By Yuliya Chernova, Wall Street Journal | 3/24/15
Grocery stores are used to food waste. There are the meat trimmings, the wilted lettuce, the soggy sandwiches. An average suburban grocer dumps hundreds of pounds of food daily, and with it go its profits.
And the problem may be bigger than the industry realizes. That is according to Redmond, Wash.-based startup WISErg, which has been collecting previously unavailable data, using its Internet-connected food-waste disposal units that it began installing in grocery stores in Washington state last year.
WISErg just raised $11 million in Series B funding led by Second Avenue Partners, which supports Puget Sound startups, to expand its efforts. This was WISErg’s first institutional round of funding.
“You couldn’t get metrics on why food waste was occurring,” said Larry LeSueur, chief executive and co-founder of WISErg. The early data that WISErg collected points to industry figures on food waste being understated, he said, by as much as 30%.
The company collects waste and turns it into fertilizer, and analyzes information about a supermarket’s processes in order to help reduce the amount of food that is dumped.
Current industry estimates say that about 10 pounds of food waste was created per every $1,000 of a grocery store’s revenue, according to a 2014 survey by Food Waste Reduction Alliance, an industry group. Just 10 retailers and wholesalers surveyed indicated that they generated 1.4 billion pounds of food waste in one year.
WISErg believes that the information it is collecting could reduce grocery store food waste by 10%, the CEO said.
WISErg, started by veterans of the software industry, both co-founders had worked at Microsoft Corp., is applying some of the business models that are now popular in software, such as data analytics and monthly subscription models, with hardware and biotechnology, to get grocery stores to waste less.
The company developed Internet-connected food-disposal units that it installs at grocery stores for no upfront cost. The grocery places wasted food into the units. The worker enters a code that shows what type of food it was, for example, whether it came from the prepared-food or the produce section. WISErg’s machine, records the information, along with time and other information.
WISErg’s units pretreat the dumped food. The company picks it up and processes further in its own facilities. It has developed a way to convert all of the food waste into liquid-based, organic, high-nitrogen fertilizer, which it can then sell to farmers.
The grocer pays WISErg at or below the rate that is charged in the area by other food-waste collectors, Mr. LeSueur said. But the grocer gets the added benefit of information.
The company found, for example, that one of its clients laid out lunchtime prepared-food items like sandwiches 15 minutes later than usual, and ended up dumping much more food than usual, Mr. LeSueur said. In another instance, a well-intentioned employee raised the temperature in the produce aisle by 4 degrees Fahrenheit to save energy, but ended up wasting money as more food spoiled.
WISErg, incorporated in 2010, spent three years in research and development and began installing its units last year. The startup installed almost a dozen large-refrigerator sized units in Washington state, including in a Bellevue, Wash., Whole Foods . In 12 months it will roughly increase the number of units 10 times, Mr. LeSueur said.
The wasted food collected by the current operational units will result in about 60,000 gallons of fertilizer that the company expects to start selling this year, Mr. LeSueur said. That will create the second revenue stream for the startup, in addition to the monthly subscription payments from grocers, the CEO said.
WISErg plans to expand by creating local hubs. Its Washington state processing facility will collect food from grocers in a 400-mile radius, Mr. LeSueur said. The fertilizer will then be sold to local farmers. The company plans to create hubs like this near San Francisco, other West Coast and some East Coast locations.
The business makes most sense in places where government regulations require food waste to be disposed of separately. That is a limited but growing number of regions, the CEO said.
For WISErg this year will be spent on developing partnerships, especially with large grocery chains, Mr. LeSueur said.
Although WISErg is using some techniques from software businesses, it is still a hardware business.
“It’s a capital intensive business,” Mr. LeSueur said. He said that the return on investment is good for WISErg, however. For example, if the company just limited itself to the units it already has in place, it would get its full investment back in 12 months via revenue, the CEO estimated.
Before the Series B round the startup had raised $3 million in Series A, the CEO said.
Several other companies are competing in the space, including anaerobic digester companies and composters. Venture capital firms, for example, invested more than $200 million into Harvest Power Inc., for example. That company processes food trimmings and yard scraps into fertilizer and energy.
(Correction: An earlier version of this story contained an incorrect unit label in the 14th paragraph. It should be gallons, not pounds.)