operational (making something) and the sales/marketing aspect (selling something) of the business, or touch upon at least three of the four dimensions (who, what, how, and why). Gassmann et al. (2014) name Red Bull as an example of the Experience Selling pattern (p. 149). In the view applied in this thesis, however, this example would not meet the requirements of a business model since the Experience Selling aspect only addresses Red Bull’s branding strategy, with prominent marketing campaigns associated with active lifestyles and extreme sports. It neglects, however, Red Bull’s practices in the value chain and its profit mechanism.

Sector specificity might be a useful criterion for drawing a business model classification. In this way, market conditions can be reflected and key elements from the specific industry’s environment (clients, technologies, structure of the market) can be taken into account. IRCCF, for example, clusters the business models for the European banking sector in light of the changing economic, legislative, and supervisory environment (Ayadi & De Groen, 2015). Van der Vorst et al. (2002) studied a typology of e-business models in (mainly Dutch) food supply chains, based on a review of 16 prevailing electronic business-to-business initiatives. Four clusters of b-webs were identified, based on Tapscott and Lowy (2000): (1) e-marketplaces, focusing on market efficiency through price discovery or needs matching; (2) information chains, adjusting value chain processes to customer needs through information transparency; (3) virtual enterprise, creating collaboration in aid of a goal shared across a community of contributors; and (4) value chains, which design and deliver an integrated product or service that meets a set of customer needs (Van der Vorst, 2002, p. 135). Although this research is relevant in the context of this thesis, supply chain management and business-to-business processes fulfil a dominant position in Van der Vorst et al.’s research (2002), while it leaves room for understanding the broader view on how food producers offer value to their

customers without an absolute focus on e-business. For example, the rise of discount formulas and the demand for private label products may offer both threats and opportunities for food

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producers, with barely any online aspects involved. Although much attention will be paid to the rise of e-grocery, this thesis will take a broader perspective than solely e-business models. In fact, e-grocery and online distribution should not be considered a goal in itself, but it should serve as a means for value creation. While the research paper of Van der Vorst et al. (2002) was focused on logistics and information technology, this thesis will take a perspective on the value proposition for the end consumer. The other difference with Van der Vorst et al. (2002) is that this thesis will evolve toward an evaluation and recommendation for SMEs. Moreover, the cases described in van der Vorst et al.’s (2002) paper date from 15 years ago. An updated study could be valuable since the area is subject to fast developments.

In this research, generic business model classifications in literature are taken as a starting point, including Chatterjee’s (2013) categorization of business models driven by either value or efficiency (2013), The Business Model Navigator’s 55 patterns (Gassman, Frankenberger, & Csik, 2014), Osterwalder and Pigneur’s (2010) patterns, and Van der Vorst et al.’s (2002) typology of e-business initiatives in food supply chains. Inspired by these existing taxonomies and typologies, the ultimate goal is to develop a manageable overview of business model kinds that are applicable for food producing SMEs in specific in order to create a competitive advantage.

Table 1: Existing business model classifications used as a starting point in this research.

Source Number / names of business

model kinds

Comments, usability in this research

Chatterjee (2013)  Efficiency-Based  Perceived Value-Based  Network Value

(Loyalty-Based)

 Network Efficiency

General categories; business model could be more specific and focused on food and SME

Osterwalder & Pigneur (2010)  Unbundling  Long Tail

 Multi-Sided Platforms  FREE

 Open Business models

Short list of inspiring and relatively news business model patterns with a focus on online

Gassmann et al. (2014) 55 business model patterns

“responsible for 90% of the world's most successful businesses”

Very extensive list, patterns appear sometimes to be too specific.

Van der Vorst et al. (2002)  E-marketplaces  Information chains  Virtual enterprise  Value chains

Paper about e-businesses and food industry, with focus on food supply chains (business-to-business). Leaves room for consumer perspective, offline developments, and specification for SMEs. Research dates from 2002.

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3. Research design

Analytic strategy: field research

Addressing new business models in the food industry is quite challenging since Dutch

businesses are currently faced with rapid developments. This topic will be further explored in field research. This research method is recognized as suitable for in-depth analysis and is known for its bottom-up approach (Edmondson & McManus, 2007): It allows the researcher to observe what takes place in the field, following the descriptive school of management (Mintzberg, 1979). Mintzberg (1979) emphasizes that, in qualitative organizational research, measuring in real organizational terms means first “getting out”. This approach will permit the researcher to be close to the data, to know all the individuals involved, and observe and record what they do and say (Mintzberg, 1979, p. 586). This exploration of relatively new areas fits well into the grounded theory approach of Glaser and Strauss (1967), which is described by Patton (1990) as a methodology for inductively generating theory. In practice, it means that the data in this research will be worked “from the ground up”. In this thesis, data from real organizations and real people were collected, exploring trend reports and media articles regarding the subject and trends acknowledged by experts, as well as investigating which business model patterns do occur. In the inductive analysis, the interviews were coded based on their content; no theoretical concepts were used in advance as guidance. In sum, theory was developed through analysing the data.

Addressing a topic that represents new phenomena in the world, this research fits well into the nascent theory approach, described by Edmondson and McManus (2007) in their article about methodological fit in management field research:

In studies where theory is nascent or immature, researchers do not know what issues may emerge from the data and so avoid hypothesizing specific relationships between variables. Because little is known, rich, detailed, and evocative data are needed to shed light on the phenomenon. (p. 1162)

From this perspective, exploratory interviews are acknowledged as a method of learning with an open mind. The ultimate goal of data analysis is the identification of a pattern, in this case, a business model taxonomy. This field research contains several embedded units of analysis: (1) Prevailing business model patterns, (2) trends described by experts and media articles, and (3) small and medium-sized food producers (manufacturers of food consumer products) coping with challenges in their value chains.

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The thesis started with secondary research, studying literature on business model innovation and existing classifications of business models. The first results chapter is explorative, mapping prevailing trends within the food industry by means of gathering descriptive data derived from company reports, managerial papers, and media articles. The media monitoring, accomplished at FNLI (the Federation for the Dutch Food and Grocery Industry) from

January 2016 to June 2016, is an important resource. This daily overview, composed with the help of monitoring tools like Coosto, Blendle, Google Alerts, and newsletters of trade media, consists of the main news articles relevant to the Dutch food industry. These secondary data are supplemented with primary research insights from ten open, unstructured interviews with entrepreneurs (food businesses) and experts in food and retailing. Questions regarding current risks and opportunities for business models for food producers are key in the interviews. The second results chapter focuses on the development of a business model taxonomy. Generic business model classifications in literature are taken as a starting point, combined with the identification of existing kinds of business models in the food industry, particularly during the last decade. Since change, environmental uncertainties, and the urgency for business model innovation induced this research topic, the inventory focuses on present and recent business models that have either survived or occurred during the last ten years. With the development of the taxonomy, the field research funnels toward the relevance for SMEs, evaluating what kinds of business models appear to be viable for smaller food producing companies.

Therefore, questions regarding relevant learning for SMEs, in particular, are also key in the interviews.

The interviews

The thesis includes ten (due to limited timeframe) open, unstructured interviews, each lasting at least one hour. The non-directive, informal way of probing is meant to deliver in-depth insights, to allow spontaneity and to develop questions during the conversation. Trends and business model patterns found in secondary research (literature, reports, media articles) are leading in the questions. Interviews were recorded and transcribed (permission was asked). In the selection of interviewees, the strategy of maximum variation (Patton, 1990) was applied: A variety of organizations (various company types, sectors, and business models) was pursued to generate diverse insights. Five entrepreneurs in the Dutch food industry and five experts on food and retailing trends were interviewed. The following criteria were used in the selection procedure, with the aim of developing a broad exploration based on a variety of input:

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 The entrepreneurs can be defined as small or medium-sized, following the SME definition of the Dutch government and the European Commission20; they employ fewer than 250 people and have either an annual turnover not exceeding 50 million euro or an annual balance sheet total not exceeding 43 million euro;

 The entrepreneurs are responsible for strategic decisions within a Dutch food business (CEO or founder);

 The entrepreneurs represent different sectors within the food industry (a focus on one single product is avoided);

 Either their business model currently faces innovations or it has been successful for many years and still appears to be viable;

 The experts are specialized in trends in the food sector from a business

perspective, have published insights and reports, and are regularly quoted in the media regarding the topic of this thesis.

Based on these criteria, the experts and entrepreneurs presented in Table 2 were interviewed. Table 2. Experts and entrepreneurs interviewed.

20_{“The new SME definition. User guide and model declaration: (2005). European Commission. Enterprise and}

industry publications. Retrieved from

https://www.rijksoverheid.nl/documenten/brochures/2014/05/01/handleiding-definitie-mkb

Date Organisation Name Type Sector

1 20 April 2016 Berenschot Edwin Lambregts & Stephanie Wagenaar

Expert Consultancy

2 22 April 2016 ABN AMRO Rob Morren Expert Bank

3 28 April 2016 Rabobank Hans van Haaren Expert Bank

4 17 May 2016 Henri van de Bilt vleeswaren

Frans Egberts Entrepeneur (CEO) Meat products

5 17 May 2016 Food Sense (Fred & Ed)

Karin Lowik Entrepeneur (CEO, founder)

Kids products

6 20 May 2016 SoFine Bart Merkus Entrepreneur (CEO)

Plant-based products

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Analytic techniques

The ultimate goal of the data analyses in this research is the identification of a pattern, in this case a business model taxonomy. First, the technique used to analyse the data, according to the inductive and grounded approach mentioned above, resembles to some extent the pattern matching logic explained by Yin (2009). In this thesis, empirically-based patterns (derived from coding analysis (see below)) are matched with predicted patterns, namely existing kinds of business models from prevailing taxonomies in literature. Moreover, the analysing

procedure resembles the explanation building technique, which is a special type of pattern matching according to Yin (2009, p. 141). Here, the theory is built while studying the data and “why and how” questions are answered after analysing each case, with the goal of

analysing the data by building an explanation. More specifically, since it concerns exploratory research, the technique used in this research study could be defined as a hypothesis-generating process, with the aim of developing ideas for further study (Glaser & Strauss, 1967).

In this thesis, exploratory open interviews were conducted with the aim of learning with an open mind. The transcripts’ data were analysed by the following several steps in the coding paradigm, as originally articulated by Strauss (as cited in Douglas, 2003). First, the open coding technique was applied to analyse the data. This initial formation of labels involves the unrestricted phrase-by-phrase analysis of the transcripts. Along the process, iterative

reflection of codes that were already attributed were compared and adjusted with the new data. Douglas (2003) remarks that it is not data themselves that develops conceptual

categories and the emergent substantive theory but rather the conceptual interpretation of data that creates the grounded theory: “The theory is literally grounded in the data, but is not the data themselves” (p. 50). Secondly, once the initial open coding was accomplished, axial coding was performed, involving the regrouping of data and the identification of relationships between open codes. The ultimate goal was to develop core codes: The major concepts

derived from overlapping and related open codes in the data. Therefore, the final step

8 27 May 2016 GfK Danny van den Burg Expert Consultancy

9 30 May 2016 Gulpener Jan Paul Rutten Entrepreneur (CEO, family business)

Brewer

10 22 June 2016 Henri Ad van Olphen Entrepreneur (CEO, family business)

Soups, sauces, ready-made meals

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involved selective coding: The central concept(s) or phenomenon, the core codes were identified from the axial coding process. Along the three steps in the coding process, the constant comparison technique was applied: An iterative process that requires openness to modification and allows categories and concepts to emerge (Glaser, as cited in Douglas, 2003).

Coding results

During the first step in the analysing process of open coding, the following categories

emerged as the basis for the code tree. Firstly, the insights generated during the interviews can be classified among the several building blocks of the business model. Different

classifications of key elements that jointly form the definition of a business model can be found in the literature, for example the nine building blocks of Osterwalder and Pigneur’s (2010) business model canvas. In coding the interviews, the four elements of the magic triangle described by Gassmann et al. (2014) were used instead to keep the results orderly and manageable:

1. WHO? The customer—Who are our target customers?

2. WHAT? The value proposition—What do we offer to customers? 3. HOW? The value chain—How do we produce our offerings? 4. WHY? The profit mechanism—Why does it generate profit?

Along these four building blocks, several codes were allocated to the data. For example, a topic that often arose during the interviews was consumers becoming increasingly critical toward food products and producers. Statements about this subject are coded within in the first building block as a category, the “who”. These results are presented in Chapter 4. Secondly, the codes found in the interviews reflect distinct kinds of business models, for which this research is searching, in order to develop a taxonomy. Some coded business models can be recognized from the literature, for example the Aikido business model pattern (Gassmann et al., 2014): Small food producers maintain a provocative form of differentiation, focusing on sustainability, and distinguish themselves from the industry standard and attack the “big brands”. Others arise as new kinds (although they will probably resemble other prevailing business model patterns in literature), for example the social entrepreneurship business model, mentioned in the interviews with ABN AMRO and ING. The code tree is enclosed in the appendix.

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In order to develop a taxonomy, the business model patterns from the classifications,

described in the previous chapter, were compared with the interview results. Only the patterns that appear to have the potential in a sector that offers fast moving (relatively low

involvement) and tangible (food) products are emphasized. The Ultimate Luxury pattern (Gassmann et al., 2014), for example, which focuses on products requiring great investments, seems less relevant in the light of food production. Also, extremely retail-oriented patterns (like Shop in Shop or Supermarket (Gassmann et al., 2014)) or those solely focusing on (digital) services (like FREE (Osterwalder & Pigneur, 2010)) are not mentioned explicitly. The remaining relevant business models are clustered along the trends described by the interviewees. In addition to Aikido, another pattern identified is No Frills, derived from the finding that producers can deliberately focus on efficient production of discount products. Due to a stricter interpretation of the business model definition (explained in the previous chapter), more patterns are clustered along one kind; the White Label pattern of Gassmann et al. (2014) shows many similarities and, therefore, falls under the umbrella of No Frills. Sometimes, a new label for a business model was introduced, which seemed to cover the practical insights for food producing SMEs better than the existing patterns, for example the Transparent Business, which includes the Ingredient Branding and the Open Business patterns (Gassmann et al., 2014). The ultimate aim is to develop a manageable and realistic taxonomy that can be applied by SMEs in practice.

Strengths and weaknesses

The field research enables an in-depth exploration of a contemporary topic. The thesis is written from the perspective of FNLI. The expertise of FNLI team members is used to define the key trends and stakeholders of interest in this analysis; their insights may be valuable since they are concerned, in their full-time jobs, with developments in the food industry. Moreover, the FNLI network allows entrepreneurs and experts to be easily approached for interviews. The eventual bias, caused by the FNLI perspective, is avoided as far as possible by including a broad diversity of external references and by conducting open interviews with experts of third parties within the food industry.

The scope of the research is largely defined by the six-month timeline in which this thesis should be finalized. Therefore, a limited number of interviews could be conducted. Moreover, the scope was limited with a focus on the Dutch market: The research was conducted in the Netherlands, and interviewees and many references were Dutch.

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4. Research results (I): Key trends in food producing business models

This first results chapter will explore major trends and developments in the Dutch food and retailing industry, derived from both secondary research (media articles, corporate websites, trend reports) and primary research (the conducted interviews). The trends will be clustered along the “who”, “what”, “how”, and “why” dimensions of the business model.

WHO? The customer

Critical consumers

An article in Fortune (May 2015), with the alarming title “The War on Big Food”, reveals the trend of consumers being more critical toward the food industry. Denise Morrison, CEO of Campbell Soup, is quoted in this article. She is concerned about the public’s mounting distrust of big food: “We understand that increasing numbers of consumers are seeking authentic, genuine food experiences. And we know that they are sceptical of the ability of large, long-established food companies to deliver them”. An analysis by Credit Suisse analyst Robert Moskow found that the top 25 U.S. food and beverage companies have lost an equivalent of 18 billion dollars in market share since 2009.21 Regarding the dominance of the consumer, the CEOs interviewed in the article are on the same page: To survive, companies should do what the consumer asks.

This fits well into the conclusion that Roland Berger and FNLI (April 2016) draw in Spreek

Smakelijk22. This report shows the importance of the food industry for the Dutch economy: With an annual turnover of €63.9 billion, it is the largest manufacturing industry in the Netherlands. However, it appears that there is a great distance between the sector and society. On the one hand, the food industry has to deal with consumer demands on price, flavour, product composition and convenience; on the other hand, citizens increasingly express their concerns about health, sustainability, animal welfare, and fair trade. The sector appears still insufficiently able to gain societal trust on these kinds of issues.

This lack of trust was confirmed in consumer research on the appreciation and consumers trust in the food industry. The study was conducted by Motivaction, commissioned by the

21_{Fortune (May 2015). ‘The War on Big Food’. Author: Beth Kowitt. pp. 29-38.} 22

FNLI & Roland Berger (April 2016). “Spreek Smakelijk. Een open gesprek over voedsel”. Retrieved from:

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FNLI, and a representative sample of more than 1,000 Dutch consumers was used23. One of the main conclusions involved Dutch consumers giving the food industry an average score of 6.8 on a scale of 10; participants were generally positive about the quality and safety of food in the Netherlands. Nevertheless, consumers mostly worried about additives in products. More than half (55%) indicated that food is manipulated too much and only less than a quarter (23%) believed that companies in the food industry are honest about ingredients in products. This trend, closely linked to transparency and the increasing demand for healthy and

sustainable products (see below), was clearly acknowledged by all the interviewees; both experts and entrepreneurs confirmed that more consumers are highly educated and increasingly wonder where and how food is made and what ingredients are used. Several interviewees also pointed to the gap between “consumer” and “citizen” behaviour. According to Rob Morren (ABN AMRO) NGOs, media, and bloggers often have a disproportionate voice on the perception of food. Although one can wonder to what extent they really represent the views of average consumers, the uncomfortable feeling within society is created that “something is not right”. The consequence is that supermarkets and food producers feel they somehow have to respond to this concern.

The hybrid consumer

While the critical consumer, in other words, the “citizen’ who supports a healthy and

environmentally sustainable food system, arises, food producers simultaneously have to deal with the other side of the spectrum: Consumers demanding good quality food products for low prices. Karin Lowik (Fred & Ed) explained how producers struggle with the gap between citizen and consumer demands. Civil society expects food producers to act upon issues like childhood obesity, but on their path to purchase, many consumers are not open to healthier choices. The money in their pocket combined with taste as a key driver prevent them from filling their shopping trolleys with healthier or more sustainable products. Lowik (personal communication, 17 May 2016), referring to the introduction of healthy snacks (low-calorie fruit-flavoured rice cakes) by Fred & Ed, said the following: “As a producer you could adapt your offer to these trends, but when your audience is too small and people just don’t buy it, it simply does not work and the product won’t survive”. Danny van den Burg (GfK; personal communication, 27 May 2016) confirmed, stating the following:

23_{FNLI & Motivaction (April 2016). “Waarderingsmeter Levensmiddelenindustrie. Inzicht in waardering en}

vertrouwen van consumenten in de Nederlandse levensmiddelenindustrie”. Retrieved from:

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There is a relatively small community of consumers who are very much concerned about the story behind food and ingredients, and most of them live in cities like Amsterdam and The Hague. But the most important selection criterion on food products for the average Dutch shopper is taste and for supermarkets proximity. According to many experts, the consumer is becoming more “hybrid”. On the one hand, concepts with high added value and a premium price nowadays have potential; on the other hand, more discount formulas arise. Lidl and Aldi have been growing fast during the last decade by focusing on low-priced quality products. Moreover, competition in food retailing also more often comes from unexpected sources, with non-food discount formulas like Action, Big Bazar, or Kruidvat gaining market share.24 Rabobank referred to the rise of the “hybrid consumer” as follows:

Consumers are becoming less interested in mid-market products and are instead trading down when it comes to everyday value-for-money items, such as basic groceries. Using money saved by trading down on staples, hybrid consumers are trading up to premium, high-end products that matter most from an emotional and social perspective, such as premium brands in supermarkets and fine dining.25 Changing demography

Another important trend that influences the “who” dimension of the business model is the changing demography. Firstly, the ageing population results in more single households. Both Dirk Mulder (ING) and Ad van Olphen (Henri) considered this trend an opportunity for the food sector. Older people will need to live independently for a longer period and are looking for different kinds of products, easy to prepare and ready to cook, in smaller portions. A home delivery meal box for older people was mentioned in both interviews as potentially

successful. Secondly, younger generation single households and young families should deserve the attention of food producers. According to Edwin Lambregts (Berenschot), these consumers are looking for convenience, smaller portions and packages, and are open to new online channels to buy their groceries.

24_{Rabobank (2014). “Rabobank Cijfers & Trends, Een visie op de branches in het Nederlandse bedrijfsleven”.}

39e jaargang editie 2014/2015. Retrieved from:

https://www.rabobankcijfersentrends.nl/index.cfm?action=sector&sector=Food

25_{Rabobank (23 May 2013). ‘Rise of the Hybrid Consumer to polarise the food sector’.}

https://www.rabobank.com/nl/press/search/2013/Rise_of_the_Hybrid_Consumer_to_polarise_the_food_sector.ht ml

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Specific target audiences

Hans van Haaren (Rabobank; personal communication, 28 April 2016) pointed to the fact that the volume in food will not increase in the coming years: “Although people are getting older, we even may consume less.” A strategy that SMEs could follow to respond to this

development is differentiating toward a specific target audience. Fred & Ed explicitly embraces this element in its business model: “We focus on a target audience (kids/moms), that is generally too small for the bigger players, in order to distinguish ourselves and claim a position within a very competitive market” (Lowik, personal communication, 17 May 2016).

WHAT? The value proposition

Convenience products and home delivery meal boxes

Because of the changing population trend, combined with the insight that people shop for their groceries in different ways and on different channels (see below), the demand for convenience products seems to increase. Edwin Lambregts (Berenschot; personal

communication, 20 April 2016) stated, “There are many family packages on the shelves of the supermarket, while a lot of online shopping behaviour comes from new audiences, including single-person households and young people. So producers need to do something about portioning.” Additionally, Dirk Mulder (ING; personal communication, 23 May 2016) stated the following:

Consumers from the baby boom generation go maybe once a week to the grocery store, while younger consumers, especially the dual earners, are more prone to decide on a daily basis how and where they are going to eat. Whether they go to the

supermarket along from work and grab a meal, order something at a caterer or cook from a home delivery meal box like HelloFresh.

Danny van den Burg (GfK) explained this trend by the insight that people are increasingly busy and have less time to spend on home cooking. According to Hans van Haaren

(Rabobank), the convenience segment, known for its higher value, price, and good margins, is currently growing. Since these kind of products are characterized as being highly processed, this trend may offer a huge chance for food producers.

A relatively new trend that fits well into the increasing demand for convenience products is the rise of home delivery meal boxes. Relatively new players in the food retail market, like HelloFresh, angle for the customer's shopping budget. Currently, the battle on the Dutch market place of food delivery boxes is fought hard between concepts like HelloFresh, Albert

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Heijn’s Allerhande Box, Matthijs’ Maaltijdbox, Marley Spoon, Bee Box, Streekbox, and De Krat. Although the interviewees do not acknowledge food boxes as a key sales channel for food producing SMEs, they see it as a potential marketing feature. Rob Morren (ABN AMRO) mentioned the chance it offers to improve awareness for SMEs’ products, but noted that it probably is not a suitable strategy for structurally increasing their turnover.

Healthy and sustainable products

Consumers increasingly value sustainability: In 2014, for the fifth year in a row, Dutch consumers bought more animal and environmentally friendly produced food (+18%). The market share of sustainable food further increased from 6% to 7%, with a total expenditure of at least 2.6 billion euros.26 Moreover, health may even play a bigger part than sustainability in consumers’ purchase decisions. The earlier mentioned consumer study of Motivaction and FNLI shows that taste (91%), fresh products (87%), price (82%), and health (81%) are the most important drivers for consumers to buy food products. Of the survey respondents, 70% thought they were already following a healthy diet, although 40% wanted to eat (even) healthier in the near future.13

This trend was acknowledged in all the interviews, either by mentioning the rising demand for healthy and sustainable products or by the indication of the increasingly critical consumer. All the experts consider this trend an opportunity for food producing SMEs: Companies can create added value and distinguish themselves by offering high quality, organic products. This aspect is even at the core of the business models of SMEs Sofine and Henri. Bart Merkus (Sofine, personal communication, 20 May 2016):

Our challenge is to seduce people for tasty alternatives. I think you would believe me ten years ago when I said that vegetarian products are healthy and better for our environment. But yummy? No way! So our primary goal is taste. Because when people think it’s yummy, they will embrace our products on the second place because they are healthier and better for the world we live in.

Several entrepreneurs (Egberts (Henri van de Bilt vleeswaren); Lowik (Fred & Ed); and Van Olphen (Henri)) also mentioned the struggle between their aim of offering healthier and more sustainable products, on the one hand, and pressures on prices they experience from retailers, on the other. Ad van Olphen (personal communication, 22 June 2016) stated, “You just need to hang in there with your sustainable business and eventually you will succeed. It always

New business models for food producing SMEs : toward a tasteful taxonomy