Building a business for Cellucoat
World food prices have jumped 28% since 2021 to their highest level in a decade (1), and Canadians are feeling the impacts of the hike of groceries more than ever. More than 75% of Canadians state that they had to change their spending habits to accommodate the rising price of produce, and nearly half opted to delay purchases (2). However, delaying purchases is difficult, as produce rots and becomes unsafe for consumption within 2-5 days of purchase if additional steps are not taken to preserve the food (3).
Produce accounts for 45% of what is being thrown out unnecessarily by the average Canadian family, costing approximately $1800 per household annually (4). To add onto the economic burden of groceries for families, single use plastics are being banned in Canada and other nations by 2030 (5). Replacements include environmentally friendly alternatives which increase the cost of packaged produce up to 266% compared to plastic packaging.
Hence, there are three problems that need to be addressed amidst the rising price of groceries and ban on single use plastics:
To help Canadians and world-wide consumers reduce their food waste and have access to produce packaging that has a reduced cost compared to other environmentally-friendly alternatives to save money, iGEM Calgary 2022 presents Cellucoat: a packaging solution that keeps food fresh from the fields to the fridge.
Cellucoat’s vision is to assist Canadians and worldwide farmers, produce distributors, and ground-level consumers by prolonging the shelf-life of produce to minimize losses for all users within the produce supply chain. With Cellucoat’s efficient and usable production design and product features will appeal to the needs and desires of buyers and consumers, ensuring consistent demand from all members throughout the produce supply chain.
Creating a start-up is tricky business. However, with Cellucoat’s in-depth business plan outlining the feasibility of the product, defined market, competitive analysis, financial analysis, legal and social responsibilities, and our current and future entrepreneurial pursuits the first steps into getting Cellucoat from the lab to shelves will be seamless. The entire in-depth business plan is available to look through, but below Cellucoat has curated some highlights that will give an insight into our entrepreneurial plans for the near future.
Cellucoat’s initial entrepreneurial pursuits budded from the feedback of Leah Bortolin, Strategic Coordinator at the University of Calgary Haskayne School of Business to begin critically looking at how Cellucoat works as a business using a lean canvas business model. Our team worked along with Leah Bortolin and Justin Knibbe, Instructor at the University of Calgary Haskayne School of Business to build our initial business plan.
As scientists, we understand that our work is not just designed to be in a lab, but potential customers would use it in the real world. Hence, our team conducted extensive customer discovery to have a customer-focused approach to solving our problem. Therefore, we would not just shape our project based on literature but take into account key stakeholders, which are the customers and other stakeholders in the supply chain, as their needs and demand should shape our final product.
Cellucoat was proposed to be a produce packaging material capable of prolonging the shelf life of produce. However, it is made with bacterial cellulose because we stay in line with Canada’s zero plastic waste legislature. Hence, our customer discovery questions wanted to validate the problem: “Is fruit waste a problem and is there a need to prolong the shelf of fruits?” and “Is there a problem with traditional plastic packaging, and should there be a replacement?”
Members of iGEM Calgary 2022 at the Calgary Farmers Market to conduct customer discovery
The results of our customer discovery interviews are as follows:
Quotes from customer discovery participants
Of course, demand for a product arises from knowledge of the benefits of the product over that of other packaging materials on the market. To do this, marketing towards middle-class consumers will emcompasses how Cellucoat is innovative and affordably sustainable. On the innovation aspect, Cellucoat will help consumers save money by reducing food spoilage. Being an affordable sustainable packaging alternative to plastic also allows for middle and upper-class consumers to shop without feeling guilty about plastic pollution without breaking the bank on more costly sustainable materials. Marketing towards Cellucoat’s buyers, packaging producers, will be more direct. Sales representatives will be used to visit produce packaging manufactures and produce distributors to inform them about the benefits of Cellucoat for both the consumers and for saving money by reducing the amount of defective produce.
Phasing out single-use plastics to be replaced by more sustainable alternatives does not mean that the properties of single-use plastics, such as affordability, strength, and customizability will no longer be sought out by consumers. Rather, sustainable alternatives that emulate the properties of plastics to ensure that the customer experience with produce packaging remains unchanged are preferred by consumers. Hence, Cellucoat’s direct competition will be companies that produce packaging using bioplastics, paper, and plastic materials and Cellucoat’s indirect competition will be antimicrobial washes and treatments. Based on a VRIO analysis, Cellucoat’s unique value proposition ensures it will remain competitive within the produce packaging landscape. Being a nanocomposite material of bacterial cellulose and PHB, and integrating an antimicrobial peptide that can be customized based on the packaging purpose ensures that Cellucoat is valuable, rare, inimitable, and the structure of the business and production is organized to keep up with demand and an ever evolving market.
Values were derived from Good Start Packaging (6), PlusPack (7), and Ecolab’s (8) ecatalogs.
The owners of Cellucoat will be nestled in the iGEM Calgary 2022 team and internal decisions within the team will decide who will continue with Cellucoat into the market and become executives of the company. The executives will be responsible for overseeing marketing, distribution, production, and innovation. Because a majority of the production process of Cellucoat can be automated with the bioreactor and its sensors, few personnel will be required for monitoring the production. Scientists will be hired to continue innovating new packaging solutions and also be available to express new antimicrobial proteins based on the requests of buyers.
The microbial and bacterial cellulose market can be broken down as follows:
Microbial and bacterial cellulose market segmentation by type:
Within this market, Cellucoat produces bacteria-based cellulose that is intended to be used as a food product. The implications of this are further discussed in the marketing of our bacterial cellulose.
In 2020, the microbial cellulose production market was valued at approximately 510 million USD (9). Since then, it is projected to be valued at over 980 million USD by 2028. This market includes various bacterial cellulose applications, such as therapeutics, cosmetology, cardiovascular diseases, oncology, ophthalmology, urology, drug delivery systems, tissue engineering, and tissue regeneration (10). In terms of BC production trends, the Asia Pacific region is forecasted to have the largest growth rate as many key market players are relocating their manufacturing facilities there. This move is due to more favourable government policies, the availability of low-cost labour, and rising demand for BC. Overall, BC market growth is restrained due to the availability of substitutes and strict regulations. The largest share in this market is registered in North America, accounting for 38% of the market, which is associated with healthcare infrastructure and growing applications of bacterial cellulose in wound care products (11). Relative to the market in general, the following are the key players: Celluforve, American Process, Axcelon, Biopolymers Corporation, Borregaard, Bowil Sp. z o. o., Daicel Corporation, Fzmb GmbH, Merck KGaA, Nippon Paper Industries Co., Ltd., and Nympheas International Biomaterial Corporation (11).
When looking at the literature on BC, it is interesting to note that the quantity of studies on BC (ranging from testing out its properties to its various applications) grew substantially over the years (11). The number of papers that presented reports on BC and were published in scientific journals from 2009 to 2019 increased >200% during this period, corresponding to a total of 59,158 publications in 10 years (11). Most BC studies are currently concentrated in the biomedical field, where they demonstrate the versatility of this material in applications such as wound healing through tissue engineering, blood veins, contact lenses, and tubes. However, commercializing these materials with BC is highly valued, as the production cost is considered expensive. Therefore, besides requiring high capital investment in efficient fermentation systems that increase BC yield, it has a high operating cost related to the inputs required for the conventional medium Hestrin and Schramm (HS). These inputs involving large expenses in BC production include glucose or commercial glycerol used as carbon sources in the HS environment (12). The development of research and sale of these BC biomaterials is mainly concentrated in the United States, China, India, Europe, Japan, and regions of Southeast Asia (11,12). They have increasingly invested in the research and development of new products to compete equally with countries with widespread trade.
Overall, our research indicates that there is a growing demand for bacterial cellulose, but how will Cellucoat fit in this market?
Relative to the food market, packaging plays an important role in protecting and preserving food. Bio-based materials in the packaging industry are preferable when compared to plastics due to global concerns about the impact of non-biodegradable packaging on the environment. The push for sustainable packaging has been further emphasized by countries such as Canada, where the government has begun to roll out a ban on single-use plastic products (12). BC has been identified as one of the suitable materials that may be used as an alternative to a bio-based “plastic” due to properties such as consistent fine networking contributing to its strength and moldability, being biodegradable and being highly water-resistant. Although BC is an excellent choice for food packaging, it has no antibacterial and antioxidant properties to prevent food contamination on its own. Due to this, BC composites can be used to gain these properties. This is also where Cellucoat fits into the market, addressing this solution through an innovative manner that is not yet on the market through the incorporation of PHB to allow the BC to be more competitive with plastic and the antimicrobial properties of the BC.
As established in earlier sections, BC has gained traction in recent years for its varying favourable properties, specifically in our case, the desirable properties that make it an ideal alternative to plastic. However, a major reason it has not taken off as other plastic alternatives is due to it being a capital-intensive process (7). Hence, veering into this industry, it is important to analyze the financial costs associated with it.
The media used in growing the BC-producing bacteria K. xylinus and, in our case, also our recombinant E. coli, is the most important factor in BC production (13). This is evident as cultural media accounts for about 30% of the total production cost (13). This finding suggests that finding a cost-effective medium to replace the conventional media, HS media, would significantly reduce production costs for BC. Therefore, our team explored the use of a modified media consisting of extracts from the fruit waste of oranges and analyzed several parts such as the peel, juice and pulp to envision which gave the most BC yield and was the most cost-effective. From this, we found that a modified medium of 45% Fruit waste media and 55 % HS media yielded the most yield of BC for the lowest price. This was able to reduce production costs by 60%. One can find a more detailed cost analysis of the different modified media here in the cost alysis section of the Fruit Waste Media page.
From this conclusion, we decided to base our financial analysis on the assumption that we would be using this modified media to produce our product on an industrial scale. Our analysis was based on Fernando et al. that conducted a thorough process modelling and techno-economic analysis for the industrial production of BC (14). Their design accounted for the production of 504 tons of hydrated BC using an airlift fermenter and assuming a selling price of $25 USD per kilogram of BC (15). After the necessary modifications to meet our design specifications, we found that the total start-up cash needed for the business is $24,478,081.13.
This cost can be divided into two main sections: Total Capital Investment (TCI) and Total Product Cost (TPC). The total capital investment comes up to be about $12,111,078.24 which 55% includes direct costs such as equipment purchasing, installation, building, and land. Indirect costs account for 25% which include engineering, construction expenses and contingency fees (15).
As for the total production costs it comes up to $12,367,002.89 which accounts for 92% of manufacturing costs such as the price of raw materials, utilities, maintenance, operating labor, and laboratory charges (15). Also included are taxes, depreciation, and insurance. The 13% left includes general expenses which are administrative costs, distribution and selling costs, research and development costs and financing (15).
Haven established the selling point to be about $33/kg, the net profit comes up to be about $3,691,097.98 with an estimated payout period of about 5 years.
Breakdown of costs required to establish Cellucoat as a business
As established, BC production is highly capital intensive hence, and with Cellucoat being born from the minds and passions of undergraduate students, it is vital that as a business, we source for funds in adequate places possible with limited risks and liabilities.
Initial funding for the first two years would be best sourced from pitch competitions, sponsorships, bursaries, and grants from academic and community institutions encouraging student-led innovation.
We would apply for government and student-specific grants to seek more funding. Such grants include the Alberta research grants, which would highly fund our research and development process. The money garnered in the first year will be put towards the process of further refining the product, improving the efficiency and cost of the production process, and partnering with an industrial lab to begin the initial production of the packaging material. Additional remaining funds after the first year will be used towards helping produce packaging manufacturers purchase the equipment to produce packaging with Cellucoat.
There also exists the Alberta business grants and other federal government grants given by the government of Canada. The University of Calgary also administers several grants and studentships to conduct research. We can also put this funding towards research and development costs.
After discussions with entrepreneurship mentors, Sabina Bauer Lewis and Micah Louison from the MindFuel foundation, they suggested that we participate in accelerators as they would fast track the development of our product and gain the most traction in the least amount of time. Lastly, due to the capital intensity of this business, Sabina and Micah further advised that we seek funds from financial institutions. Understanding that the funding opportunities in these institutions have interests, we would have to make the best possible choice to use a funding platform with the least possible interest rate. One of such institutions and initiatives we found is Funtrepreneur by the Royal Bank of Canada. Futrepreneur is an initiative that gives loans to young entrepreneurs at low interest rates. Furthermore, grants and loans from the Canadian government targeted towards supporting businesses producing and using sustainable alternatives to plastics as a part of the Zero Plastic Waste Agenda will be used throughout the three years starting from the beginning of the business.
A reason for choosing such avenues rather than looking for angel investors and other equity-giving funding sources is not wanting to give up equity. We are a team of 10, and giving equity will not only reduce the dividend each person gets but will also create a situation where some of our choices in the business might be limited as more heads are involved.
Ultimately, these avenues should enable us to access sufficient funding necessary to develop our business into a scalable operation.
*Insert graphic of breakdown of funding sources*
In regards to subsection 93(1) of the Canadian Environmetal Protection Act of 1999, the Department of the Environment made the annexed Single-use Plastics Prohibition Regulations (16). The following single-use plastics will be prohibited in manufacture and import as of December 2022:
Of the 6 categories of single-use plastic items being targeted for a ban in the proposed Regulations, non-conventional plastic resins would be prohibited for 5 (checkout bags, cutlery, ring carriers, stir sticks and straws). Single-use plastic food service ware made from oxo-degradable plastics would be prohibited. However, other non-conventional plastic resins, including certified compostable plastics, would continue to be allowed for food service ware. The Department of the Environment recognizes the potential advantages of replacing single-use items made from conventional plastics with non-conventional plastic alternatives (16). For instance, reducing fossil fuel consumption as plant-based materials replace carbon-intensive plastic source materials, and increasing food waste diversion in situations where contamination of plastics is an obstacle to recycling. The Department of the Environment also recognizes that these benefits must be weighed against current performance in compost facilities, where non-conventional plastics typically cannot be processed and are sent to landfills. In addition, while compostable plastics look very similar to the conventional plastics they replace, many are not designed to be recyclable. Due to this, the mixing of compostable and conventional plastics can contaminate the recycling stream and reduce recycling recovery rates. The Science Assessment noted a lack of significant evidence that biodegradable, compostable, biobased, and oxo-degradable plastics will fully degrade in natural environments (16). Accordingly, the Regulations will treat single-use items made from non-conventional plastics in the same manner as their conventional plastic counterparts (1). To get around this obstacle, the Department of the Environment is working with partners and stakeholders, including provinces and territories, to develop the knowledge base about non-conventional plastics (16). This increase in education will be the first step in this sector for applications outside of the items prohibited by these Regulations.
Corporate social responsibility (CSR) is becoming a core business strategy for many companies (16). It is proven to increase the bottom line while winning over customer loyalty and retaining employees (16). Currently, nearly half of all consumers are looking towards brands to lead the way in making the world a better place. The influence businesses have and the responsibilities placed on them today is massive. However, before diving into a corporate social responsibility initiative, a CSR strategy needs to be completed. Cellucoat’s future CSR is based about our environmental, economic, and ethical responsibility.
Cradle to Cradle design:
Cradle to Cradle is about seeing waste as an eternal resource and doing the right thing from the beginning. Material made with this framework in mind is applied with respect for its intrinsic value and the useful afterlife in recycled or even upcycled products. In this design, there is no waste, no shortage, and no limitations, unlike a linear system.
Cellcoat uses a Cradle to Cradle design, as fruit waste goes into manufacturing our bacterial cellulose. Fruit waste is used to supplement the media that our co-culture is grown on, producing. The Fruit Waste Media, or FWM, was developed by processing whole oranges into the peel, pulp, and juice. Once the components of the oranges have been separated, they are then hydrolyzed with a family of cellulase enzymes to break down the various cellulose, hemicellulose and lignin components into reducing sugars like glucose. Fruit waste media works to reduce the costs of producing BC by 60% by using glucose from fruit waste for the growth media as well as take advantage of fruit wasted from grocery stores and the homes of consumers.
Another component of our cradle-to-cradle design is the biodegradable and compostable nature of the bacteria cellulose itself. BC is a naturally biodegradable polymer. Neither PHB or nisin are predicted to impact these properties. Nisin is a protein which naturally degrades over time. PHB is also compostable and biocompatible; thus, integrating it into our BC does not compromise the existing compostability while improving the mechanical properties of our material.
Single-use plastics, like clamshells , make up most of the plastic waste foud on Canadian shorelines. In 2022, Canada began rolling out Zero Plastic Waste legislation which prohibits the manufacture and import of single-use plastics by the end of the year to combat plastic waste and address climate change (17). In living up to and contributing to these national standards, Cellucoat also addresses an overall environmental responsibility to mitigate the use of single use plastics. This environmental responsibility played a major role in Cellucoat’s design process. When first developing an antimicrobial packaging, recyclable plastics seemed like an ideal choice, but because we would be incorporating a peptide into the material, it prevents it from being recyclable, rendering it a single us plastic. So our attention turned to bioplastics. Through interviews with Natalia Gonzalez from Calgary Waste Management, and Belinda Li, an expert on the impact of bioplastics, we found that bioplastics, even though they are made from renewable resources, are taken to the same landfills as single use plastics and are not compostablable in City compost facilities. That meant that we needed to find a food safe material that was not only biodegradable but compostable. Thus, our search narrowed in on bacterial cellulose.
Over the past several months, the grocery bills of Canadian families have been creeping upwards. From 2020 to 2021, the wholesale price of fruit has increased by 24%, and while the increases might sound small, they add up quickly for a family trying to save money (18). Because of this, spending habits have shifted as households feel the pinch of higher food costs. Meanwhile, globally, about half of all food produced is not eaten. This is not only a waste of food but also of the resources needed to produce, process, and distribute it. In Canada, this comes to 50 billion dollars worth of food being wasted (19). Economically, that is $1800 per household in the wake of a recession (20)!
As Cellucoat’s bacterial cellulose is produced in a co-culture with genetically engineered E. coli, considering the ethics associated with genetically engineered organisms (GEO’s) is pertinent.
What is an ethical matrix?
An ethics matrix is a tool for carrying out an ethical assessment of technology and policy options.This matrix is particularly relevant for products designed through synthetic biology; the marketing of biotechnology products requires evaluation and permission of relevant authorities, thus, a risk assessment is required, and the product is permitted if the associated risks are considered to be on an acceptable level.
Ethical principles to consider (these are subject to change depending on the context):
These principles were transformed into a consequence matrix for different groups that are impacted by the marketing of Cellucoat as a sustainable and biodegradable plastic alternative:
Before you find your favorite fresh snack packaged in Cellucoat, our team has a long way to go to make it an ideal alternative to traditional fruit preservations and plastic packaging. The skills, capabilities and resources our team still needs include but is not limited to:
Ability to reduce the cost of production: As established, we have created a modified media using fruit waste to grow our BC-producing bacteria. This media is made from orange fruit waste. However, it still contains constituents of the traditional HS media. The presence of HS media still increases the costs, especially when taken to an industrial level. Therefore, our team would need to continue researching and developing a modified media that uses little to no conventional media to reduce the cost.
BC has not been taken into many industrial-level applications due to its low yield during production (13)). Therefore, this leads to the conclusion that if we could somehow optimize the growth conditions of both K. xylinus and E. coli, we can maximize the BC yield. Creating a bioreactor designed for the adequate growth of K. xylinus and E. coli would be an ideal solution to tackle this problem. The literature suggests several suggestions for an aerosol bioreactor that uses a similar design that we use at a lab scale to produce BC. Therefore, we would need the skills to research and develop a device similar to this system that optimizes growth conditions and maximizes yields. For more detailed information on this system, visit the future Directions Section in the Co-culture Page.