Growing Magazine - August, 2014

FEATURES

Is it Time to Modify Your Sales Approach?

By Tamara Scully

It's become common practice for growers to sell directly to the public and receive a higher retail value for their product. Particularly for many small and midsize operations, retail sales via farmers markets, on-farm stands or community supported agriculture (CSA) shares are the primary, if not the only, market venue.

Selling wholesale isn't always on the radar; common concerns include issues with volume, pricing, timely payment, packing, food safety certification, and storage and delivery. While these certainly warrant exploration, many small growers have found that wholesaling is a realistic option. It offers diversification of sales venues, can help capitalize on a product they grow well, provides stable income, requires fewer man-hours than retail, and allows them to move perishable products quickly.

The wholesale route doesn't mean only selling in bulk at low prices to the big supermarket chains or large distributors. Small grocers, restaurants, local institutions and buyers' clubs are blurring the line between wholesale and retail, allowing the purchase of small volumes with a premium for local. Wholesale is evolving. Aggregators and distributors specializing in local and regional foods, food hubs and growers' cooperatives - often run by the growers themselves - are becoming increasingly common as a method of pooling products to supply large customer demands.

"Restaurants, smaller independent retail grocers or co-ops and businesses like Whole Foods Market who allow farmers to sell to a single store have been a steppingstone for small to midsize local farms to get into wholesale markets," said James Pirovano, market development program coordinator for http://FamilyFarmed.org. "Connecting these local growers with buyers helps to build local farm businesses and keep profit in the community."

The nonprofit http://FamilyFarmed.org is committed to developing the production, marketing and distribution of locally grown and responsibly produced food. Its Wholesale Success program is designed to help small and midsize family farmers enhance the local food supply chain by meeting the needs of larger buyers. It's offered across the nation in partnership with many sustainable food organizations. The "Wholesale Success" guide is available for purchase at http://www.familyfarmed.org.



The Wholesale Success program is designed to help small and midsize family farmers enhance the local food supply chain by meeting the needs of larger buyers. "Wholesale Success: A Farmer's Guide to Food Safety, Selling, Postharvest Handling, and Packing Produce" is available at www.familyfarmed.org.

Direct marketing

Growers who sell directly to the end user are responsible for the product from seed to sale. They are involved in every step of the process, including attracting customers, making sales, retail packaging and display, setting the final pricing, and paying for expenses associated with the sales venue.

"Each of these steps has a cost associated with it," said Bob Weybright, agricultural development specialist with Cornell Cooperative Extension. "Smaller producers often don't understand their cost basis."

One of the costs associated with retail sales is the time and labor devoted to selling the product. Your time is worth money, so a selling venue that takes more time costs you money too.

According to Weybright, a typical retail markup for produce is about 30 percent more than the cost of production, although it's variable. Setting fair prices means knowing your cost of production and adding value for attributes that make your produce unique. Trying to keep your prices lower than your competitors does not work in a retail farm market environment and encourages customers to shop by price, not by quality or value-added properties. On the other hand, you can price yourself out of business if your products aren't affordable enough to maintain the volume of customers you need for regular, ongoing sales.

Is the retail markup enough to justify the effort of direct sales? If you hire employees to run a retail operation, the cost of their employment offsets the gains of the retail price premium. The cost of running a farmstand or transporting items to and from a farmers market is also part of the equation. Vendor fees, advertising costs, social media efforts and special packaging (bags, pints, elastic bands, etc.) are additional costs. While many growers enjoy the idea of controlling all aspects of their products, others tire of the socializing and having to divert their attention from the field.

"A number of growers are starting to take a lot of this into consideration and are exploring other outlets," Weybright noted.

Selling wholesale

"As local farms expand and are able to meet the volume needs of larger buyers, their market share will replace that of larger farms in California and what is now imported from other countries," Pirovano predicted.

However, they have to learn to navigate wholesale supply chains. This begins with understanding buyers' needs. Buyers are looking for specifics in terms of produce variety, packaging, quantity, pricing, purchasing and delivery, and food quality and safety, Pirovano said.

Payment from institutional accounts is typically 120 days from delivery. Developing a good relationship and dependably fulfilling all of your obligations are crucial in establishing long-term wholesale customers, Weybright said.

When entering into a wholesale agreement, according to Weybright, "The key is to ask every single question and assume nothing." Items to discuss include volume, size and packaging, variety, payment, returns, delivery specifications and ordering.

Growers sitting on a lot of produce can suddenly flood wholesale markets, forcing prices down. Having established sales agreements can offer protection from price volatility, as can providing a consistent, quality product. Local wholesaling helps as well.

"Price per pound for products sold wholesale is usually less than selling direct, and farmers will make up for this by selling larger volumes," Pirovano explained. "Buyers can expect to save on shipping costs by buying from farms closer to market."

Wholesale venues are a "healthy direction to see a lot of smaller farmers going," Weybright said. In terms of managing cash flow and diversifying sales outlets, wholesale venues can provide small growers with some balance and stability, as long as the grower can meet the buyer's needs.



Selling wholesale isn't always on the radar, since growers have concerns about volume, pricing, timely payment, packing, food safety certification, and storage and delivery.
PHOTOS COURTESY OF FAMILYFARMED.ORG, UNLESS OTHERWISE NOTED.

"Food safety requirements are currently buyer-driven," Pirovano said. "Both farmers and buyers are looking ahead to the release of new food safety regulations as laid out in the Food Safety Modernization Act."

Food safety requirements currently vary from buyer to buyer. While many smaller producers are concerned about having to implement third-party audits or build infrastructure in order to meet a wholesale buyer's requirements, Pirovano emphasized that small buyers might not require Good Agricultural Practices certification. They may want to see an on-farm food safety plan and perhaps inspect the premises. Insurance requirements also vary by buyer, and smaller buyers may have less strict requirements than larger outlets.

Maintaining quality throughout the wholesale supply chain can be more complicated than in retail sales. At the retail level, many growers are harvesting immediately prior to market, without packing and storing produce for any amount of time. Produce is not usually sized or graded either, which may require increased handling or machinery.

"The best possible quality of any fruit or vegetable exists at the moment of harvest. From that point on, quality cannot be improved, only maintained," Pirovano said. "The biggest factor to be addressed on-farm when selling wholesale is removing field heat and maintaining the cold chain for harvested produce. Each fruit or vegetable has a different respiration rate, which determines when to harvest a product and at what temperature it should be stored."

A new wholesale

Another challenge of the wholesale supply chain is maintaining the integrity of the farm-to-table connection. Retail sales allow growers to connect directly with the consumer, provide education about how the food is grown, and develop a direct farm-to-plate relationship. Often overlooked is the relationship that develops between a grower and a restaurant, store or institutional buyer. Maintaining that relationship on a business level and as a value-added aspect of the food is an important part of many locally oriented wholesale supply chains.

"Although there is a large demand for locally grown fruits and vegetables, there is a shortage of supply, and aggregation and delivery infrastructure that needs to be rebuilt to meet larger wholesale and institutional buyer needs," Pirovano said.

Part of http://FamilyFarmed.org's mission is to encourage transparency in the food supply chain. Examples of local distributors, food hubs, restaurants, institutions and others doing just that are increasingly abundant. Retaining food identity is an accepted and expected part of a wholesale supply chain built on the foundations of a local farm and food economy.

Wholeshare (http://www.wholeshare.com) is a modified wholesale program that offers the services of a broker and partners with distributors. It allows consumers to purchase local food at below-retail prices by aggregating individual consumer sales into bulk group orders. On the farm end, groups of small producers can work together to aggregate their products, offering a sufficient supply to provide for the buying groups.



With a wider range of wholesale opportunities sprouting up in support of a local food economy, small growers have ample opportunity to explore options outside of the farmers market, farmstand or CSA.
PHOTO BY TAMARA SCULLY.

"We look to develop relationships with producers who are working together," said Dan Livingston, community outreach manager at Wholeshare. Growers can opt to sell only to local buying groups in a surrounding radius and handle their own deliveries, or offer their product regionally through the organization's partnership with Regional Access, a distributor focusing on local foods.

Another take on wholesale is food hubs. http://FamilyFarmed.org has established food hubs to aggregate and/or process food from local growers in several locations across the nation, including Wisconsin and Virginia. According to the website, food hubs "provide infrastructure to aggregate, process and distribute local food. In essence, they create a supply chain from farms to wholesale buyers and even to consumers. Doing so gives smaller producers greater market power."

The effort to get local produce into wholesale venues often comes from within institutions, such as hospitals or schools. One organization promoting the inclusion of "real food" on campus menus is the Real Food Challenge (http://www.realfoodchallenge.org). The goal is to reduce the influence of the largest national food service companies, whose contracts often make local food procurement difficult, according to Estefania Narvaez, northeast regional coordinator for Real Food Challenge.

The Real Food Campus Commitment is an effort to change that by shifting campus food procurement to include 20 percent real food purchases by 2020. Real food is defined as including social, economic and environmental considerations throughout the food chain and is rooted in transparency. While the program does not work directly with growers, they partner with organizations such as the Massachusetts Farm to School Network, Farm to Institution New England and others across the country, Narvaez noted.

Programs such as New York State Procurement's Buy New York initiative also aim to support local growers. The program's goal is to have New York-grown produce better utilized by state food service contract providers. The initiative includes educating growers on how to bid for these contracts, coordinating meetings between growers and purveyors, and having New York-grown products identified as such by food service providers. Weybright addressed these issues in a presentation at the 2014 Purchasing Forum & Trade Show.

With a wider range of wholesale opportunities sprouting up in support of a local food economy, small growers have ample opportunity to explore options outside of the farmers market, farmstand or CSA. Diversifying into wholesale venues is akin to diversifying crops; it protects against failure by spreading the risk.

Retaining a hands-on approach and capturing the retail sale amount is often seen as a way to set your own pricing, rather than simply take the price being offered on the wholesale market. However, these days the wholesale market has some flexibility. With the work associated with direct retail sales, reconsider the balance between selling retail for top dollar and selling via wholesale venues. The increased variety of sales venues, along with the advent of a local food economy, allows growers to explore retail, wholesale and everything in between.

The author is a freelance contributor based in New Jersey. Comment or question? Visit http://www.farmingforumsite.com and join in the discussions.