[Column] Dr. Nicolas Lohr: Strategic partnership driving second hand farm machinery business
The second-hand farm equipment market in Europe alone is worth around € 15 billion and it remains highly fragmented harming equipment sellers and buyers.
Sellers, mainly franchise dealers of different brands, are required to trade-in used equipment from farmers when making new machinery sales.
Dealers therefore sell as many used units as new units but lack the organizational focus and the skills to quickly liquidate their stock. The lack of regional demand and the seasonal nature of the used machinery market further aggravate the situation, resulting in excessive days in stock and capital requirements.
Farmers as buyers are facing structurally different machinery prices across European markets without the adequate means to exploit potential price advantages.
Overall, the industry lacks digital trading instruments that generate trust between parties and that offer a holistic solution to current trade barriers. In this complex market environment, E-FARM team has generated exceptional market intelligence to overcome the barriers to trade.
E-FARM.COM is Europe’s first B2B trading platform for used farm machinery with a full-service transaction approach covering equipment selection, inspection, financing/payment, transport and warranty. In order to find customers, we consolidate and enrich the offer of more than 300 franchise dealers across Europe. Potential buyers enter our standardized transaction process with an upfront and independent machinery inspection that yields a conversion rate of more than 80%.
Unlike classified ads, E-FARM.COM purchases the machine from its partner dealers once a sales contract is reached with a buyer.
The company’s approach is comparable to the Auto 1 concept from the car industry, which was valued around € 3 billion in early 2018. However, I see three major advantages of our model: 1) no outlets & inventory risks; 2) lower supply-side marketing spent; 3) higher margin levels. While valuation growth opportunities certainly played a role, I view the strategic thinking of CLAAS as more decisive. Despite a conservative industry, E-FARM.COM has rapidly generated substantial sales volumes (€ 6.0 million in 2018) while demonstrating capital efficiency and a global footprint with online transactions between more than 50 countries. CLAAS will enable its sales network to fully benefit from our sales dynamics, winning additional customers in a completely new and digital channel.
CLAAS, one of the world’s leading farm equipment manufacturers, is taking a strategic minority stake in E-FARM.COM. I would like to thank our entire team, our investors and business angels as well as our business partners and clients for their huge contribution in achieving this major milestone. Our exceptional platform growth in 2018, at over 300 per cent, has won us the support of a proven industry leader to further scale our operations. Winning CLAAS marks the next phase in our journey to build a European B2B trading platform for pre-owned farm machinery.
E-FARM.COM investment considerations
I am convinced this is exactly the right next step for our team, our customers and our partners. Like any young company, we are facing challenges to rapidly scale our operations and the reason for this is not a lack of demand but insufficient supplier integration.
We lack pre-market machinery access and qualitative machinery data to quickly and independently close transactions. CLAAS is the single manufacturer that has its own retail realizing substantial levels of used business, so it represents the ideal partner for us.
We can now prove that enhanced supplier integration results in additional platform turnover. And if you are wondering whether the opportunity comes at the price of restricted platform independence or limited company exit options, please let me tell you about the negotiation process with CLAAS. From day one CLAAS understood that E-FARM.COM needs to remain independent and is therefore very open to additional investors from the financial just like the farm equipment industry.
CLAAS is further convinced that exit options not only attract financial investors but also increase management motivation and the company’s ability to attract the best talent.
What does this mean for the future? First of all, our mission isn’t changing. We’re just going to execute our vision bigger and better! Our partner dealers and customers, independent of their brand affiliation, will continue to receive the best innovations from our team.
Moreover, CLAAS is going to allow E-FARM.COM to grow even faster and to achieve full supplier integration, which will also result in higher degrees of business design protection. And finally, we’re just getting started! In the course of this journey we will need further investment for expanding our operations. Please reach out to me if you if you are interested in E-FARM.COM and in our team.