“Imported” may still be a selling point for wine and gourmet cheese, but a growing number of consumers are looking for produce, meat, eggs and other grocery products that originate much closer to home. Local sourcing started as a trend but has evolved into a lasting movement. For grocery retailers, local sourcing presents an opportunity to create cost-saving efficiencies in supply chains while increasing sales.
In 2014, the local food movement was a $12 billion industry, says AT Kearney, a global management-consulting firm. The industry will grow by 9 percent annually through 2018, Kearney predicts.
Drivers of growth
Consumers, of course, are driving the movement. “Locavores’” interest in locally sourced products stems from a growing interest in more healthful foods, a sense of environmental and social responsibility, and a desire for the freshest produce, meat, eggs and dairy available.
Freshness has long been equated with healthfulness and desirability in consumers’ minds. In fact, it’s the primary purchasing factor for grocery consumers, and 93 percent associate local with “fresh,” Kearney’s research finds. What’s more, consumers are increasingly aware of the environmental impact of transporting products from point of production to their local grocery-store aisles. Local foods, which travel shorter distances to point-of-sale, are perceived as better for the environment.
The case for local foods is equally compelling for retailers; 78 percent of consumers say they are willing to pay 10 percent or more for locally grown food, Kearney finds. In addition to the potential for increased revenue, grocers who offer local foods have the opportunity to elevate their brand’s credibility and community standing — when they promote their local products and associations with local producers.
Demand for local foods is also moving out of the store perimeter. The trend may have started with produce, seafood, meat, dairy and eggs, but now 15 percent of consumers say a local point of origin is important for canned and jarred products, 23 percent view it as important for prepared foods, and 18 percent for bread, Kearney reports.
Impact on supply chain
Although definitions of “local” vary, Kearney says most consumers view food produced within 100 miles of the point of sale as local. Some retailers expand that radius to a few hundred miles, or even within the same state. Purchasing and selling products locally presents grocery retailers with cost-cutting opportunities, and the smaller the distance from point of origin to point of sale, the greater the potential benefits.
Transportation expenses represent a significant portion of the total cost associated with bringing foods from point of origin to point of sale. When food has to travel less distance to make it to a distribution center or retail location, associated transportation costs are also less. Less travel time and handling can also help reduce the losses associated with spoilage and damage. Food arrives at the point-of-sale much earlier in its life cycle.
Sourcing food locally can also allow grocery retailers to eliminate middlemen and the costs associated with processing, packaging and transporting food through traditional supply chains.
Grocery retailers have developed a range of tactics for sourcing food locally, including:
- Buying land for greenhouses and growing their own produce.
- Establishing relationships with networks of farmers that are local to important sales centers.
- Working with food hubs where farmers in a certain area deliver their products for distribution to multiple establishments, including supermarkets, smaller grocers and restaurants.
- Using online platforms that connect local producers with buyers.
- Working with third-party sourcing companies versed in procuring local products.
Maximizing benefits of local sourcing
Two key factors are critical to maximizing the value of local sourcing for grocery retailers.
First, local-sourcing programs should be supported with marketing campaigns. Kearney’s research found 51 percent of shoppers said their grocery stores didn’t make it clear which products were local. You can’t reap the premium price shoppers are willing to pay for local produce if they’re unaware of the origins of what you’re selling. Displays at the point of sale should make it clear the products have been locally sourced and exactly where they come from. Branding campaigns should underscore your operations’ commitment to supporting the local economy through locally sourced foods.
Further, your supply chain should employ packaging and transportation tools like RPCs that preserve the freshness, quality and integrity of locally sourced products while reducing spoilage, damage and waste.
Kearney’s report summarizes the potential the local food movement has for grocery retailers: “The ‘locavore’ movement has taken root.”
How will your grocery operation nurture those roots into full bloom?