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Grocery Supply Chain grows Greener with Local Foods

One of the more popular trends in the food market recently has been the consumer migration towards locally grown foods. Among the key reasons consumers are purchasing more locally grown products is the environmental benefits. With local foods less energy is consumed during the shortened transportation and warehousing process and therefore less pollution is emitted. Local buying trends will not only impacts food products and prices, but also the business models and supply chain processes for the overall food industry.

What is Local Food?

While there are no constraints on the types of food that can be produced locally, the highest consumer interest is in the perishable categories of fruits and vegetables; dairy and cheese; meat and poultry; bread and eggs. Other local categories are emerging quickly such as regional wines and microbrews.

The interest in local foods is growing quickly as an increasingly broad segment of the consumer population is actively seeking out locally grown products. The highest concentration of spend is from a group of consumers called locavores. A locavore is someone whose diet consists of food grown or produced within their foodshed or a determined radius from his or her home.

You might ask what constitutes local versus remotely sourced. A devout locavore would argue that only food produced within 30 miles of where they live is truly local. However, others might accept a broader definition as food from my county, state or country of residence.

Why buy Local?

There are eight characteristics of local food that are attracting a growing numbers of consumers. Shoppers find local food to be:

  1. Fresher – Consumers perceive that local foods will be fresher and taste better as they have not travelled as far to reach the store.
  2. Healthier – Consumers expect local foods to contain fewer artificial colors, flavorings and preservatives. Many local foods are organic.
  3. Cheaper – Consumers perceive that local foods are cheaper due to the reduced transportation and storage expenses.
  4. Greener – Less energy is consumed to transport local foods therefore less pollution is created. Terms such as “food miles,” “farm to table” and “farm to plate” are becoming common metrics for evaluating local sourcing efforts.
  5. More Neighborly – Local food supports farmers and merchants keeping jobs in the area. In the case of rural markets, the primary consumers of the food may be the producers or neighbors within the community.
  6. More Trustworthy – Consumers gain a sense of confidence by understanding where the product has come from. The benefit is compounded in areas with a strong reputation for producing high quality foods.
  7. Safer – Recent salmonella outbreaks and other safety issues from adjacent consumer product segments have led to a crisis of confidence in foreign products. Consumers perceive lower risk with foods produced in their own country.
  8. More Fun – Many consumers find it fun and interesting to shop for local foods. The products offer a variety unobtainable from many of the popular, mass-market national brands. Some consumers purchase local foods for special occasions or to support heritage.

Not everyone buys Local

Not all consumers are agreed on the benefits of local sourcing. Some consumers complain that local foods are:

  • Expensive – Many consumers perceive local food to be in higher demand and therefore priced at a premium.
  • Inconvenient – Busier consumers do not have the time to visit specialty retailers or compare the place or origin when shopping.
  • Lower Quality – Particularly in areas which do not have a strong reputation for local agriculture or high quality food products, quality is viewed to be substandard.
  • Inconsistently Available – Due to the seasonal nature of fruits and vegetable harvests, many foods cannot be locally sourced year-round.

Supply Chain Challenges of Local Food

Many retailers have viewed local merchandising strategies as an opportunity for differentiation. Chains such as Wegmans, Giant Foods (Ahold), Publix, Tesco, Waitrose and Sainsburys each feature locally grown categories in their stores. Last year Wal-Mart announced a locally grown campaign in Oklahoma hoping to differentiate itself from other merchants within the local communities. Specialty retailer Whole Foods has perhaps invested the most in local sourcing strategies. Whole Foods has committed over $1 Million in loans to small producers throughout 12 states to raise and harvest organic, local food products.

Supplier Perspectives on Local Food

Of course, small regional food producers will benefit significantly from a trend towards local sourcing. What about the larger national brands? Just because a company is large does not prohibit it from producing and distributing locally grown products. The global food market has undergone considerable changes in the past few years. Perhaps, the most noticeable changes have been in the prices which have been rising dramatically in the recent years. There are various theories on the root cause of recent food inflation. Some believe the rapid growth of China and India has led to a surge in demand that has outpaced supply. Whatever the cause of rising prices is, food suppliers need to find new techniques for reducing the costs of their products. Reconfiguring supply chains to produce and sell locally may offer significantly reduced transportation, packaging and warehousing costs. As a result, large food suppliers may embrace local production as a means of maintaining lower costs and competitive prices.

Supplier Perspectives on Local Food

Is there a downside to retailers and suppliers? One might assume that shorter is simpler when it comes to supply chains. However, this is not necessarily the case. Retailers and food suppliers have spent the past few decades engineering complex international supply chains designed for mass production and high volume distribution. The local sourcing trend offers the opportunity to reduce transportation, warehousing and packaging costs by reducing food miles, but it introduces new challenges for grocery retailers. Retailers must employ regional merchandising strategies to stock local products on store shelves. More SKUs must be managed as hundreds of new products are introduced to offer consumers variety. Maintaining operational efficiencies with local sourcing models will be a key challenge for retailers. Wider variation in merchandise across stores and regions deteriorates the economies of scale retailers have enjoyed with national, mass market product lines. Supplier management becomes significantly challenging. Most locally grown products are harvested and produced by farmers or small businesses with 10 or fewer employees. The small businesses lack sophisticated pricing, ordering, invoicing and logistics capabilities that larger suppliers can offer businesses. Consequently, automation of routine purchasing, delivery and payment processes becomes more complex.

B2B E-Commerce Technology and Local Food

The supply chain challenges introduced with local sourcing models provide an even stronger business case for the adoption of B2B technologies such as EDI and data synchronisation.

  • Data Sync – With more SKUs to manage, retailers gain further ROI from data synchronisation technology. Data sync can be used to automate new product introduction, price and promotion schedules and product withdrawals. Both consumers and merchandising managers will need access to more information in digital format to make decisions about which locally grown products to purchase.
  • EDI – Retailers will need to be more accommodating of small suppliers going forward as their product lines will provide crucial differentiation in the merchandising mix. A small organic vegetable farm will be less inclined to do business with a large grocer if their invoices are consistently paid late due to paperwork errors. Retailers can achieve consistency and automation of purchasing, receiving and invoicing processes using e-commerce technologies specifically designed for small businesses. Ideally, a retailer would offer a number of choices for small businesses ranging from accounting package integration to web-EDI portals to fax-to-EDI service bureaus.

Local food is just part of a larger long-tail type effect emerging in the food industry, but experts believe it is here to stay. New supply chain techniques and investments in electronic commerce will be among the factors that differentiate those retailers and suppliers who profit from the local trend from those who lose market share.

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