Mycological Warfare Part 1: Charting the Battlefield

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The second habit in Stephen R. Covey’s The Seven Habits of Highly Effective People is “Begin with the End in Mind.” We have discussed this idea of working backwards a lot, but recent conversations have highlighted to me that there is a need to explore the ultimate direction that the market is heading, so we can better articulate why we are doing what we are doing.

To me, the heart of this discussion is logistics. Internally, we at Mossy Creek Mushrooms have discussed logistics quite a bit. I believe this will be the great disrupting force in the specialty mushroom world, and we are planning our growth accordingly. The three primary factors in this discussion are Quality, Total Sales, and Pricing, and they all feed into the great question of how to compete in a market that’s being disrupted. For the sake of not writing a novel, I’ll just deal with the issue of quality in this post.

We deliver 3-4 times a week to different restaurants on established routes. This means we can pick mushrooms every day as they are growing, right at their peak quality, and they are delivered either that same day or next to the consumer. Given that most gourmet mushrooms deteriorate rapidly, this means that no other distribution network will be able to beat us in the quality of our product.* It also opens up a wide field of mushroom varieties that many restaurants have never heard of or considered, because they could never get them within their extremely limited shelf-life. It appears to me, then, that the direct distribution method really isn’t competing or disrupting the existing (button) mushroom industry at all, but rather is creating a whole new market segment that has been massively under-served in the U.S. as a whole.

It is a point of interest that the majority of restaurants that buy our mushrooms have never ordered mushrooms before from any other source, aside from buttons and shiitake, or the occasional wild mushroom. We’ve also had a couple restaurants drop us because they could get oysters for $0.30/lb less from Valley Produce or Sysco. They were back about a month later and have been loyal customers ever since, because they could not get a consistent product elsewhere. Ultimately, we spoiled them, and now they cannot accept anything offered elsewhere because they expect better.

My projections on the timeline of this developing market

That’s where we are now, but where are we going? It seems apparent that more and more growers are popping up every day, which means competition is going to heat up and the market will mature. It will most likely happen at different paces throughout the country, but based on the trends I’m seeing I expect there to be 3 main phases in the growth of this market.

The next five to six years will primarily be market development. Most of the new growers will fail or remain too small to make much impact, but enough will survive to dramatically affect the mushroom supply. Current projections of demand for specialty mushrooms are pure nonsense because much of the country doesn’t even know they are an option, or have such low-quality examples that they aren’t a very appealing option anyway. As more varieties become available, I expect demand to pick up organically. In the race to fill this demand, many farms will expand by any means possible.

The five years beyond that (2025 – 2030) will be when the market shows its first signs of maturity. The true demand will become established as supply begins to reach it. We will still have late-comers into the market, and I think there will be a few areas where supply will begin to outpace demand.

The late part of the 2020s and continuing through the 2030s will be a time of mushroom farmers tightening their belts. As supply and demand stabilize, prices will fall and those farms that can’t absorb the price drop will go out of business. Those farms that have a lean system and have solved the logistics puzzle will ride the waves and take large swaths of the market. During this time, the barrier to entry will rise, and the market will become established, with those farms who were well-positioned to grow during the 2020s planted as market leaders.

How will the market be won?

A natural topic of discussion in the mushroom world has been when to “level up” and focus on growing, while letting distribution networks handle the leg work of getting the mushrooms to the consumer. We made a tough choice last year of dropping our last farmers market. Sacrificing the higher price point of the market for the greater consistency of restaurant sales has been a huge boon to us. It seems reasonable, then, to assume that dropping distribution entirely would provide a similar boost, but I feel like there’s a trap here. This one decision is critical to every single aspect of a mushroom business, and MUST NOT BE TAKEN LIGHTLY!

The difference between dropping farmers markets in favor of restaurants, and selling to a distributor, is that the first transition is a change in the type of direct distribution, whereas the latter puts your mushrooms through the crucible of undetermined amounts of time in storage/transport. The type of distribution also informs your practices as a grower. For example, selling through a distributor encourages a farmer to focus on one primary metric: weight.

It is relevant to this discussion that I noticed a bizarre phenomenon this Thanksgiving. A 15lb turkey looked like it should be a 10lb bird. Inspection of the label showed that this was, in fact, a “Turkey and Water Product.” It has apparently become standard practice to soak a turkey and inject the meat with water in order to charge customers for an inferior product that at least matches the weight of the bird they are wanting. That’s what we’re seeing in the mushroom world of distributor peddled mushrooms. These mushrooms are being grown in too-humid conditions to maximize the weight of the fruit bodies, then sprayed with bleach water to fight the run-away microbial growth. None of this is strictly bad, I guess, but it provides a noticeably inferior product out the gate, and then this soggy “Mushroom and Water Product” degrades even more by the time it reaches its destination. This also stifles the desire to grow many varieties, as you’re pretty much left with blue oysters, trumpets, and shiitake that put on enough weight to be worth the grower’s time, and last long enough to be worth the distributor’s time.

Because we made a choice to maintain our distribution network, we are able to focus intently on systems and methods that maximize quality and consistency. We grow with a lower relative humidity than average and spend the extra cash on the ultrasonic humidity system that needs to be replaced about once a year because it provides an unmatched growing environment. We are religious about cleaning, as anyone watching Andrew’s Youtube videos should know by now. We sell by the case (volume), not weight, so that we can charge a set amount for all oysters based on the actual amount of mushroom that we deliver, rather than water weight.** We also spend more to make our product reliable. We run our steamer on a 12-hour heat-up cycle, then maintain full heat for 24 hours. Some people say this is overkill, but we suffer from remarkably low contamination rates, even growing in the South where contamination is a common problem. We put in the extra time and money to ensure we can be reliable, and all of this builds excellent relationships with our clients. This, in turn, means we have a very good handle on the market we are serving, and have a rich understanding of what our market wants and how much demand exists in the area.

So, what about the total sales amount? This is a complicated one because it’s one area that a large farm selling through distributors may have an advantage over the next few years. I think it’s a poor route to follow, though, and I’ll further explore why in my next post.

-ben

P.S. Feel free to tear my ideas apart in the comments. I made this post to formalize some of the ideas I’ve been exploring, and to flesh out my rationale for the growth path we are pursuing. I think forward-looking discussions are needed, so please join in, or post links to your own posts or videos on the topic.

Suggested Reading – Smarter Faster Better by Charles Duhigg. I just finished this book and found it to be beautiful. I will keep it around as a reference, particularly for Duhigg’s insights into innovation. Definitely worth the read for anyone getting started with a small business.

*Early on there was a discussion about delivering mini grow room “pods” to the restaurants that we sell to, and providing regular service, so they could harvest the mushrooms themselves to truly maximize freshness. Ultimately, the cost and headache involved in that system, and the marginal increase in quality, paired with the risk of mismanagement by the restaurant, made us decide against it.

**This also simplifies our harvest process, because we don’t have to weigh out each case, we just fill them full. Our chefs love it, and they have noticed that we are honest about the amount in each case. Cut corners there and you cut your own throat.