Recircling food waste in hospitality industry

Food waste and environment 

Food waste is one of the biggest issues in achieving Goal 12 of Sustainable Development Goals- Responsible Consumption and Production. According to United Nation, 1.3 billion tonnes of food is wasted every year, while almost 2 billion people go hungry or undernourishedThis waste is a threat for the environment. The food sector accounts for around 22 percent of total greenhouse gas emissions, largely from the conversion of forests into farmland. Obviously, this is quite a huge waste and we must reduce the amount of that to some degree so that we can enjoy sustainable food consumption.

We want to focus on SDG 12: Responsible consumption and production, specifically, we want to look at new process and business model that can help achieve the target to halve the world’s food waste per capita by 2030

SDG 12: Responsible consumption and production, specifically, we want to look at new process and business model that can help achieve the target to halve the world’s food waste per capita by 2030

 

Food waste and hospitality industry

The hotel industry plays a crucial role for reducing food waste. The hotel industry operates restaurants, which is the major source of food waste. Unlike the normal restaurants, hotels often offers the buffet style meals, which generates more food waste. Hotel industry operates its business model which maximize customers’ experience and satisfaction inside the hotel. Basically, the hotel operate restaurants inside the hotel for the following ways.

  • Restaurant management model : restaurants usually adopt the buffet style. This means hotel prepare the foods on the basis of the number of expected customers. In order to satisfy customers’ needs and requests, restaurants often have to prepare hundreds of types of foods.
  • Food supply chain: restaurants often have contracts with some catering service providers. Contracted catering service providers usually procure ingredients from their contractors and cook at hotels.

This linear business model is designed mainly for enhancing the customers’ experience. It is important for hotel industries to improve both the quality and quantity of food inside the hotel, even though it is not their main focus point. However, the current business model has two big problems, which harm the achievement of sustainable development goals.

  • Food waste: hotels are usually the source of tons of food waste. Firstly, hotels usually handle too much inventory. In order to satisfy the customers, it is necessary for them to prepare much more food than needed. This phenomenon can be explained by newsvendor model. For the hotel, the shortage of food and the food waste can be cost. But the problem is that, the former costs much more than the latter, since it directly affect customer satisfaction. It is possible that hotels fails to lose customers’ retention due to the shortage of food. In other words, the underage cost is much more than overage cost in hotel food inventory. Therefore, hotels prepare much more inventory.
  • Invisible entire supply chain: it is difficult for hotels to monitor the entire supply chain for food. Firstly, foods are not the main source of differentiator for the hotel industry: its main focus point is its service side such as the accommodation, concierge service, and quality of amenities. Hotel industries cannot spend much time on monitoring food supply chain, which is just a part of their entire supply chain. Secondly, the food supply chain is much more complex than any other supply chains.

 

New business model

Creating circular economy from disposal, procurement, food preparation and consumption

Our new business model is to switch this linear business model to the circular one. Our idea is to close the loop of the supply chain by using data analytics and close collaboration with stakeholders, especially at food part so that we can reduce the cost and amount of food waste at the hotel industry. Two technologies will be needed to close the loop: one is Smart Dustbin that collect data and create insights on the food waste produced, and  food waste composer to decompose food waste and create fertilizers for food production.  However, discussion of this blog will focus on the use of the food waste composer. The entire process of this new business can be described as below.

  • Reduce Food Waste
    1. handling too much inventory
      1. Utilise Newsvendor tool to better manage the quantity ordered
      2. Collect and analyse the food waste to identify gaps. Use Smart Dustbin that can seamlessly measure, track and identify all food waste thrown into it, and thus have the ability to act on the insights and reduce waste.
    2. overordering by customers
      1. consider cameras + AI technology analysis to figure out over time, what % of food is wasted, what type of food is wasted
  • Process Food Waste
      1. Biomax – Grand Hyatt example produces 500kg of fertilizer per day
      2. These are premium grade organic fertilisers can be be for farming or horticulture. 
  • Sell to Farmers/Partners
      1. Partner with urban farmers to build stronger relationships in value chain
      2. The fertilizer is high quality + organic, sell at premium price
  • Farm
      1. Partners handle the farming side of this model
      2. Use fertilizer to farm crops – typically, on average, 140kg / hectare required
      3. Possibly allocate some crops to feeding homeless shelters
  • Procure Materials
      1. Procure the materials from these partners/ farmers that can further reduce the carbon footprint due to the locally sourced procurement
  • Produce Food
      1. Craft menu to work together with what the farms are growing

 

  • Sell Food to Customers
    1. Encourage customers to order just what they need
    2. Sell as organic food, consider adjusting prices
Biomax Thermophilic Digester used by Grand Hyatt

 

Smart Dustbin that can seamlessly measure, track and identify all food waste thrown into it

Triple Bottomlines

This new supply chain business model has the positive financial impact on hotels. Firstly, hotels can reduce the cost generated by the food waste since they can sell fertilizer which is made from food waste. Even though it requires initial investment for buying machines, hotels can calculate its net profit value based on the cost of machine, the amount of food waste which each hotel produces and the price which hotels can earn through selling fertilizers. Secondly, it can attract more consumers which highly values circular concept. This new business model will give hotels other types of branding: sustainable and eco-friendly hotel. It also has the social and environmental impact. Firstly, hotels will contribute to responsible consumption and production by recycling food waste. Since food waste itself is the big issue to the environment, which requires additional landfills. So reducing the amount of food waste directly contribute to the environment. Secondly, by producing fertilizers from food waste, hotels can feed farmland without creating fertilizer, which might harm to the environment. In this sense, hotels can indirectly contribute to the environment. Besides, this business model is applicable to other food-related industry such as grocery stores and restaurants.

 

Supply and demand innovations

Many hotels are working on some sustainability goals; yet, mostly they engage in internal improvement of process without a big picture. With our business model, we can reduce food waste from both demand side (how and why we generate food waste) and supply side (how we deal with food waste) to create a sustainable, circular loop.

To evaluate demand side, we want to better forecast consumers’ preference of food, the way food is cooked, as well as the portion consumed and wasted by collecting and analyzing data so that we can minimize the food waste. The sum of food waste can be gauged from observing the food waste before going in Biomax. Other data will have to be collected either manually through new SOP process or automatically by camera when disposing of food. A couple of segments should be considered, such as customer gender, age, education level, dining duration, and so on as independent variables. After analysis, we can test our hypothesis with different menus and portions to find the optimal way to meet consumers’ needs while minimizing the food waste, and purchase suitable portions accordingly. Given time and resources allowed when things work out more smoothly in the future, we can even try with pre-ordering for consumers with reservation. This is more like a mixture of hotels and private kitchen, which has been popular globally among consumers and restaurants owners because of forecastable demand and thus less food waste occurred. In addition, consumers may feel privileged and can ensure they consume what they want, creating a positive snowball effect.

Regarding supply side, the big picture is to sell fertilizer to farms that supply food to Grand Hyatt. The current transformation rate of food waste to fertilizer is not bad but can be further utilized if Grand Hyatt’s hotels in other regions can also adopt such machine. In the meanwhile, we encourage Grand Hyatt to use upgraded version from Biomax for better efficiency when technology is available. As for the application of fertilizer, currently Grand Hyatt uses these fertilizers in some of their sky gardens as a demonstration. The intention is good but not really contributing to substantially maximizing the fertilizers. Therefore, we propose to sell either directly to farms or indirectly to partners. We believe the value proposition of our fertilizer is organic and of better quality, and we will need further report from Biomax for internal verification and reference for marketing purposes, either to our partners or our end-consumers as a good PR. With current quantity of fertilizers, distribution model can remain the same, but once the production level is scaling up, either Grand Hyatt can consider using ships or drones to distribute to further regions or countries, depending on time and distance, or more Grand Hyatt hotels can adopt such machines and distribute in nearby regions.

The benefit of having a mutual relationship between Grand Hyatt hotels and farms are self-evident. First, farms enjoy a stable supply of good quality of fertilizers, potentially at a lower cost depending on whether Grand Hyatt wants to earn more profits from selling fertilizers with hotel’s perspective or save more costs from buying fertilizers with farm’s perspective. In addition, good quality of fertilizers lead to better quality of crops as food supply to Grand Hyatt. In this way, Grand Hyatt solves the problem of food waste while creating additional revenue stream. With such farms affiliated to Grand Hyatt, its public image is positive enhanced. Considering Singapore has limited available land, partnering with vertical farms, given that only 7% of Singapore’s food is grown locally.

Potential Costs and Risks

This paper will limit the scope of the business to Singapore as a basic starting point, since there are numerous quantifiable metrics in the market. The business model appears ideal in that it has the potential to close the loop on food waste, but there are business, social and environmental challenges to overcome.

As noted before, there is an estimated cost savings of about $100,000USD/year for the Grand Hyatt Singapore, which has deployed the Biomax Thermophilic Digester. Cost savings were realized through lowered usage of plastic bags and bins, labor, and waste removal fees.

Though operational cost savings can be realized, each hotel runs differently, and in some cases, the profitability of our business model will also depend on the ability for the overall hotel chain to find customers for the generated fertilizer. These customers must be willing to pay the price we set, and order enough quantity of fertilizer to give us a reasonable payback period on the investment in machines.

As a rough estimate of how supply compares to demand, consider the following information. From the supply side, each Biomax machine has the ability to convert food waste into about 175,000kg of fertilizer per year on average.

On the demand side, throughout Singapore, each hectare of land consumes approximately 30,000kg of fertilizer per year. There are approximately 2000 hectares of farmland across the country, as well as approximately 2000 farms. Therefore, the potential Total Available Demand is 60,000,000kg of fertilizer per year on average.

We can see from initial estimates that a single hotel would expect to meet approximately 0.3% of all fertilizer demand in the country which, at cursory glance, seems reasonable and attractive. However, if significant environmental impact is the goal, more than a single hotel would need to deploy the Biomax. The challenge is that farms likely have existing, regular fertilizer suppliers and since we would be charging a premium for this high-grade, organic product, planning on taking on a significant share in the market may prove difficult, especially if the current chemical and organic fertilizers are seen as “good enough” for farmers.

Alternatives may include shipping out fertilizer to other countries, which will result in increased logistical challenges, as well as a more significant effort on the part of Sales and Marketing to identify and penetrate those external markets. External markets may also demand higher volumes of fertilizer, targets that may be difficult to hit for a company which has hotels and small fertilizer production pockets scattered throughout the country.

From a social perspective, this business model does not appear to incentivize customers to waste less. In fact, by projecting our image as a sustainable establishment that converts food waste, it is possible that hotel guests may feel encouraged to waste even more, further stressing the pricing and supply model we are still constructing.

From an environmental perspective, excess supply of fertilizer may have serious consequences. If the market becomes saturated fertilizer and there is no feasible way to transport fertilizer to customers outside of Singapore, fertilizer produced by the machines, as well as by traditional fertilizer producing companies would need to be disposed of in some manner. Unfortunately, the increased nitrate content may leach into groundwater, poisoning it or nearby water sources. In addition to creating foul odors, an influx of nutrients can fuel increased micro-organism and weed growth that depletes the oxygen in ponds or lakes, resulting in the death of aquatic life, kicking off a positive feedback loop which may eventually destroy the entire ecosystem.

Risk Mitigation

In order to mitigate the profitability and oversupply issue that may drive environmental damage, it appears that, from the perspective of operating this business in Singapore, it will be necessary to first build a solid base within the country, but then transition to identifying and deploying our model to external markets.

The rollout can proceed in the following manner: first, identify small farms within the country that are willing to pay for and utilize the fertilizer as a pilot. Our value proposition is that our product is less damaging to their soil and provides high-grade nutrition to their crops, in addition to being environmentally sustainable. We can build a relationship with them by contracting to supplement our regular raw materials procurement with purchases from these small farms. The key to countering potential competitor responses will be creating tight supply chain integration and building a strong relationship between our organization and the farmers we work with.

After we have captured as much of this market within Singapore as possible, we can then take the next step to identify farms in neighboring countries to supply as well, looking to purchase larger quantities of fertilizer. Worldwide, the average usage of fertilizer is about 150kg / hectare. Potential, attractive farmers may fit the following profile: usage of > 1000kg fertilizer / hectare / year, willing to pay for premium fertilizer, and looking for a reliable customer to sell crops to. As the sales contracts are generated and a better understanding of demand is gained, we can then decide how many more Biomax machines to install in additional locations.

When we roll out the locations, we should optimize for proximity from one hotel to the other, as well as the amount of food waste expected from the locations since some locations may not generate enough waste to justify the investment. Proximity is important, because a strong distribution network needs to be formulated as the business scales, and proximity is a strong determining factor. Technology investments may need to be made (either modifying existing ERP systems or creating a new supply management tool) to allow the company to have stronger command and control over the entire process.

In summary, mitigating the aforementioned risks involves making a series of small bets, adjusting the number of machines we roll out, adjusting the capacity to meet demand, and optimizing our distribution. As we take on more and more fertilizer buyers, we will loop them into our network so that we can eventually close the loop on our food manufacturing cycle.

 

By: Ted LEE Kok Tien, INAYOSHI Ryota, Juliette LIN, Brian TANG

Sources:

  1. https://www.undp.org/content/undp/en/home/sustainable-development-goals/goal-12-responsible-consumption-and-production.html
  2. https://www.goodforfood.sg/product/
  3. https://www.straitstimes.com/singapore/hotel-recycles-500kg-of-food-waste-into-fertiliser-within-24-hours-using-food-waste
  4. http://countrystudies.us/singapore/39.htm.

1 Comment

  1. Really interesting article! I wonder however about the cost of investing in the machine to create compost/fertilizer versus simply selling the excess food to those in need. Many companies are now being created to bridge the gap between these people and excess food. It might be less costly to do that, both in terms of capital and time.

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