Feeding Walmart

| FROM THE PRINT EDITION |
 
 

RICHARD GONZALES HAS ON his shopping list many of the same items as consumers making their weekly trips to the supermarket: apples, cherries, potatoes, onions.

The difference is in the quantities being purchased. Consumers are looking to fill a grocery cart. Gonzales is hoping to fill truck trailers and railroad freight cars.

And while those consumers want to feed hungry mouths around the family dinner table, Gonzales hopes to satisfy the voracious appetite of Walmart, the nation’s biggest retailer.

Gonzales is a senior director of global food sourcing for Walmart and head of its Yakima Valley buying office, which buys Northwest fruits and vegetables directly from growers and packing houses in the region.

Walmart buys a lot of Northwest produce, including 400 million pounds of tree fruit from Washington producers in the past year, the company says, as well as 15 to 20 million pounds of potatoes and 80 million pounds of onions. Between 70 and 75 percent of the apples and cherries Walmart sells across the country comes from Washington.

It wants to buy even more and make more of those purchases directly, rather than through consolidators or brokers. Established in 2009, the buying office has grown from one employee to 10.

In part, the move reflects Walmart’s need to fill the shelves of its growing network of grocery stores, including in Washington where it was a relative latecomer to food retailing. The company opened three stores—in Bellevue, Lynnwood and Spokane Valley—in October 2012 alone, bringing its total to 58. It has plans for more, including a new Tacoma location, possibly opening in 2013.

But Walmart also believes there may be some competitive advantages to running a direct-buying operation. “A lot of our job is making sure we have product on the shelf,” Gonzales says. “Having that communication with the grower allows us the opportunity to make sure we’re giving the customer the best product at the best price and making sure it’s regionally relevant.”

What Walmart gets, he adds, is real-time information about what’s going on with the crops it plans to market to customers. What does production look like this year? What constraints and issues do growers face? What new varieties are growers planting and harvesting that might do well in stores? “That [information] doesn’t come when you meet with salespeople on a quarterly basis,” he says. “It comes when you’re out in the field on a weekly basis, developing these relationships.”

Scott McDougall, co-president of Wenatchee-based McDougall & Sons and general manager of the company’s orchard operations, says getting such information is important to retailers because of the change in Washington’s apple industry during the past decade, from when most of the state’s output was in red or golden delicious. “It’s more important that they be out here and get a little more familiar with all the varieties that are out there,” he notes. Gonzales adds that Walmart can also use its volumes of data about customer purchasing patterns to match varietal flavor profiles with those regions where they’re likely to do well.

What growers get is access to Walmart’s vaunted distribution network, which includes a major center in Grandview, just minutes from many of those growers and packing houses the company deals with (although Walmart also buys from ag producers west of the Cascades, too). It also gets a customer buying in quantities.

“We’re almost a hedge for a lot of growers doing business with us because they know they’re going to get paid, which is a big part of doing business. They get paid timely by us, they have a certain amount of business that’s sold at a sustainable price for them and they’re not subject to the whims of the market,” Gonzales explains. “The growers like the fact they can move a lot of product with us. We need them as much as they need us.”

While Walmart has a reputation of being tough on price negotiation withs vendors and suppliers, Gonzales says, “We tend to pay what we have to to make sure we have product in our store. Walmart pays a fair price; I would challenge you to find someone who says we don’t pay a fair price who’s doing business with us.”

McDougall, whose company packs about 4 million boxes of apples and pears a year, likes the direct-sales model between retailer and marketing representative (McDougall & Sons owns a portion of Columbia Marketing International, a fruit packer and shipper).

“I don’t see any downside,” he says. “It’s all been positive from the standpoint of having somebody closer and having people come to look. ... They’re stringent on their quality but their sales mechanism’s a lot better” than the older model. “We know that if we can put quality in the box,” the grower will get a good price for the product.

Being as big in the agriculture business as Walmart is in retailing is not an essential for supplying the company. Gonzales says his office deals with growers ranging in size from as few as 15 acres to operations with thousands of acres. What is required is compliance with food-safety rules and Walmart’s internal sourcing requirements.

But with consolidation reducing the number of retailers (while increasing their size), the trend is having an effect on the producer side as well, notes Desmond O’Rourke, a veteran Northwest agricultural economist and publisher of World Apple Review.

“Large operators like Walmart and Kroger need large volumes of fruit every day of the year,” he says. “Price is important, but not being out of stock is just as important. The best way to ensure security of supplies is to deal with the big, integrated grower-packer-marketers. It is too risky trying to buy the volume of the desired varieties from many small growers.”

Having an office in the growing regions isn’t unique to Walmart, which has similar offices in California and Florida. McDougall notes that Kroger, which owns QFC and Fred Meyer, has had such an office in the state. Topco Inc., a Chicago company representing multiple retailers, also has a Yakima buying office.

“The largest retailers have had offices in producing regions like Yakima on a fairly erratic basis,” O’Rourke says. “When they are doing a large volume of buying, they like to have personal relationships with the major shippers. Those buying offices tend to come and go as retailers expand or contract, as the philosophies at central purchasing change, and as fads in use of telephone or internet buying come and go.”

Retailers such as Walmart like local buying offices “to enhance their ‘buy local’ credentials or to cut out the middlemen,” O’Rourke adds. That latter goal hasn’t worked out quite as planned, he notes, since “apples have more frequently been in short supply than not, so Walmart has been unable to apply much leverage on suppliers. In addition, most Washington apples now are controlled by integrated grower-packer-marketers like Rainier or Stemilt, so the distinction between growers and middlemen [like packers and marketers] has become academic.”

Whatever the track record of direct-buying offices, Walmart’s venture in the Yakima Valley will be closely watched by everyone in the business, from growers to competing retailers and even to consumers paying attention to what’s in the produce section of their local stores.

Walmart has proven to be hugely influential not only for its size, but also for its growth, its buying and pricing policies and its logistical capabilities, so the mere fact that it’s Walmart doing it will prompt others to consider whether there is merit to the effort.

Gonzales believes there is. “We’re in touch with what’s happening on the growing side, and having that connection allows us to have a deeper understanding of what the growers go through as well as what we can do for our customer,” he says. “Obviously, we want that to translate into some sort of benefit.”

Paine Field Ready for Takeoff

Paine Field Ready for Takeoff

Opposition continues, but Paine Field inches closer to commercial operations.
 
 

When Paine Field was built in 1936, nearly a decade before Seattle-Tacoma International Airport was completed, the 604-acre, fog-free unpopulated site 23 miles north of Seattle was envisioned as being one of 10 commercial “super airports” around the country. Originally called Snohomish County Airport — its name was changed to Paine Field in 1941 — the airport was a Works Progress Administration project designed as part of the New Deal to create jobs, drive economic growth in the Pacific Northwest and support a nascent aviation sector.

Shortly after opening, the airport was diverted for military operations during World War II, and again later for the Korean War. Snohomish County took over full management of the site and opened it for new commercial development in the mid-1960s, leading Boeing to establish a production facility for the 747 jetliner in 1966. By then, Sea-Tac had emerged as the region’s primary airport.

Now, 80 years after construction began, Paine Field is about to fulfill its original purpose as a commercial airport. Last year, Snohomish County approved plans for a commercial air terminal to be operated by Propeller Airports, a 5-year-old subsidiary of Propeller Investments, a private equity firm that invests exclusively in the aerospace and transportation sectors. When completed, the two-gate passenger terminal will be the first privately operated commercial air terminal in the country.

“This is a win for residents and businesses in Everett and Snohomish County,” says Everett Mayor Ray Stephanson. “Bringing a terminal of this quality to our community as a public-private partnership saves precious taxpayer dollars and offers considerable economic benefits.” He says the county looks forward to “helping travelers avoid hours of traffic and headaches.”

Initial operations will be limited to two dozen flights a day. Any expansion beyond that, which will require Federal Aviation Administration approval, will likely be vigorously fought in court by community groups in nearby areas like Mukilteo and Edmonds concerned about traffic, noise and property values.

Mukilteo’s mayor, Jennifer Gregerson, is pushing for a county charter amendment to create an airport commission to oversee Paine Field. While Mukilteo, whose eastern border abuts the airport, has no legal authority to stop passenger service, Gregerson wrote recently in a blog post, “We will use every tool at our disposal to ensure that the full impacts to our community are heard and addressed. We will not stop in that mission, and the fight is not over.”

In that regard, the Port of Seattle’s effort to build a third runway at Sea-Tac is a cautionary tale. First proposed in 1992, it faced opposition from cities and communities neighboring the airport and encountered long delays and rising costs. The third runway finally opened in November 2008 and cost $1 billion, more than four times the original estimate.

But the forces arrayed in support of Paine Field are building. The FAA concluded in 2012 that commercial airplanes could use Paine Field without significantly affecting the neighborhood. Jet engines are much quieter today than they were two generations ago, and Paine Field officials say the noise level meets federal guidelines within the footprint of the airport itself. In fact, the noisier aircraft tend to be private planes that use the only runway that takes them over Mukilteo. An opposition group, Save Our Communities, and two individuals filed suit to block commercial service on environmental grounds, but a Ninth Circuit Court of Appeals ruling in March rejected the argument.

As Sea-Tac struggles to handle rapid growth (see story, page 41) and as vehicle traffic through Seattle faces gridlock much of the day, pressure to develop a second major airport in Washington state will continue to grow. Boeing Field — officially King County International Airport — is not a candidate as a relief airport because of conflict with the flight pattern into Sea-Tac. McChord Field, a military airport near Tacoma, is also mentioned as a possible option — Colorado Springs Airport south of Denver, for example, has combined military and commercial operations. But McChord is a key component of Joint Base Lewis-McChord and there are no plans or initiatives afoot to use McChord for commercial flights.

Besides, since Sea-Tac is already situated between Seattle and Tacoma, Paine Field is far better positioned to serve the growing number of residents who live in Seattle and to the north. The state Office of Financial Management estimates that, by 2025, the population of Snohomish County alone will grow to 1 million, up from 870,000 today.  About 4,700 travelers a day from Snohomish County depart from Sea-Tac, according to Port of Seattle passenger data from 2014 and 2015. Most presumably have to travel by highway through the center of Seattle to get there. 

 

A Long Runway
1. A WPA project, Paine Field was one of 10 “super airports” intended to spur economic growth during the Great Depression.

2. The site required tree clearing and leveling to ready it for runways in 1936.

3. Shortly after it opened, the airport was used by the military during World War II.

4. Alaska Airlines had a maintenance hangar at Paine Field in the late 1940s

It’s also difficult for communities in north Puget Sound to argue persuasively that Paine Field’s growth should be limited when the airport was there before most of the communities were established, and when the region’s economy has benefitted greatly from aerospace development around Paine Field.

It is now one of the largest manufacturing and service centers in the state, encompassing about 50,000 jobs. Boeing builds its largest planes at a Paine Field facility that is the largest building in the world. Other companies like Aviation Technical Services, which employs 1,500 workers doing commercial aircraft maintenance, also call Paine Field home and use its runways for their operations.

Although commercial flights will initially be limited to about 24 a day, Paine Field is already a busy airport. It handles roughly 300 flights daily, including large jetliners from the Boeing factory and small planes flown by private aircraft owners. The modern, FAA-operated control tower was built in 2003, more than doubling the size of the old tower, and it has the most advanced aviation technology in the industry. 

Propeller Airports is moving ahead — it has submitted its application to comply with Washington’s State Environmental Policy Act — and hopes to break ground on the new terminal by the end of this year. Flights could begin in late 2017.  

With commercial operations an apparent certainty, the issue now is growth. Asked to discuss the future, Propeller CEO Brett Smith is careful in his response. He says the company is “building its business model around a two-gate terminal, and beyond that, who knows?”

Opponents doubt Propeller’s ability to operate a terminal, given its lack of a track record, but Smith insists Propeller will create a “world-class facility worthy of this airport.” 

Propeller expects to make a profit from parking, concession, service and airline facility fees. 

Tom Hoban, CEO of the Coast Group of Companies, an Everett-based commercial real-estate and investment firm, is often described as the “father” of the effort to bring commercial service to Paine. He sees the two-gate operation as adequate for now. But, he adds, “If you think of the things the community could do to drive economic diversity and provide jobs for our kids, there is no better option than leveraging a public asset like Paine Field.”

If Seattle-based Alaska Airlines is one of the airlines that operates from Paine, Hoban says the community could not have a better partner.

He also disagrees with residents of communities opposing commercialization, predicting commercial operations at Paine Field will likely increase property values. He says commercial flights will provide businesses the ability to function in Snohomish County, attracting more demand. “The model is there,” he notes. “San Jose to SFO [San Francisco], John Wayne to LAX [Los Angeles]. It’s the low-hanging fruit.”

Propeller’s Smith agrees. “Is it going to be Sea-Tac north?” he asks. “No.”

But he believes the operation will provide a new and welcome experience for passengers tired of the Sea-Tac hassle. Propeller’s terminal will have a fireplace and comfortable seating areas. The nearby parking lot will offer valet service; arriving passengers will be able to send text messages to the lot and have their cars waiting in front of the terminal building.

Smith says Propeller will leverage what he calls “the incredible aviation infrastructure at Paine Field” to encourage further economic development and provide local travelers an airport option.

Snohomish County Executive Dave Somers says having a private company operate the airport not only provides substantial income for the county — the lease agreement calls for annual payments of about $450,000 — but also eliminates the risk of a publicly operated terminal. Under the 30-year lease, Propeller is responsible for building and maintaining a state-of-the-art, two-gate terminal, which would revert to county ownership at the end of the lease. 

Although neighbors have expressed concern about airplane noise, Paine Field Airport Director Arif Ghouse says it should not be a concern. “We have shown that the noise level is contained within the airport itself,” he says, meaning that noise levels above 65 decibels are not heard in neighboring communities. He notes that Paine Field already has many large commercial airplanes taking off each day as new planes come from the Boeing plant. The only difference between them and commercial flights, Ghouse says, is that “they’re just empty.” 

Future Destination
Propeller Airports, a private developer, is buldigna two-gate commercial terminal to serve Paien Field. It could open late next year. 

There is room for expansion at Paine. The airport already has about 80 acres north of the main runway targeted for development. The aim is to market the land to “aerospace” uses, Ghouse says. Expanded airline operations would certainly qualify as an aerospace use. 

Road access to the airport may be a more serious concern. There are two general access routes to Paine Field on crowded surface streets. Motorists trying to exit to Interstate 5 run into long lines when Boeing shifts end. Paine Field is scheduled to be on the Sound Transit 3 light rail expansion. An updated version announced in May indicates light rail would serve the airport (and Everett) by 2036.  

No airline has publicly announced flights from Paine Field, but two have shown strong interest. Bobbie Egan, an Alaska Airlines spokeswoman, says there is a need for another commercial airport in the region. Asked about Propeller’s lease and plans, Egan says, “If there is an airport built there, we would take a strong look at service there.” In a 2013 proposal to the FAA, Alaska suggested operating 98 flights a week from Paine Field to Portland, Honolulu, Los Angeles, Las Vegas and other West Coast destinations. 

Las Vegas-based Allegiant Air, which operates flights from Bellingham to Oakland, Los Angeles, Palm Springs, Las Vegas and Phoenix, has also expressed interest with the FAA but says it has no immediate plan to fly from Paine Field. 

Paine field has three runways, the longest more than 9,000 feet and used mostly by Boeing for its large, wide-body jets. The runway length means it can handle almost any size aircraft; the longest runway at Sea-Tac is about 12,000 feet. A second runway at Paine is much shorter, about 3,000 feet, and is used mostly by small private aircraft — about 650 private planes are based there. The third runway, 4,500 feet long, is used as a taxiway and for Boeing to park unsold aircraft.

Paine Field also is a major tourist destination. The Future of Flight Aviation Center and the associated Boeing factory tour attract 350,000 people a year. The Museum of Flight Restoration Center and Reserve Collection also call the airport home, along with Paul Allen’s Flying Heritage Collection. Two community colleges operate facilities there, training students for jobs in aviation.

The question that’s still hard to answer is how Paine Field can grow fast enough to help shoulder part of Sea-Tac’s increasing load. “As part of our master planning, we have always recognized the region is going to eventually need a reliever airport,” says Sea-Tac spokesman Perry Cooper. But 24 flights a day at Paine won’t do much to relieve congestion at Sea-Tac, which currently averages more than 1,000 flights a day.

One pressing issue is the real challenge faced by the Port of Seattle at Sea-Tac. If it stumbles even slightly in its plan to enlarge the airport, the resulting bottleneck would affect the region’s economic growth and send business elsewhere. 

Another major regional airport would provide the answer. In 1936, Paine Field was envisioned as a “super airport” serving the region. It now seems as if fulfilling that vision is the only practical alternative to serving the area’s growing transportation needs.

Who Was 'Top' Paine?
Paine Field is named for Topliff O. “Top” Paine, who was born in Ohio in 1893 and moved with his family to Everett in 1903. A graduate of Everett High School and the University of Washington, Paine was a ranger with the U.S. Forest Service when he joined the Army in 1917 upon the United States’ entry into World War I. He was commissioned a second lieutenant in 1918 after completing flight school. He was discharged in 1919 and became a commercial pilot in California and Mexico. In 1920, he joined the Post Office Department’s new Air Mail Service, becoming one of the top pilots in its Western Division. He died in 1922 when his revolver accidentally discharged. The Earl Faulkner Post of the American Legion suggested Snohomish County Airport be named in Paine’s honor in April 1941.