Supermarkets discover they don't have to look far to know what sells best
It's a Perfect Storm of Opportunity.
E. coli outbreaks in meat and bans on certain imports have consumers demanding food that's traceable; the explosive growth of the organic movement makes them nostalgic for simpler times; and the newfound interest in fair trade and animal rights has primed them for products that adhere to higher ethical standards. Shoppers have become a force of nature, and learning to navigate their demands and concerns isn't easy.
But there's one issue that everyone agrees has brightened the entire retail landscape: locally sourced products.
“I think right now we're riding the cusp of a breaking wave,” said Bill Clary, spokesman for the Kentucky Department of Agriculture, which this year launched a website devoted to connecting state farmers with local markets and retailers.
The numbers certainly agree. According to Packaged Facts, Rockville, Md., locally grown food sales have jumped from $4 billion in 2002 to $5 billion this year. By 2011, the market research firm projects that the sector will bring in $7 billion total.
Farmers' markets, long the face of the local movement, are enjoying the surging interest as much as anyone. Their ranks increased by 18% between 2004 and 2006, U.S. Department of Agriculture statistics show. Restaurants like Seattle's chic 35th Street Bistro have forged relationships with local producers. Even state governments are getting in on the act. The Illinois Food, Farms and Jobs Act was passed this summer to establish the foundation for a state-local food system.
Supermarkets have been able to take advantage of the trend as well, though it's required them to rethink the way they typically do business.
“It's more effort, it's more work, and you're dealing with a lot more moving parts,” said Steve Smith, chairman and chief executive officer of Abingdon, Va.-based K-VA-T, a chain that has been increasing its local selections over the past seven years.
How do large-scale supermarkets get their hands on products from small-scale producers? One of the biggest challenges in sourcing local is solving the distribution conundrum.
For street venues like Chicago's Green City Market, the logistics of local are relatively simple. Each week from May through October, farmers from all over Illinois drive in to sell their homegrown goods at one of 40 booths. There's no middleman or wholesaler to go through, no marketing scheme to draw up aside from some humble signage. And the farmers get to make a direct, face-to-face exchange.
Supermarket profits are based on a different business model, emphasizing centralization as much as possible. Transporting goods from a farm to individual stores just isn't efficient, and therefore too costly to consider. Observers say that's too bad, because farmers are sure interested in supermarkets.
“Farmers would like to sell to grocery chains,” said Kathy Seus, executive director of the Green City Market. “I think the problem is there's a mentality about how a grocery chain is used to buying, and that needs to change.”
One solution taking shape gets around this obstacle by aggregating the goods from individual farms, making loads bigger and therefore more in tune with supermarket scale, according to Rich Pirog, associate director of Iowa State's Leopold Center for Sustainable Agriculture, which studies, among other areas, transportation systems in the food industry.
Beyond that, many farmers and co-ops are starting to enlist the help of sourcing experts, he said.
“Many of the nonprofits and the farmers who work with them are hiring distribution consultants,” he explained. “They're realizing this is a challenge, and in order to move beyond farmers' markets, CSAs and independent restaurants, and into markets like retail, they're going to need to improve their ordering and distribution systems so they're more cost-effective and efficient.”
The aggregation concept is working at Good Natured Family Farms, located in Bronson, Kansas. There, owner Diana Endicott works with close to 100 area farmers, centralizing and coordinating shipments to nearby stores like Ball Foods' Hen House Market. Her standard is that everything she sources — from the honey jars to the Amish free-range chicken — should come from within 200 miles of nearby Kansas City.
“But if you're 210 miles away and you have the best sweet corn in the area, we're not going to ignore you,” Endicott said. “We try to be realistic about this.”
Several supermarket retailers besides Hen House have expressed interest in sourcing from Good Natured Family Farms. But they seem reluctant to pitch in on distribution duties, said Endicott. Hen House shoulders some of the trucking for the farms, and makes a point of sending trucks to producers and communities, such as the Amish one, that can't reach stores or the distribution center.
Retail chains need to be willing to adjust their transportation systems a bit and help out where they can, Endicott said. This is a tricky proposition, however, especially since supermarket margins are already so thin there's little room to experiment.
“It's hard to invest in the kinds of infrastructure and logistics that it takes to aggregate from the people producing the food you're looking for,” said David Ward, chairman of the Association of Family Farms, which promotes and studies the relationship between farmers and retailers.
Intermediaries like the AFF can help supermarkets navigate and facilitate the local-sourcing landscape. Natural and organic distributors that have made local a focus, such as Organic Valley and Albert's Organics, are also up to the task, according to Frank McCarthy, head of marketing for Albert's. But, in the end, it simply takes time to learn what works in order to source a truly local program.
Al Oliver, produce director at Richmond, Va.-based Ukrop's Super Markets, has found that the best fit for his stores is to follow mostly conventional sourcing practices, requiring farmers to utilize a wholesaler and bring their goods into the company's central warehouse.
“We want to buy local — but it has to be, from a quality standpoint, as good as what we could get from Florida or California,” Oliver said, adding that food safety is also a consideration.
Matters of Scale
Retailers like Ukrop's and K-VA-T have sourced locally for years, and in many ways, their smaller size has made it easier for them to develop viable programs. Chris Friesleben, spokeswoman for Hy-Vee, Des Moines, Iowa, said each of her company's nearly 200 independently operated stores takes a serious approach to local.
“We are interested in local, because people are interested in local,” Friesleben said.
Consumers can be skeptical, however. Pirog and others point out that, although they like the convenience of buying local products from supermarkets, shoppers aren't always convinced that a large company can provide an authentic experience. Duncan Mac Naughton, executive vice president of Eden Prairie, Minn.-based Supervalu, referred to this challenge during a recent conference call when he said the company's “migration to a more centralized model that leverages our scale and buying power is essential to our future success,” followed shortly after with: “Yet, we don't underestimate the need to be locally relevant.”
To convince shoppers that supermarkets can be big, but local, too, it's important for retailers to connect with the consumer and what they're buying. One of the best ways to do this is to introduce them to the people out in the fields and on the front lines, according to Matthew Saline, CEO of Mambo Sprouts, a whole health marketing firm.
“Hold a farmers' market out in front of the store,” he said. “That gives people the message that, ‘Hey, we may be big, but we care.’”
At Hy-Vee and K-VA-T stores, local sections come with signs that tell shoppers where the products came from, and often provide a picture of the person who produced them. K-VA-T also runs TV commercials that feature local produce growers.
“We try to put a face with the product whenever we possibly can,” said Smith.
But connecting consumers with local goods requires more than just trumpeting homegrown values. Supermarkets have to back up their talk and provide a level of transparency that will address people's concerns about food safety, as well as demonstrate the company's commitment to the movement. This means supermarkets need to pursue the ideal of authenticity.
“There's a real opportunity to misrepresent local here,” said Saline. “That's why retailers have to realize that if you misrepresent, and consumers realize you've misrepresented, the damage to your reputation is hard to get back.”
One of the most important topics marketing should cover, then, is what local actually means to a particular company. Given that “local” is such a broad, unregulated term, one retailer's definition of the term might be — and often is — vastly different from another's. Not only that, but the retail world's idea of local often isn't the same as consumers', according to Pirog.
In marketing local products, retailers and consumers need to be reading from the same page, he said.
In addition to enlightening shoppers, defining “local” provides retailers with a point of differentiation. Consumers who buy Good Natured Family Farms products at Hen House, for example, know from the label that they're getting something grown or raised within a few hours' drive. And that builds trust, which in turn drives brand loyalty, according to the Association of Family Farms' Ward.
Working with producers like Good Natured Family Farms can open up opportunities for unconventional, informative marketing. However, some retailers lean too heavily on their local suppliers for this, said Endicott. In addition to raising the product, farmers and aggregators are often required to package, label and promote in-store. All of this can stretch suppliers too thin.
“Farmers are already spending a lot of time in the production phase, so that marketing issue is often a big challenge for them,” said Megan Bruch, extension specialist with the University of Tennessee Center for Profitable Agriculture, which works with farmers looking to move into retail and value-added operations.
Not only that, but there's a learning curve there that most farmers can't overcome. Retailers know the marketing landscape best, and they have the resources to label and promote locally raised beef and other items in a way that resonates with shoppers.
“You need to be authentic, but at the same time, people expect their cheese to be packaged a certain way, they want their honey to look a certain way,” said Endicott. “You have to deliver what they're used to seeing.”
Farmers have their specialties, and retailers have theirs. Organizing and utilizing these skills to their fullest is crucial to an authentic local program, sources said. But such abilities still don't complete the equation. Perhaps the most crucial element in all of this is a retailer's relationship with farmers — both those who supply the company, and those who don't.
Travis Forgues, who farms 80 cows on 200 acres in Vermont for Organic Valley, believes that passion and quality product go hand-in-hand when it comes to local sourcing in the retail world.
“At the end of the day, if you really want to work with farmers, you need to be authentic about it,” Forgues said during a presentation at the recent Natural Products Expo East in Baltimore.
For supermarkets, it's always tempting to simply go with the easiest, most cost-effective route. But this way of conducting business consistently overlooks small producers who have great product, are looking to grow, and are more than willing to work with supermarkets, according to Linda Neunzig, owner of Ninety Farms in Arlington, Wash.
A lamb farmer and an active member of her local agricultural organizations, Neunzig said retailers, even Whole Foods, can ignore area growers who can't meet stringent marketing and distribution demands. Witnessing such snubs more than once makes her think that many of these retailers aren't genuinely committed to local sourcing. This past summer, Neunzig attended an outreach meeting sponsored by super-natural powerhouse Whole Foods. There, representatives and buyers from the chain met with close to 100 area farmers, including Neunzig, whose Katahdin lambs produce a sweeter meat than conventional lamb. Although she admires Whole Foods and its mission, she was disappointed with the company's overall attitude at the meeting. She had to wait more than two hours to meet with a buyer who she said knew little aside from what the different cuts of meat were.
“I just felt that they didn't take us seriously,” she recalled. “They said they'd get back to me, and I've never heard from them. I don't feel a lot of thought or time had been put into the workshop.”
Many other farmers in the area feel the same way, according to Neunzig. They also agreed that, even if Whole Foods were interested in what any of them were raising, it would be difficult to get those goods to market.
Retailers, experts and farmers like Neunzig all believe that a successful, authentic local program requires companies to break with the “business as usual” attitude. This means visiting farms, meeting with farmers before and after growing seasons, providing outreach programs to bring potential suppliers up to speed, and more. It's all about establishing a more nurturing environment, said Ward. Small local farmers can supply food that's unrivaled in terms of freshness and sustainability, but their output might not be as consistent as large suppliers, and so retailers need to be patient.
To give this complex relationship the attention it deserves, many supermarket retailers have created a “local buyer” position.
“If all you're trying to do is get the producer to give you goods at the lowest cost possible, then he doesn't have any incentive to do business,” Ward explained.
New Seasons Market, a nine-store natural food chain based in Portland, Ore., sources a third of its products locally. To ensure a good relationship and quality product, the company sets a fixed contract for farmers before the growing season and schedules when their products will appear in-store.
“We make deals in advance guaranteeing how much we'll buy and at what price, so the farm families can have the financial security they need to make it through another year making a profit,” wrote CEO Brian Rohter on the company's blog page.
Given that the category is growing as it never has before, the importance of expanding can't be understated. For Al Oliver at Ukrop's, expansion means holding outreach meetings to let farmers know what his stores need, and developing new, better ways of closing the deal. Last February he held one of these sessions for 30 farmers from throughout the state of Virginia. Although Oliver already had a solid base of about 15 local suppliers, he wanted to increase his product selection and also see if he could find some conventionally sourced products closer to home.
He ended up finding an organic tomato grower on the state's Eastern Shore — much closer than the supplier he'd been using up to that point.
“We brought in a lot more local growers this year to really address the question, ‘What are some of the things we're not offering to our customers locally that we could?’” said Oliver.
Education should extend beyond just what a retailer needs, however. Pirog, of Iowa State's Leopold Center, explained that because the retail market is still new to many local producers, it's in the interest of supermarkets and other parties to reach out, either on their own or through agricultural extension services in their states. Supermarkets need to teach, and suppliers need to learn. For many, this dynamic sums up the cooperative relationship that defines a successful local program.
“It has to be a joint venture,” said Endicott. “Each one of us has different things we're good at. What we need to do is bring [supermarkets] the highest-quality, safest, best-tasting and [most] unique product that we can produce. And then what they need to do is support us in selling that product.”
Getting Good Mileage
Locally sourced usually means a short trip, but experts caution that it's only one step in the right direction.
“Food miles are a great indicator of localness, but they're not a very good indicator of environmental impact,” said Rich Pirog, associate director of Iowa State's Leopold Center for Sustainable Agriculture. Back in 2003, the center published a now-famous report stating that food travels an average of 1,500 miles from field to shelf. That's a long haul, admitted Pirog, but the figure doesn't include the rest of the picture, such as packaging, energy consumed during production, and more.
Indeed, in some cases, locally grown products require more total energy input than their distant counterparts. A bin of pumpkins that travels 200 miles by truck, for example, may actually end up consuming more fuel than ones that came 1,000 miles by train, which can carry more product in a more energy-efficient mode.
Assessing a product's full carbon footprint will eventually become the true test, according to Pirog. And companies are beginning to agree. Earlier this month, Tesco announced it will map the carbon output involved in bringing 30 private-label products to stores, including tomatoes, potatoes and light bulbs. Even more recently, Fiji Water said it would go carbon-negative, the idea being to leave the environment better off after the manufacturing process.
When it comes to marketing local products, supermarkets and producers are often left looking at each other. Thankfully for both parties, there's help.
National organizations like the Association of Family Farms promote locally sourced goods through labeling and other avenues. According director David Ward, the association recently began establishing “value chains,” a certification stamp that highlights solid farmer-retailer relationships. Each product that passes muster receives a special label from the association.
And then there are initiatives like Pride of New York and Colorado Proud. Established by state agriculture departments anxious to support marketing efforts, these programs have brought the likes of Kroger and Price Chopper together with farmers in their area. They also provide colorful signage and banners to use in stores.
“Banners, individual signs about producers — there's a wide variety of marketing initiatives and pieces that we can offer them,” said Tim Pezzolesi, marketing and promotions manager for Pride of New York.