Natural Foods Merchandiser

Natural Foods Next Market: Foodservice

In the Princeton University cafeterias, there?s no mystery about what type of meat is on the menu. In keeping with its eco-friendly foods policy, the Ivy League school?s foodservice programs serve antibiotic-free chicken, sustainably harvested fish and organic salad greens.

With tuition prices at more than $30,000 a year, it?s easy to see how Princeton can afford to serve only the best in its cafeterias. But increasingly, organic foodservice isn?t limited solely to universities where the yearly tuition is more than the price of a new car. A growing number of colleges and universities nationwide are buying organic and natural products for their foodservice operations, not because they have money to spare, but because their students demand it.

Traditionally, restaurants set food trends that trickle down to the retail level. But for organic and natural foodservice, the reverse is true. The movement is being driven by young students who are used to natural foods and who don?t want to forsake their commitment to healthy eating as soon as they check into their dorm rooms. And their resolve is influencing other foodservice operations.

From hospitals to prisons, corporations to spas, organic and natural foodservice is a rapidly growing market. According to San Francisco-based market research firm SPINS, by 2007 manufacturers are expected to ship $2 billion in natural and organic products to foodservice operations, up from $330 million in 2002.

?It?s the next untapped frontier—it?s double-digit growth,? says Bill Stewart, president of Boulder, Colo.-based Real Foodservices, which manages the MoonRose vegetarian foods line for Sysco, the giant conventional foods distributor.

Colleges and universities are the principal organic and natural foodservice customers, not only for dorm cafeterias, but also for on-campus restaurants and convenience stores. Other top purchasers include health care institutions? restaurants and corporate cafeterias.

As far as product goes, ?soy has really led in the foodservice market because of vegetarians, vegans and lactose intolerance on campus,? says Derek Lee, foodservice sales manager for Organic Valley Farms in LaFarge, Wis.

Still, the market is wide open for a variety of foods, although natural products sell better than organic, particularly in cash-strapped public schools. ?Organics have got to be within 15 percent of conventional pricing,? Stewart says, which is good news for manufacturers of commodities like rice, beans, canned tomatoes and juices, but not so favorable for pricier organics such as dairy, cheese, meats and finished entrees. Even at Princeton, the price bar for purchasing organics is tentatively set at 5 percent over conventional, says Elaine Lipson, author of the Organic Food in Schools report for the Organic Trade Association.

?Organics can be a tough sell. You?re selling to a business that has to make a profit,? Lee says. Retail customers, on the other hand, can juggle money if their priority is paying extra to eat healthy. ?They can say, ?Well, I guess I?m not going to buy a lawnmower this year,?? he says.

Lipson points out that for school districts and other budget-conscious foodservice operations, working out competitive price structures with small, local organic farmers is a cost-effective option.

Another purchasing driver unique to foodservice is the type of equipment a restaurant or cafeteria has. Lauren Bell, chief executive of Wild Sage Foods in Mill Valley, Calif., says her company?s Herb?n Farm restaurant at Colorado College in Colorado Springs only serves prepared natural foods such as salads, wraps, pizza, pasta and soups because the 2,500-square-foot caf? doesn?t have a full kitchen with a range hood and grill.

Getting into the organic and natural foodservice market seems like a no-brainer, considering that foodservice accounts for 49 percent of all food sales nationwide. Still, few natural foods manufacturers have made the commitment, and those that have are still feeling their way.

?People are maybe waiting to see how big the market is for organic foodservice,? Lipson says.

Making the leap
Part of the wait-and-see attitude has to do with price. ?Foodservice is very cost-prohibitive,? says Wendy Acheson, national sales manager for Boulder-based White Wave.

?We pounded the pavement ? educating one mouthful at a time.?
Up-front costs not only include foodservice-sized packaging but also hiring a foodservice professional to run the program, Stewart says, because marketing and distribution is much different than in retail. He adds that MoonRose is always looking to add manufacturers to expand its 95-item product line, but ?some companies we call don?t even give us a return phone call.?

One of the pioneers, White Wave, launched its foodservice operation more than four years ago, but spent the first couple of years simply letting its main customers—schools and health care businesses—know that Silk soymilk, tofu and tempeh were available.

?We pounded the pavement ? educating one mouthful at a time,? Acheson says.

Now, schools and other institutions are taking the lead and calling White Wave, and Acheson?s foodservice staff boasts a second person. Still, foodservice is less than 10 percent of White Wave?s total sales, but Acheson notes, ?It has the potential to be a huge program for us.?

Awareness increases
Shawn Dean, foodservice manager with United Natural Foods Inc., has had an experience similar to Acheson?s in that ?our primary job a few years ago was just alerting people? about natural and organic foodservice products. Now, he estimates, the workload is 50 percent education, 50 percent sales. ?It?s a business you really have to focus on—trade shows, networking, advertising—but it?s a fantastic market,? he says. ?No category in foodservice is totally covered.?

UNFI formally created its foodservice division a year ago, with 10,000 SKUs and a price list geared exclusively toward foodservice clients. Minimums are also lower—$500 per order—to encourage foodservice operations to try out natural foods.

UNFI?s approach has paid off: It recently formed a partnership with Sodexho USA, which distributes to 6,000 school, corporate and health care facilities nationwide. In addition, UNFI partners with another distributor, Aramark, to provide natural and organic foods to campus bookstores.

While industry experts estimate that as many as 40 percent of foodservice institutions handle their own purchasing, a nationwide distribution company is important when dealing with the many government and conglomerate customers prevalent in the foodservice industry.

?Take the University of Colorado. They only buy from distributors, because they have to bid for business and then have contracts where they only buy a certain amount of food from a vendor,? says Ron Pickarski, president of Boulder-based Eco-Cuisine.

Pickarski, a vegetarian chef, got into the foodservice business in 1996 because he saw a niche for his products: natural, vegan mixes for muffins, cookies, brownies, cornbread and soy pudding, and veggie chicken, ground beef, sausage and seitan mixes. In addition, the foodservice market was an easier long-term sell than retail, he says.

?In foodservice, it takes a tremendous amount of effort to land a customer, but once you land them, they?re yours.? A chef, unlike a retail consumer, isn?t likely to switch tomato paste brands because of new packaging, shelf talkers or a promotional campaign, he says.

Vicky Uhland is a free-lance writer and editor based in Denver. Reach her at [email protected]

Natural Foods Merchandiser volume XXV/number 4/p. 24, 28

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