Alternative Market Outlets

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Alternative Market Outlets

• Denise Mainville
• Agricultural Applied Economics
• Virginia Tech
• Danville
• Nov. 2, 2005

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Introduction

• Three categories of alternative markets
• Direct to consumer
• Direct to retailer/restaurant
• Sales to wholesaler/intermediaries/processors
• Underlying principles in choosing alternative
  market outlets

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Underlying Principles

• 1. Ultimate customer is the consumer
• choose market outlets that are well positioned
  and dynamic in consumer markets
• Many types of consumers exist
• Wealthy retired
• Fixed-income retired
• Working professionals
• Millennials,
• Understand wants needs of your target
  clienteleboth end consumers and immediate buyers

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• Consumers are increasingly concerned about
• Health
• Nutrition
• Food safety
• Flavor
• Novelty of the foods they eat
• They are willing to pay fair premiums for food
  that reflects these attributes if they are aware
  of the value of that food

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Underlying Principles

• 2. Opportunities lie in high value products
• General shift in agri-food markets away from
  commodities towards high-value, differentiated
  products
• Trick is to find a buyer marketing strategy
  which rewards you for the value that you produce

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Underlying Principles

• 3. Trick to choosing alternative markets that
  will work for you is to match your strengths as a
  producer to the needs of the market
• While alternative markets differ in terms of
  specific formats, product logistical needs of
  buyers, and other aspects, numerous aspects are
  held in common among all buyers

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Underlying Principles

• 4. Product as a bundle of services attributes,
  not a product
• Buyers (consumers, retailers, wholesalers) do not
  come to you to buy tomatoes (or cut flowers or
  christmas tree seedlings)
• They come to buy tomatoes with specific
  attributes, many of which are implicit, relating
  to
• Organoleptic qualities (color, flavor, texture,
  etc.)
• Services (packaging, seasonal availability, food
  safety)
• Image attributes (warm fuzzy, small farm
  friendly, cleanliness)

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Underlying Principles

• 5. Demand for services product attributes
• Assumed (if not common, can be motivators)
• Food safety
• Comfort
• Motivators (why buy this product?)
• Fresh
• Local
• Value
• Flavor
• Rural/Ag. experience
• Differentiators (why buy from this farmer?)
• Differ for different clientele groups
• Failure to respond can impede clients from
  frequenting
• Identifying accommodating can expand sales
  impact

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Underlying Principles

• 6. Concept of value
• Buyers of any kind do not focus on Price
• They focus on Value
• Value refers to the benefits received from buying
  and consuming a product relative to the cost of
  the product
• Buyers are willing to pay higher prices if the
  perceived value is higher than for a competing
  product

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Alternative Market Outlets

• 3 categories of market alternatives
• Direct to consumer
• Direct to retailer/restaurant
• Sales to wholesaler/intermediaries/processors
• Differences for each in
• Product characteristics, attributes services
  sought, importance of branding, etc.
• Risk

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Direct-to-Consumer Markets(aka Direct Marketing)

• Characterized by direct interaction between
  consumer and producer
• Examples
• Farmers markets
• Roadside stands
• Pick-your-own (U-Pick)
• CSA
• Internet/Mail order/Catalog

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Direct Marketing Trends

• Direct-to-consumer markets have grown very
  quickly in importance over past decade
• More than double number of farmers markets in
  country
• Consumers buy from farmer-direct markets for many
  reasons
• Fresh, local, enjoyment, experience, unique
  products
• Central to their motivations are typically a
  desire to have some connection with rural
  life/agriculture
• But many consumers also bring expectations from
  their default alternativethe supermarket
• Cleanliness, service, convenience, sense of value
  for price paid
• These expectations are implicit, often not
  appreciated by consumer unless they are missing!

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Direct Marketing Advantages

• Increased profit potential
• Typically base prices relative to retail
• Dont necessarily need to price below retail
  because consumer is getting additional value from
  buying direct (freshness, local, interaction,
  experience)
• Immediate cash flow
• Small farmer friendly
• Can market relatively small volumes
• Autonomy in product pricing decisions
• Family labor friendly
• Flexibility, diversity
• Customer contactfor good or bad

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Direct Marketing Disadvantages

• Limited volume of sales potential
• Time spent in marketing
• Customer contact
• Marketing skills
• Legal restrictions liability
• Need for planning

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Farmers Markets Advantages

• Pre-established customer base
• Popular and growing market format
• Range of services provided
• Premium prices

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Farmers Markets Disadvantages

• Limited volumes
• Finding niche
• Cant have too many stalls with the same items in
  a farmers market
• Marketing time requirements
• Your stall gives customers entire impression of
  your farm product
• Customers looking for fresh, quality, experience
• Direct interaction with customers, day after day,
  can be frustrating.

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Roadside Stands

• Temporary or permanent physical structure
• Successful roadside stands share the following
  characteristics
• Location
• Hours
• Quality
• Variety
• Volume

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Roadside Markets Advantages

• Reduced transport and other marketing costs
• Involvement of family
• Marketing of farm products farm
• Customer comes to you

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Roadside Markets Disadvantages

• Higher operating costs including physical
  facilities, insurance
• Sales labor needed for stand
• Investments in advertising, promotion, etc.
• Zoning and planning restrictions
• Need to plan around customers schedules

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Roadside Stands Considerations

• Considerations
• Merchandising Specialized vs. diversified
• Procurement Own source or outsource
• Location Farm location or elsewhere

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Roadside Stands Considerations

• Merchandising Specialized vs. diversified
• Specialized means only one or few products, such
  as sweet corn, pumpkins or tomatoes
• Very seasonal
• No complementary sales
• Limited experience attributes, so price more
  important

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Roadside Stands Considerations

• Merchandising Specialized vs. diversified
• Diversified means you sell a variety of products
• Reduce seasonality
• Eliminate boredom
• Complementary changing merchandise increases
  novelty, brings repeat customers, leads them to
  spend more
• More experience orientation reduces customers
  price sensitivity
• Opportunities to collaborate with neighborsno
  need to do it all yourself

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Roadside Stands Considerations

• Location Farm location or elsewhere
• Ideal location
• Well-traveled
• Frontage exposure
• Safe, easy, convenient way to pull off, park
• Organized for minimal congestion
• Farm location
• Proximity to farm can be draw, but also liability
• Farm feeling draws people in, but need to keep
  them in appropriate space
• Lesser transport costs, easy to re-stock
• Dont have to dedicate full time sales laborcan
  do other things during slow days/times

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Pick Your Own (PYO)

• Define
• Appropriate PYO products
• High value, high labor requirements, high
  perishibility
• Small fruit (strawberries, blueberries,
  blackberries, raspberries)
• Tree fruits
• Vegetables
• Easy to pick, use, store

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Pick Your Own Advantages

• Reduced harvest labor requirements
• On-farm marketing reduces transport, packaging
  costs
• Low capital requirements to get started
• Public relations for local agriculture
• High profit potential

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Pick Your Own Disadvantages

• Zoning liability issues
• Customers may damage plants or produce
• Lower prices (among direct marketing) b/c of bulk
  sales orientation and customers harvesting
• Long hours
• Little privacy
• Sales supervisory costs
• Success highly dependent on proximity to
  population-dense locations

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PYO Services

• Necessary
• Restrooms
• Hand washing stations
• Water
• Childrens areas
• Shade
• Accessibility to fields

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PYO Opportunities

• Integrate farm experience with complementary
  services for
• Enhanced public relations
• Reduced costs
• Increased sales

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PYO Complementary Services

• Service opportunities
• How to pick
• Recipes
• Play areas
• Washing/prep areas
• Pre-picked produce
• Processing (e.g. cider)
• Value-added products (jams, etc.)
• Music, hay rides, festivals

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PYO Complementary Services

• To charge or not to charge?
• Need to consider
• Cost to you to provide
• E.g. play area
• Importance to customer (required, motivator,
  differentiator)
• Is product/service a draw or complement?

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Direct-to-Consumers Sales Considerations

• Crucial to appreciate that numerous consumer
  segments exist
• Professionals
• Families
• Fixed-income senior citizens
• Ethnic consumers
• Millennials

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Direct-to-Consumers Sales Considerations

• All consumers come with a basic set of wants and
  needs (fresh, local, novel, experience), but
  different prioritization among them
• Consumers are limited by 3 things, but to
  differing degrees
• Time
• Money
• Facilities
• Key to capturing consumers in direct sales is to
  understand what they value, and what limits them,
  and to offer solutions

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Direct-to-Consumers Sales Considerations

• Families
• Lots of time
• Lots of energy
• Demand for volumes
• Few impediments, beyond basic comfort (bathrooms,
  shade, water)

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Direct-to-Consumers Sales Considerations

• Senior Citizens
• Rapidly increasing segment of U.S. population
• Many are affluent, but many are on fixed income
• May only want a little for fresh consumption, but
  may also know how to freeze, can, bake have
  time to do so
• Financial access constraints
• Targeted discounts Senior or Tuesday discounts
• Reduce access cost Van from senior center
• Basic facilities Sinks counter space

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Direct-to-Consumers Sales Considerations

• Professionals
• Affluent
• Puts high value on fresh, quality, supporting
  local agriculture
• Interested in variety of productsberries, jams,
  pies
• Major constraint More money than time!
• I should do this more often!
• Relieve constraint by offering varying levels of
  service, enhance convenience
• Pre-picked, Drive through, Pre-pay, Accounts

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Direct-to-Consumers Sales Considerations

• Millennial or Gen-X Suburbanite
• Generation-Xers are seeking experiences on which
  to form tastes/habits/lifestyles
• Looking for new experiences
• Often lack experience with rural
• Are those bees on the bushes?
• Lack knowledge
• What kind of soap should I use to wash these
  raspberries?
• Increase sales by relieving knowledge constraint
• E.g. Basic info fact sheets on How to freeze
  berries

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Restaurants

• Upscale restaurants seek consistent sources of
  high quality produce
• Willing to pay premium prices
• May feature local produce as a selling point
• Branding opportunities
• Importance of communication, service, doing extra
  bit

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Restaurants Advantages

• Long term relationships
• Advance planning
• Appreciate
• Quality
• Freshness
• Unique
• Not price sensitive
• Consistent market
• Advance orders
• Premium prices
• 10 over wholesale terminal prices
• More from upscale restaurants for specialty items

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Restaurants Disadvantages

• Must be in close proximity
• Frequent delivery
• Must sell variety of products to justify delivery
  costs
• Product liability vs. documentation of GAPs

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Sales Direct to Retail

• Supermarkets
• Chains
• Independents
• Ethnic grocers
• Cooperatives

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Supermarkets

• Produce department key focus for supermarkets
• Stores calling card
• Highest profit margins
• Supermarkets are a unique animal
• Dominate food sales in the U.S.
• Supermarket sector is highly concentrated
• Relatively few firms account for a huge share of
  sales
• Hardest to break into, tightest competition, most
  demanding

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Supermarkets

• Requirements
• Large volumes
• Consistent quality
• Pricing promotion competitiveness
• Food safety (GAPs) traceability
• Delivery other logistical services
• Ready-for-shelf packaging
• Insurance

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Supermarkets

• Supermarket chains have regional procurement
  distribution
• To sell to the chains, you must deal with the
  regional offices
• Difficult to break into commodity sales
• Important opportunities for local, in-season
  sales
• All requirements apply, except large volumes.
• Direct-to-store delivery
• Must be approved first by regional offices

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Supermarkets

• Different chains have different personalities,
  but in general
• Difficult to break in, get first appointment
• Highly demanding as buyers
• Professionalism paramount to create and maintain
  relationship
• Consistency in quality and service in crucial
• Need to have a draw to gain accounts
• Product differentiation (e.g. local)
• Pricing promotions to attract interest

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Wholesalers, Auctions Shipping Point Markets

• Considerations
• Commodity vs. Branded
• Branding allows you to retain ownership of value
• Traditional wholesaling moves large volumes over
  long distances
• Requirements quality, grading
• If you are small, work w/small and/or be unique
• Example of Melissas (http//www.melissas.com/)

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Resources General

• Sell What You Sow
• http//www.nwpub.net/swys.html

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Resources Direct to Retailers/Restaurants

• VDACS Market Development program
• Regional staff to provide guidance and serve as
  facilitator between buyers producers
• Setting appointments
• Preparing producers
• Negotiation pointers
• Bringing buyers to Virginia to see production
• Produce Marketing Association (PMA)
• www.pma.com
• How to Sell Fresh Produce to Supermarket Chains
• http//www.reap.vt.edu/publications/reports/r40rev
  .pdf