Retail grocers compete for customers - and local food

The upscale Lunds & Byerly's grocery stores have been putting produce grown in the Twin Cities area in front of their customers since the 1930s. But for produce director Rick Steigerwald, the world has shifted in the past few years.

Increasing consumer interest in the presumed health and economic benefits of local food has meant that not only does Steigerwald need to keep up with customer demand, he also has to compete with other retailers like Walmart both for those customers and for the growers that produce the food.

As a result, what consumers see in the store is changing -- more labels that say "Minnesota Grown," for example, or even short portraits about local farmers.

At the same time, less visible shifts are taking place in the industry that grows, markets and distributes that produce. Buyers press to lock in supplies; growers deal with demands that they follow good farming practices; distribution and supply systems adapt to the new competition.

As telling as anything else, Walmart this fall announced plans to double the amount of locally grown produce in its stores over the next five years, specifically more potatoes, apples and corn from Minnesota.

Given the size of the company, that could have implications for everything from price to how farmers pack their produce for stores.

Customers increasingly want to know where their produce is coming from, Steigerwald said. So even now, as winter approaches and the supply of fresh local goods dwindles, he's busy trying to lock in agreements with farmers for next year, anticipating that demand will only grow.

"That's why we have commitments from growers," Steigerwald said. "We talk to them early in the season, talking about what our forecasted needs are so they work with us to make sure that amount of product is protected for us and don't sell it to someone else.

"I would say it's not necessarily cutthroat," he said. "But what we have seen is a lot more growers coming into the network, not just in our network but growing local produce in total. So it's been balanced a little bit by the increase in demand with supply increasing by different growers adapting to the market."

Lunds & Byerly's buys directly from 29 farmers so far, most of them in Minnesota, a few from Wisconsin and Iowa. They supply apples, potatoes, pumpkins, corn and raspberries. Steigerwald says more growers contact him every year.

Standards the company uses in evaluating those growers include a federal safety audit, known as a Good Agricultural Practices (GAP) certification, a $1 million liability insurance policy and a taste and look that stores find acceptable.

Because Mother Nature always has a say in the supply of fresh produce, Steigerwald has to line up back up suppliers as well to make sure customers don't get surprised in the store.

On the other end of the supply line are people like Steve Meyer, operations manager for Future Farm and Fuel, a food producer near Baldwin, Wis. An example of the continuing arrival of new producers on the scene, Future Farm opened its operations just this year.

It runs a half-acre hydroponic greenhouse, where lettuce and basil float on stryofoam rafts with roots dangling in the water. Future Farm also raises tilapia and catfish. Filtered waste water from the fish tanks helps fertilize the plants, and the power to heat the greenhouse most of the year comes partly from biodiesel and, soon, methane processed at the dairy across the street.

One challenge for Future Farm is dealing with the reputation among some consumers that hydroponically grown vegetables don't taste as good as others. "If you take our basil and even smell it, it's very heavy in aroma and as well as flavor," he said.

But another key element for elbowing into the market was getting the U.S. Department of Agriculture's GAP certification that Lunds & Byerly's and other big retailers demand. It's a way retailers and wholesalers hope to hold farmers accountable for tainted food, requiring producers to track where and how produce is grown.

Meyer says getting certified costs around $3,000, and there are additional costs to maintaining certification.

"When you get to the level we're at, it definitely opens up big doors if you do have the certification," Meyer said.

It's not a legal requirement, and in the food safety bill being debated in Congress this month, there is a proposed exemption to stricter safety requirements for growers with revenue of less than $500,000 a year. But even so, retailers and wholesalers want all their suppliers to ensure them of safety measures.

Just getting into Meyer's operation requires, for example, that a visitor walk across a mat that kills bacteria attached to her shoes and then sanitize her hands. But beyond safety, Meyer also needs to navigate the pressure from big buyers to promise exclusivity.

"Just about everybody we go talk to wants an exclusive," Meyer said. "We tell them it's a two-way street. If you want exclusivity, we want volume. Whether you're heavy or not, you've got to take the product because that's what we'd have to do."

As end buyers increase their interest and the number of local food growers increases, playing an increasing role are companies in the middle, like J&J Distributing in St. Paul. On any given day, there are cartons of fruits and vegetables waiting delivery to clients that include big chains like Cub and Walmart, but also some of the food co-ops in the Twin Cities.

Distributors like J&J compete with retailers like Lunds & Byerly's in buying direct from farmers, but they can smooth out bumps in the system and take up unexpected changes in supply and demand.

Kevin Hannigan, executive vice president of sales and marketing for the company showed a visitor his 110,000-square-foot warehouse recently, opening a carton of apples and noting, "Sweet Sixteen apples grown in Fairhaven, Minn. They should be sold by now."

Hannigan might have 100 different local products, representing 20 percent of J&J's volume. He says Minnesota growers might get a slightly better price on apples but it may not be enough.

"Local producers appear to get a premium usually," he said. "But for the amount they produce and the work that goes into it, it's not that great of a premium. I don't think that prices have been pushed down by an oversupply of local product recently by any means."

Minnesota saw a longer growing season this year, resulting in more produce.

Minnesota green bell peppers were still available in November, Hannigan said, "but we had a difficult time finding a customer for those peppers even though they were cheaper than, equal to in quality and appearance (compared to peppers from Florida, California or Mexico.) And that's the thing when local is supposed to be done, then the big retailers will turn off the light switch and it's over."

Watching it all for some 25 years has been farmer Gary Pahl. He once sold produce direct from the back of a semi-truck at his farm in Apple Valley. Now surrounded by townhomes, he's still growing and selling and operating in a more complicated system.

In the winter, Pahl sells holiday decorations from his family's market in Apple Valley. But during the summer and fall, vegetable wholesale selling is important. A fifth generation farmer, Pahl grows green beans, corn, squash and pumpkins.

Customers are demanding in the stores what they see outside at the increasing number of farmers' markets, he said, and he's often asked how to sell direct to retailers.

He tells them "they have to market their product before they put it in the field.

"A lot of people make the mistake of not marketing their product year round. I'm in touch with our customers just about on a daily basis and in the winter time on a weekly basis ... on what our plans are, what their needs are, what we can do to you know better serve our customers."

He says in a good growing season it's up to the grower to try to figure out how to be competitive.  

Gallery

Fullscreen SlideshowPrevious Slide

1 of 1

Next Slide