Feeding Walmart

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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.”

Making the Consumer Connection

Making the Consumer Connection

How three new companies are reinventing the shoe, the bicycle and the children’s play fort.
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Billy Price struggled nearly 20 years to find a better, easier way to put on his shoes. August Graube was convinced kids would love bigger, snappier building blocks. Kartik Ram wanted the bicycling public to help produce a sleeker, sexier electric bike.

By putting new twists on old products — using zippers to secure footwear, snap-together panels to build play forts, crowdsourcing to inform design — three of the newest consumer-product companies in the Puget Sound region are creating a buzz around ideas that, in one sense, are hardly new, while, in another, are revolutionary.

They are also creating their own playbooks, borrowing from successful retailers, high-tech firms and online businesses to forge their own paths. They’re building virtual teams and hiring people who possess the expertise they lack — be it in distribution, marketing or manufacturing. And they’re tapping alternative funding sources for startup capital, including crowdfunding and business competitions.

These entrepreneurs are not interested in being one-hit wonders and are working on additional products for their markets. Like many other inventors and entrepreneurs, they share the gift of optimism, a penchant for risk taking and the patience required to continually refine their ideas and products.

AN OPEN-AND-SHUT CASE FOR ZIPPER SHOES

Function and Fashion: Billy Footwear cofounder Billy Price, left, wants his line of zippered shoes
to be stylish enough to appeal to a wide audience. 

Paralyzed from the chest down in 1996 after breaking his neck in a three-story fall, Billy Price longed to put his on shoes by himself. It’s something he struggled with for years. He also wanted shoes more fashionable than the adaptive ones available on the market for people with spinal cord injuries. 

A project manager for the Federal Aviation Administration who lives in Seattle, Price kept thinking about making stylish shoes that could be worn not just by those with disabilities, but also by young children, older people and anyone else who might have difficulty with conventional footwear.

Price found a partner to bring his vision to life in late 2011 when he became reacquainted with Darin Donaldson, a childhood friend who, as luck would have it, had attended Port Townsend’s Shoe School and gone through the process of creating a woman’s boot. Price already had a shoe idea in mind: a riff on a slip-on shoe that he modified. With more tinkering, the pair created a shoe that incorporates a zipper that goes around the front of the shoe, allowing the upper portion to flip open to one side so the wearer can essentially step into the shoe and then zip the top closed.

Taking advantage of connections Donaldson created while developing his unsuccessful woman’s boot, they quickly developed a prototype. “It came back in very good quality and was functional, considering it was the first prototype we made,” says Donaldson, a serial entrepreneur. 

Price adds, “When that prototype came in and we showed it to people, they would just shake their heads in disbelief because Darin just nailed it.” 

The self-funded shoe company has seven styles for sale on its Billy Footwear website — billyfootwear.com — as well as at amazon.com. The shoes are made in China. The company has applied for a patent on its distinctive design.

Price and Donaldson still work full time at other jobs and are raising money to create more designs, add more sizes and increase inventory. They hope to introduce a more supportive but still fashionable line for older adults. Billy Footwear has already hired several employees to handle logistics and sales.

The company recently raised more than $32,000 through a successful Kickstarter effort, which augments personal funding Price has provided. Donaldson says the company plans a private offering later this year. In the meantime, Billy Footwear is hitting the road with an eye toward having its zipper shoes available in stores next year.

“I’ve been in a wheelchair for half of my life,” Price says, “and half my life, I couldn’t put on my own shoes. Now I can.”

Price also likes that his company’s creations don’t stigmatize the differently abled.

“This,” he says, “is truly a shoe that appeals to everyone.”

CULTIVATING A CHILD'S IMAGINATION IS A SNAP

"Luckily, Kids Love It": August Graube tried 165 prototypes before hitting on the right formula for Fort Boards.

Seeing how children loved building with giant Lincoln Logs gave August Graube the idea to create Fort Boards, a set of large, flat building panels he began selling late last year.

The former employee of Pacific Studio, a Seattle-based creator of exhibits, was working on a children’s exhibit for the new home of the Museum of History & Industry in 2012 when he saw how much fun children have building large structures. He knew kids would love a product that could allow them to build large forts — and anything else their imaginations might conjure — at home.

It took Graube three years and, by his count, 165 prototypes to arrive at a winning combination. He discarded six iterations of a huge Lincoln Logs-style product made of plywood; it cost too much and would have been dangerous. He then tried 60 versions of a smaller flat board made of extruded polypropylene, but it was too flimsy and didn’t work well. He liked the size of the smaller board but knew it had to be constructed of a different material, so he progressed through nearly 100 more iterations of a smaller flat panel made of injection-molded plastic, which he 3D printed.

The end product is a flat piece of plastic about the size of a sheet of paper. Each panel snaps easily to the next and is locked in place — either flat or at a variety of angles — by a snap-on hinge. Kids use the hinges and plastic pieces to build igloos, airplanes, castles and other shapes. Graube recently received a utility patent for Fort Boards, which also is trademarked. 

Like many inventors, Graube took a big risk, paying to build the final prototype without kid testing it because the upfront tooling costs forced him to jump-start production, which takes place in Indiana. “Luckily, kids love it,” Graube reports. “It’s intuitive, with only two interlocking parts, so it’s easy to learn.” 

Schools, children’s museums and hospitals have snapped them up as teaching tools, interactive toys for play spaces and small-motor-control therapy aids. “Children’s museums have told us they’ve never seen more engaged dads,” adds Graube, who says specialty toy retailers will soon begin carrying Fort Boards.  

One pack of Fort Boards panels and hinges costs $125. Graube, who lives in Seattle, has hired marketing and logistics help for his South Lake Union venture, which has been funded by friends, family and $20,000 from winning the grand prize in this year’s Microsoft Small Business Competition. 

“Seeing people’s creativity with them has been amazing,” Graube says.

Like Price and Donaldson, Graube is already at work on his next product, another activity-related children’s product that works with the Fort Boards. He expects to start selling it late this year or early next.

PUTTING A CHARGE INTO BICYCLE DESIGN

Charging Ahead: The Zeitgeist X City Bike, left, weighs less than 50 pounds
and incorporates a slim lithium battery that fits into the frame's down tube.

Kartik ram approaches his startup as a student of business. Make that many businesses. He hopes to tap into the mindset of people who shop at Apple and Nordstrom. And then there’s the Whole Foods shopper. And the Uber rider.

He wants to grab a page from Tesla’s playbook, copying the launch of the Roadster, which broke the electric car mold. Ultimately, he wants to be the Warby Parker of electric bikes, selling mostly online (at zeitgeistmobility.com) but not avoiding retail shops entirely. In time, in fact, he wouldn’t mind selling his Zeitgeist bikes at REI.

Above all, Ram doesn’t want the Zeitgeist to be something that sits in the garage as an afterthought.

“We want to make it so you just don’t leave home without it,” he says.

The Zeitgeist X City Bike is a $4,000 carbon-fiber, motor-assisted bicycle designed in partnership with award-winning Danish designer Brian Hoehl. It weighs only 44 pounds. (A less expensive “S” version made of aluminum alloy weighs just over 50 pounds.) 

Most electric bikes are clunky and heavy, saddled with large motors and with what Ram says are cheap parts. The Zeitgeist, manufactured in China, is lean and sleek and contemporary looking. It has a high-end Shimano drive train with a 500-watt Bafang motor that helps when climbing hills. The Tektro hydraulic disc brakes make stopping a sure thing, and the Alex 36-hole alloy rims and Schwalbe tires make the ride a smooth one. A 36-volt battery, hidden inside the  frame, uses high-density lithium-ion technology similar to the batteries powering Teslas.

The bike can travel between 80 and 100 miles — depending upon the conditions — on a single charge, and Ram regularly beats cars traveling up Queen Anne hill, passing cars on his Zeitgeist as drivers struggle up the steep hill.

Zeitgeist’s co-founders are Ram, a veteran of Alibaba and Singtel (short for Singapore Telecommunications) and also managing partner of Fashion Fund, a crowdfunding platform for the fashion industry; and Gregg Stewart, formerly of AOL, Telegraph Media Group and others. They don’t want to sell electric bikes to biking enthusiasts but to people who haven’t ridden a bicycle in years, who want a better travel option as city traffic creates gridlock, and who don’t want to perspire too much during their commute.

Zeitgeist recently sold its bike through the Crowd Supply fundraising platform to test the market and as a way to get buyer feedback so it can then improve the design. Ram says the company is cash-flow positive and that it will take only a few hundred bike sales to make the company profitable. With subsequent designs, Ram and Stewart plan to apply for multiple design and utility patents.

Each bike is profitable on its own, and the first iteration, like Tesla’s Roadster, is designed to test the market and make sure the business model works. “We’re selling a better-quality bike and can get higher margins selling it direct,” Ram says. “We don’t have to allocate 40 percent of our costs to paying for real estate.”