WHOLESALE CHANNELS for small scale farms

For our first report, we looked at one of the most important trends for diversified farmers – the move to wholesale markets. We wanted to know: What type of buyer (restaurant, grocer, food hub, distributor) is buying what products in different regions? What are the price ranges, and how do they compare to direct-to-consumer channels? What we found was even more interesting and relevant for the growing wholesale channel market than we expected.

THE FARMS:

The typical Cabbige farm is a diversified operation, frequently with a CSA, a handful of farmers’ markets, and, on average 2.15 buyers, with 3 being the most frequent number of buyers. We’re looking at trends for market farmers transitioning, or supplementing their business with wholesale accounts.

THE DATA:

We looked at data from 40+ buyers in 11 states. The buyer types included restaurants, grocers, food hubs, distributors, direct-to-consumer delivery services, other farms, schools, non-profit organizations, and country clubs.

We looked at everything, from the average revenue per sale to what these buyers buy, to the distance between the farm and the buyer, the type of region the farmer and buyer are in, and the results were surprisingly consistent for wholesale sales from Maine to Alaska, urban to rural regions.

All of the farms that we looked at have direct-to-consumer channels, none of them sell to wholesale channels exclusively. So, it may not come as any surprise that 95% of the wholesalebuyers are independent* and 85% of them tout “local food” or “farm-to-table” as a defining characteristic.

85% of buyers identify as local/farm-to-table

Growth opportunities for small farms lie in opening up conventional buyer channels

What this means is, figuratively speaking, we’re preaching to the buyer choir.

And, we haven’t set foot out of our own backyard. The most surprising part of this analysis is that the distance between farms and their wholesale buyers is, on average, 10.34 miles with 60% of wholesale buyers located less than 10 miles from the farms they buy from.

60% of farms reviewed travelled less than 10 miles to their wholesale buyer.

60% of farms reviewed travelled less than 10 miles to their wholesale buyer.

That is outstanding for the local food movement, but it is constricting revenue and limiting farmers’ opportunities to access additional demand.

THE DOLLARS AND SENSE:

Looking at those buying relationships, we see a worrying trend, and that is the amount of revenue per sale to these independent buyers. On average, each wholesale sale was 1/3 the revenue that the same farms were earning at the farmers’ markets they attend, which means that, on average, these farms need 3 buyers to equal 1 additional day at market, and that’s only if these buyers are consistent.

market channel sales vs. buyer channel sales

In Cabbige, the average market/stand sale revenue is 3X the average buyer sale

 

If the buyers are seen as supplementing an already strong and stable sales channel mix, that could be sustainable. But, if the expectation is that wholesale buyers are going to provide significant revenue that replaces market channels, the expectations may be misplaced.

ANALYSIS:

Three trends emerged from this analysis that are too strong to ignore:

  1. The vast majority of wholesale buyers for Cabbige farmers are both independent and locally-focused.
  2. The majority of wholesale buyers for Cabbige farmers are located less than 10 miles from the farm.
  3. The amount, in terms of both quantity and revenue, that these particular buyers purchase is supplementary, not primary.

I believe that the incidents of revenue and locally-focused buyers that are nearby are linked and create a chicken and egg problem. Farms can’t justify going farther afield for small sales, and sales don’t increase until they go farther afield, both physically and to new types of buyers. According to the National Restaurant Association, 70% of restaurants in the US are independent, which means that an individual owner could make direct buying decisions. There are 1M restaurants in the US, the majority of which are not farm-to-table. That’s a huge opportunity for small farms.

The current structure isn’t sustainable, particularly in regions with saturated direct-to-consumer channels, and wholesale channels are needed to support the growing number of farms.  While the early days of the local food movement relied on a strong bond between farmer and buyer, we need to expand beyond that, if we’re going to increase the average sale for our small farms and make wholesale channels a viable, profitable option.

WHAT NOW:

Cabbige subscribers can get a FREE personalized benchmark report that measures their sales, prices, and buyers against the aggregate data.

Track and pay careful attention to the revenue generated from each of your wholesale buyers, make sure that it’s in line with your business plan.

Work with your business advisors or extension program to think through expanding wholesale channels, working aggregators (food hubs, distributors) into your sales channel mix, what impact minimums and delivery fees might have on your business, and how to increase the business you already have. We have a list of organizations and business advisors that can work with you to interpret how these trends will impact your business.

WHAT’S NEXT:

Next month, we’ll be looking at trends in planting – what’s growing, where, how do expected yields differ by region, and how have farms aligned their plantings with their sales channels.

 

*”Independent” is defined as having one location and/or having an owner operator.