Greenhouse Produce Takes Volatility Out Of Retail Equation

Originally printed in the January 2019 issue of Produce Business.

More acreage being introduced to meet demand.

To say venture capital was plowing its way into fresh produce would be a misplaced metaphor — appropriate in its aggressiveness but still off the mark as investments are not only going into outdoor farms, but high-tech indoor greenhouses as well.

A $90 million funding round in December led by GV (formerly Google Ventures) for New Jersey-based indoor agricultural startup Bowery is the latest example of an expanding trend that banks on supply reliability, greater food safety assurance and growing as close to market as possible.

The technology and infrastructure involved are more cost-intensive than field cultivation, and most greenhouse growers claim these investments warrant price premiums at retail to make business viable.

However, logistical benefits, yields and reduced waste are improving the model’s competitiveness. This is the view of Steve Wright, vice president of sales at Shenandoah Growers, a Harrisonburg, VA-based company that produces fresh and living herbs as well as lettuce and microgreens.

“If you look at a culinary herb, for instance, probably 25 percent of it is going to be thrown away from when it’s grown in the field to when it’s sent to us,” he says. “And we’re going to pull another 25 percent to get product that’s not going to meet the receiving requirements of our customers, so there’s a tremendous amount of food waste already in the system.”

Shenandoah currently has production in Virginia, Texas, Georgia and Indiana, with 10 percent grown indoors and 90 percent out in the field. But Wright and his colleagues believe so strongly in the potential of indoor farming that they intend to flip those percentages in the coming years.

“Being regional allows you to raise your yield, and not having to factor in large transportation costs, and being able to do something in a very cost-effective way; we believe that we are narrowing that gap,” says Wright.

“When you move indoors you’re conserving water — you’re using 75 percent less water, and you have lower cost pressures controlling disease because you’re controlling the temperature and the humidity.”

DEMAND LEADS TO INVESTMENT

BrightFarms of Irvington, NY, was built on a 24-hour, harvest-to-store philosophy and has become a challenger to California and Arizona leafy green suppliers in some Eastern states.

“When we started producing packaged convenient baby green salads in 2013, that was not really being done on a commercial scale in greenhouses very much,” says chief executive Paul Lightfoot. “Hundreds of millions of dollars have gone into this space, and you have a bunch of companies like BrightFarms that have become well-funded and are making a difference in the market.”

He says the group has seen success in some of the country’s biggest markets, such as Philadelphia, Chicago, Cincinnati and Washington DC, with products stocked in some of the world’s most successful food retailers, such as Kroger, Ahold Delhaize and Walmart.

“Demand is greater than it’s ever been, and it’s certainly greater than our capacity,” says Lightfoot.

In mid-2018, BrightFarms secured $55 million in Series D funding from Cox Enterprises, which came from outside the traditional sector with a background in communications, media and automotive services.

“I don’t think that would have happened five years ago,” he says. “So I do think that at least in the United States, the investment community has changed dramatically.”

The money will be used to start construction of a new greenhouse in Pennsylvania, along with others in Texas, North Carolina and New York. While proximity is a significant part of BrightFarms’ value proposition, it labels the exact location of the indoor farms so consumers can “decide for themselves if it meets their definition of local.”

Lightfoot says production costs are higher than what he calls the “centralized long-distance field industry” in California, with higher capital costs as well, but efficiencies are found elsewhere, along with food being about a week fresher.

“We don’t have multiple companies in the supply chain,” he says. “We don’t have long-haul trucking. So we’re able to operate very cost-effectively because we have a shorter and simpler supply chain with fewer steps in it.

“We’re selling at competitive prices relative to the field industry. We’re doing it successfully and profitably, and we intend to keep doing that.”

He adds that after gathering several years of data, BrightFarms has found that every time it has entered a salad category with a retailer, the category sales have risen.

“So it’s the same amount of shelf space, but they make room for us by eliminating other products or other brands, but it’s not just a switch from Brand A to BrightFarms; it’s a lift in sales,” he says.

“In the last year, food safety has just risen up the ranks of criteria, especially in the minds of retailers, and they want to switch as much of their supply to greenhouses as they can in salads.”

— Paul Lightfoot, BrightFarms

Both Lightfoot and Shenandoah’s Wright raise the issue of recent food safety scares as a further driver for the category, while disasters have exacerbated what can already be a volatile supply chain for field-grown crops.

“In the last year, food safety has just risen up the ranks of criteria, especially in the minds of retailers, and they want to switch as much of their supply to greenhouses as they can in salads, because there’s been this serial episode of foodborne illness outbreaks,” says Lightfoot.

“We’ve seen a hurricane go through the panhandle of Florida into Georgia, and it’s affected the greens and corn, and we’ve seen an enormous recall on Romaine that’s really left its mark, not only on the supplier end but also the retailers who have really had to foot the cost,” adds Wright.

Wright describes the Romaine lettuce recall as “the boiling point for everybody.”

“It’s garnered a lot of attention because I think they’re looking for a better way to do things, and again, how does that food for tomorrow happen?

RAISING THE BAR

As leafy green growers, Shenandoah, BrightFarms and others such as Bowery Farming (with locations in New York and New Jersey) and Gotham Greens (with locations in New York and Chicago) are part of a more budding greenhouse movement when compared to more mature protected agriculture crops such as tomatoes, cucumbers and bell peppers.

These three items have been the main drivers of the category, according to Aaron Quon, executive category director for greenhouse and vegetables at Oppy in Vancouver, BC.

“We have seen increased greenhouse supply being grown in the United States,” says Quon. “As with many growers, we too are looking to increase our domestic U.S. supplies as demand for year-round product grows.”

Sourcing from partners in Canada, the United States and Mexico, Quon says Oppy takes every opportunity to bring retail partners into the greenhouse to see how the process works.

“The primary benefit of greenhouse production is control of the growing conditions, from temperature, humidity and light levels, to water and nutrients, to natural pest control in a protected environment,” he says.

“The result is a more uniform crop that is consistent looking and aesthetically appealing. In some geographies, control of the growing environment enables year-round production, which can be a convenience to retailers who prefer to stock the same grower or brand consistently.”

The indoor production business model is booming on the other side of Canada, as well. Jim DiMenna, president of Red Sun Farms in Kingsville, ON, estimates there are now more than 3,000 acres of greenhouses in southwestern Ontario.

“The industry has gone as far as to be growing under lights in the past few years, so it’s almost become a 12-month supply out of this area,” says DiMenna.

He says open-field crop cultivation is still going to “exist forever because there’s a need and a want for the product,” but greenhouse growers such as Red Sun are bringing consistency to retailers by controlling the production environment.

“Imagine four inches of rain in a field of tomatoes or cucumbers — you’re getting a different flavor profile, of course, because it has more water, whereas in a greenhouse we control it,” says DiMenna.

“We commit to planting a product for a specific retailer, then we can deliver price, quality and volume, so there’s no supply gap.”

Also from southwestern Ontario, Pure Flavor of Leamington has been expanding its product line with the introduction of organic mini cucumbers and organic Aurora Bites’ mini sweet peppers, adding to an existing portfolio that includes tomatoes, as well.

“Consumers are looking for flavorful products; they want consistency in the products that they are purchasing week in, week out, regardless of the season,” says Pure Flavor’s chief marketing officer Chris Veillon. “This is motivating greenhouse growers to continually search for the best varieties that create the most positive of eating experiences.

“As a vertically integrated greenhouse vegetable company, we continue to experience double-digit growth, year over year,” he says.

To capitalize on the trend for locally produced food, Pure Flavor has expanded its production into Peach County, GA, with 25 acres of a 75-acre high-tech greenhouse complex now complete.

“Regionally based growing operations are starting to become growth strategies to extend reach; reducing food miles is one thing, but the power of local to the region is gaining more and more steam, season over season,” says Veillon.

Although there is strong demand for tomatoes from Red Sun’s operations in Canada and Virginia, Mexican production has helped the group with benefits including the weather, elevation, access to labor and the location.

“In Mexico, we’re the largest high-tech greenhouse producer in the country, and I think there’s an excess of 400 acres there,” he says. “All of our greenhouses have high-tech, hydroponically or organically grown vegetables; not mid-tech or shadehouse.”

Kingdom Fresh of Donna, TX, has approximately 450 acres of greenhouses and shadehouses in Mexico, according to general manager Jaime Garcia, with its main operations in Torreón and Puebla.

“What we’ve been doing is one of the regions — Puebla — has helped us with their climate to have more precise yields and constant volume, and we became year-round growers around the year 2014,” says Garcia.

“Every time you’re going after a new customer or with the ones you already have, you have to focus on reliability … today buyers are looking into a multiple tomato category instead of just one, with the Romas, the rounds, the grapes, the organics in the same vendor,” he says.

Although crops are protected by the growing method, Garcia emphasizes weather still plays a role.

“In the regions where it’s colder you should always have heating systems; in the regions where it’s hotter, you should always have enough ventilation through the greenhouse for the tomatoes to keep growing and not get stressed by the extreme heat,” he says. “So you need to have production in different parts.”

BRAND DEMAND AND PREMIUM PRICING

More greenhouse producers are attempting to develop consumer-facing brands, with greater investment in brand marketing across the board.

Red Sun Farms, Kingsville, ON, is doing this with the recently released grape tomato Sweet Pop.

“It’s a cross between a cherry and a grape tomato so it’s that size, but it has a really high brix level,” says Red Sun president Jim DiMenna. “The success is phenomenal – we’re sold out of something we didn’t even think we’d come close to selling out of; we sold out in the first two months, so we’re now establishing more acreage, and we’re going to build on that profile. A premium over field-grown crops is required for greenhouse-grown products. In order to do this we are selling the many benefits of greenhouse-grown produce.”

But getting that premium takes work. When asked about ways to boost sales, Aaron Quon, executive category director for greenhouse and vegetables at Oppy in Vancouver, BC, mentions a display contest Oppy’s Mexican greenhouse grower-partner Divemex is sponsoring called Pepper Up, which will run from mid-January through mid-March.

“We are encouraging our customers to drive sales by bringing their pepper displays ‘up’ in size, or in location, such as moving the display ‘up’ to the front of the store or department,” says Quon.

“Another way to ‘Pepper Up’ would be to include organic and conventional peppers on display, or upselling to a socially conscious consumer because all Divemex peppers are Fair Trade Certified.

“Large displays prompt impulse purchases, as do sampling and attractively merchandised secondary sets positioned inside and outside the produce department with complementary ingredients such as tomatoes with salad kits in produce or fresh mozzarella in the deli section.”

Branding is also required to help raise demand for greenhouse-grown produce, and Quon cites another successful example of this through the Frank & Able brand of tomatoes-on-the-vine grown in southern Alberta.

“Retailers in Western Canada and beyond are driving repeat sales and actually building brand recognition by showcasing the quality in branded cartons,” he says.

As with many greenhouse producers, BrightFarms isn’t just aiming for freshness and consistency. Product innovation has been another key tenet with its brand, Sunny Crunch, packaged salad that BrightFarms says is now a “staple” with customers, and other introductions such as the Happy Beet beet-greens salad, Mighty Chard and Fresh Kick mustard greens.

“We are constantly innovating in ways that the traditional salad industry couldn’t,” he says. “We’ll try products that can be a little bit polarizing, and maybe half the population won’t like it, but the half that does like it really likes it; we don’t mind if it appeals to a smaller segment sometimes.”