Ep. 62 – The Fascinating and Infuriating Case of Bright Farms

JANUARY 15, 2021

Welcome to episode 62, the fascinating and infuriating case of Bright Farms. Hey, did you miss the news earlier this year, too? One of Bright Farms late-stage investors, Cox enterprises, yes, the cable company recently absorbed its target after a blistering series of agtech investment rounds in the past four years, like to the tune of $215 million in total investment. Why does an emerging brand, folks, that has raised 10X more than its current trailing revenue exit in this way to a strategic operating in a totally unrelated industry? I really don’t know.

My guess is that they see it as a safe ultra long term investment, regardless of its current small scale. I don’t know, perhaps a way to counterbalance declining profits in the cable fiber industry, gulp!

Here’s the public story of Bright Farms for those of you in CPG, not tracking the clean tech/agritech crossover, FYI, I have never worked with these folks, so I’m relying on public information. Paul Lightfoot and Ted Caplow founded Bright Farms in 2010 as a hydroponic greenhouse platform for growing popular American produce varieties closer to grocery stores at reasonable prices. It’s a supply chain cost reduction platform at its core as a business model, but also offers per consumers produce high-quality produce ostensibly as fresh as a deli sandwich or a salad. Most salad greens have spent a lot more days on the supply chain before they show up at your store.

The consumer idea in a sense was to overcome the food safety issues and the massive recalls caused by centralized lettuce, mega ag operations in Salinas and Yuma, and to also reduce retail prices for high quality greens.

Here’s what I’ve gleaned from public sources. So far in total, series A through E, Bright Farms has raised $215 million before Cox absorbed it. They currently have five very large scale greenhouses, although they aborted an earlier plan to already be at 20 to 25. The revenue, as far as I can determine from public sources is about 20 million annually in trailing POS sales as of the end of last year, don’t have 2021. They have about 10 UPCs excluding their basil leaf. Their estimating unit sales in 2020, based on all of this is about 5.3 million units over five greenhouses based on a unit price that I see publicly at 349 a unit. This is for the salad greens.

Bright Farms cost of production per acre is wildly lower than regular agriculture though I don’t know the full extent of that, in excluding the debt to build facilities, which can explain most to the series A through E. And it does it at a higher gross margin per unit than regular package greens because it ain’t traveling that far. And it’s a more efficient production mode. The maximum number of units that a Bright Farms greenhouse apparently can produce is about 4 million little buckets of salad greens. And so right now, the five operating greenhouses appear on average to be operating at 25% of capacity. So they still got nice upside on the five greenhouses. 

When I take all of this and I slice it with some assumptions based on publicly available data from the produce industry, I have estimated privately, roughly, crudely the units per store per week for Bright Farms in 2020, was about 55.

Maybe I’m exaggerating a little bit, and these are utilizing very large multi facing displays like you see at Giant and other East Coast retailers. It means that they’re actually capturing at some of their stores upwards of a 30% market share where they’re sold. And that’s just based on backing my way into the velocities based on their market share and store count. Look, you can be nauseated by the sheer amount of capital that they raised, but I think that’s a distraction. This purely interesting and actually a phenomenal velocity story for an early stage brand in a brutal commodity industry, I mean, brutal. And the profit per acre model is kind of interesting too, for those of you into that stuff. The questions though that I have related to scaling Bright Farms moving ahead, we’re talking about 20, 25 million business after 10 years, it’s not Skinnypop, so not yet.

Now how many more supermarkets can Bright Farms actually perform at this high of velocity? I mean, Giant would be an actually an interesting middle class test, if they’re doing that well, there, it could be a lot more. America has 38,000, that’s 36,000 more to go. Does Bright Farms velocity grow moving ahead at same stores? I have no idea. And for how long does it grow before it runs out of new consumers or consumption occasions? Remember, this is not a soft drink. 98% of Americans drink soft drinks. It doesn’t have a massive household consumption upside. It doesn’t have a, excuse me, a huge consumption upside among consumers either because there’s only so much salad green anyone’s going to consume in a week. So how many of America’s 59% of households who currently eat packaged salad greens remain open to switching to Bright Farms?

Look, even though it’s not commanding a crazy premium price of like 100%, I don’t see a pathway to a billion dollars in sales myself because only so many Americans care about quality greens and the early experiment at Giant foods who knows, has probably already revealed the answers to their team. While $14 million in wholesale sales which food navigator published last fall or roughly 25 million in retail revenue may seem low for an 11-year-old premium brand. That’s only when viewed from the hasty perspective of typical American venture capitalists. If we assume Bright Farms sold $500,000 max in year one, which I frankly think is unlikely, then the rough 10-year CAGR for the company is an impressive albeit sub-exponential 49%. Nice work in my view for a such a complicated, operations intensive venture. That’s essentially vertically integrated, duh!

Bright Farms, look, plans to produce additional product types. They always did. And I believe it’s going to need them if they want to actually become a billion dollar greenhouse-based platform. However, how, and when Cox Enterprises actually sees their ROI like net positive ROI on a hundred million dollar investment, remains their little secret. I’m sure they have an excel tab. I suspect their absorption actually has a lot to do with the fact that they have all people, the largest investor realized there’s going to be no private equity or strategic acquirer interested in this anytime soon and that Taylor Farms was not chopping at the bit, it appears.

And so in 10 more years, folks, given this kind of private, double digit growth cover, Bright Farms might actually surprise us all and announce that it’s a half billion dollar trailing sales business, and then we’ll suddenly rediscover it. Bright Farms slowed down their original scaling process. They were going to blitz out tons of green houses and go honky honk crazy crew, just like you would expect a Silicon Valley kind of venture to do in CPG, but they slowed down and they brought in a professional marketing ops team from BigCo, which ironically, almost assuredly helped them slow down. But in this case in a good way, because they finally began approaching things like a CPG brand should not like a Silicon Valley blitzscaling operation.