Lufa wants to compete with the big chains

Lufa Farms does not only have the project of feeding cities with fresh vegetables. Their ambition is also to offer better prices than the big chains for the entire grocery basket.

“This is already the case for 50% of the products in the Lufa basket,” says Mohamed Hage, founder of the company which has broadened its mission to become more and more of a grocer.

This Tuesday, Lufa is inaugurating its fifth urban greenhouse in Montreal, on the roof of the Walmart store in Marché Central, where a very first harvest of mini-cucumbers has just been made, without customers shopping on the ground floor account for it.

For everything grown in its greenhouses, Lufa already claims better prices than those in supermarkets, says Mohamed Hage. For the rest of the basket, things are progressing, he said, during a visit to the new greenhouse. “Our goal is to offer local, fresh products that are 10% less expensive than those of the big chains. »

The company earns 20% of its income from the sale of the vegetables it grows. Other revenues are generated by the sale of its partners’ products. Six farms and more than 300 suppliers deliver bread, milk, meat, beer or wine, all the products of a complete food basket, which are delivered every week to its subscribers within a radius of 2 h 30 min from Montreal.

Ambition

Every week, Lufa compares the prices of around fifty of its products with the same ones on sale in large chains and the result of the exercise is more than encouraging, according to Mohamed Hage.

With six greenhouses and an indoor farm, Lufa proves that its business model can replace vegetables from Mexico and space out visits to the supermarket, he says.

JoAnne Labrecque, professor in the marketing department at HEC Montréal, describes this plan as ambitious. Companies like Lufa can succeed in their niche market, she says, but competing with the big chains is a different story. “Grocery shopping is about volume and it’s also about the ability to negotiate with suppliers,” she summarizes. It’s already a very aggressive market. »

Contrary to what we hear everywhere, there is a lot of competition in Quebec in the food sector, according to her. “When we say there is no competition, we generally exclude big players like Costco and Walmart,” she says.

After seeing the number of its subscribers increase by 100% during the pandemic, Lufa experienced a brutal return to reality with zero growth in 2022. Mohamed Hage is not worried though. Its shareholders, including Desjardins and the Fonds FTQ, are patient and see the long term, he says.

“Feeding cities the way Lufa does is a 30, 40 or 50 year project,” he says.

Technology will help Lufa realize its ambitions, says the company’s founder.

The Central Market greenhouse, which required investments of 10 million, is not the largest of Lufa’s six installations, but it is by far the most efficient. It will be able to produce 40% more cucumbers, peppers and tomatoes with 7% less energy than the average of other Lufa Farms greenhouses.

Energy, namely electricity for lighting and natural gas for heating, is the third largest operating cost of the business, after financing costs and labor.

LED lighting, ultra-insulating glazing, water and air recycling and automation of operations help reduce production costs. Lufa can offer fresh lettuce for $2 in winter, but all its vegetables are cheaper all year round, with the exception of the summer months, when there is plenty in the fields of Quebec.

The company then reduced its activities and took the opportunity to prepare to take over from Quebec market gardeners starting in September for the rest of the year.

“Lufa has learned a lot since its beginnings,” assures Mohamed Hage, who had never grown anything before launching into urban agriculture. One of the lessons learned the hard way is that you should not multiply crops. “We already had 40 varieties in a greenhouse,” he recalls.

The cost of energy, which is expected to rise in Quebec as everywhere else in the world, will work in Lufa’s favor, believes the entrepreneur. Bringing production closer to consumers will become more and more advantageous compared to peppers from Mexico which must travel thousands of kilometers, he illustrates.