Taticchi, P. (2017).

Mercato Metropolitano : a sustainable business

model? (15 p.) London : Imperial College Business School . (072494)

Mercato Metropolitano
A Sustainable Business Model?
Strategy

July 2017
Abstract

As he did every day, Andrea Rasca, founder and Chief Executive Dreamer (CED) of Mercato
Metropolitano (MM) was walking along the River Thames to get to work. But it wasn’t just any
other day. That day, Andrea was going to sign off on a deal with a venture capitalist – a deal
which would take his innovative marketplace to Tokyo, New York, Dubai, Miami, Rio de Janeiro,
and other strategic locations around the world. Andrea’s dream to disrupt food retail and food
hospitality was becoming a reality: “Our approach is to draw on the basic principles of ‘small is
beautiful’ and ‘natural is good’. MM is a manifesto which goes against the Nestlé and Unilever-
type of business. MM revolves around individuals: small-scale farmers, local producers and
members of the local community”. However, the big question surrounding Mercato in the
months to follow was: Could Andrea prove he had a sustainable business model that was ready
to scale globally?

This case is for educational purposes and is not intended to illustrate either effective or
ineffective management of an organisational situation. The situations and circumstances
described may have been dramatized or modified for instructional purposes and may not
accurately reflect actual events.

Copyright © 2017 The Authors. All rights reserved. No part of this case study may be
reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic,
mechanical, photocopying, recording or otherwise without written permission of Imperial College
Business School.

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Introduction
th
London, UK. April 24 2017, 6am.

As he did every day, Andrea Rasca, founder and Chief Executive Dreamer (CED) of Mercato
Metropolitano (MM) was walking along the River Thames to get to work. But it wasn’t just any other
day. That day, Andrea was going to sign off on a deal with a venture capitalist – a deal which would
take his innovative marketplace to Tokyo, New York, Dubai, Miami, Rio de Janeiro, and other strategic
locations around the world.

Andrea’s dream to disrupt food retail and food hospitality was becoming a reality.

“Our approach is to draw on the basic principles of ‘small is beautiful’ and ‘natural is
good’. MM is a manifesto which goes against the Nestlé and Unilever-type of business.
MM revolves around individuals: small-scale farmers, local producers and members of
the local community. Our core mission is to regenerate the local areas where we
operate by making a positive and inclusive impact on local communities. It is somehow
difficult to explain this to VC firms, which get fidgety when I say that profit is not our key
business priority”.
Andrea Rasca, Founder & CED MM

Launched in 2015 as a pop-up food market during the Expo in Milan, MM quickly made headlines in
the industry. Andrea, the well-known and outspoken Italian food diplomat and entrepreneur behind key
international gastronomic projects such as Eataly Tokyo and Giovanni Rana’s restaurants in New York
and London, had got it right…again! After outstanding success at the Milan Expo, MM successfully
launched in Turin in 2015 and in London in 2016.

Since its inception, MM had aimed to offer a unique experience, beyond just eating; something upon
which the press seized:

“The market also encompasses a Sicilian supermarket, packed with high-quality meats,
cheeses and other products straight from Italy – could be pricey, but from what we saw,
it’s not bad. You’ll find street-food vans on rotation in the garden (…) and a boxing
gym, an urban garden, a barber, a cookery school, a communal working space and a
cinema room from Backyard Cinema.”
The Times, Insider City Guides

Andrea’s vision for MM included helping small farmers and producers to grow, partnering with local
authorities in the development and regeneration of local urban communities, and launching
sustainable private labels that could compete with multinational companies. The business model
focused on a sustainable triple bottom line approach: profit, people and planet.

Andrea was known in the industry for dreaming big (as unambiguously confirmed by his self-styled job
title at MM), but that day a number of unsettling questions disturbed his uncommonly lucid dreams:

 Today the VC is going to sign off on the deal, but am I going to be able to deliver true
scalability in all these cities?
 The overabundance of Italian traders in the market, who aspire to become truly international,
has often been questioned by VC and consulting firms. Will they get my strategy of leveraging
the Italian brand? Would that be a stumbling block for them?
 I have faced many challenges in bringing some of these small Italian producers to London. Is
this truly a scalable model?
 My concept is a fully-sustainability marketplace for artisans from all over the world. Will
customers understand this concept?

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Background
An experienced & visionary entrepreneur

Andrea is the son of an Italian businessman; entrepreneurship is in his very DNA. He did not,
however, wish to enter into the family electronics business; his passion was for scalable food
commerce. Driven by this passion, Andrea pursued an education in the field. In 1996 he was awarded
a scholarship by the European Union to move to Tokyo and enrol in the ETP - EU Executive Training
Programme. There, he started analysing the success and failure of international retail chains.

“While in Tokyo, I visited the first Japanese coffee chain, called Pronto. Inside the store,
on the walls, were Italian quotes – with all kinds of typos. I realised for the first time the
importance of leveraging the idea of Italy, which, in terms of soft diplomacy, is probably
the most powerful brand in the world”.
Andrea Rasca, Founder & CED MM

Hired in 1997 by the Italian confectionary firm Bindi, Andrea succeeded in an ambitious mission to
introduce tiramisu to the Japanese market. Until then it could not be commercialised, due to various
regulatory barriers and red tape. Andrea was able to adapt the traditional ingredients of the famous
Italian dessert to meet Japanese standards. Under his commercial leadership, Bindi’s sales of
tiramisu reached $1.2 million in one year.

After this experience, Andrea relocated to Italy, providing consulting services to the food and drink
industry. During this time he helped launch coffee chain Mokarabia’s first retail points, pasta
manufacturer Giovanni Rana’s first tortellini restaurants, the first Italian-sushi chain, and Stazione di
Salice – a unique gourmet restaurant based in an old electrical train station in Salice Terme. He also
worked with Marco Brunelli, owner of the Italian retail chain IPER.

In 2008, Andrea partnered with serial entrepreneur Oscar Farinetti in an endeavour to internationalise
Italian food retailer Eataly. Launched in 2007 in Turin, the first Eataly was a megastore, containing a
variety of restaurants, food and beverage counters, a bakery, a retail store and a cooking school. The
pair opened Eataly Tokyo in 2009. It quickly grew into a successful venture, boasting monthly turnover
of $80 million from day one. With branches in four continents today, Eataly is the largest Italian
marketplace in the world.

With Eataly Tokyo, Andrea succeeded in another important goal, beyond the creation of a profitable
business: the birth of an international supply chain, capable within eight months of exporting 1,200
products from Italy to Tokyo.

“Tokyo's red-white-and-green-decorated Eataly has been a draw because of its

uncompromising insistence on la vera cucina italiana. Trendy, orthodox, and amusing,
Italian food is the way we were and most definitely the way we are in Japan.”

The Atlantic Daily – 6 October 2010

At the end of Eataly Tokyo’s first year, Andrea decided to leave the business. His decision stemmed
from a growing concern that the business model was scalable but not truly sustainable. Andrea’s
approach was at odds with the corporate strategy of Eataly, which was focused on selling big brands
while pressurising suppliers into ever lower margins; building competitive advantage for big names
through the use of unsustainable financial leverage.

“A retailer should be profitable because it sells products, not because it’s able to
squeeze out its suppliers. This is a capitalist paradigm I will never buy into”.
Andrea Rasca, Founder & CED MM

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Back in Italy in 2010, Andrea slowed down his consulting activity and started focusing his efforts on his
own retail concept, based on one overriding principle: people first. Andrea used this time to build an
important and strategic network, studying international business models and designing his innovative
concept. Five years later, MM was born, and Andrea was internationally recognised as a luminary of
the food business.

The Fierce Growth of Mercato Metropolitano

Andrea’s vision materialised in 2015 at the Food Expo in Milan, Italy.

Designed as a pop-up market for a period of four months, MM occupied a 14,000sqm space with an
abandoned railway station as a backdrop. The Porta Genova area in which it was based –
conveniently located in the heart of Milan – was in great need of revitalisation. This was the perfect
theatre for the launch of a business with lasting social impact at its core. The local council fell in love
with the project, and in the months running up to the launch, Andrea set up the marketplace, built the
early model and signed up the traders included in his business plan. During those four months of
activity, which Andrea describes as “delirium”, MM welcomed 2.5 million customers. Subsequent
analysis found that a great percentage of these customers were visiting MM as often as three times a
week, showing a community aggregating effect which contributed to $8 million in sales.

The Milan site raised the initial pillars of the MM business model: EAT – at the various food and drink
counters, BUY at the artisanal retail shop, which sold selected products from small producers, and
LEARN at the various cultural initiatives, which included cooking, agricultural and nutritional classes. A
highly-curated cinema was included as an experimental offering to entertain customers. Wi-Fi was not
part of the offering; MM's goal was (and is) to allow patrons to forge human relationships - see exhibit
1.

The food and entertainment industry tends to believe that success is tied in with investment in
marketing. Traditional marketing, however, barely featured in Andrea’s budget.

“We picked a fantastic venue and I had a strong feeling that our business model was
going to work. I started talking tirelessly to the press in order to give way to a word-of-
mouth effect, and that has proven to be a great strategy. Our investment in PR and
social media was less than $10,000. We have not paid, and will never pay, for a single
advertisement campaign”.
Andrea Rasca, Founder & CED MM

This first market also gave rise to MM's innovative value and supply chain. Andrea leveraged the
network he had been building over the years and engaged with large local clusters of Italian farmers to
source fresh products. Around 600 small producers were contracted to source grocery products, and
60 traders were selected for the food hall – only two of whom were non-Italian.

Criteria used for the selection of producers and traders included (in order of importance): product
quality, natural ingredients, artisanship, the locality of the product (within the catchment area of MM or
produced in a controlled designation of origin), and how biological/organic the products were (meaning
the total rejection of genetically-engineered plants and animals, and of pesticides).

At the end of 2015, Andrea launched a second, smaller pop-up site in Turin, located within a railway
station (approx.1,000sqm space). The opening of MM Turin was boosted by the intervention of an
Italian bank, which approached Andrea to finance his profitable business. On this occasion, from the
signing of the contract for the site it took Andrea 13 days to begin trading. In four months of activity,
the Turin MM welcomed some 800,000 customers and generated in the region of $1.3 million in sales.

After the success of this launch, Andrea hired Brand Value, an international consulting firm
specialising in brand valuation, to assess the value of the MM brand. The analysis, which took into
account potential growth based on the performance of the Milan and Turin sites, reported a business

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valuation of between $16.5-20.1 million (using transaction multiple analysis) and a brand valuation of
$4.46 million (using the royalty relief technique).

Both Milan and Turin were invaluable learning experiences for MM. They allowed Andrea and his
growing organisation to refine the business model and to structure operations. Conscious of the
increasing strength of the MM brand, Andrea decided it was the right time to draw upon the insight
gleaned from his journey so far to open the first medium-term marketplace. He selected London as the
springboard for MM's international expansion.

In September 2016, MM opened its doors in a city renowned for food, retail and innovation. Like in
Milan and Turin, the space selected for the opening (4,500sqm) possessed the essential
characteristics hardwired into Andrea’s business plan. MM London was established in a centrally-
located abandoned factory, not far from the famous Borough Market – London’s most-iconic gourmet
food destination.

Since launching, MM had consistently proved itself to be a business capable of building strong
synergies and relationships with the local council and community, going from local-level buzz to
becoming the talk of the city, regenerating neighbourhoods along the way. During the first six months
of activity in London, MM welcomed 1.7 million customers, generating over $6 million in sales, and
building an on and offline community that saw it chosen as one of The Financial Times’ five best food
markets in London.

MM London was the highest expression of the concept designed by Andrea – see exhibit 1; 30 food
and drink operators offering premium products (50% of which were Italian), key business partners (an
experiential cinema, a boxing gym, a micro-hostel, an urban mushroom farm), 18 employees, and a
management team of 10 – which included an experienced head of operations and a number of
external consultants.

In 2017, the business model was further expanded. The original ‘EAT, BUY, LEARN’ became ‘FOOD,
ENTERTAINMENT, EDUCATION, WEB, SOCIAL, ENVIRONMENT AND SHARED VALUES – see
exhibit 2. The concept of a sustainable community market with an Italian soul was being realised.

Overall, the marketplace was a great success, but some elements were performing better than others.
The quality of food offered by the market traders was extremely high. This was a clear driver for
customer satisfaction, customer loyalty and revenue generation. The mix of retail/non-retail offerings,
however, was not yet producing the stellar results for which Andrea had hoped. In fact, premium
products offered in the shop and online had to be priced at a higher point than expected in order to
balance the books – more in line with that of specialty purchases than everyday food shopping.

The experiential cinema was constantly fully booked, bringing customers to the venue and contributing
a modest percentage of revenue. Educational and community activities that were predominantly
designed to attract and retain customers required inward investment, rather than producing revenues
that would allow organic growth, on the other hand. The economic model still required additional
refinement in order to become truly sustainable.

“Some of the concepts we included in our offering at MM, such as a greenhouse, where
organic mushrooms are grown and a hydroponic system which explores the concept of
sustainable urban farming, are there to explain agriculture and food production to
elementary school kids visiting MM, but are investments that do not generate direct
revenue. In fact, they often represent a cost for us. Nevertheless, these concepts are
key to create a uniquely-inclusive environment, which makes our brand stand up. In the
medium term, with the help of the right synergies and by attracting the right type of
investment, our concept of local and active inclusive communities, will allow us to
increase our customer base and, therefore, generate sustainable revenues.”

Andrea Rasca, Founder & CED MM

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Challenges were not limited to the business model, but also extended to management and
organisation, as reported by the COO:

“When I joined MM, I felt I was being parachuted into an avalanche. The business was
growing at such a speed that it was sometimes hard to control. On a daily basis, we
were designing new processes and operations, implementing control measures and
discussing new ideas at a dizzying speed. Everything was effectively an emergency in
operational terms! One of the biggest challenges of my multifaceted role was to
guarantee robust and sustainable operations, while remaining sufficiently agile to be
able to scale up a business model that requires a considerably high level of curation.
Andrea’s was the CED bringing amazing opportunities to the table, while I was the one
managing reality!”
Amedeo Claris, Head of Group
Operations MM

Sustainability of the business model

In the formal constitution of MM, Andrea clearly established that profit maximisation was not the
ultimate goal of the business. MM was concerned with the triple bottom line: social, environmental and
financial returns. Andrea and his team subscribed to the precept that embracing such an accounting
framework was likely to create greater business value for all stakeholders.

Economic sustainability was achieved through a relatively-straightforward commercial model and a

smart approach to investments. The initial CAPEX for the London site opening was contained: the
lease for the site was contracted with the housing trust which owns the land at a considerably-low
quarterly rate. This was in consideration of the refurbishment of the site and inclusive economic
activity that would contribute to regenerating the area and have a positive impact on the community.

Likewise, Andrea’s marketplace concept did not require major investments in architecture design and
infrastructure, on the basis that the MM way was to make the most of the existing structure, using
simple and natural materials such as wood. In addition, trading partners were responsible for their own
equipment. Revenue was generated out of the commissions charged to vending partners based on
gross sales in lieu of rent (18% on food, 25% on drinks and other sales), as well as a small
administration fee which contributed to the costs of running and maintaining the site. Breakeven in
London was achieved within two to three months.

Social sustainability was a major pillar of MM’s business model, which ran parallel to financial
sustainability for Andrea. The key focus areas were giving market access to small farmers and
artisanal producers – typically left out from supply chains controlled by large retailers, a transparent
and fair approach to supplier/retailer relationships, a positive impact on neighbourhoods through the
inclusion and aggregation of local communities, a proactive approach to consumer education on
nutrition, smart agriculture, and sustainable consumption.

“MM represents a unique opportunity for an SME to go international, test products and
launch a business with limited investments. MM helped me understand the UK market
and provided me with valuable best practices to organise my business.”
Massimo Franchi, Owner of Badiani

Environmental sustainability remained a work-in-progress. The vision was to develop the business
based on the principles of the circular economy, where value creation mechanisms are decoupled
from the consumption of finite resources, with all waste generated internally reused or recycled and
resources regenerated in the biocycle. The majority of food sold at MM was freshly prepared on site,
therefore avoiding overproduction and reducing the amount of waste. A pilot-scale hydroponic farm
growing vegetables in an urban setting was also in place. This meant a water saving of 90%
compared to irrigation methods used in traditional agriculture. Electric power was purchased from the
grid, though plans were in place to cover the roofs in modern solar panels.

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The challenge of scaling globally
In a traditional start-up cycle, the development and launch of a business such as MM would have
involved in-depth market research to define the business model, a meticulous selection of traders and
rigorous operational design prior to the doors opening.

MM was a success story that did not follow this paradigm!

Andrea, guided by his business acumen and confidence in the strength of his concept, decided to
pursue this opportunity in a manner more akin to a lean start-up model, relying on a build-measure-
learn feedback loop.

“We skipped several steps and took a number of shortcuts. This allowed us to grow the
brand quickly and attract considerable interest for the project. Everywhere we opened,
we were instantly loved by customers, traders and the local governments. We quickly
received the attention of the type of investor who is normally attracted by more mature
businesses, offering us capital to grow the business globally.”

Andrea Rasca, Founder & CED MM

April 24, 2017 was a turning point for Andrea and MM. A venture capitalist was going to inject capital
to finance new openings in New York, Dubai, Miami, Rio de Janeiro and other strategic locations
around the world. Were the questions in Andrea’s mind the right ones? If so, what are the answers?

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Exhibits
Exhibit 1 – Pictures of Mercato Metropolitano

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Exhibit 2 – The pillars of the business model
1. FOOD
a. Vendors both in food catering and fresh product retail
b. Grocery store (in loco and online)

2. FOOD FOR THE SOUL: ENTERTAINMENT

a. Experiential cinema
b. Gym
c. Music and concerts
d. Dance
e. Vintage market
f. Art

3. EDUCATION
a. Pilot-scale agritech farms
b. Study tours for schools
c. Cooking classes
d. Food chain and traceability
e. Nutrition
f. Health
g. Customised events

4. WEB
a. Brand communication on social media
b. Community engagement online
c. Future: home delivery
d. MM blog

5. SOCIAL
a. Collaboration with local council
b. Collaboration with local charities
c. Collaboration with schools and universities
d. Special programs for local residents
e. Safety issues
f. Collaboration with local 'heroes': farmers, producers, associations

6. ENVIRONMENT and SUSTAINABILITY

a. Zero-waste approach to business
b. Carbon-neutral approach to business
c. Circular economy
d. RRR approach
e. Short value chain

7. SHARED VALUES
a. Short value and supply chains
b. Space revitalisation
c. Business incubator (a programme of TheFarMM)
d. Community development
e. Social aggregation
f. Positive work environment
g. Social profitability
h. Empowerment of small producers, farmers
i. Gender equality
j. Fight hunger
k. Educate
l. Sustainable food practices
m. Giving back

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Exhibit 3 – Profiles of three market vendors (interviewed on April 28 2017)
Massimo Franchi, Badiani – Owner

“I graduated in economics in Italy, studied in the US and lived in Australia for a year. I wanted to be an
entrepreneur and, with that motivation, I bought a bar in Florence with a friend. We did well in growing
the business and we opened 18 points. After a few years we sold the bar chain. At that point, I bought
a famous ice cream brand (the initial business started in Florence in 1936) and started producing
premium artisanal ice cream. The business grew quickly, and I opened three ice cream bars and one
industrial facility selling ice cream to large supermarkets. Today, I have 115 employees. The business
within MM is doing well and I look forward other openings abroad. I’m confident we could follow MM
globally by rethinking our operations and hiring the right people. I strongly believe in the MM project,
and since I relocated in London to open my business at MM, I have worked closely with Andrea. We
get along together, and he offered me the position of MM Head of Development, which today is my
current job.”

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Musa Akan, Duman Doner - Owner

“I’m originally from Turkey, but raised in London where I did my studies. In my stall, we sell a premium
kebab, which is made exclusively of healthy ingredients and cooked in a way to offer a superior taste.
My family has a few small businesses, which include a restaurant, a café and a takeaway in London.
We have about 15 employees. My experience at MM has been very positive; it helped me a lot to
market my product and attract many customers since day one. I would love to follow MM in other cities
abroad. That would create several challenges such as sourcing quality meats, hiring staff and
potentially relocating to a new city for a while.”

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Giusy Vitale, Prezzemolo & Vitale Supermercati di Qualità – Owner

“Me and my husband Giuseppe Prezzemolo are originally from Sicily. We founded a successful chain
of premium supermarkets in Palermo, where today we have six retail and one distribution centre. We
employ 106 people. We never considered going abroad until the opportunity with MM came. Andrea
pitched the project to us and we felt we shared common values. For us, it was about going outside our
comfort zone and we decided to accept the challenge. Opening the retail shop in London wasn’t easy,
since we have thousands of products subject to different export laws. It took us about eight months to
get up to speed and we had to fix several processes that were not working.

Me and Giuseppe did not relocate to London, but come here every two/three weeks. Two of our
employees from Sicily relocated to run the shop. The experience has been incredible and we are now
exploring opening a restaurant in London. We also wish to follow MM in other future venues.”

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Authors
Contact details
Dr Paolo Taticchi
Imperial College Business School, South
Kensington Campus, London SW7 2AZ
E: p.taticchi@imperial.ac.uk
Imperial College Business School
Mercato Metropolitano
Biography
Paolo performs scientific research in performance measurement
and management, business networks and corporate sustainability.
These research activities have been documented in many books,
chapters, journal and conference papers. He is the Editor and Co-
Author of the books “Business Performance Measurement and
Management: new contexts, themes and challenges” and
“Corporate Sustainability” published by Springer. Paolo teaches
management courses at both the undergraduate and graduate
level, and he's a regular speaker in international MBA and EMBA
programs in Europe, Africa, Asia, and the Americas.
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