Entrepreneurs Face Opportunity- and Challenge- as Retailers Turn to Start-Ups to Fulfill Demand for Locally Grown Food

Amy Haimerl reported today at The New York Times Online that, “Cowgirl Creamery, a small food producer in Marin County, Calif., was elated when Whole Foods came calling to buy Cowgirl’s organic triple-cream cheese for 45 of its stores. After five years of selling shop to shop, the entrepreneurs behind the company finally had their first big order. To meet the new production demands, they borrowed $200,000 to build new aging rooms for the cheese.”

The Times article indicated that, “Other companies too have learned that the excitement of the ‘Whole Foods effect’ can quickly turn to fear as they face producing and distributing their recipes at larger volumes while maintaining quality and consistency. And most critically, they have to find the money to pay for the expansions.

It’s an opportunity — and challenge — that more entrepreneurs are confronting as retailers turn to start-ups and small businesses to fulfill consumer demand for locally grown food.

“The percentage of customers buying these products rose to 25 percent in 2013, from 13 percent in 2007, according to a recent report from the Food Marketing Institute in Arlington, Va.”

The article pointed out that, “Local food sales could hit $20 billion by 2019, up from $5 billion in 2008, the research firm Packaged Facts predicts. The success of the local food movement has drawn backing from Tom Vilsack, the secretary of agriculture, as well as from environmental groups and food enthusiasts. Even traditionally commoditized food products like milk are burnishing local bona fides.

Whole Foods has driven much of the demand for such products at the national level. The company employs ‘local foragers’ tasked with finding new products. It also offers a loan fund to help vendors cover the costs of growth. Since 2007, it has lent nearly $20 million to 247 recipients, with an average interest rate of 5 percent.”

But as demand has grown, so has the number of major retailers seeking such products for their shelves. Kroger has created partnerships with several state ‘buy local’ programs and Costco recently started a loan program for organic farmers who need capital to meet growth targets,” the article said.

Recall that last year, Wall Street Journal writers Annie Gasparro and Leslie Josephs reported that, “Whole Foods may not dominate specialty-foods retailing the way it once did, but for startups targeting Americans’ growing hunger for natural and organic fare, it remains the ultimate gatekeeper. Its imprimatur can open the way not only to Whole Foods’ more than 400 stores, but to bigger retailers who covet the cachet of brands carried at Whole Foods, entrepreneurs say.

“As a result, small companies are willing to do a lot to get into Whole Foods and stay there—from changing recipes and tweaking packaging to selling certain products exclusively through the chain.”

The Journal article added that, “Meeting Whole Foods’ druthers can be expensive. Kate McAleer, founder of Bixby & Co., which supplies candy bars to Whole Foods, says certifications cost at least $10,000 a year—a hefty sum for her company, which she expects to break even this year. And Whole Foods lists roughly 80 “unacceptable” ingredients including vanillin, bleached flour, and aspartame that must be removed from products seeking to appear on its shelves.”

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