Alternative Market Outlets

1. 1 Alternative Market Outlets Denise Mainville Agricultural & Applied Economics Virginia Tech Danville Nov. 2, 2005

2. 2 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

3. 3 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 clientele�both end consumers and immediate buyers

4. 4 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

5. 5 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

6. 6 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

7. 7 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)

8. 8 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

9. 9 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

10. 10 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

11. 11 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

12. 12 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 alternative�the supermarket Cleanliness, service, convenience, sense of value for price paid These expectations are implicit, often not appreciated by consumer unless they are missing!

13. 13 Direct Marketing: Advantages Increased profit potential Typically base prices relative to retail Don�t 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 contact�for good or bad

14. 14 Direct Marketing: Disadvantages Limited volume of sales potential Time spent in marketing Customer contact Marketing skills Legal restrictions & liability Need for planning

15. 15 Farmers� Markets: Advantages Pre-established customer base Popular and growing market format Range of services provided Premium prices

16. 16 Farmers� Markets: Disadvantages Limited volumes Finding niche Can�t 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.

17. 17 Roadside Stands Temporary or permanent physical structure Successful roadside stands share the following characteristics Location Hours Quality Variety Volume Successful roadside stands across the U.S. also appear to have some common characteristics.� Some of these key points include: �Location - Location is critical to the success of a roadside stand.� A well traveled road should be a primary concern for anyone considering this business.� Furthermore, easy access on and off the road is also important. �Business Hours - Roadside stands should be open for business during the height of traffic.� If traffic is heaviest during a certain part of the day, then that should be considered to be a target time for your business hours.� A fixed schedule easily read and remembered by passersby is also considered to be a plus. �Quantity - A roadside stand should be stocked with enough good products to attract a variety of buyers.� �Quality - Roadside stands that offer high quality goods will be remembered by customers and will increase the probability of their return.Successful roadside stands across the U.S. also appear to have some common characteristics.� Some of these key points include: �Location - Location is critical to the success of a roadside stand.� A well traveled road should be a primary concern for anyone considering this business.� Furthermore, easy access on and off the road is also important. �Business Hours - Roadside stands should be open for business during the height of traffic.� If traffic is heaviest during a certain part of the day, then that should be considered to be a target time for your business hours.� A fixed schedule easily read and remembered by passersby is also considered to be a plus. �Quantity - A roadside stand should be stocked with enough good products to attract a variety of buyers.� �Quality - Roadside stands that offer high quality goods will be remembered by customers and will increase the probability of their return.

18. 18 Roadside Markets: Advantages Reduced transport and other marketing costs Involvement of family Marketing of farm products & farm Customer comes to you

19. 19 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

20. 20 Roadside Stands: Considerations Considerations Merchandising: Specialized vs. diversified Procurement: Own source or outsource Location: Farm location or elsewhere

21. 21 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

22. 22 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 neighbors�no need to do it all yourself

23. 23 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 Don�t have to dedicate full time sales labor�can do other things during slow days/times

24. 24

25. 25 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

26. 26 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

27. 27 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

28. 28 PYO: Services Necessary Restrooms Hand washing stations Water Children�s areas Shade Accessibility to fields

29. 29 PYO: Opportunities Integrate �farm experience� with complementary services for Enhanced public relations Reduced costs Increased sales

30. 30 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

31. 31 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?

32. 32 Direct-to-Consumers Sales: Considerations Crucial to appreciate that numerous consumer segments exist Professionals Families Fixed-income senior citizens Ethnic consumers Millennials �

33. 33 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

34. 34 Direct-to-Consumers Sales: Considerations Families Lots of time Lots of energy Demand for volumes Few impediments, beyond basic comfort (bathrooms, shade, water)

35. 35 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

36. 36 Direct-to-Consumers Sales: Considerations Professionals Affluent Puts high value on fresh, quality, supporting local agriculture Interested in variety of products�berries, 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

37. 37 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�

38. 38 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

39. 39 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

40. 40 Restaurants: Disadvantages Must be in close proximity Frequent delivery Must sell variety of products to justify delivery costs Product liability vs. documentation of GAPs

41. 41 Sales Direct to Retail Supermarkets Chains Independents Ethnic grocers Cooperatives

42. 42 Supermarkets Produce department key focus for supermarkets Store�s �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

43. 43 Supermarkets Requirements Large volumes Consistent quality Pricing & promotion competitiveness Food safety (GAPs) & traceability Delivery & other logistical services Ready-for-shelf packaging Insurance

44. 44 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

45. 45 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

46. 46 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 Melissa�s (http://www.melissas.com/)

47. 47 Resources: General Sell What You Sow http://www.nwpub.net/swys.html

48. 48 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