Learning from Japan’s mistakes, Oishii CEO “hasn’t spent a dime” on leafy greens as ultra-premium strawberries thrive

“I knew the exact same thing was going to happen. People were going to get really excited about the technology because it’s sustainable and it’s very futuristic. But then people would struggle to prove that it’s a viable business model.”
Hiroko Koga, CEO of US-based vertical farming startup

Oishii is comparing the vertical farming industry in Japan 10 years ago to the recent spate of farm closures, failures, and staff layoffs in the US and Europe.He adds that today’s situation was “completely anticipated.”

“I saw this whole cycle in Japan already 10 years ago. In the early 2000s, Japan had a few hundred vertical farms across the country — probably more than the number of vertical farms that exist today in the US. Almost all of them closed. People thought it was a fascinating technology, but they realized that the unit economics didn’t work.”

This is why Oishii, in its five-year history, hasn’t “spent a dime” on leafy greens. Instead, the company focuses on strawberries and today it has launched another variety to its offering — the Koyo berry.

News-in-brief

• US-based vertical farming startup Oishii has added another strawberry, the Koyo berry variety, to its indoor farm production.

• The new Koyo berry is available via FreshDirect in select US cities; Oishii is planning an expansion to Los Angeles this year.

• Oishii co-founder and CEO Hiroki Koga says the company is doing “better than ever.”

• Oishii raised $50 million in 2021 from Mirai Creation Fund and others.

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Oishii co-founder & CEO Hiroki Koga. Image credit: Oishii

Cracking the pollination puzzle

Growing strawberries is still uncommon in vertical farming. Growing them at scale is practically unheard of.Nonetheless, Koga, a native of Japan, opted for the fruit over leafy greens when he started Oishii in 2017.

“Vertical farming was commercialized in Japan before anywhere else,” he says, adding that he was a consultant in that industry about 10 years ago. “I learned things the hard way looking at a lot of Japanese companies struggle by starting with leafy greens.”

“We started with strawberries because we felt it was a high-value-add crop, a stronger cash flow and a better business model. It was also one of the hardest crops to grow at a steady pace and at a consistent quality.”

The key is in pollination, which Koga says is one of Oishii’s main differentiators.Leafy greens don’t require pollination, while flowering crops like strawberries, tomatoes, and melons do. But artificial lighting in the vertical farm makes the setting difficult for bees to navigate. Koga says this is one of the biggest reasons vertical farms haven’t progressed very far with flowering crops.

“If you don’t use bees and you rely on manual pollination, the unit economics will never make sense.” While Koga doesn’t delve too deeply into how the company has changed this, he says Oishii has heavily invested R&D into the bee issue.

“We really wanted to crack the code to do perfect pollination indoors. When I say ‘perfect pollination,’ it’s not just 30% pollination success ratio or 60%; it has to be 90% or more success in order to make sense of the unit economics.” The company uses a mix of AI, data and visual recognition to monitor its farms and achieve this pollination success. The technology aspect is critical.

“Without the technology, you’re not going to be able to turn this business into a profitable model,” says Koga.

That said, pollination is only one element at play. “Another problem you can solve [with technology] is how to keep producing strawberries throughout the year. If you can do that, it means you’re generating three times more cashflow compared to four months outdoors.”

Oishii’s technology also addresses the problem of keeping strawberry plants alive for more than 12 months without pesticides and other inputs. All of these things rely on one another to produce a consistent, high-quality crop of indoor strawberries.

“That’s the biggest difference between where we stand today versus other startups that say ‘we figured out how to grow strawberries,’” says Koga. “Anyone can grow a strawberry under a LED light. Can they do it at a scale and at profit is the biggest question mark?”

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The Koyo berry. Image credit: Jennelle Fong.

‘The next standard in agriculture’

Oishii introduced its Omakase berry in 2018 to fanfare and Tesla comparisons. Oishii, the company behind the premium Omakase strawberry in the US, has expanded its product offerings with the introduction of the Koyo berry, both grown in the Japanese Alps. The Omakase strawberry, known for its soft texture, initially debuted at $5 per strawberry and now sells for approximately $2.50 each. In contrast, the newly introduced Koyo berry is described as having a more familiar taste for US consumers, being slightly more tart and firm. Oishii acknowledges the current high price point for its berries but has plans to make them more affordable and widely available in the future.

The company emphasizes the sustainability and superior quality of its berries as crucial selling points. Despite the premium pricing, Oishii is experiencing growth, operating three vertical farms in Manhattan and Los Angeles. The berries are available through various retailers, including Whole Foods. Oishii's overarching goal is to offer consistent, high-quality products that showcase both their sustainability and superior taste.

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Inside Oishii’s farm. Image credit: Oishii

CEA correction won’t last forever  

On a more optimistic note, this correction period won’t last forever. The companies that survive it “will have proven to investors and to the general public that they can actually deliver on at least some of the promises that they’ve made,” says Koga.By all accounts, Oishii plans to be one of those companies.

“It’s really about the technology,” says Kogo. “[Our technology] is not something people can replicate overnight. That gives us a really strong competitive edge, and it’s a crop we can build a strong brand around. These were the reasons we chose strawberries in anticipation of something like this happening in the industry.”