Project Overview
Commodities
- Animal Products: dairy
Practices
- Farm Business Management: agricultural finance, market study
Summary:
Introduction
The Borgman family has a long established history in the Kansas City dairy industry. Borgman’s is an 80- year-old, Grade A, farmstead, goat dairy and creamery located just minutes from downtown Kansas City. The dairy was started in 1935 by the current owner’s grandmother.
In 2006, Janet Smith took over the leadership of the dairy and changed the dairy milk from cow’s milk to goat’s milk. She changed the milk due to the health benefits of goat’s milk; it is closer to human’s milk than any other milk; more people in the world drink goat’s milk than cow’s milk; and (the research indicates that) goats are more environmentally friendly than cows. Currently, Borgman’s is the only Grade A goat dairy in the Kansas City region manufacturing artisan goat milk products on the farm. Even though the dairy has found a niche market, sales are lacking and profits are slim.
Money and time are scarce on a dairy farm, and Borgman’s needed to know where the best application of time and money would result in increased economic value to the business. This study was designed to provide a comparison of seasonal economic value and gross receipts of dairy farm sales between a local sourced grocery store and a farmer’s market in the Kansas City area. This research study occurred during the summer of 2016 for 23 weeks during peak sale times (Summer) from April 1 – September 30th.
This study is important to other small farmers and specifically small dairy farmers to determine where their limited marketing monies (and resources) would bring the biggest economic return.
Review of the Problem Statement
Given limited marketing resources, (time and funding), which marketplace (local sourced retail grocery store chains or local, well-established farmer’s markets) returns the largest economic value to small dairy farmers?
Solving this problem is important because farm sustainability depends upon profitability. Farmers have limited resources and are searching for maximum profits. Knowing this information would mean farmers could direct their marketing efforts toward those venues that lead to higher profits. Farmers are entrepreneurs, and as entrepreneurs they understand that company success is measured in customer sales. Customer sales are linked to marketing efforts (such as in-person tasting and demonstrations).
The Study
This project compared resources, costs, and sales between a local sourced grocery retail store and the largest farmer’s market in the Kansas City area to determine the greatest economic value based on sales venue generated by demo-ing/sampling products.
Borgman’s held the following variables constant (between both markets) during demos.
- Products
- Price
- Promotion
- Time/Season (Saturdays and Sundays: April 1 – September 30th)
- Training
New sales/demo people were hired to conduct the tasting and demonstrations.
- Training was the same--given by the owner of the dairy
- Marketing materials were the same--prepared by the owner of the dairy
- Products demo-ed were the same
- Number of demo people per venue. There was only 1 demo person at each venue during the same times and dates
Times/dates of Demos
- Every Saturday and Sunday
- 8:00 am – 2 pm
- April 1st – September 30th
- Four demos per week
Timeline
The study began April 1, 2016 and ended on September 30, 2016. Products sold, environmental conditions (weather), age, education, and gender of the customer was recorded. Both venues were under cover or indoors.
Study analysis began on October 1, 2016 and ended on December 30, 2016. Results of the analysis were developed into a presentation and presented to the Kansas City Food Circle for the end of year Farmer’s meeting.
Costs of the Study
Actual costs of the study were more than originally proposed. The costs of paying for the farmer’s market stalls were not included in the original cost of the study. For the 6 month time period under study the weekly stall costs plus fees totaled $1673. There were no “location” costs to demo within the retail store locations. This was in addition to the costs presented in the original study materials. The costs of the demo personnel also came in higher. Hours were correctly estimated, but Borgman's could not find the quality of demo personnel without raising the rate past $15.00/hour. Food sampling costs were not included in the study-but were a major cost of doing business. During the 6 month period, Borgman’s gave out over 40,000 samples of products. Although a major cost of the study, without samples fewer people would have purchased the product.
Background
The good news is that most people like cheese and Americans eat on average 30 pounds of cheese each year. The bad news is that for small farmstead cheese makers, getting their cheese in front of consumers can be difficult. Here’s why. Farmstead dairy owners must take the time to milk the animals twice a day. They must also care for the animals providing food, clean shelter, medical, etc. In addition to caring for the animals they must then meet all regulatory requirements for harvesting, pasteurizing, bulk storage, and then, make a delicious cheese! There is a heavy work load on the farm. If farmer does not have help from family members they must hire additional people to complete these operations.
Once the cheese is manufactured, it must then be packaged and labeled according to all State and Federal regulations.
It is at this point that the farmer is ready to sell the cheese, but most farmers live hours from any market and the customer lives hours away from the farmer.
Making artisanal/farmstead cheese products more accessible to customers is a challenge and an opportunity for small dairy operators.
On January 25, 2017, in New Holland, PA a national Cheese Resource Conference was held. Dozens of artisan cheese makers attended this conference. Research provided at the conference indicated that on average only 5% - 10% of the total sales of dairy cheese makers are through farmer’s markets. Most conference attendees agreed that the farmer’s market was a great way to market the farm and establish farm name recognition and perhaps bring in some limited cash flow…but of the 3 ways most dairy operators sold their cheeses (distributors, brokers, or farmer’s markets) farmer’s markets provided the lowest income with only 5-10% of annual sales.
Borgman’s SARE Grant findings supported this finding.
This research seems reasonable. The largest US cheese maker is Kraft foods. They do not sell in farmer’s markets. They sell 50% of nation's cheese in retail stores.
It’s especially difficult for dairies located in the middle of the US. According to a 2013 University of Missouri Study, states located in the middle of the country indicated a decrease in dairy operations at an average of -22% every 5 years. In 1975, there were 20,000 family dairies in Missouri, today there are about 800 and that number is rapidly dwindling. There are few to no incentives in Missouri to encourage people to go into the dairy industry (vs. neighboring Kansas). This is why it is so important to keep family farms that are still operating in business. Once these farms are dispersed, these opportunities in local food and dairy have little chance of restarting.
Demographics
Both venues were consistent in these findings.
When sampling Borgman’s dairy products demo staff observed the following:
Slightly more women bought artisan cheese than men: 60% women /40 % men. This may be due to more women shopping for their family’s food than men. The average age group that purchased artisan cheese was 30 – 55.
When asked why they bought artisan goat cheese over half said they were lactose intolerant or allergic to cow’s cheese and wanted a healthy dairy alternative. Ninety percent (90%) of those people buying cheese were caucasian. Few people of color bought artisan goat cheese through these venues. Most buyers had some higher education (past high school) and many were local foodies or have traveled extensively and liked the flavor of goat cheese.
Market Inspection Requirements
In Missouri, Borgman’s Dairy Farm is regulated by the following agencies:
- FDA
- Missouri State Milk Board
- Missouri Health Department
- County Health Department
Additionally, even though Borgman’s had all documentation of all food authority inspections, Borgman’s was also subjected to annual inspections by every farmer’s market manager. (The retail store managers did not insist upon a farm visit). Inspection for food safety is something Borgman’s promote, but inspection just to take marketing pictures of the goats for the farmers market can be an imposition on the farmer and takes valuable time away from operations to host an unscheduled event at the farm. It is also important to note that farmer market managers insist on taking pictures, so as the owner, you will have little control over your branding. In my opinion, farmer market leadership is concerned with marketing their market, not promoting the farmer's farm. As stated earlier, farmer’s markets also charge a stall fee that retail store managers do not charge to demo and sell the product.
Insurance and Permits
Whether a small farmer wants to market their cheeses at the local farmer’s market or in a specialty store or local grocery store, small dairies must meet insurance and regulatory requirements. Local insurance costs for Borgman’s Dairy were nearly $10,000 for 2016—this is a fixed cost. So, whether one pound or 100,000 pounds of cheese was sold, the cost for insurance was $10,000. Most farmers gladly pay this since few national insurance companies will agree to cover dairy products manufactured on the farm. This cost increases significantly each year and can be the reason why many dairies close.
All licenses and permits must be updated yearly. This is the same for the farmer’s market or the retail marketplace. Both venues will also ask the farmer to submit W-2s and both will submit all paperwork to the IRS yearly.
Distribution Requirements in Retail or Farmer’s Markets
The farmer has a lot of creative opportunity to design a stall for the local farmer’s market. These costs are borne by the farmer. There is little to no opportunity to highlight products in a retail establishment unless the store manager wants to support the farmer with shelf space or promotions. Shelf space in a retail store is very tight. Even though Borgman’s Dairy was in the retail venue 6 months demoing, there was very little opportunity to promote our cheese from the other cheeses in the case when we were not onsite demoing. Borgman’s cheeses were put in with all of the other goat cheeses in the dairy case. Although Borgman’s was onsite every weekend to explain to the customers “our story” and “our products” there was no increase in sales from the year prior when we did not demo. Sales were the same whether we were there or not. We believe that was due to lack of positioning in the store. Although people did buy our cheese while demoing in the store, when we were not demoing, people did not buy our cheese as often. (Note: in the future, we plan to do less demoing and work more closely with the cheese mongers. We plan to invite the cheese mongers to the farm and provide sales literature and fun “buttons to wear” in each box of cheese that we send to them. We need to help them tell our story.)
Distribution to Farmer’s Markets
Distribution of the product was the most difficult aspect of the operation. In order to participate at farmer’s markets, Borgman’s had to work all week preparing to sell for a few hours on Saturday. Friday was set aside for staging and packing the trucks for early morning transport.
Most Farmer’s Markets insist that the farmer is in place and ready to sell at least 30 minutes prior to opening. Secondary research indicates that 2016 farmer’s markets were experiencing less foot traffic and although 2016 was a great year for good weather, overall foot traffic was down. Outside research indicated that the reasons for this were; 1) the online box dinner phenomenon such a Blue Apron was impacting farmers market (and grocery store) sales; 2) Lack of knowledge on the part of the consumer on how to cook and prepare the products purchased at the farmer’s market (or retail store); 3) lack of preparation on the part of the consumer to bring coolers to the market to place the food in while they are doing their Saturday morning activities (this was not a concern for retail sales); 4) Change in perspective of the market itself from a farmer’s market to a tourist event. During the 6 month research period, large numbers of people did not bring money with them to the market to purchase products. (This was consistent throughout the vendors). Many individuals would come to the farmer’s market, buy a cup of coffee, taste multiple samples from multiple vendors and then leave without making a purchase. Some customers took time to criticize the farmer and engage in arguments on the benefits of vegan eating, organic, GMO, etc. (vegan’s do not eat dairy). Or, engage in a bargaining situation trying to bargain the farmer down on the price so that they could say they made “a good deal”. After spending a week preparing for the market, with fewer sales, the farmer would pack up everything and go back to the farm where they would either need to throw unsold product away or try to rework it for the next week.
Distribution to the Retail Store
For the retail store, the cheese must be packaged according to the store’s recommendation. Borgman’s delivered the cheese, obtained invoice approval and sign-off by the deli-manager, unpacked and placed product in the deli-case and cooler. Product delivery took 1 hour for each store…only 8 stores could be serviced in a 10 hour period of time. There was at least 2 hours travel time from the farm to the store and back. If the cheese did not sell as fast as the deli-manager wanted or if they felt that the cheese was too high priced, they would either threaten to drop the product from the store or pressure the distributor (me) to lower the price of the product.
Borgman’s also has a product that is shelf-stable (Goat Milk Caramel Sauce). Goat Milk Caramel Sauce has a one year shelf-life. But the deli-managers do not like to take out-of-date product off the shelves and destroy it. To keep good relations during the testing period, Borgman’s took back the bad product and replaced it with new product free of charge. This resulted in a large loss for the dairy—but a very happy deli-manager. Local products would benefit from an in-store coupon or an in-store promotion in the weekly flyer. Although Borgman’s did ask for this support, none was provided. More in-store support for smaller, local, farmers may have resulted in additional sales for both farmers and retail deli managers.
The Importance of Sampling
During the research period, Borgman’s Dairy provided 40,000 samples in the Farmer’s Market and retail stores. Our experience during demo indicated that no one would purchase without a sample, but of those who did sample the products nearly 75% would purchase the product. We found this to be consistent with the literature where 78% would buy from the most convenient retail channel (Parnell, 2013).
What was surprising to us was the amount of advice customers would give to us during the demo. While they were eating, we were asking questions. When they stopped eating they would start answering questions. We felt this dialog was invaluable to our understanding of their needs. Customers, after tasting our products would ask us to sell our products online. Many of the individuals going through the farmer’s markets were tourists to the Kansas City region. They could not purchase the product and then get on a plane.
Sampling also gave us the opportunity to ask customers how they purchased cheese. Most people (in both venues) indicated that they purchased cheese in the retail store. Since many artisan cheese makers try to sell their cheeses in the farmer’s market and many customers say they buy cheese in a retail store, there does seem to be a disconnect between buyers and cheese makers.
Consumer Awareness Aids Sales
Whether in the farmer’s market or in the retail store few people had heard of Borgman’s Dairy Farm. This was disheartening since the dairy has been in operation since 1935. Consumer awareness was one of the key challenges that Borgman's faced with consumers. Although Borgman’s is a goat dairy and customers were looking for goat cheese, they would select a sheep cheese because they were familiar with it. Or, people would buy a goat cheese made in France because they thought it was of higher quality or lower in price than a local made goat cheese. Unless a representative from Borgman’s was there to explain the differences to them there was little opportunity for consumer awareness. Since Missouri does not have a marketing campaign for artisan dairy producers and local retail stores did not market Borgman’s within their stores or in market flyers, it was incumbent on Borgman’s to provide this information to consumers and cheese mongers.
Seasonality and Consistency
Another issue that prevented some sales is seasonality. Consumers did not realize that milk is only given by the goats after they have a “kid”. Due to the gestation cycle of the goat, Borgman’s Dairy is down 2 months every year to allow the does to regenerate their mammary systems. During that time no milk is given. Two months can be a long time when customers want your product. We do freeze curds and use them during the winter time, but there are some products that we can only produce when the does are milking. Also, consumers were not aware that milk changes during the season and that Borgman’s does not standardize the milk. This seasonal change is something that manifests in the cheese. Instead of enjoying these seasonal changes, many customers want a consistent product from an artisan method. Quality is always consistent, but taste may vary due to seasonality. More sampling and education (not just during the summer months) could improve this situation.
Healthy Local/Food
Borgman’s Dairy is very fortunate to be a member of the Kansas City Food Circle. Eater members are always looking for healthier foods types and new things to try. Last year, Borgman’s Dairy Farm partnered with the Kansas City Food Circle in giving its first food to table experience on the farm. It was a huge success (although a little scary for me) and was a great opportunity to promote our farm and “niche” products. Individuals who attended the event asked if we would open a store front on the farm or sell online. One participant shared that “goats products are a higher priced item and that when the broker and retail establishment fee is included it too expensive for the customer. By opening a farm store, customers could experience a farm event while purchasing the product at a price they would be willing to pay for.”
Buying Local
The “Buy Local” phenomenon does not seem to be waning, at least not in Kansas City. Many consumers (at least in the farmer’s markets) want to buy local. With additional investigation it was found that some stores (Dean & Deluca, Whole Foods) do want to bring together local farmer products so their customers can have one place to buy them rather than having their customers attend several different farmer’s markets. In this instance, convenience is a major factor.
Overall Findings
Based on our research, the best economic value experienced in our study indicated that Borgman’s Dairy should focus its efforts on wholesale retail sales vs. farmer’s markets. Overall retail sales were just slightly greater than farmer’s markets. But when comparing time, travel, and market costs, retail stores provided the greatest economic value.
Therefore, in 2017 Borgman’s will expand its retail presence and:
- Borgman’s will limit the number of farmer market venues it participates in and focus on only one Farmer’s Market. Borgman’s will use the one farmer’s market to direct customers to our wholesale retail partners, as well as on-line and on-farm sales (see #5). Borgman’s will also provide more recipe cards to hand out to consumers and provide videos and training on how to prepare items using fresh dairy products and cheeses.
- Borgman’s will work with other artisanal cheesemakers and hire a food broker and distributor. Borgman’s will focus only on those stores that support local, artisan made products.
- Borgman’s will offer an online, e-commerce, presence.
- Borgman’s will open a store front on the farm and participate in 3 annual farm-to-table events.
This research gave Borgman’s Dairy the opportunity to review both primary and secondary research to determine which activities would provide the greatest economic advantage in the sustainability of a small, farmstead, goat dairy. Results of this study were presented at the Annual Farmer’s Meeting for the Kansas City Food Circle. Results will also be placed on our website and become part of our 2017 Marketing Plan.