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.”

From Farm to Tavern: a Grain of Truth

From Farm to Tavern: a Grain of Truth

With so many local craft breweries and local distilleries, it only makes sense that the malt be local, too.
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At Skagit Valley Malting, Wayne Carpenter presides over a rapidly increasing assortment of squat metal silos that store the grain he buys from local farmers. Carpenter started Skagit Valley Malting to take advantage of the grain supply and to specialize in low-protein malt for craft brewers, producing custom malt on demand. His customers have varying requirements for their malts, from performance characteristics (temperature, humidity) to quantity (as much as eight tons), which SVM is able to replicate from one order to the next. The result: new flavors for brewers, distillers and bakers. 

Malt is the backbone of beer, its heart and soul, really. By this definition, virtually no beer in Washington is truly local. Malted grain typically arrives at Washington’s breweries and distilleries in 50-pound bags from the Midwest and Canada. Malt is created when grain — such as barley, wheat, rye, oats, millet, sorghum, corn and triticale (a hybrid of wheat and rye) — is allowed to sprout so the germinating seeds begin to release their sugar. It is then dried — “roasted,” in industry parlance — to arrest the process.

Specialty brewers overwhelmingly favor barley because it can be roasted to produce a wide range of colors and flavors. Of the 30,000 varieties of grain on the planet, only about a dozen are used for the industrial brewing of commercial beer, let alone for distilling. It’s a bit like wine; there are thousands of varieties of grapes, but only a dozen or so readily available on the shelf.

“The entire industry is monolithic,” says Carpenter, who for his efforts was named a 2016 James Beard Awards semifinalist in the category of Outstanding Wine, Beer or Spirits Professional. He’d like to change that dynamic because it seems a shame to let that natural advantage go to waste selling Skagit grain into the commodities market. “Why should the Chicago Mercantile Exchange set the price for our crops?” he muses.

A former software executive with a knack for tinkering, Carpenter works in a windowless building surrounded by grain silos on a 10-acre section of the Bayview Business Park. A skunk works, they would have called it in Grandpa’s day, where he and his staff of engineers have built a phalanx of secret machines worth about a million dollars each to customize the malting process for thousands of grain varieties, unlocking a world of choice and flavor for its customers.

“With our precise, adjustable malt equipment, we are ushering in a new, modernized era of malt,” Carpenter declares. “Our equipment can customize every phase of the malting process to develop the best characteristics of the grain. That means we can adapt the process to any kind of grain varietal.”

To control the experiment at every point in the malting process, sensors monitor for size, moisture content, color and texture of each type of grain. International patents are still pending, so Carpenter allows no public access or photographs.

A 50-pound bag of industrial malt will produce two 50-gallon kegs of beer, enough for 250 pints at the pub. The cost of a bag from an industrial supplier is roughly $18. The good stuff from Skagit Valley Malting goes for $50. Craft beer, to name just one use, requires up to 4 ounces of malt per glass. If you do the math, you can see the obvious benefit to Carpenter’s business — and to Skagit Valley farmers.

The Port of Skagit County, which operates Bayview Business Park, believes Carpenter has the answer to a big agricultural concern: falling prices for crops that have long been considered commodities. By turning the barley crop into a specialty product for discerning brewers and distillers, value will be added and prices will rise. 

 

And brewers aren’t the only ones looking for better raw materials. Washington’s eight-year-old craft distilling industry is required by law to source at least half of its grain locally, and Skagit barley is a natural. The largest whiskey distillery west of the Mississippi, Seattle’s 60,000-bottle Westland Distillery, is an enthusiastic adopter of Skagit Valley Malting’s output, even though the malt is several times more expensive — and the distillery needs four pounds of malt per bottle.

Westland’s master distiller, Matt Hofmann, a Bellarmine Prep grad who left the University of Washington to study the distilling craft in Scotland, swears by Skagit Valley Malting and looks forward to the day in three years or so that his peated single-malt whiskey using SVM grain reaches maturity. 

The term “single malt” has specific meaning in Scotland, referring to a distillery’s location as well as the ingredients, but there’s room on bar shelves for “American Single Malt” as well. Westland, which has a distillery in SoDo and matures its casks at a rack house in the cold, moist air of Hoquiam, was recently named the world’s best craft distillery by Whisky Magazine. 

The very first svm adopter was the Pike Brewing Company, a sprawling, 300-seat brewpub that occupies several levels of the Pike Place Market. Charles and Rose Ann Finkel brew most of their beers and ales with distiller’s malt from suppliers like Briess Malt & Ingredients Company in Chilton, Wisconsin. But a couple of bags, shipped from Burlington, bear the name Skagit Valley Malting, and they’re quite tasty. Alba, developed at Oregon State University, has a lemony fragrance like sauvignon blanc. Copeland, a hybrid from the Washington State University, is more like a spicy syrah. 

To differentiate the locally malted beers from its long-established brands like Naughtie Nellie and Kilt Lifter, Pike calls these beers its Pike Locale series. “It’s one of the most exciting things in beer,” says Charles Finkel, who spent the first two decades of his professional career in the wine world (see story at right). “Malt sets a foundation for the hops.” 

Bart Watson, chief economist for the Brewers Association, the nation’s trade group for small and independent breweries, points out that 75 percent of Americans now live within 10 miles of a brewery, and that there are more breweries in the United States today than at any time within the past 150 years. 

Not every pint of beer or bottle of bourbon made from local grain will be a winner. Jamie Boudreau, owner of the now-iconic Capitol Hill bar called Canon, always tastes new products, including bottlings from the local distilleries. “Unfortunately,” he says, “there is a lot more questionable product out there than there is quality.”

Regardless, the sudden windfall of locally brewed beer and locally distilled spirits will most likely turn out to be a good thing. Local products take the accident of geography — our unique location — and turn it into a commercial advantage: beers and whiskeys that simply have more individuality, more character than the mass-produced offerings. They become a central element of our local identity, an integral part of our culture. 

Or, as Carpenter notes, “The new era of malting unlocks unlimited potential for variety in taste and flavor. We’re excited to share our palette with those who want to explore the potential of their craft. When you taste it, you’ll get it.” 

Brew the beer; the grain will follow.
When national brands like Budweiser and Coors began dominating the beer business a couple of generations ago, they essentially doused the tradition of brewing beer locally. Anything with flavor, anything with character, was stigmatized as “specialty beer.”

So Seattle entrepreneur Charles Finkel, formerly sales director for Chateau Ste. Michelle, launched a company named Merchant du Vin to import bottled beer from Belgium, Germany  and England for discerning beer drinkers in the United States.

Just as there was a hidden demand for decent coffee, it turns out there was a thirst for specialty beer. Within a couple of years, the British press named Seattle and Portland the top two craft beer markets in the world. Finkel conceived or revived many classic styles, such as oatmeal stout, now brewed by craft brewers worldwide.  Finkel and his wife, Rose Ann, then became supporters of a new wave of craft brewers like Redhook Brewery (now partially owned by Anheuser-Busch InBev) and Bert Grant’s now defunct Yakima Brewing & Malting Company.

In 1989, when the Finkels started Pike Brewing Company, the field was growing rapidly. By 2015, Washington had more new breweries than any other state, and was second to California in the total number of craft breweries.

Wherever there’s craft beer, there’s got to be grain. Washington State University maintains a research station in Mount Vernon to monitor a project that would double the local yield by producing two crops a year. “We grow thousands of different barley and wheat types each year to see what does well,” says Dr. Stephen Jones. “Because of that, we can work directly with farmers and the end users to identify types that work throughout the whole system, from the field to the end product.”