Bay Area Shines

Originally printed in the March 2018 issue of Produce Business.

When it comes to delivering fresh produce, San Francisco truly has it all, from bustling terminal markets to an array of top grocers and restaurants.

California is the nation’s leader when it comes to produce production. According to the U.S. Department of Agriculture, the state known as “the nation’s salad bowl” has more than 74,000 farms operating on 25 million acres. It ranks first in value of crops sold and is the No. 1 provider of fresh vegetables, potatoes, fruits, tree nuts, berries, and table and wine grapes.

Consequently, it should come as little surprise that the San Francisco Bay Area, one of the state’s two largest metropolitan areas, is an energizing place to be involved in all things produce. Businesses of all kinds, including wholesalers, independent supermarkets and restaurateurs, have access to the country’s best produce when it’s at its peak of freshness. The area has receptive consumers who care about health and understand why it’s worth paying more for produce if it means they get quality, delicious meals.

“San Francisco, by many accounts, is really the food mecca of the United States,” says Michael Janis, general manager of the San Francisco Wholesale Produce Market, the region’s largest and oldest produce market. “It really goes back to that food culture and the food economy in San Francisco and the Bay Area. There are so many opportunities for folks to engage in that area.”

Here’s a look at the ups – and downs – of San Francisco’s produce industry:

San Francisco And The Bay

San Francisco is the best-known city in a larger region known as the Bay Area. This sprawling part of Northern California stretches from Santa Rosa County to San Jose and Santa Cruz. According to census data, the seven-county area was home to more than 7 million people in 2010. The largest city is San Jose, which has a population of nearly 1 million. San Francisco has about 800,000 people. Other major cities include Oakland, Freemont, Santa Rosa, Hayward and Sunnyvale.

Many of the country’s largest supermarket chains have a presence in the Bay Area, but independent retailers also have retained a significant footing. With 104 stores, Safeway (which also sells under the Pak ‘N Save banner) has the largest market share. But the next largest company is Modesto, CA-based The Save Mart Company, which has 47 stores under the Save Mart, Lucky’s and Food Maxx labels. Trader Joe’s has 32 stores, Grocery Outlet has 24, Target has 23, Whole Foods has 22, and Smart N Final (also known as Cash N Carry) has 18.

After that, independent chains start showing up on the list of prominent grocers. The Raley’s Family of Fine Stores, which has its headquarters in West Sacramento, CA, and Sprouts Farmers Markets from Phoenix, has several retail locations in the Bay Area. Albeco Inc., which runs Mollie Stone’s Market and is based in Mill Valley, serves the region exclusively. Other small chains in the area include Lunardi’s Market and Draeger’s Market of South San Francisco, and Pacific Supermarket of San Francisco.

San Francisco and its surrounding communities are fairly diverse. Slightly more than 40 percent of residents identify as white. The next largest groups are people who identify as Asian or Hispanic or Latino. This has an effect on where people shop for produce. Many consumers prefer to buy from smaller ethnic markets that stock the foods they’re used to buying.

‘Good-For-You Snacks’

Sixty-five percent of local residents are between the ages of 18 and 64. Although 68 percent of households are families, only 30 percent are families with children. “A lot of the people are younger, and they’re really fitness-minded or health-minded,” says Tony Melkonian, chief executive of TM Summit, a wholesale produce company that specializes in tomatoes but also carries other hot-climate products such as avocados and mangos. It is based in South San Francisco. This focus on health means people are looking for good-for-you snacks everywhere. Melkonian just invested in a boxing gym, and the snack bar includes produce and dried fruit.

It’s no secret that the cost of living in the Bay Area is very high. Median household income is $75,000, which is significantly higher than the national average of $55,000. A two-bedroom rental nationwide is approximately $1,150 per month; in the Bay Area most rentals are double that. In San Francisco, it’s $3,050. The median cost of a home in 2017 in the Bay Area is $825,000, while the national average was $240,000, according to the National Association of Realtors.

Businesses have to consider how these prices affect shoppers’ ability to afford other goods. “If you’re in a rental position, you’re really not in a good position here, because the rents are going through the roof,” says Bob Andrighetto, president of Market Produce Sales, a wholesale produce company based in South San Francisco. “It’s got to affect stores because when people start not having much money left over after they pay their rent, they’re not going to have money to buy the finer foods.”

This concern doesn’t seem to be hampering San Francisco’s thriving restaurant scene. Gwyneth Borden, executive director of the Golden Gate Restaurant Association, a trade association that represents San Francisco restaurants, says the city has the highest number of restaurants per capita of any city in the country. Currently it has one more Michelin star restaurant than New York, giving it the most of any metropolitan area.

Part of what makes San Francisco cuisine so exciting is the diversity. “There’s demand for produce items that there isn’t anywhere else,” says Butch Hill, senior manager for Shasta Produce, one of the Bay Area’s largest wholesale produce distributors. “It’s one of the areas where many things are popular and widely used.”

“The other thing besides the diversity of cuisine is the seasonality, which is interesting for farmers and people in the produce industry,” says Borden. “Restaurants really do change their menus to respond to seasonal crops and foods that are available. Many restaurants change their menus daily depending on what they find at farmers markets. That’s fascinating because it’s more common as opposed to being an exception.”

Markets And Wholesalers

Much of the produce that flows in and out of the Bay Area goes through the region’s produce markets. The San Francisco Wholesale Produce Market was founded in 1963 and is home to about 30 businesses that sell primarily in a B2B model. It sits on 25 acres and has 400,000 square feet of warehouse space, including a new 84,000 square foot building that opened in 2016.

In 2013, the market entered a new 60-year ground lease with the City of San Francisco, which has been a foundational partner since the market started, says general manager Janis. Thanks to the certainty provided by the lease, the organization has embarked on a $96 million, multi-year renovation project that will upgrade infrastructure and expand the facilities.

“The most important asset for the market is the merchant community,” says Janis. “It’s been stable for years. These are companies that add a lot of value to their customer base as well as their farm partners that are selling to them.”

Stanley Produce Company has been at the San Francisco Wholesale Produce Market since it opened. The company was founded in 1941 and was originally a mushroom distributor. It now carries about 1,000 products. “We do a lot of specialties,” says Stanley A. Corriea Jr., president and chief executive. “We were the first people to import Belgian endive on the West Coast. We were the first people to import radicchio.”

The company occupies three market stalls, which gives it about 18,000 square feet. “We’re fortunate because we moved a year ago in December and built a facility from the ground up,” says Corriea. It includes updated technology such as refrigerators with sensor-activated doors that keep the temperature at a consistent 38 degrees.

The quality of produce available to California wholesalers really sets them apart from their competitors. “We’re very fortunate in our area because it has the best produce in the world,” says Corriea. “We see stuff on the market that comes in on a daily basis. If you go to any kind of store, even the bigger stores, it goes through a distribution center and it’s three or four days later that it hits the market. That’s why the terminal markets will always have a place.”

The Golden Gate Wholesale Produce Market in South San Francisco is another popular wholesale market in the region. TM Summit is one of the facility’s 27 vendors. Melkonian’s business occupies about 15,000 square feet. He emphasizes the variety of products available from California farmers when discussing what sets the region apart from others in the country. “There’s always something different going on as far as produce. I cook for hobby, so I have fun walking around and seeing what’s on the market and taking a lot of that produce home and experimenting with it.”

Kevin Sommerfeld, owner of Banner Fruit Company, another Golden Gate Wholesale Produce Market vendor, says Bay Area residents are highly focused on buying local produce whenever possible. “We have Mexican asparagus right now, but as soon as the California pops in people will stop buying Mexican because they want California.” Banner Fruit Company is a third generation-run company that occupies two stalls in the market.

Having a clientele that goes out of its way to seek fresh, local produce provides plusses and minuses from local wholesalers. Although it generally means good business, Sommerfeld says making yourself stand out is hard. “It’s very competitive out here. Relationships with customers, along with making sure you have the right product at the right price, definitely goes a long way.”

One of his neighbors is Market Produce Sales, a 25-year-old business that specializes in leaf lettuce and dry goods such as potatoes, onions and garlic. It operates from a 5000-square-foot facility that’s mostly refrigerated. “South San Francisco is a premium place for produce because it’s always cold here,” jokes company president Andrighetto.

His family has been in the produce business for generations, and he’s seen plenty of things change over time. “There used to be a lot of little independent stores,” he says. “Every corner had an independent market on it.” That’s not the case as much as it used to be.

But opportunities for smaller stores do exist. “It’s a great place to set up a market because there’s a lot of diversity and there’s a culture that appreciates independent one-off markets if it’s done right,” says Hill with Shasta Produce. His company occupies 30 stalls at the Golden Gate Wholesale Produce Market, as well as four at the San Francisco Market and four in Oakland. It also has an 80,000-square-foot distribution center it uses to serve much of northern California.

“Companies that focus on supplying their customers with high quality at a reasonable price do well, by and large,” he adds. “The ones that try to cut corners and offer product that’s not so good never seem to do very well. What the terminal markets allow is for customers to do their own buying and their own picking. A lot of them drive their own trucks. They’re really hands on. The owners of the store might have their own produce buyer, and they allow their buyers to come down and buy from Shasta Produce and our competitors as well. It gives them the freedom to buy where it’s going to benefit them the most.”

It seems logical that as the market share of large supermarket chains has increased, opportunities for wholesalers serving independent stores would decrease. But area residents’ support for local markets means that’s not necessarily true. “What you have are a lot of these little stores that will only handle organic, only handle unique stuff or are ethnically diverse,” says Melkonian. By tapping into those specialty markets they can still make a good living.

“Our niche is the smaller market that is looking for better quality,” he adds. “We’re mostly working off the fresh and local scenario.… Our business essentially is doing better because people will look for fresher and nicer product.”

Andrighetto notes that he’s always found it to be good business to emphasize product quality over anything else. “You can always fall back on quality, but you can’t really fall back on cheap prices,” he says.

Corriea’s other key for surviving amidst the growth of the larger chain stores is remaining nimble. “It’s adapting on a daily basis to the market and what your customers’ needs are,” he says. “We’re small enough that we can adapt as we go. The small and medium-sized firms can react quicker than the bigger firms.”

The region’s third produce center is the informal collection of warehouses and independent wholesalers located in the Jack London Square neighborhood of Oakland.

Foodservice Opportunities

Not all produce businesses are located in one of these markets. Greenleaf, which is based in Brisbane, was founded in 1976 and is a leading foodservice distributor in the Bay Area. It uses its close relationships with California farmers to supply the highest-quality produce, dairy, baked goods and specialty products to restaurants, retailers, meal delivery services, universities and other institutions.

President Frank Ballentine has seen the area’s restaurant scene evolve tremendously over time. Consumers are less interested in white tablecloth restaurants, although plenty still exist in more touristy areas such as the Napa Valley and Sonoma. The trend in urban areas is fast-casual restaurants where people can get a quality bite for not much money.

“Corporate cafes are a huge segment of our market now,” says Ballentine. “That’s really changed the industry. Tech workers and engineers are getting fed three meals a day at the corporate cafes now.” Because the food at these cafes is such high quality, these consumers are also demanding more inventive cuisine from restaurants.

One of the biggest challenges faced by San Francisco area businesses is the cost and availability of labor. The current minimum wage is $14 an hour. It will increase to $15 an hour on July 1 and rise every year in line with increases in the consumer price index. Even with these wages, it can be hard to find people because low-wage workers can’t afford to live in or even close to the city.

Ballentine sees one upside to the region’s labor challenges. As restaurants look to reduce their costs, they’re more likely to purchase precut products. Companies that provide them should find plenty of room for growth.