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01/01/2012

Going Local

Can small-scale purveyors of local food co-exist peacefully with mass-market grocery stores? Better yet, can they collaborate profitably?

Some industry observers say the tough economy has boosted sales of locally produced items by calling attention to the importance of supporting the local economy. Couple that with Americans' increased health consciousness and growing concern about the carbon footprint involved with transporting food from outside the United States' borders, and buying domestic products has become politically correct at any price.



"The consumer just seems to be more aware of where their food is coming from."

–Matt Ewer,

BEAN LLC

"The consumer just seems to be more aware of where their food is coming from and the impact of the local economy," says Matt Ewer, president of BEAN LLC in Indianapolis, which operates several businesses supporting local food producers. They include an online home delivery service and Tiny Footprint Distribution, which distributes product from local producers to the retail and wholesale markets.

Ewer, whose 4-year-old company now employs 100 workers, predicts the local foods trend will grow in the future. "The recent recession has brought more awareness to it," Ewer says.

Even as consumers cite convenience and price as primary considerations in determining where they shop, many will make an extra stop and spend a bit more at a farmers market or specialty store for local foods they perceive to be fresher and of higher quality. Others buy directly from organic growers in season or through community-supported agriculture organizations.

As a result, direct-to-consumer marketing of locally produced food has more than doubled, going from $551 million in 1997 to $1.2 billion in 2007, the latest year for which government data are available, reports the U.S. Department of Agriculture.

When intermediated channels are added, local foods represented $4.8 billion in sales in 2008, according to a November 2011 report by the USDA's Economic Research Service. Larger farms with annual sales of at least $250,000 are more likely to use distributors. While in number, large farms represent 5 percent of all farms selling local foods, they accounted for 92 percent of local food sales through intermediated channels, the agency reports.

Promoting local produce

As the number of so-called locavores–shoppers who seek out locally grown food–increases, they're capturing the attention of mainstream retailers including Walmart, Safeway, Wegmans, Meijer and Hannaford, all of which have boosted their focus on locally produced foods.

In August, Grand Rapids, Mich.-based Meijer announced a commitment to increase its locally grown produce 5 percent this year to about one-third of the fruits and vegetables it sells during the summer and fall at its 196 supercenters and grocery stores in five Midwestern states. The company says it has invested more than $60 million in local economies by partnering with about 85 local growers to source more than 75 fruit and vegetable varieties.

Safeway reports that about 30 percent of the produce the company sells each year is locally grown. The company's website says it works with more than 1,000 local vendor partners in the United States and Canada.

Meantime, as part of its global sustainable agriculture program, in October 2010 Walmart announced a commitment to double its sale of locally grown produce in the United States by the end of 2015.

Scarborough, Maine-based Hannaford, which helps promote locally produced foods through its Close to Home program, is helping to support local dairy farmers financially by promoting the Keep Local Farms program in its 179 stores in the Northeast.

Specialty sales

Specialty retailers such as Boulder, Colo.-based Sunflower Farmers Market, which has 35 stores, have also made locally grown foods a focus. Sunflower devotes nearly one-third of its 25,000- to 30,000-square-foot stores to merchandising produce and has been increasing the number of items to meet consumer demand, says Mike Krage, who is director of produce/floral marketing and sales.

Consumers don't always seek out locally made foods, but they're more apt to buy them when the choice is made clear. Market Street, an upscale grocery chain owned by Lubbock, Texas-based United Supermarkets, aims to meet shoppers' desires for specialty foods and organic products, which include locally produced foods. Two years ago, it launched a "Best of Texas" expo to promote local products, including produce, meat, beer and Texas sunflowers, which immediately became one of its most successful expos, the company says.

"I don't think our shoppers day-to-day come in looking for Texas products for the most part," says Wes Jackson, chief marketing and merchandising officer at United Supermarkets. But the awareness from the Texas expo has made a difference, he says.

"People like to support Texas products. Maybe we're creating more value for our guests as we highlight these items," he says.

Image from Colorful Harvest

Consumers don't always seek out locally made foods, but they're more apt to buy them when the choice is made clear.

The company is also the exclusive provider of Genuine Texas Beef, which accounts for 70 percent of Market Street's meat sales. "People have pride in wherever they live," Jackson says. "They're proud to support their local area."

The retailer draws attention to local produce through signage that tells about the local grower, Jackson says. "We do story boards specifically around those local growers and about Texas wineries to build awareness and a sense of loyalty."

Adding up savings

An added benefit is the environmental savings from avoiding long-distance shipping. Those savings help to keep the cost of locally produced food products in line with commodity products. "If we take costs out of the system, it's going to translate to a lower price," says Jackson.

At the same time, many locally produced foods are organics or grass-fed varieties, which cost more to produce. "When you're dealing with small producers, the actual product may be more costly," Jackson says.

But price generally isn't a deterrent because consumers are willing to pay more for local products, according to the USDA's Economic Research Service, which compiled data from eight different surveys.

Still, "every consumer is different" in terms of how much they're willing to pay for produce, notes Krage of Sunflower Farmers Market, where produce prices are based on supply and demand. "It's whatever the market will bear," he says.

Keeping up with demand

For other retailers, finding sufficient locally grown produce year-round can be a challenge. Some experts suggest it's better to offer consumers product at peak season even if it has traveled a distance than to provide locally grown produce that was picked either too early or too late.



"I personally believe 'at the peak of the harvest' is a better way to position it than 'locally grown.'"

–Doug Ranno,

Colorful Harvest

"I personally believe 'at the peak of the harvest' is a better way to position it than 'locally grown,'" says Doug Ranno, managing member of Colorful Harvest in Salinas, Calif., and a former vice president of produce and floral at Wild Oats. Colorful Harvest is a producer of unique, colorful produce varieties, such as carrots in five colors, purple and green artichokes and Ruby Jewel Sweet Red Corn. The company's products generally command a premium price at retail.

Colorado-based Sunflower Farmers Market highlights place of origin and growers' profiles for its produce.

About 85 percent to 90 percent of the company's produce is grown in the United States, but Colorful Harvest doesn't claim to offer locally grown produce in all markets all the time. The company grows strawberries 12 months a year, but in six different growing regions, Ranno says. "When we're in one of those growing regions, we promote that as locally grown," he says. "The reality of the matter is every company that grows produce is locally grown in that market."

Distribution challenges

The freshness of locally grown produce depends partly on the distribution method. BEAN LLC's Ewer can attest to the challenges small growers have in getting their product to retail. "Distribution has been a major challenge," he says.

To solve the problem, his Indianapolis-based company has set up food hubs in Midwest cities, including Indianapolis and Fort Wayne, Ind., Cincinnati and Columbus, Ohio, and Louisville, Ky. The hubs, which are distribution centers with refrigeration and dry storage, then sell the products, which include fresh baked bread, dairy, meat, produce and locally made grocery products, to the retail or wholesale market. "We basically set margins and keep that as an open market. It creates a fair market for our customers and vendors," Ewer says.

Freelance journalist Ann Meyer is editor of SmallBizChicago.com and chief executive of L3C Chicago, L3C. Meyer formerly was a freelance small business columnist for the Chicago Tribune and has written for a variety of business publications, including BusinessWeekSmallBiz, Crain's Chicago Business, Specialty Coffee Retailer, Multichannel Merchant and Prepared Foods.