Walid Abdul-Wahab, founder of Desert Farms was very grateful for his small, yet loyal, clan of niche customers that was willing to pay premium prices to make sure they got their hands on Desert Farms' camel milk products because of their unique nutritional properties and reported medical benets. carnal Milt As exciting as it was to have such devoted customers, Walid was concerned that the camel milk market did not have room to grow if his company only focused on niche customers. Recently, he had been contemplating making internal changes that would lower Desert Ems: per unit price in order to increase the company's market share. Some options included taking on more ownership of the company's supply chain and exploring new sales channels. These were long-term investments Walid knew he needed to consider if he was serious about growing the size of not only his market share, but the market itself. From Saudi Arabia to Southern California: Walid had moved to Santa Monica after graduating from his high school in J eddah, Saudi Arabia. After two years in community college, he transferred to the University of Southern California (U SC) to pursue a degree in marketing. On a visit home in the summer of 2012, a friend offered camel milk, a beverage you could only buy from local Bedouin Nomads and merchants. Walid was inspired by this M and he took an immediate liking to the Middle Eastern beverage. \"I fell in love with camel milk right away,\" said Walid. \"I wanted other people to experience how great it was as soon as possible.\" After returning to America, Walid realized there was no way to purchase camel milk through conventional retail channels. He discovered that the only way to purchase it was through camel breeders that sold camel milk directly to consumers. When Walid explored the idea of selling camel milk in American markets, there were approximately 5,000 camels living on farms in the animals. Walid asked himself, \"What if I could gure out a way to bring this product to market in the states?\" While the concept of camel milk was foreign to most Americans, he felt that it presented an ideal business opportunity to capitalize on an untapped market. At the beginning of 2013, Walid launched Desert Farms, the rst-ever U.S.-based camel milk company. He decided that his rst course of action would be nding reliable farmers from whom he could source the camel milk. In February of that year, Walid visited six Camel farmers in After returning to America, Walid realized there was no way to purchase camel milk through conventional retail channels. He discovered that the only way to purchase it was through camel breeders that sold camel milk directly to consumers. When Walid explored the idea of selling camel milk in American markets, there were approximately 5,000 camels living on farms in the animals. Walid asked himself, \"What if I could gure out a way to bring this product to market in the states?\" While the concept of camel milk was foreign to most Americans, he felt that it presented an ideal business opportunity to capitalize on an untapped market. At the beginning of 2013, Walid launched Desert Farms, the rst-ever U.S.-based camel milk company. He decided that his rst course of action would be nding reliable farmers from whom he could source the camel milk. In February of that year, Walid visited six Camel farmers in Pennsylvania, Ohio, Indiana, and Missouri. Walid proposed a new vision for increasing the sales of camel milk beyond the miniscule levels of the time: he would take care of the marketing and sales of the milk, if the farmers agreed to sell it to him at a decent price. While the farmers were interested, they were unwilling to sell the camel milk at a reasonable wholesale price because none of them produced the milk in bulk. Sil- Walid agreed to buy the camel milk from the various farmers for $53-10 per pint, about twenty times the retail price for an equivalent amount of cow's milk.1 After visiting several different farms, Walid realized that sourcing the milk was going to be more challenging than he had originally anticipated for several key reasons: I Technology: Most of the camel farmers were Amish or Mennonites2 and could not use current communications technologies such as email or cellular phones. This slowed down processes and made coordinating remotely more difficult. Most farmers were only permitted to use a landline telephone or fax machine and only during certain hours of the day. I Accessibiiigl: The farms were usually located at least 100 miles from the closest urban centers. The long distances from major cities often exacerbated shipping costs and made it difcult to keep the milk fresh during transport. I Productivity: Because the farmers produced camel milk in smaller quantities, Walid would have to buy and sell the product by the pint, versus by the liter or by the gallon. I Priorities: All _o_f the camel farmers that Walid met with operated other their businesses on their farms, such as herding, welding, tourism, and furniture making, among others. For most, selling camel milk was merely a revenue-generating stream they participated in on the side. Walid wondered if these suppliers would be reliable in following through on a formal business contract. Despite these obstacles, Walid felt reasonably comfortable about the conversations he had with the farmers and felt ready to take camel milk to market. In the early days of the venture, Walid had the farmers ship the milk directly to his dormitory, where he then bottled it and sold it at local farmers markets, mosques, and ethnic markets. He initially focused on members of the Arab;AmeIican community because they were more familiar with the product due to its popularity back in their home countries. Walid priced each bottle at $18 with the product due to its popularity back in their home countries. Walid priced each bottle at $18 per pint to cover the operating expenses. While he knew the price was steep, he was hopeful that customers would be willing to buy the camel milk both for its nostalgic and nutritional value. 1 8 pints are equivalent to one gallon 2 The Amish and Mennonites were similar Christia n groups belonging to the Anaba ptists (meaning \"ba ptize again\") denomination. These religions stressed a simple way of life focused on family, community service, and dedication to one's faith. Many Amish and Mennonite groups followed strict, conservative teachings and believed that technology and modern conveniences such as automobiles and televisions, should be used minimally or not at all \"There was a lot of interest and intrigue very early on,\" Walid said. \"I think launching in Los Angeles also gave it the push effect, because the culture there really embraces foods that are foreign and supports healthy lifestyles.\" Soon after launching, Walid set up a website with an online store to meet his growing demand. Walid made it a priority to develop an intuitive website for customers that could easily process orders on the back end. Chronic Conditions: A driving force Another market that unexpectedly helped drive the business forward included people suffering 'om debilitating long-term conditions and their family members (henceforth referred to as \"the chronic conditions community\"). Word-of-mouth information about camel milk's reported benefits for those with diabetes, autism, and autoimmune diseases quickly spread and consumers concerned about health benefits became Walid's primary customer base. While camel milk had been used medicinally by nomadic people for centuries it was not until 2005 when a study published in the \"International Journal of Human Development\" observed the positive effects that camel milk consumption had on people with autism. Researchers discovered that when participants in the study drank camel milk every day for a month, their communication skills vastly improved, and behaviors associated with the condition virtually disappeared. Other anecdotal evidence reported in the study revealed that children slept better, experienced fewer gastrointestinal problems, demonstrated increased spatial awareness, and exhibited more eye contact when consuming camel milk daily. Other reports about the milk's powerful immune- system benets indicated that it could be especially valuable to people suffering from diabetes, allergies, and autoimmune diseases such as Crohn's disease. Prior to Desert Farms' launch in 2013, people in the United States who knew about camel milk particularly parents of children with the diagnoses previously mentioned would contact camel farmers and herders and order the camel milk directly from them. Because the process was informal, it could often take weeks for the direct shipments to arrive. Shipping costs were high, as much as $80 per order, because the milk had to be transported long distances under refrigeration. Desert Farms aimed to provide consumers of camel milk and more hassle-free and streamlined approach to acquiring the highly sought-after beverage. The chronic conditions community also drove media coverage for the camel milk company, as many news outlets reported on the health benets of camel milk and referred to Desert Farms as the goto brand. Walid was featured in media outlets such as the Los Angeles Times, F ox News, and Vice, providing more context on the health benets of the beverage in promoting his product. Improving Operations: With a proof of concept and a newfound passion for bringing natural, healthy remedies to parents and children across the world, Walid felt an even greater responsibility to make camel milk more widely accessible to the public. He continued to grow his business by focusing on direct-to- consumer web sales in building mutually benecial relationships with his farming partners to ensure consistent supply. The chronic conditions community continued to be his primary customer, accounting for 90% of sales. Not long after starting this business, Walid applied to, and was accepted into, the USC incubator, an on-campus program and co-working space for students and alumni working on startup ventures. Walid said of being part of the USC incubator program, \"Being close to USC helped us utilize a lot of the resources and hire interns to grow our business. The program helped us course correct along the way with the help of the USC faculty.\" Walid and his farming partners had designed a system where he would be responsible for all aspects of marketing, while they would take on roles associated with the physical product. The farming partners would be responsible for milking the camels, processing the milk, packaging the milk with bottles and labels designed and ordered by Desert Farms, and then shipping the orders to customers. Because Walid ran the operations of Desert Farms on his own, he outsourced many aspects of the business such as accounting, label designs, website development, and social media content to independent contractors and interns. In January of 2015, Walid hired his only full-time staff member to help with the company's day- today operations. This included handling the purchase orders, dealing with customers, and managing the contractors and interns by delegating them to their various tasks. Consequently, Walid was able to focus his attention on diversifying sales channels, developing the product line, reaching out to new suppliers, and automating whatever processes he could to keep the business running as smoothly as possible. Dealing with Dairy In 2015, Desert Farms was the only company in the United States selling camel milk in the retail channel and the only brand that was FDA (U.S. Food and Drug Administration) and USDA (U .S. Department of Agriculture) approved, according to Walid. Camel milk was still an unknown consumer product to the_va_st _m__ajo_r_ity_qf the population. Walid knew his company needed to build more social awareness about camel milk for it to become competitive with common dairy products. The dairy industry was massive; cow milk had long dominated the American market and accounted for $46 Billion in sales (not including processed dairy products like butter, cheese, and ice cream). The dairy industry was massive; cow milk had long dominated the American market and accounted for $46 Billion in sales (not including processed dairy products like butter, cheese, and ice cream). The US was also the largest producer of cow's milk in the world, followed by China and India. Cow milk had long been considered a commodity, with the average American consuming 163.2 pints per year (equivalent to 20.4 gallons) at a cost of approximately 20 cents per pint (or $1.60 per gallon) and a retail price of approximately $3.30 per gallon. There were approximately nine million dairy cows in America that each produced about 56 pints (7 gallons) per day. In contrast, camels produce 16 pints (two gallons) per day, and only about 200 camels in America were being milked. \"We know we can't compete with cow's milk because for every 45,000 dairy cows in our country, there's only one dairy camel. And cow milk is a household commodity,\" said Walid. \"However, we believe our product is much more functional, and our goal is to market it as such.\" Product Line Walid originally focused on selling three variations of camel milk: 0 Raw camel milk (fresh or frozen): Milk that had been bottled without being processed beforehand. The shelf life for raw 1, camel milk was approximately ten days when fresh and six months when frozen. 0 Gently pasteurized camel milk (fresh or frozen): Milk that had been heated and then cooled to eliminate certain bacteria at the - - -- . -_.- essential nutrients. The shelf life for pasteurized camel milk was ' "- I" " approximately 14 days when fresh and six months when frozen. ' I Ker camel milk (fresh or'ozen): A probiotic, yogurt-like drink created by fermenting milk. The shelf life for ker camel milk was approximately 14 days when fresh and six months when 'ozen. Walid also explored ways he could apply camel milk as an ingredient in other products. He began experimenting with camel milk powder by creating soaps, skincare products, chocolates, ice cream, and coffee mixes. \"I wanted to explore the different boundaries we could push with our brand as long as we were utilizing the ingredient itself,\" he said. \"No one else has the ability to leverage camel milk like we can.\" While Walid added more to the product line, the top sellers continued to be the original beverages: L l U\" \"LI-u umua "I. hunuu UV Ll Gentl asteurized camel milk Camel milk owder _ Ker camel milk Beau roducts with camel milk owder Marketing and Customer mix Meanwhile, Walid also focused on diversifying sales channels to help drive more prots. He had developed a more user-friendly website which targeted direct-toconsumer and accounted for 70% of the company's sales. Desert Farms also participated in various trade shows to help land retail clients. After attending the \"Innovation in Foods Expo West\" in Anaheim, California in 2014, Walid obtained close to 100 accounts with Whole Foods, Bristol Farms, and independent grocers in Los Angeles, San Francisco, New York, and Houston. Thirty percent of the company's revenues were through wholesale transactions with retailers. While Walid saw breaking into the upscale grocery market as a great marketing opportunity, it created new sets of problems. Because Whole Foods was a large public company, Desert Farms had to abide by strict labeling regulations; new labels went through an approval process that took nearly six months before approval. Even after Desert Farms updated its labels, the Whole Foods stores in the Bay Area region informed Desert Farms they still were not ready for its products. Whole Foods decided to cancel orders from 50 stores. \"It was a major headache having to deal with the big buyers, and in hindsight it was not really worth all of the hassle,\" Walid said. While Desert Farms was the only camel milk product available in stores, it considered its primary competitors to be other dairy alternatives, such as soy, coconut, and almond milk. According to industry specialists, the dairy alternatives market (specically alternative milk products) was expected to grow from $8 billion in 2014 to $19 billion in 2020. Their growth was driven by several market factors, including growing consumer health awareness and increasing consumer rates of dairy allergies. While Desert Farms had generated considerable buzz within the chronic condition's community, it found it hard to compete in the mass market when its camel milk beverages were side-byside on shelves with the other dairy alternative products. \"When you see a product like ours that costs $18 a pint right next to a bottle of soy milk that costs $4 a half gallon (equivalent to 4 pints), the average consumer won't even hesitate to make a decision,\" said Walid. \"Is it possible for us to bring down our price to compete with these other functional beverages?\" Growing Pains By the end of 20 l 5, Desert Farms had reached more than $1 million in annual revenues. Yet as the company grew, it had issues managing its suppliers. One major challenge it faced was maintaining quality control of the beverages because the camel milk was sourced from different farms that operated independently of one another. There were noticeable variations in taste from supplier to supplier depending on the type of fodder. Desert Farms also had a difcult time ensuring that the supplier got the product into the hands of the customer in a timely manner as most of the farmers used outdated communication technology. There were also sets of challenges associated with not having a centralized facility from which Desert Farms could process, package, and ship the milk to customers itself. However, such an undertaking would also mean increasing the company's operating costs and causing a \"major headache\" in tracking the Desert Farm supply in each location, according to Walid. In order to address these problems, Walid wondered if it would make more sense to source from only one farmer that would be responsible for producing, bottling, and shipping the camel milk. A potential farmer was Sam Hostetler, the owner of a multi-milliondollar farm in Missouri who had been one of Walid's original partners for the venture. Sam had been one of the company's most reliable and most successful vendors, investing his own funds to grow his camel herd from two to 28 in the three years he had worked with Desert Farms. With Sam as the sole supplier and at the helm of Desert Farms' production and shipping efforts, Walid could have more time to focus on marketing and sales. Walid might even be able to negotiate a price of $6 per pint of camel milk instead of $8 per pint. However, he also wondered if he would be giving up too much of his value chain to Sam. \"I'm worried that by not processing the camel milk on our own, we may be leaving room for competitors to come in,\" Walid said. If Desert Farms could nd a way to make its camel milk more affordable, it could continue to build its brand and band of loyal followers. Walid's short-term priorities had been pricing at a premium level to ensure protability in niche markets, raising awareness about camel milk, and having the farmer take on the risk of processing. The problem with this, he said, was that as a result, he had to pay a premium for the product, which was reected in the unit price. Walid predicted if he had his own processing facility, he could reasonably bring down the price per pint to $3 or $2.50. However, he could not be sure of this, because according to him, \"I have never run thorough nancial projections to know for sure what the return on that type of investment would be.\" If Desert Farms was serious about lowering its price so that the product could be more accessible to the average consumer, Walid knew something within the current organizational process would have to change. \"My biggest question has been: 'do I work really hard to bring the price of camel milk down, or build a premium product and push it?m Walid said. Walid considered consumers he could attract if he was to lower the price per unit. The early adopters of the camel milk had been people who sought natural remedies for various chronic conditions. And it was clear these customers were willing to pay a premium. But Walid wondered if there was a larger health-conscious market they were missing out on. \"If we could make camel milk appeal to the growing health and tness segment, that would be huge,\" said Walid. \"And although these customers are willing to spend more on average, we would still have a hard time selling our products at the current price.\" Ideally, competitive prices would help Desert Farms attract consumers in both the health-conscious market and dairy alternatives market. However, lowering the price per unit would mean more drastic operational changes. Where does Desert Farms 20 from here? In early 2016, Walid was on his way to the USC incubator to check on several orders that had recently been made online. He felt things were going well, and yet he sensed that his startup was at the precipice of a major turning point. Soon it would be time for him to either renew or renegotiate his contract with Sam. He would have to determine if remaining with a sole supplier was the most strategic route for Desert Farms. The retail price of the camel milk beverages had been the same since the company's founding in 2013, primarily because of what it cost to source the milk from the camel farmers. Should Desert Farms continue to source its milk from various suppliers, or should it seek an exclusive deal with a supplier like Sam? Should the company market its beverage as a premium product, one that was popular in the chronic conditions community but had trouble gaining traction elsewhere? Or was it time for the company to invest in more processes so it would have greater control of the value chain, thereby giving it more ability to lower its cost per unit? As Walid pulled off the freeway and into the USC parking lot, he considered all 21: the different paths his startup could take. While he was unsure what the future had in store for Desert Farms, he hoped that, ultimately, a greater number of people would get to enjoy the many benefits that camel milk had to offer. Q16 (6 points) Discuss important strengths and s_ix important weaknesses of Desert Farms and its relationships with collaborators based on the situation at the end of 2015.You should clearly state your points, and for each point you should explain why you consider it to be a strength or a weakness