Expansion of Food Cooperative into Small-ScaleWholesale Local Foods Distribution

Final Report for CNE13-103

Project Type: Sustainable Community Innovation
Funds awarded in 2013: $14,910.00
Projected End Date: 12/31/2013
Region: Northeast
State: New York
Project Leader:
Chris Curro
Mohawk Harvest Cooperative Market
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Project Information

Summary:

Small to medium sized wholesale buyers in our area stated their desire to purchase more local products but had not considered the available market channels to be favorable. Local farmers, expanding local production, expressed the need to gain access to local markets but were unable to spend the time needed to establish and maintain relationships with local wholesale buyers. Mohawk Harvest Cooperative Market, as a thriving producer- and consumer-owned cooperative utilizing over 50 local producers, had established a network of transportation routes to efficiently move product from the surrounding farmland to its retail store. By organizing a wholesale marketing and distribution system for farmers’ products, we sought to meet a level of convenience comparable with other distributors while offering local wholesale buyers new or improved access to local foods. We were confident that wholesale buyers would find local agricultural products of a high quality at a competitive price. We anticipated a significant increase in our own ability to purchase local products through the adoption of this project. We sought to stimulate a broader trend of local food purchasing for our region in food service and restaurant food preparation facilities. We expected that our project would service as a model for other cooperatives seeking to make a positive impact on their local food shed. In Year One of this project, we were able to connect thirteen wholesale purchasers with product for nearly nine thousand dollars in sales.

Project Objectives:

We sought to contact 10 potential buyers and we were able to contact over 25 potential buyers. We sought 4-5 wholesale buyers to commit to purchasing in the 2013 season and were able to get 13 wholesale buyers (see addendum 1). We sought to contact 7-10 growers and contacted well over double the projected amount. We sought to create 4-5 contracts with growers but were unable to obtain any formal contracts, continuing a trend among our growers to avoid commitment. The manager was able to contact key growers serving the auction and the auction leaders as well, to make them aware of expected increase in produce quantity and diversity. We followed up with 13 wholesale buyers and received verbal responses from all of them and written responses from 6 of them showing a desire to continue with the wholesale distribution service and broaden the service next year. As part of our continuing relationship with growers, our conversations explored key obstacles to better serve the needs of our wholesale buyers, most significantly marked by the need for increase product diversity.

Introduction:

In 2009, Mohawk Harvest Cooperative Market was founded with the goal of marketing foods from local agricultural producers in a small city (see SARE project CNE10-083). In the third year, our cooperative grocery store purchased $142,000 in local foods on a wholesale level and had total gross retail sales totaling $535,000. With Mohawk Harvest’s rapid growth of retail sales, we saw an opportunity to expand the scope of our local foods mission by becoming a wholesale distributor to restaurants andfood service venues in this small city and neighboring small towns.   We recognized that “local” is a valuable product niche in the marketplace because our retail consumers repeatedly expressed a desire to purchase locally sourced products beyond our retail grocery location. Our conversations with chefs and restaurant owners about the potential to bring local products into their venues revealed their interest in tapping the local agricultural supply, offering them several advantages in quality and marketing.

Conversations with potential wholesale purchasers identified several potential obstacles that had been keeping them away from local products including transportation time and access to farms. Price competitiveness with standard wholesale distributors was identified as the major concern for many potential buyers. Thus, one of our major goals was to make local produce affordable.Seasonality of product was an upfront issue for potential wholesale purchasers but this issue was lower on the list of concerns since we advertised our local foods distribution to be a complementary or supplementary service for our wholesale buyers.

We knew Mohawk Harvest had some start-up assets to smooth the birth of the wholesale distribution service. Our grocery cooperative had previously established effective relationships with a number of local producers as well as with a nearby produce auction. This supply network created a firm infrastructure from which the wholesale effort could spring to life. The experience of travelling to farms for pick-up and delivery to our retail store paved the way to do the same pick-up and delivery to other institutions also. Another advantage lay in the perceived quality of local agricultural products. It was known that a tomato grown locally and picked at peak ripeness had better flavor than a tomato grown and shipped across the country. Our retail system had adopted on-farm and at-auction pick-up as transportation efficiency for our producers (see SARE project CNE10-083) so our wholesale purchases added to the efficiency of our purchasing practices.

Cooperators

Click linked name(s) to expand
  • Bruce Frasier
  • Wally Hart
  • Crystal Stewart

Research

Materials and methods:

Our general manager, Chris Curro, and a member of our Board of Directors, Crystal Stewart, began visiting and meeting with potential wholesale buyers including several institutional food service providers and over two dozen restaurants ranging from pizza places, fine dining restaurants, hospital food service and the local ARC chapter, a community-based agency which promotes and protects the human rights of people with intellectual and developmental disabilities and actively supports their full inclusion and participation in the community. We mailed out promotional letters describing our new service (see addendum 2) to recruit wholesale buyers. We utilized a revised letter to offer these services through our email distribution list as well as using social media such as Facebook. We personally contacted strategically placed individuals in the community with whom we had had previous contact through previous community-based economic development efforts. We also asked our member-shareholders to recruit wholesale buyers on our behalf.

We had numerous conversations with producers focused on gaining a better understanding of our producer’s production capacities and to educate producers on the unique product needs of our wholesale buyers. These conversations were targeted extensions of our regular retail conversations. We also participated in a group meeting with the Mohawk Valley Produce Auction Manager, Floor Manager and key growers to inform them of our new service and to show interest in their increased product diversity. We also explained that any investments in season-extending high tunnels would allow us to extend our purchasing as well.

We held pre-season and early-season meeting with potential buyers. We informed potential wholesale buyers on a weekly and bi-weekly basis through emailed fresh product availability sheets (see addendum 3). In response to the specific needs of two separate buyers, we prepared two specific sale sheets, one using traditional agricultural units—bushels and half-bushels—and one using traditional consumer units—pounds and ounces (see addendum 4). These sheets reflected what our buyer had seen being produced in previous weeks and what farmers told us we should expect to see ripen in that week.

To track our product purchases we utilized an inventory control program, My Stock, recording each transaction by date, producer, product and quantity and cost. We also utilized a separate spreadsheet to track our overall purchasing and the wholesale sales. Our goal was to establish a comprehensive understanding of the economics of wholesale distribution to draw conclusions on the economic viability of our service. Our pricing structure was based on expected prices considering short-term trends in the produce auction. We were careful to establish extremely competitive wholesale prices to pique the buyers’ interest and establish an inroad for local agricultural products within the local food service industry.

We asked buyers to order on specific timelines, twice weekly, in coordination with our trips to the farms and the produce auction. We matched our purchasing with the pre-orders. In several cases, the buyer was unable to match our timeline so we were forced to anticipate that buyer’s orders. Personal conversations remained a consistent aspect of keeping orders flowing from the wholesale buyers.

Co-op employees aggregated the orders, matching our inventory with the buyers’ requests and delivering the produce. This process required care to quality as well as quantities and relied upon significant training of several employees taking on new tasks and roles within the produce department. Delivery was conducted with a recently purchased box truck. Our employees were also charged with the important task of record keeping since organization was a key piece to the satisfaction of our wholesale customers. We billed our buyers with each delivery using traditional invoice sheets for most buyers based on the offer sheets, even if the purchase prices fluctuated at the auction. The biggest buyer, Lexington ARC, requested a more detailed breakdown of the total delivery and billing to reflect products ordered by their institutional subdivisions—each unit or house was billed separately—through a large spreadsheet (addendum 5).

An end of season survey was conducted in order to determine the areas in which we had successfully met the needs of the buyers and producers and the areas in which we had to make further alterations to satisfy those needs for the next local growing season (addendum 6). Survey Monkey was utilized to conduct the survey for those able to access the Internet.This survey was distributed in paper form for those buyers who lacked email access.

Research results and discussion:

Mohawk Harvest sought to increase local product purchases in the $50,000-75,000 range and found that we were able to increase purchasing of local products by $60,000, a significant level, representing a 42% increase over the previous year.Through the wholesale service, we sought to increase buyers’ awareness about the special values in local produce and their willingness to purchase more local product and feedback reveals that we accomplished this goal.

We were able to track our activity, utilizing a spreadsheet to logging the orders and purchases. We also initiated the use of an inventory control program and found it could trace purchases well enough but its reporting limitations were evident in the area of aggregation of information.

We targeted fulfilling 4-6 wholesale orders per week and averaged five per week with a dollar value ranging up to seven dollars a week. We sought to collect product from 4-5 farms and the auction twice weekly and found that while we purchase­­d the majority of our fresh produce from the auction, we purchased from a wide variety of farms through the season. We sought to tour three farms but managed only to establish a plan for this tour in 2014.
 
We sought to have wholesale buyers commit to purchasing local product again in 2014 and have accomplished these commitments with stated expectations of an increase in purchasing. It is less clear if any of the buyers who did not purchase in 2013 will purchase in 2014 but we will continue to market to these potential buyers.

Our Year One experience shows that it may take several years for this project to fulfill our dollar-value targets. The long-term philosophical commitment of our co-op to the wholesale distribution system and the advantages gained for our retail make these goals realistically achievable.

Participation Summary

Education & Outreach Activities and Participation Summary

Participation Summary

Education/outreach description:

We have created a PowerPoint presentation sharing key components in this report to those interested in replicating our system (see addendum 9). This presentation will be available on the SARE website and on our website (Mohawkharvest.org). The General Manager, Chris Curro, and a knowledgeable board member, Crystal Stewart of Cornell Cooperative Extension, will make themselves available to speak at events such as Organic Farming Association conferences and for one-on-one consultation about the project. We will continue to track our results in subsequent years to better advise any parties interested in replicating our project.

Project Outcomes

Project outcomes:

Mohawk Harvest established a wholesale distribution system, reaching thirteen wholesale buyers, many of which have committed to buying in Year Two at higher levels of participation. The largest food purchaser in our region, spending nearly one-million dollars annually, is among the committed customers of Mohawk Harvest’s wholesale system due to significant cost savings and high levels of quality. We were able to utilize our network of farmers and our community-based relationships to create a break down barriers to local agricultural products in the food service industry. Mohawk Harvest’s local foods purchasing increased significantly, partly on the basis of wholesale sales and partly on the basis of growing retail sales, strengthening the role of Mohawk Harvest to increase the focus on local foods in the community. This project established the foundation for a continuing wholesale service with expected growth in coming years. The local foods movement has received a boost from this project through this project.

Assessment of Project Approach and Areas of Further Study:

Potential Contributions

During the course of this project we discovered several key aspects to the wholesale distribution of local produce. These will be useful for our own future work in turning this project into a continuing service offered by Mohawk Harvest and can also inform other co-ops seeking to adopt a similar service.

We found that personal connections made prior to or created through the development of the local foods distribution had a major role in getting a food service institution to adopt our new distribution service. Our previously established relationships and personal contacts within Lexington ARC, Holiday Inn, Wine and Roses and Lohse Florist especially sparked their willingness to alter their own practices and trust our service. Also, personal attention and contact with these individuals helped keep them as regular buyers. Personalization and customization were also important to keeping buyers happy. Some buyers requested product in units common to wholesale producers and other wholesale distributors—bushels and half-bushels for instance—while other buyers requested products in smaller units—pounds and ounces for instance. Unique requests required extra efforts on our part but received extra satisfaction from the buyers.

A dynamic and flexible system for buying and storing the fresh produceinventory was the most important component to the service which required much attention because each wholesale purchaser had a unique and specific rhythm and time-line for purchasing. Our box truck and walk-in cooler became bottleneck points that needed a good deal of careful management. Also, most wholesale buyers placed their orders in advance of our bi-weekly visits to producer’s locations, but fulfilling the needs of one restaurant required us to buy at the farms in advance of its order, in hopes of properly anticipating this restaurant’s needs. Matching the existing rhythms of the existing businesses with the new wholesale buyers is something to be considered up-front through honest discussion.Tracking of product costs and overall profitability was a problem since high quality and affordable software for a business of our size appears generally lacking. The best inexpensive software for our store size, My Stock, has limitations in aggregating information and is better structured to report each specific transaction. Larger scale food hubs—participants in a National Good Food Network webinar—http://ngfn.org/resources/ngfn-cluster-calls/starting-a-food-hub-successful-hubs-share-their-stories—appear to have custom software written for them. Also, commodity prices fluctuate from one auction lot to the next lot, even on the same day, making averages our current method to calculate into costs and profits. This was especially challenging because our biggest wholesale purchaser, Lexington ARC, had unique structural needs.Given the challenges of starting up a wholesale service, our relative level of success in recruiting wholesale buyers, and the positive feedback we received have encouraged us to continue this effort into the future. Customers have expressed satisfaction with price, quality and service and have made valuable suggestions. The biggest buyer, Lexington ARC, has even expressed an interest in wholesale purchasing even at higher prices in 2014 given the significant advantages in cost savings and quality of local products. Lexington also felt they gain institutional strength from serving more fresh food, reducing their reliance on packaged food. Lexington ARC expressed an interest in partnering with us to send their employees to our cooking classes to improve quality of life and to offer healthier options to their own clientele. Lexington ARC also has stated that we are helping them complete their community-based mission by having its food come directly from the local agricultural community.We also gained valuable advantages from offering this wholesale distribution service. The through-put of the wholesale services helped our retail service to increase buying power, reducing our overall costs of retail goods. The wholesale service also created a quicker inventory turn-around of our perishable goods, allowing us to reduce loss due to aging and resulting in a higher quality retail produce. The service itself was marginally profitable on its own (see addendum 7) before including labor costs which stayed relatively fixed for us but may not be fixed for other institutions. This is significant because our buyer survey (see addendum 8) indicated that our price structure was the least important aspect of our first year in wholesale distribution.

The wholesale service also had a positive public relations effect, resulting in co-marketing opportunities and more retail customers for our co-op. When we delivered produce to a location, we publicized their purchases and gave their venues positive publicity, driving customers to their business and creating good will for them. The wholesale buyers reciprocated, telling their customers and employees about Mohawk Harvest as the source of their produce, driving retail customers to our business. A specific example illustrated this positive side-effect for us: A steady customer at the Holiday Inn restaurant noticed that the cherry tomatoes on her salad tasted better than they had before. The chef explained the connection to Mohawk Harvest. The customer explained this chain of events as she purchased produce for her home from our retail cooler. Another positive side-effect included the use of local foods in the marketing strategy for partnered businesses. One long standing fine dining venue, Union Hall, adopted August as Local Foods Month for their nightly specials, planning and purchasing their menu around our seasonally peaking produce. Lohse’s Flower Shop was able to continue selling hanging baskets and bedding flower flats through our wholesale serviceafter having their previous supplier retire.

Future Recommendations

A consumer grocery cooperative would be advised to establish a sound foundation within its retail practices, within the farming community and within the food service sector prior to developing a wholesale distribution system. A strong retail produce section of a food co-op is important to a wholesale sales system. We would recommend that connections to the farmers be built as a network to utilize for wholesale customers. It is recommended that leaders evaluate their previously established levels of personal and professional trust to recruit wholesale buyers.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.