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Wegmans tills organic surge

Rochester Business Journal
August 17, 2012

Organic produce has become the fastest-growing product segment for Wegmans Food Markets Inc. The company is looking to continue the development of its organic research farm in Canandaigua to meet an increased demand for organic goods.

The farm is on 50 acres near the shores of Canandaigua Lake. Approximately 10 of those acres are dedicated to growing. The farm grows a variety of produce, herbs and flowers and includes space for chickens and a meadow for bees.
 
It began its first growing season in 2007 with the mission of developing practices and techniques that could extend the growing season while finding more cost-effective ways to grow organic produce.
 
"Our learning curve has been absolutely amazing," said CEO Danny Wegman during an open house at the farm last week. "The goal is to make great-tasting produce so people will consume more of it, which will make them healthier so they can live longer."
Company officials said the sale of Weg-mans organic produce has had double-digit growth in each of the last five years.
 
That growth is in line with the national organic-food retail industry. A survey conducted by the Organic Trade Association last year showed U.S. sales of organic food and beverages grew from just $1 billion in 1990 to $26.7 billion in 2010.
 
The survey also showed that customers committed to buying organic products were willing to spend as much as 20 percent more than for non-organic products.
 
Chicago-based analyst Neil Stern, a senior partner for retail consultancy firm McMillanDoolittle LLP, said the nation's leading retailer of organic products in terms of revenue is Wal-Mart Stores Inc. Stern said the industry leader among retailers that emphasize natural and organic foods is Whole Foods Markets.
 
Because the organic food market always has been price-sensitive, a grocery chain's success lies in its ability to price effectively, Stern said.
 
"The key to organics has always been getting the price differential between organic and regular foods right so that people will make the jump," he said.
 
"Some recent research studies suggest that 15 percent of customers will go out of their way to buy organic food. That's a relatively small number. However, there are 20 to 30 percent more people who say they consider buying organic. Those are the people who are price-sensitive and are making an economic decision."
 
Wegman said his grocery chain prices its organic goods at the same margins, in terms of cents but not percentage, as its regular items. So a non-organic product that costs Wegmans $1 would be marked up 10 percent, or 10 cents. An organic version that costs Wegmans $2 would be sold for $2.10, or a 5 percent markup.
 
Research like the kind being done on Wegmans' organic farm could lead to lowering the cost of organic produce in the next five years.
 
Wegmans has worked with organic experts such as Eliot Coleman of Four Season Farm in Maine to develop practices that have led to better soil and the elimination of artificial fertilizers and pesticides.
 
One of the most important techniques Wegmans learned from Coleman, who specializes in growing year-round, was the use of hoop houses. A hoop house is a plastic-covered structure used as a greenhouse that provides higher temperatures during colder seasons while also protecting crops from intense heat or bad weather.
Jamie Robinson, the Wegmans farm manager, said the hoop houses enable Wegmans to stretch its growing season, planting earlier and harvesting later.
 
When Wegmans launched the research farm, the plan was to develop growing practices for organic food and share them with more than 540 local growers that the company partners with. However, Wegman said that plan may be changing.
 
"Our view of organic produce keeps evolving," he said. "The plan was to focus on regional growth and working with smaller farms. But we have to ask ourselves, 'Can they handle it?'
 
"I'm not sure some larger farms in the area using automation that we are learning about ourselves might not be a more customer-friendly approach," he said. "It has to be affordable or it's a waste of time. We don't just want to serve the elite."
 
McMillanDoolittle's Stern said Wegmans has taken steps with its research farm that have put the company in line for future growth in the organic market.
 
"It's consistent with Wegmans' customer base," he said. "Like Whole Foods, Wegmans has customers that are much more receptive to organic. The other thing that they have done with their farm is emphasize local growing, which has surpassed organic as a buzzword with customers. If you can be local and organic, that's a double win.
 
8/17/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.
 

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