Expansion from national heavyweights, the strength of regional chains and independents, and continued consumer price-consciousness are all major components of the retail scene. Whether located in the city proper or in the surrounding suburbs, the result over the last several years is the creation of an extremely competitive food retail environment.
In St. Louis, Aldi stores move produce labeled by repackers from Produce Row.
To Maglio, price is the decider in his neck of the woods. “Price points are extremely low, as Milwaukee residents are very value conscious. We see much greater spending on groceries in markets such as Minneapolis and Chicago,” he explains.
Another facet of the grocery shopping experience is convenience. Midwestern retailers have also expanded their online formats, offering dedicated pickup spots and delivery services.
“Hy-Vee has ‘Aisles Online’ and you can buy your groceries online and they’ll deliver to your home,” praises Comito.
He believes the new service is a “fantastic innovation” for retailers to head off competition from behemoth Amazon, which is putting its might behind fresh grocery delivery. Hy-Vee’s competitor, Fareway, has featured online ordering for its popular meat counter.
Specialty and ‘cash & carry’ outlets
Smaller and specialty retail formats, like Lucky’s and Fresh Thyme, continue expansion into the Midwest, crowding the region’s already tight market.
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Although the highways traversing Ohio, Indiana, Iowa, Missouri, and Wisconsin are known for row after row of corn stalks, this region’s fertile cropland produces a substantial amount of fresh fruit and vegetables from cabbage, squash, and watermelon to apples, tomatoes, and potatoes. And in addition to the many seasonal field-grown crops, the area is also home to an expanding number of high-tech greenhouses.
What may be more surprising to outsiders is the fierce retail region of the Midwest, where fresh produce is front and center in the battle to win customers in this highly price-sensitive environment.
For suppliers in Cleveland, Cincinnati, Indianapolis, Milwaukee, St. Louis, and Des Moines, there are many advantages and a few challenges to buying and selling produce across the Corn Belt.
Consumer Trends
No matter the commodity, variety, or label or whether if it’s local, organic, or fresh-cut—consumers in the Midwest are definitely looking for and buying more fruits and vegetables.
“Consumption of fresh produce, fruit in particular, is increasing,” observes Kerry Byrne, president of Cincinati-based Total Quality Logistics, citing U.S. industry projections of a 9 percent increase in fruit consumption and an 8 percent increase in vegetables.
Lori Taylor, also known as The Produce Mom, is based in Indianapolis and echoes the same thought: “I think we’re seeing a resurgence of the attitude that all produce is good for you.”
Price, however, is still as important as ever according to our receivers and marketers. Yet an increase in smaller retail formats and specialty stores in the region indicates there’s also a willingness in consumers to spend more on organics and exotic fruits or vegetables.
The stiff competition is also influencing the type and volume of produce SKUs offered by retailers of all sizes—from supercenters and chain stores to independents—such as more fresh-cut and processed items and various fruit/vegetable blends or mix packs.
“There’s more demand for variety in the grab-and-go, fresh-cut items,” says Taylor, giving precut herb mixes for guacamole as an example. She believes opportunities still abound for fresh produce, in uses and packages, like snacks for sports teams and leagues—a big part of Midwestern family life. “It’s not just on the coasts; sports leagues here in the Midwest are making rules about [healthy] snacks too,” she notes.
Younger consumers are fueling expansion of many value-added selections. “Millennials seem to gravitate toward a lot of grab-and-go items, including some smaller bagged items,” notes Rocky Ray, partner at Ray & Mascari, Inc., an Indianapolis tomato repacker. “We’ve had a little success this year with some bagged Romas and are looking to expand this market a little bit.”
Demand for organics is growing more slowly in the Midwest than other regions, according to Sam Maglio, president of The Maglio Companies, headquartered in Milwaukee. “Overall, organics make up slightly less than 10 percent of U.S. produce consumption according to Nielsen
Perishbles. In the Midwest, we see this number at less than 5 percent and here, locally, it probably runs in the 3 percent range.” Nevertheless, he’s optimistic about future growth. “I believe we’re at the beginning of the runway for organics in the central Midwest region.”
“Cabbage is the main fresh market commodity grown within a short distance of Milwaukee.”
In the Heartland
Crisscrossed with interstate highways and major arteries like 70, 80, and 90 running east to west and I-35, I-55, I-65, and I-75 moving north and south, the Midwest’s location is especially beneficial to perishables shippers. Growers can ship their fruits and vegetables to a number of terminal markets in the region, most just hours away.
Reigning supreme Missouri is a historic peach shipper and, along with Iowa, grows apples and some potatoes. Wisconsin is king when it comes to potatoes, as one of the nation’s top five producers, and also grows a substantial amount of cabbage, especially in the southeastern regions of the state near Lake Michigan.
“Cabbage is the main fresh market commodity grown within a short distance of Milwaukee,” confirms Sam Maglio. Wisconsin also has significant storage onions and potatoes.
Ohio is by far the largest fresh tomato shipper among these states, with an average harvest of 3,500 acres. Indiana is second in fresh market tomatoes, with about 800 acres, followed by Missouri’s 500 acres.
The last Census of Agriculture reported an increase in tomato production area from 500 to 800 acres between Iowa and Wisconsin, and Midwest receivers stay on the lookout for relationships with producers in the region. “We’re constantly searching for and adding more local growers to our supply network,” confirms Christian Comito, CEO of Capital City Fruit Company, Inc. in Des Moines.
Ohio is the region’s top grower of sweet corn and also provides wholesalers with apples, peppers, and squash. Ohio is also a top pumpkin producer, the nation’s third largest in 2015, after Illinois and California.
Indiana grows cabbage and cantaloupe, but is the biggest watermelon shipper, followed by Missouri. Demand for this old favorite is always a sure bet for the summer months in the Midwest, but also in the spring and fall.
Giant Eagle is established in Cleveland, competing with local independent Heinen’s Fine Foods.
And while these two states don’t have the volume of some growers in the South, location can be key for both speed and ease of delivery.
“We don’t have as many watermelon shippers in the Midwest as Florida,” contends John Bennett, president of JohnCo Distributing, Inc. in Indianapolis, “but there are freight advantages to sourcing here.” Top among them is weight, as watermelon, despite being mostly water and sugar, are rather heavy.
“I think the hottest fruit right now is watermelon,” comments Taylor, whose website is affiliated with the National Watermelon Board. “I haven’t been to a birthday party yet this year where they weren’t serving watermelon.” She also notes more consumer openness to seeded varieties, even with the availability of many seedless types.
Despite the perception of hotter than usual sales, early watermelon shipments were actually running behind in the summer of 2016. “Due to a later than expected watermelon season out of Florida, volume has been down year to date,” notes Byrne.
On the other hand, though, he says, “Cantaloupe volumes into the Midwest have increased slightly compared to 2015.”
Greenhouse production
In addition to all field grown commodities, greenhouses have been popping up in Midwestern states as well. Correspondingly, volume has picked up as suppliers can now rely on steady shipments of tomatoes, peppers, and cucumbers.
NatureFresh Farms is developing a 180-acre greenhouse facility just off I-80 in northwest Ohio, while Ontario-based Mastronardi Produce has greenhouse operations in Coldwater, Michigan. Even receivers are getting into the game.
“We have 11 greenhouses on our property in Milwaukee,” points out Maglio. “They’re farmed by Will Allen of Growing Power, and we’re working together to prove the viability of locally grown produce in normal commercial distribution channels,” he notes, stressing the difference between crops grown for commercial use and not for farmers’ markets or local CSA (community supported agriculture) subscription programs.
Organic production
Consumer demand for locally-grown fare, including organics, continues to increase across the Midwest. The region does not ship significant fresh volume, however, due to its climate challenges, a focus on organic processing vegetables, and the prevalence of small growers selling direct to consumers, and not through the region’s wholesalers.
Wisconsin dominates the small but active organic produce industry, harvesting more than 4,000 acres of organic fruits and vegetables according to a USDA census in 2014. The Badger State has more organic produce acreage than all the other states combined, and beans bound for processing make up a quarter of its organic output.
Wisconsin and Iowa combined for 1,400 acres of organic green peas in 2014, most also bound for processors. This cropaccounts for much of Iowa’s 1,500 organic fruit and vegetable acres; Ohio harvested about 1,000 while Missouri and Indiana combined for 400 acres, according to the USDA.
Population Growth
For four of the five Midwestern states, population growth ranged from 4 to 7 percent over the last decade and a half, though Ohio was less. In our metro areas, it was a multifaceted story as a few experienced an overall slowdown as others had pockets of growth.
For example, educated, young professionals are flocking to Milwaukee, and there’s booming growth in both Indianapolis and Des Moines, where total population growth has surged 5.3 percent and 9.4 percent respectively in the five years from 2010 to 2015 according to the U.S. census.
Cleveland showed a slight population contraction from 2010 to 2015, but numbers can be misleading. “Cleveland’s coming back,” enthuses Joe Cavalier, president of Cavalier-Gulling-Wilson Company, Inc., on the Cleveland terminal market. Cavalier, whose family has been in the Cleveland produce business since 1929, cites the city’s redevelopment projects such as a new Heinen’s Fine Foods store, which opened in early 2016. “It’s kind of neat to see the redevelopment,” he confides.
Ohio’s urban land area is the highest among these states, totaling 10 percent; Indiana is next with slightly more than six percent of Hoosier State land classified as urban. Ohio’s higher populations help support its 30,000-acre fresh vegetable harvest (not including potatoes), the largest among the five states.
City Differentiators
Des Moines is the smallest of the six cities, but growing fast. The metro area had a phenomenal 20 percent growth spurt from 2000 to 2010 and has the highest median household income of the cities profiled here. Much of this growth has fueled demand in foodservice.
In Indianapolis, younger consumers are fueling expansion of many value-added selections.
“New restaurants and other food establishments are popping up at a record pace,” shares Gene Loffredo, president and chief executive officer of Loffredo Fresh Produce Company, Inc. in Des Moines. “We’re seeing many with a national presence enter our market due to a large amount of development in our western suburbs.”
Ethnic populations in the Midwest have risen as well, from many countries worldwide. “There have been immigrants from Bosnia, Serbia, Kosovo, Laos, and some southeast Asian countries as well as Latin America—Mexico, Guatemala, El Salvador,” comments Comito.
Capital City Fruit responded by adding a full line of chili peppers, and services many new ethnic restaurants and grocery stores in the Des Moines metro area, as well as smaller towns and communities in Iowa.
Immigrants are also boosting populations in St. Louis and Indianapolis, which saw a jump in Asian-born residents between 2010 and 2015. St. Louis, known as the Gateway to the West, is home to one of the largest Bosnian populations outside Europe, an estimated 70,000 in 2013. Some St. Louis mainline grocers, like the Supervalu Shop’n Save banner, feature Bosnian food sections.
Retail Competition Heats Up
National chains duke it out
As the literal center of the country, the Midwest is a veritable hub of many industries and activities. Grocery retail is no different, as the region has many national and regional chains, thriving independents, small mom-and-pop operations, and of course, big box stores.
The very first Walmart supercenter opened near St. Louis in 1988 and the mega-retailer maintains a huge Midwest footprint, including the increasingly produce centric Sam’s Club format. Costco competes with Sam’s in our featured cities—Cleveland, Cincinnati, Indianapolis, Milwaukee, St. Louis, and Des Moines—and Minneapolis-based Target is increasing fresh offerings here as well.
Other retailers like Trader Joe’s and Whole Foods are present throughout the Midwest, while Michigan-based Meijer is in the Ohio, Wisconsin, and Indiana markets and expanding its footprint. The chain opened its twelfth Indianapolis supercenter in June, where the competition continues to heat up.
Discounters and distribution centers create changes
Discounters, notably Aldi and St. Louis-based Save-A-Lot, are established in all six cities, and they compete with not only Walmart, but the smaller format stores. In St. Louis, Aldi stores move produce labeled by repackers from the city’s Produce Row.
Delivery to distribution centers, however, is more common these days.
“All of our retailers have always had distribution centers and our business model of supply chain management is that we deliver from the grower to the distribution center,” explains Capital City Fruit’s Comito.
Going head-to-head in the metros
In Iowa, employee-owned Hy-Vee is a dominant player in Des Moines, where it competes with Iowa-based Fareway Food Stores. Kroger is the major supermarket chain in Indianapolis, Cincinnati, and Milwaukee (under the Roundy’s banner), while Giant Eagle is established in Cleveland, competing with the local independent Heinen’s Fine Foods.
In 2015, Giant Eagle entered the crowded Indianapolis market; the city is already the headquarters of Marsh Super- markets, which operates under the Marsh and O’Malia’s banners in Indiana and Ohio, including Cincinnati.
Schnucks and Dierbergs go head-to-head in St. Louis, with both aggressively merchandising Midwest produce in-season. The Supervalu Shop’ n Save banner operates in the St. Louis metro area, and in both Missouri and Illinois.
Pricing and new options
Although our featured cities are all in the Midwest, they can vary greatly in demographics and income levels, which in turn affects the number and type of retailers who are attracted to the area.
Expansion from national heavyweights, the strength of regional chains and independents, and continued consumer price-consciousness are all major components of the retail scene. Whether located in the city proper or in the surrounding suburbs, the result over the last several years is the creation of an extremely competitive food retail environment.
In St. Louis, Aldi stores move produce labeled by repackers from Produce Row.
To Maglio, price is the decider in his neck of the woods. “Price points are extremely low, as Milwaukee residents are very value conscious. We see much greater spending on groceries in markets such as Minneapolis and Chicago,” he explains.
Another facet of the grocery shopping experience is convenience. Midwestern retailers have also expanded their online formats, offering dedicated pickup spots and delivery services.
“Hy-Vee has ‘Aisles Online’ and you can buy your groceries online and they’ll deliver to your home,” praises Comito.
He believes the new service is a “fantastic innovation” for retailers to head off competition from behemoth Amazon, which is putting its might behind fresh grocery delivery. Hy-Vee’s competitor, Fareway, has featured online ordering for its popular meat counter.
Specialty and ‘cash & carry’ outlets
Smaller and specialty retail formats, like Lucky’s and Fresh Thyme, continue expansion into the Midwest, crowding the region’s already tight market.
“New formats like Fresh Thyme, Lucky’s, and Sprouts are establishing a foothold in the Midwest, which is keeping traditional retailers on their toes,” confirms Bob Kirch, chief executive officer of Indianapolis-based Caito Foods Service, Inc.
“Initially it was the big box stores coming to town and now it’s the niche and the small independents, the natural foods, the fresh foods types of markets and grocers, with a smaller format and smaller footprint,” observes Comito. “Some of these stores vie for market share formerly held by locals and independents, while others seem to be targeting newer or revitalized neighborhoods.”
Fresh Thyme operates in five of the six of the cities profiled here, though its greatest presence is in Indianapolis, with five metro-area stores. The chain opened its third Cincinnati location this year and moved into the crowded Milwaukee market back in June.
“The retail environment in Milwaukee had been dominated by Roundy’s,” recounts Maglio. “Over the last several years,” he continues, “some existing groups have grown in size, new groups have come to town, and online ordering of groceries and meal kits have all eroded [Roundy’s] position,” he explains. “I would say that Milwaukee is oversaturated in retail competition.”
Fighting for market share
National and regional chain stores are responding to the pressure. Fresh Thyme is absent in the Cleveland market, where Heinen’s opened a small-format, downtown location catering to the young professional crowd.
Both Dierberg’s and Schnucks, in St. Louis, maintain produce sections with more organic SKUs; Dierberg’s appears more aggressive with its center-aisle organic offerings, including limited availability of bulk foods.
Colorado-based Lucky’s Market is moving east, with a store in Des Moines, two in St. Louis, and a store in Bloomington, IN.
Delivery services and local producers are also competing for the organic and specialty market; Indianapolis is headquarters to Green Bean Delivery, which expanded to the St. Louis market, where it vies for market share from local chains as well as Fair Shares, a large CSA subscription-style firm offering local produce from many different area farms.
Larger specialty formats are also present and fighting for their share of the fresh produce and food market.
Well known Whole Foods operates at least one store in each of our covered metro areas, with three locations in 2016 around Cleveland and St. Louis. Cincinnati is also home to two-location Jungle Jim’s International Markets, a longtime specialty retailer that started as a single produce stand in the city.
Ray of Ray & Mascari in Indianapolis has also observed Midwest expansion in wholesale cash-and-carry “marketplace” formats, like Gordon’s Food Stores and others. “They’re fueling a lot of demand right now and sparking people’s interest. Smaller mom-and-pop stores are able to pick up fresh produce at these stores,” Ray notes.
In the coming years, Ray forecasts substantial growth in these formats. Steadily growing Gordon’s Food Stores is present in all the Midwestern states, except Iowa.
Requisite Challenges: Food Safety, Labor and Weather
Of the Middle West’s top challenges, many are the same as suppliers throughout the United States: food safety, labor, and weather.
Fresh Thyme opened its third Cincinnati location this year.
Food safety ranks high
One issue felt by West Coast grower-shippers but not felt in the heartland was severe drought or a lack of available irrigation water. Instead, for most receivers, food safety is front and center. “Food safety is an ever-evolving issue as standards change,” comments JohnCo Distributing’s Bennett.
In this respect, Loffredo believes sourcing direct helps. “We buy all produce direct from shippers,” he says, and adds that the company has partnered with ProAct for the last 17 years. He considers ProAct not only a valuable resource, but believes the alliance has helped his business “sustain our competitive advantage in the foodservice arena.”
Weather ups and downs
Weather, too, is an ongoing and all-too-familiar challenge. “Weather in the Midwest is very unpredictable—you can have hail and thunderstorms in one county and blues skies in the next,” Comito remarks. “Because our grower network is very diversified and geographically spread out, we’re able to have a pretty consistent supply of local products through the whole season, even if we would have a weather event in one part of the Midwest that would affect supply.”
The 2016 Midwest tomato deal was night and day from 2015, says tomato repacker Ray. “Heavy rain has certainly challenged nearby growers this year, but rain hasn’t curtailed the tomato crop like it did last year,” he remembers. “What we saw in 2015 was unprecedented. Our Eastern summer tomato markets were all curtailed, which forced everybody out to California, where the heat was really impacting tomato shelf life.”
Others rely on imports to keep their numbers up, bringing a broad range of fruits and vegetables across the border. Maglio Companies is already hedging its bets with Mexico, and recently opened a new facility in McAllen, Texas to help maintain supply when Midwestern weather wreaks havoc. “We’re finding that Mexico is a much more consistent source of supply going forward,” comments Maglio.
Shipping and freight rates
Another supply chain impediment for receivers and brokers, whether they import and truck the commodities to their warehouses or source from local, regional, or national growers, is the labor crunch, both in the field and behind the wheel of trucks.
FRESH FORUM
How does your business this year compare to last year?
Bob Kirch, Caito Foods Service, Inc., Indianapolis, IN
We’ve been blessed to experience strong growth over the last year.
Christian Comito, Capital City Fruit Company, Des Moines, IA
Our business pretty much looks the same as it did a year ago; however, the one thing that will be different is we’ll have more locally grown and organic items as we partner with more local growers. We’re constantly searching for and adding more local growers to our supply network to add more locally grown items during the growing season.
Joe Cavalier, Cavalier-Gulling-Wilson Company, Inc., Cleveland, OH
Business has been improving: with the Cavaliers winning, Indians on a hot streak, and the Republican National Convention in Cleveland, we’re looking for a banner year.
John Bennett, JohnCo Distributing, Inc., Indianapolis, IN
Our business is good; we’re on pace to have a similar year as last year.
Gene Loffredo, Loffredo Produce, Des Moines, IA
Our business this year is up over last year; our major markets other than Des Moines, in Kansas City, Omaha, Madison, and Milwaukee continue to carry a lot of potential. We’re seeing some growth in these areas, especially in Omaha. We have a very positive outlook on the future of our business.
Sam Maglio, Maglio Companies, Milwaukee, WI
We’re expecting to see large increases in imported produce in 2016, and for many years beyond.
Rocky Ray, Ray & Mascari, Inc., Indianapolis, IN
Fantastic, really—we’ve been truly blessed with a loyal and consistent customer base. The last three years have probably been the biggest years of our company’s 78-year history.
Kerry Byrne, Total Quality Logistics, Cincinnati, OH
We’ve seen an increase from last year in some imported produce lanes, and overall we remain strong in the produce market. The foundation of our company was built around shipping produce, and we are very proud of this.
Fortunately, most suppliers did not experience the same kind of field-hand shortage as the West Coast or Florida, and the carrier crunch of the last several years has abated somewhat. For some, there were lower rates, and this was a welcome bonus.
“Transportation issues seemed to have eased a bit; there are still some growing areas where transportation can be a bit tricky, but overall the situation seems to be improving,” states Bennett.
Rates to and from the Midwest have been consistent, highlighting the geographic advantage for the region’s receivers. “Freight has remained steady over the last five years,” comments Ray. “One of Indiana’s mottos is the ‘Crossroads of America.’ It’s pretty easy for us to hit a large market area consistently, and stay competitive with quality and price.”
The advantage of shipping from major Midwest cities extends west of Indiana, too. “The benefit of sourcing from a company in Des Moines is that it is centrally located and we can hit several large cities fairly easily such as Minneapolis, Kansas City, Omaha, Lincoln, Chicago, the Quad Cities, St. Louis,” sums up Comito. Receivers in St. Louis can add Memphis to the list of nearby metro areas.
Expansion?
With demand for locally grown produce at an all-time high, many receivers would like to see more seasonal availability, but even with added acreage buyers and sellers alike have to contend with the sometimes crazy weather.
Another obstacle to upping regional fruit or vegetable production is tradition. Many row crop (corn, soybeans, and wheat) growers in the Midwest are long-established and resistant to change. This was especially true during the row crop price boom that lasted through 2014.
But attitudes may be changing as row crop margins tighten and new generations take over farm management. “There are more and more millennial farmers appearing and taking the family farm enterprise to different levels,” explains Maglio, referring to the Milwaukee area. “We see this as a very positive opportunity to diversify the crops available in the local market.”
Rural produce auctions
Another regional distinction with a bearing on fresh produce is the presence of Amish and Mennonite growers throughout the Midwest. Some of these communities have established wholesale produce auctions to sell their annual bounty of fresh fruits and vegetables, as well as flowers and other horticultural products.
These auctions can move substantial seasonal volume at very low prices, but may be impacted as food safety requirements change. In 2015 there were eight auctions in Missouri, five in Indiana, and four in Ohio. Wisconsin listed three produce auctions last year, also in communities of higher Amish populations.
Some regional produce auctions have initiated good agricultural practices certification and other food safety protocols for sellers. According to a University of Missouri report earlier this year, pending Food Safety Modernization Act requirements are already impacting some of the larger farms selling at produce auctions in Missouri.
Final Thoughts
So what’s next for Midwestern grower-shippers, receivers, and retailers? Higher demand for fresh produce is making everyone take stock of how they run their businesses, and to prepare for not only higher volume but the arrival of stricter food safety protocols.
While both these hurdles can be daunting, suppliers in the Cleveland, Cincinnati, Indianapolis, St. Louis, Des Moines, and Milwaukee areas are more than ready for the challenge.
