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Nov 19, 2013

Food Desert Solutions Highlight Advantages of Social Enterprise

Everyone is familiar with food banks as a means to address hunger in our community.  Lack of ready access to nutritious food is another component of this problem.  The US Department of Agriculture has defined the term “food desert” as a low-income urban neighborhood in which the nearest supermarket is more than one mile away.

The social sector is drawn to addressing such problems and there are a number of ways to go.  Two efforts, one in Pennsylvania and one here in Columbus, illustrate the difference between the traditional grant-based nonprofit approach and the emerging social enterprise approach.

Fare & Square is a zero-profit grocery store operated in a food desert by Philabundance, a Pennsylvania nonprofit food bank.  It is committed to charging prices 8 to 10 percent below surrounding small urban grocers.  It also provides 7 percent store credits to customers meeting certain poverty guidelines.  It will strive to offer fresh fruits and vegetables at the lowest prices.

The store was opened largely through grants and loans by development institutions and a bank, likely through its Community Reinvestment Act program.  To maintain operations, Fare&Square has a crowd-funding site and will seek annual grants and donations.  This effort is classic nonprofit since annual fundraising will be necessary to continue the low price, store credit, and zero-profit commitment.  Should fundraising stall or falter, Fare&Square will be challenged to maintain its commitment.
The Food District @ Weinland Park is a food-oriented nonprofit undertaking of Godman Guild.  Like a nonprofit, the development of the idea was grant-funded and construction of a facility will be financed through the same mechanisms as Fare&Square.
But at this point the two initiatives differ.  In order to provide the typical “nonprofit” services that are unlikely to be self-funding, like job-training and a food co-op, the operations will be supported by the following “for-profit” social enterprise activities:
•    Process and “co-pack” local food for existing Columbus-area companies expanding their product lines
•    Rent commercial kitchen space to food entrepreneurs
•    Provide marketing and business-support services to food-related start-ups
•    Offer wholesale cash-and-carry sales for restaurants and other large buyers

Both Fare&Square and the Food District@Weinland Park seek to create jobs and access to healthy food in a low income neighborhood.  However, the Food District is more likely to be able to sustain and expand these goals because it is simultaneously developing profitable activities whose profits will reduce its dependence on recurring fundraising appeals.

Because philanthropy has been a constant share of nonprofit revenues for almost three decades and recognizing that there is an increasing sense of donor fatigue, the promise of social enterprise to supplement, and potentially relieve, philanthropy has enormous appeal.

But social enterprise is not a sure thing.  Social enterprise requires donors to change their typical criteria for effectiveness and consider investing or lending as a part of their philanthropic efforts:
•    There is risk that cannot be eliminated.  A social enterprise is like any new for-profit business:  it can fail.  Failure should not be viewed as a black mark on the nonprofit as long as a sound business plan was developed and followed.  Certainly many successful for-profit entrepreneurs have several failures on their resumes!
•    Social investors tend to impose more onerous criteria for loans and investments than for grants.  But isn’t the potential for getting an investment or loan repaid a lower risk than a grant which by definition will never be repaid?  Philanthropic investors need to accept, indeed seek, projects that have the higher risks inherent in any start-up business.
•    Typical grants expect to see results in the first year or two.  Yet a new for-profit business can take three to five years before becoming profitable.  In the interim, the business will likely lose money and require enough investment capital to keep it afloat.  Indeed, investors in start-up for-profits are used to waiting many years before realizing a return.  Investors in social enterprises need to be just as patient.

It is a good thing that The Food District @ Weinland Park has several social enterprise components.  As this project begins implementation in the next two years, it is essential that the business plans and capitalization of the social enterprise components demonstrate their ability to sustain the job training and food co-op services that I would call the “high mission” activities of the District and Godman Guild.  By doing so, The Food District may be around much longer than a stand-alone nonprofit project like Fare&Square.

Want to be part of social enterprise in Central Ohio?  Learn about the Community Investment Network of Central Ohio (CINCO)