The Whole Foods effect: scaling up
Cowgirl Creamery, a small f ood producer i n Marin County, Calif., was elated when Whole Foods came calling to buy its organic triple- cream cheese for 45 of its stores. After five years of selling shop to shop, the founders finally had their first big order. To meet the new production demands, they borrowed US$ 200,000 to build new aging rooms for the cheese.
But the first batch they delivered to Whole Foods grew mould. Not the white, fluffy mould that gives cheese its essence — it was the nonedible, possibly reputation-destroying black mould.
“It was awful,” said Sue Conley, who started the company with Peggy Smith. “We hadn’t primed our new aging rooms, so other bacteria were competing with the fluffy white mould. It was a big mess.”
But Whole Foods was patient, Conley said, and the next batch sold so well it jump- started demand. Ten years later, Cowgirl employs 100 people, produces about 360 kilograms of cheese a day and is looking to expand by building a new creamery.
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, find the money to pay for it.
It’s an opportunity — and challenge — more entrepreneurs are confronting as retailers turn to startups and small businesses to fulfil consumer demand for locally sourced food.
“We are seeing a shift of the tectonic plates of food retailing, as well as in food suppliers and processing and manufacturing,” said Mark Baum, senior vicepresident at the Food Marketing Institute in Arlington, Va. “It’s all being driven by consumers.”
Research firm Packaged Facts predicts local food sales could hit US$20 billion by 2019, up from US$ 5 billion in 2008.
In the U. S., Whole Foods has driven much of the demand for local at the national level.
It employs “l ocal f oragers” 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 US$20 million to 247 recipients, with an average interest rate of 5 per cent.
“We are often the launch pad for a new local product, and we are really proud of that,” said Jenna Gelgand, the senior administrator of the Whole Foods loan program. “Now, investment in these types of products is really high, but that was not the case around the recession and the years following. We can really see the need.”
But as demand has grown, so has the number of major retailers seeking such products for their shelves. Kroger has created partnerships with several state “buy local” programs and Costco recently started a loan program for organic farmers who need capital to meet growth targets.
Shannon Byrne is currently trying to scale up to meet an order to supply 88 Kroger stores with her Slow Jams spreads. The turnaround time: two months.
Byrne started the company in 2011 out of her community garden in Grosse Pointe Park, Mich., and has been slowly expanding. In 2013, her products landed on the shelves of Whole Foods stores in Detroit. Last year, she moved her production to Hopeful Harvest, a food incubator in Southfield, Mich., to accommodate accelerating growth.
The incubator was started two years ago by the local food pantry Forgotten Harvest when it noticed increased demand for commercial kitchen space and food-processing facilities. It invested more than US$ 200,000 to build out an empty warehouse with everything needed to manufacture food in bulk, includ- i ng bottling l i nes, giant mixers and deep freezers.
Hopeful Harvest was soon handling three shifts, seven days a week. It works with 35 companies, has a waiting list and plans to build a new facility by year’s end.
Hopeful Harvest now works with entrepreneurs on a line of co-branded food items that sell at large retailers including Kroger, with a portion of the sales supporting the food pantry.
When Chris Nemeth, the president of Hopeful Harvest, decided to create a co- branded line of jams, he turned to Byrne because of her unusual flavours, such as raspberry lemon verbena. She agreed i mmediately — never suspecting that when he pitched Kroger, it would agree to carry five of her jams and need them on shelves within months.
“The biggest t hing is figuring out the logistics,” Byrne said.
“The best part of this process is there is a great network of entrepreneurs who have already gone down this road. You call them up, and they are happy to give their time and expertise.”
S o me startups have turned down offers to ramp up. Charma Dompreh, a retired schoolteacher in Flint, Mich., makes healthy snacks out of dehydrated collard greens. Charma’s Green Chips are sold in four Whole Foods stores, but she could not foresee how she could expand to supply Kroger as well, and ensure the quality of her chips does not change.
How to stay true to what made you great while producing larger and larger batches is the top concern small business owners face as they look to expand.