Local motion

With fuel costs on the rise and the locavore movement garnering more press than ever before, now might seem like a great time to be a part of the local food chain. But despite interest from both consumers and retailers for all things local, even some of the most successful players in the West Coast’s regional food supply chain say it’s a challenging industry, not for the faint of heart (or wallet).

Growing an enterprise to the point of profitability without losing the quality and hands-on feel that makes local food appealing to buyers is the primary challenge facing local food producers and distributors. Others include quality control, securing distribution and, for some, securing manufacturing partners.

Local vs. regional
Portland-based Hotlips Pizza is a prime example of both the potential successes and challenges inherent in the local food business. The chain uses only local ingredients and is set up in a spoke-and-wheel configuration: A central hub receives ingredients from farmers, prepares toppings and sauces, and distributes everything to nearby restaurants. For each hub, co-owner David Yudkin says he needs four stores in order to turn a profit. “So, if I were to expand into Seattle, for example, I’d need to go in and right off the bat open a central kitchen and four stores,” he explains. “That’s a lot of capital up front.” 

In addition to the pizza restaurants, Yudkin recently launched a local soda brand, which is distributed through Hotlips. “We thought it was sort of silly to deliver our 100 percent local, healthy pizza with colored corn syrup that does nothing for the local economy,” he explains.

The soda has been a hit, and Yudkin now delivers it as far north as Vancouver, Wash., and as far south as Ashland, Ore. Still, he says it would be expensive and difficult to take the same model and replicate it nationwide. “The challenge is ramping up sales to a big enough volume to justify the capital expenditure on the equipment,” Yudkin says, adding that, whereas the pizza business requires a constant flow of ingredients (costs) and creates a constant flow of sales (return), the soda business requires a large capital outlay when the berries are in season.

In addition to equipment that could process and bottle more soda, Yudkin says he would probably need to import skilled labor to work such equipment if he were to expand his soda business to ship his product outside the region. “Fuel costs are creating an atmosphere where regional food production makes more sense than it ever has, and I think we’re going to see a resurgence in manufacturing,” he says. “The problem is that we’ve had about a 50-year gap between the last time we produced our own food and now there’s a huge labor vacuum there; no one knows how to work the machines anymore.”

The Wal-Mart effect
One way for local businesses to have it both ways—produce locally and sell at national scales—is to partner with more conventional businesses. Wal-Mart (NYSE: WMT) announced earlier in 2008 that it had increased its purchases of local foods by 50 percent, and intended to grow its local purchase more over the next two years as part of its commitment both to sustainability and to its own bottom line.