TAKE-AWAYS
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Building relationships of trust with farmers is the first principle of a sustainable, regenerative distribution business.
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Distributors must make local food reliable and convenient for it to appeal to, and work for, all customers.
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It's not local food if you don't know exactly where your food comes from and how it was grown.
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Local distributors need to work more collaboratively.
TALKING WITH Michael Waterman
of Canopy Holdings
Contributor: Susan Arterian Chang
Michael Waterman—who did not grow up on a farm and was, up until a year ago, director of M&A for a global industrial energy company—is today a passionate advocate for growing a regenerative food system in the Hudson Valley. As president of Canopy Holdings, the parent company of local food distributor and brand Hudson Valley Harvest (HVH), he brings both a financier’s savvy and a deeply thoughtful beginner’s eyes to building a Hudson Valley food distributor that serves local farmers and satisfies the demands of discerning tri-state eaters. His goal: to finally create a sustainable local food network by making Hudson Valley Harvest as reliable and convenient as the large, national food distributors, while focusing solely on local, sustainably sourced food.
Founded about 8 years ago out of a warehouse in a former IBM factory in Kingston, New York, HVH has recently, through acquisition, joined forces with three other local food distributors: Field Goods, Local Bushel, and Angello’s Distributing.
We talked to Michael about HVH’s evolving business model and what he considers, from a distributor’s perspective, to be the biggest challenges to the growth of the Hudson Valley Food movement.
Focusing first on building relationships of trust with farmers
MICHAEL WATERMAN:
Too many start-up food distributors have been customer first, customer only. If you focus on the demand side and technology side first, you won’t get it right. In the past, HVH has not been as convenient to order from as those companies that were customer first, but there are a lot of things that happen when you focus on the customer first that are not conducive to building a truly regenerative food system over the longer term.
Customers want everything next day and that is nearly impossible to do with local food if you don’t focus first on the farm relationship. You need to start with building up partnerships and relationships with the farms. Only then can you assume the role of middleman between the farms and the customers.
With the customer-first mentality you end up putting too much pressure on the farms and it becomes unrealistic to work with them. You have to understand what it is like to be a farmer, to deal with weather cycles and the need to be paid the right price in order to survive. You can’t be constantly negotiating with the farms on behalf of the customers. We need to educate our customers as to why there are longer lead times for certain harvest-to-order products and why it may not be as consistent or reliable as non-local product.
Assuming more risks as a distributor works for the farmers and the customers
MICHAEL WATERMAN:
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There is a middle ground to play, and that is where we are trying to find ourselves. Prior to this coming together of our current companies, Hudson Valley Harvest was almost all harvest-to-order. We held almost no inventory other than what we would freeze and jar and process during the summer and fall season to then sell year-round. We would take on risk in terms of non-perishable inventory but nearly no risk for perishable inventory.
Previously we were putting all the risk on the farmers and in response certain customers were tolerating longer lead times and lower fill rates because we did not hold inventory. But the market is only so big for customers willing to tolerate the inconsistency in lead times and fulfillment. The only way we have found a way to service a highly demanding customer is to manage a certain level of inventory—one to two days – so that we can reduce lead times and increase fulfillment. This is better for the customers and for the farms.
In the model we are moving toward, we will hold one to two days of inventory so customers can buy from us on much shorter lead times. However, if there is a customer who didn’t order what we expected them to, we’ll now have the burden of selling that elsewhere or managing the waste. Given the scale we’ve achieved through our recent acquisitions, we can be much more successful in doing this.
So far only the national distributors—whose focus is not on local food—have been able to meet customer demand and manage the attendant risk, albeit with non-local product. HVH hopes to achieve the same goal through its recent mergers with other values-based local distributors.
MICHAEL WATERMAN:
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It is no wonder that local food is struggling to gain traction — no one has found a way to make it reliable and convenient to order with short lead times and high fill rates. Most local distributors are too small to meet the highly demanding needs of most buyers. Large national distributors who may be able to provide the desired reliability and fill rates don’t do local well, given a lack of local farm relationships and no internal infrastructure to track farm of origin.
It is very difficult to do, but much easier when you have the right infrastructure, the right processes, and a lot of outlets, and that is what we are trying to put together. We now service about 700 outlets—restaurants, retailers, schools, and corporate kitchens in NYC, CT and New Jersey, and up along the Hudson Valley. And we have about 4,000 consumers who buy directly from us through our Field Goods business. Those consumers buy and collect at schools, gyms, and community drop off points. Now that we have the demand in all those outlets it is easier for us to manage the risk.
Becoming a collaborator with BOTH farm and customer
MICHAEL WATERMAN:
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We are going to make it work for both customers and farmers by being really crisp in our processes, distribution, and infrastructure to limit waste and to bridge the gap between a generally unreliable, inconvenient local food system and the demands from the typical tri-state area consumer.
Once we do that we will see a really important shift in what local means to the end consumer. They will be able to move away from the mentality that they have to tolerate the unreliability in their access to local food to one where it is just as convenient as food sold by the national distributors.
The challenges of the “ugly” food business
MICHAEL WATERMAN:
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We have a great opportunity to sell surplus food bags or quote “ugly” food. But what you have to realize is that just because it is “ugly” doesn’t mean it was less work or less costly for the farms.
Up until recently farmers would have left that produce in the ground. While it is great that they now have more outlets for it, they now have to separate it at the farm and that adds another layer of complexity to what they have to manage. Now it is a separate process, a separate person managing the ugly food, which is not any less expensive.
Educating eaters through hyper-transparent labeling and engagement
MICHAEL WATERMAN:
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We have become so accustomed to being a transaction-oriented rather than a relationship-oriented society. If there is one party you should have a relationship with, it is the one you are buying your food from! It is a story we need to tell more and better.
All the raw produce we sell has the farm of origin on the label. All our value-added products, which are minimally processed—shelf stable or frozen or meats that are fresh or frozen—are in clear packages, labeled Hudson Valley Harvest, with farm of origin, and distance traveled to our processing facility.
We know we have to do better educating consumers about the benefits of local food and creating a community around what local really means. As part of our future vision we want to have a lot more content and events and partnerships to help educate. We already know what we need to communicate—the stories of the farm and the reasons why local matters: the impacts on our communities when our customers choose local, the reduction in food miles. There is also a big difference in nutrient density between local food versus food shipped in. We need people to understand the reason for that. Nonlocal produce is picked before it is ripe, held in storage, gassed to make it look nutrient rich, and then shipped across the country. By the time it gets to the market it could be a couple of weeks later. People are not always aware of that—we would love to make that better known.
Growing the local food system also means growing the local processed food system
MICHAEL WATERMAN:
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Local food is not just raw produce it is a lot more, and consumers need to understand that fresh frozen is often more nutrient dense than any “fresh” produce you are buying, especially if it is nonlocal. Local isn’t just about the nice fresh vegetables, there are many ways to buy local. Educating on that and having the infrastructure for processing is pretty critical. When you are dealing with more perishable items you have to have a way to jar them and freeze them. That is part of the risk mitigation. Meanwhile there are only a handful of processors in the Hudson Valley and I don’t know why that is. Is the economic model so difficult?
Driving down the road with windows covered
MICHAEL WATERMAN:
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For the most part, we have a very inefficient way of knowing what farmers will have at any given time. Generally, this happens over the phone, through text, or in email a few times a week. Even if we had the technology to see live production schedules and inventory, farmers are often too busy or unwilling to use that technology and keep information updated. So, if they expect to have 100 cases this week available for us, they may not know until they are harvesting. Sometimes we order 100 and we get 50 and that can be because of weather or we were just shorted because they had too much demand that week. So, customers won’t get what they ordered and that leaves a bad taste in the customer’s mouth. It makes local look and feel hard to work with for them.
On the other side of that we often don’t know how much of the demand from our customers is real. How much can we really expect and how much can we predictably tell the farmers about? So, it is a constant pull from the customers and a push from the farms. We are really playing that collaborator and sometimes it feels like we are driving down the road with our windows covered. I would say this is one of our primary challenges.
Distribution workers are in short supply
MICHAEL WATERMAN:
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We just doubled the amount of throughput going through our Kingston facility and we are having a hard time staffing the drivers and the warehouse workers. It is much harder to find a pool of drivers. They have to find a place to live, they have to learn to drive a truck in the city, and they have to get up at 1 am. It is a difficult position to hire for. Especially in the trucking industry in general where drivers are in high demand.
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Farmers, processors, and competitors are HVH’s valued network partners
MICHAEL WATERMAN:
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We work with about seventy farmers and fifty percent of them drop off at our location. The other fifty percent we pick up from. Sometimes one farmer will pick up their neighbors produce. So there is a lot of cross docking with our farmers, a lot of collaboration. Our processor Farmbridge is also a great partner. They have done a lot to help us on the processing side.
We also try to share and work with as many distributors as we can. We buy from other distributors, we share information around harvest cycles, pricing and cross docking. We allow other distributors to cross-dock at Field Goods. Western New York distributors coming to the Hudson Valley drop off with us and have another distributor pick up. We could theoretically say no but there would be no benefit to that.
Seeking a more robust information-sharing platform for the Hudson Valley Food System
MICHAEL WATERMAN:
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What we need is storytelling, mapping, who is doing what, who needs what, who can share, who can help. Having a network to go to for that information would be great. That is part of the change management we want to do on our side, to use information networks. It will be incredibly beneficial when it can become a real component of our daily lives, a shared network of people, businesses, schools, nonprofits trying to do the same thing. I know that Kevin Irby of Threadspan is working on that project, which is fantastic. Things like harvest data, the ability for others to directly help us in our distribution through cross-docking, making deliveries for us, a visual of partners of where they go and when. “Hey, you are going to the same customers can you bring something down for us or bring something up to us when you go there? Or we will ship through you down there.”
Sometimes I may not know what I need, so knowing what someone else in the network can offer and knowing I can also put something out there to offer, making that more of our day-to-day would be fantastic.