Now Proudly Serving Organic:
Growing Opportunities in Foodservice

By Katherine DiMatteo


As organic becomes more and more mainstream, the foodservice channel still remains underdeveloped and elusive for many organic product suppliers. According to the Organic Trade Association’s Manufacturers Market Survey, organic food sales in foodservice represented only 3 percent of the overall organic sales of $16.9 billion in 2005.

But the time has come for organic. A 2007 study by Technomic Inc. reports that sales of organic and natural products in foodservice are expected to grow at a 15 to 20 percent compounded average annual growth rate from 2007 to 2010. From collegiate and corporate campuses to convention centers and convenience stores, organic products are popping up in more and more places. New organic-centric restaurant chains such as Organic To Go and O’Naturals, along with conventional competitors such as Panera Bread, Chipotle, Arby’s and Chick-fil-A, are advertising their organic offerings. Also, sure to give a healthy boost to organic foodservice sales is a deal signed just this year between organic and natural foods distributor United Natural Foods International (UNFI), and MedAssets, a major health care buyer—setting UNFI up to supply natural and organic foods to 2,000 hospitals across the country.

While foodservice is an attractive market with a 49 percent share of food sales in the United States, it takes commitment, patience, new relationships and education to succeed in this channel. Understanding the foodservice segments is essential to identifying the right market for your product. Schools and hospitals are often striving to meet nutritional requirements and operate with lower price points. Colleges and universities are looking for trends and their customers, the students, are educated about organic and are demanding the products. Gourmet restaurants are responding to trends but choosing organic is often driven by the chef’s personal interest. Convention center chefs are driven by margins, chain restaurants want a point of differentiation and resorts are looking for enhancements to their quality proposition and the price is passed onto their customers. “Full service upscale restaurants, mid-scale restaurants, and supermarket foodservice have the largest growth rates for organic and natural products but we predict good growth across all foodservice segments,” said Gary Karp, executive vice president of Technomic.

Organic Valley began exploring the foodservice channel five years ago but it is only within the last year that real progress has been made because now there is enthusiasm and interest, not just dabbling, from foodservice and the company has the supply to fill orders. “Foodservice is where the retail market for organic was 15 years ago,” said Steve Brandl, Organic Valley’s central division foodservice sales manager. Organic Valley is building its infrastructure by increasing farm capacity to produce milk and by quadrupling its staff dedicated to foodservice.

Healthier Hospitals. “Hospitals are here to make people healthier and through bringing in organic food, we can do this and help the environment at the same time,” said Mark Petersen, director of foodservice at St. Charles Hospital in Bend, Ore.

St. Charles and more than 90 other hospitals across the United States are a part of “Health Care Without Harm,” an international coalition that works with hospitals to use the health care industry’s purchasing power to create healthier food systems that are ecologically sound, economically viable and socially responsible.

“The health care industry is increasingly aware that the environmental impacts of food production, such as pesticide use, are related to health impacts in humans. As a result hospitals are quickly taking leadership and modeling preventive medicine through the introduction of sustainable foods,” said Jamie Harvie, food coordinator for Health Care Without Harm.

As part of this effort, St. Charles hosts a farmers market every Friday afternoon, brings in local, organic bison, organic salad greens, organic fair trade coffee and a slew of organic cooking ingredients from black beans and lentils to quinoa and canned tomatoes.

“We want to use as much organic as possible as long as it is fiscally responsible,” said the hospital’s Chef David Tankersley. “We started by charging about 60 cents extra per portion and it has been selling like crazy.”

Bob Lilley, director of healthcare services for Food Service America (FSA) has had requests from many hospitals for more organic options. In fact, demand for products like this led to the creation of their SNOR program, which stands for sustainable, natural, organic and/or regional. FSA has brought in several organic items ranging from Pacific Foods soups and Stonyfield yogurts, to Bob’s Red Mill flours and rice from Lundberg Family Farms.

Also, as part of the Health Care Without Harm effort, many hospitals such as St. Charles are also requesting biodegradable packaging. “Both FSA and the hospitals that we supply are interested in how we can provide products that are better for the world and better for our health,” Lilley said.

Back to School. Colleges and universities are a great entry point into the foodservice channel because of the students, an existing organic customer base and because there is opportunity in both the à la carte menu portion of campus foodservice and the campus convenience stores (C-stores).

Many campus C-stores now have dedicated sections for organic. “Students want to eat the same organic and natural products they have at home,” says Rick McKelvey, director of sales for Fairfield Farms Kitchens. Branded, single-serve products and even frozen dinners are proving successful in this venue. “Colleges and universities are trying to keep as many dollars on campus by offering the à la carte menus, specialty food kiosks and C-stores,” said McKelvey. Fairfield Farms Kitchens, whose foodservice program began three years ago, is finding success in several of these areas, offering frozen meals in the C-stores, bulk soup and macaroni and cheese products for campus foodservice menus and organic sausage as an ingredient in dishes prepared by the campus kitchens.

Applegate Farms is just beginning to market their organic hot dogs to foodservice. From their diverse product line, hot dogs were chosen because they will work in different applications, as a brand product and as a menu item, and in different school venues, from elementary schools to colleges and universities. Entry into elementary schools will be more difficult than colleges and universities because of the tight budgets and competition from major food companies with well-established contracts. “Younger kids are ‘in training’ for organic and are years away from demanding the products,” said Jim Green, chairman of Eden and Tye. Stephen McDonnell, founder and CEO of Applegate Farms, believes that because their product is healthy and tasty, it will sell in elementary schools. Green agrees, but it still may take years to catch on. Juice boxes, for example, were introduced as early as the 1980s at retail but have succeeded in school foodservice only in the last two or three years. Watching the general food trends and the trends in foodservice will help identify where an organic product will fit and when.

Redefining Restaurants. Organic produce made the list as the number three hot item in culinary trends according to the 2007 National Restaurant Association survey, just after locally grown produce and bite-size desserts, which was number one of the top 20. The quality as well as the story of the food is important to white tablecloth restaurants, providing opportunities for local and regional organic producers to build a direct relationship with the restaurant and its customers. The market potential is greatest for fruits, vegetables, meat, poultry and dairy products followed by breads, grains and beverages.

Restaurant chains like Chipotle Mexican Grill and Panera Bread are leading the way in the casual and family dining sector by positioning their use of natural and organic ingredients as a healthy, gourmet and unique choice. On the Chipotle website their commitment is boldly stated: “Our ‘Food With Integrity’ mission is about a different kind of revolution, one that represents a return to the organic and sustainable farming methods that worked quite well for hundreds of years.” Their use of organic beans has increased from 10 percent in 2004 to 25 percent today and the sources for all their natural meat and chicken are identified by brand. Customers are responding positively and competitors are following. According to the National Restaurant Association survey, out of the casual dining restaurants offering organic items (4 out of 10), 52 percent expect higher sales in 2007, and of the family dining restaurants offering organic items (3 out of 10), 27 percent expect higher sales in 2007.

Unconventional Convention Centers. For Jim Tripp, general manager of catering services at the Anaheim Convention Center, sourcing organic began as a personal project, but now he has a dedicated team to help him with this ecological and sustainability initiative. Their purchasing has expanded from local and organic fresh herbs, micro-greens and nuts to regional grass-fed beef and organic commodities such as oil and vinegar, with future possibilities to include branded products such as yogurt, dairy and cereal.

And, what was started in Anaheim is spreading to other Aramark properties. Tripp predicts steady growth in their use of local, ecological and organic products. “It won’t be a surge because of the higher price,” he noted, “but if the government would support conversion to organic and encourage more sustainable farming, the end costs will change.” Eight percent of the Anaheim Convention Center’s total catering food purchases last year were organic, totaling about $1 million.

Breaking Into the Food Service Business
The biggest challenges for organic in the foodservice channel are distribution, minimums and pricing. And these challenges vary according to the segment within the foodservice channel. Small restaurants, for example, will buy from food warehouse club stores and a supplier could sell direct to these types of stores. Generally foodservice operations buy from a food service distributor, not a retail distributor. Selling direct to foodservice is extremely difficult because it requires in-house logistics capability and sales staff, except when the restaurants, catering operations, or colleges have programs to buy direct from local farmers and vendors, such as the Yale Sustainable Food Project.

Sometimes you can work your way in by developing a relationship with the foodservice vender, who then in turn asks the distributor to carry your product. St. Charles Hospital has requested many items from their distributor, FSA, who they are contracted to buy at least 80 percent of their product through.

“It’s all driven by the customer. Processors can work with our hospitals, and they will let us know what they want us to bring in. If there is an opportunity, we will get a sales manager involved and that is how most relationships start,” said FSA’s Lilley. Lilley suggests sending some samples and information to chefs so they can try your product.

The major dilemma is that suppliers must be large enough to supply the major foodservice distributors yet the major foodservice distributors are too big to supply the current small demand for organic products. Major foodservice distributors, like Sysco, U.S. Food Service and Performance Food Group (PFG), have “turnover” criteria (the frequency of product sales from their warehouse) that must be met. Brandl of Organic Valley describes it as “the chicken and egg issue.”

Secondary distributors, which supply larger distributors, have lower minimums and turnover criteria; however they do not have the comprehensive distribution capacity of the major foodservice distributors. Contract feeders, such as Aramark, Compass, Sodexho and Merrywether Godsey, have contracts with the suppliers and contracts with foodservice operations to run the foodservice kitchens. UNFI offers foodservice distribution, as well as retail distribution, with lower minimums to encourage foodservice operators to try organic and natural products.

Foodservice brokers can help suppliers through the challenges of distribution and sales. For instance, for the last year Organic Sales Solutions has focused only on where there is serious interest and great opportunities for organic. “Of course,” said Brian Canfield, founder and president, “we have to build a new supply chain infrastructure to fit the special requirements of this market.”

Brokers are a liaison between the supplier and distributor, and between the supplier and foodservice operator. Also, brokers can be the marketing and sales representatives for companies that don’t have their own sales force, or they can supplement the efforts of a sales team. In addition, brokers can provide foodservice operators with sales solutions by offering a range of products to meet all their needs. When choosing a foodservice broker, look for those with both deep foodservice and organic product experience and knowledge. Of course there are costs for these services. Brokers will require retainers or up-front money and commissions.

The process of selling into the foodservice channel is arduous. Plan to build and use multiple networks—brokers, distributors, management companies, contract feeders and a dedicated foodservice sales team within your company. Trade shows are an important piece of a strategy to get products in front of foodservice operators. Participation can be in a broker booth, distributor booth, your own booth or all three simultaneously. Recommended shows include: National Restaurant Association (NRA) Show, National Association of College and University Food Service (NACUFS) Show, National Association of Specialty Food Trade (NASFT) Fancy Food Shows, All Things Organic (ATO), and local or regional foodservice distributor food shows.

Education of foodservice operations and distributors is essential to successful sales in this channel. Suppliers and brokers have to be active educators about the difference between organic, natural and other labels. Language used in sales material to describe organic, and the benefits and the features of an organic product may be unfamiliar. “It’s a labor intensive, time intensive sales call,” said McKelvey of Fairfield Farms, “its one school, one restaurant at a time and several layers within the operation that have to be educated about the product.” Brandl of Organic Valley agrees and added, “It’s important to help them understand what the consumer wants, how to roll-out the product line and get buy-in throughout the entire chain.”

Enthusiasm and optimism about the potential for organic sales in the foodservice channel is high. Foodservice sales can become a significant percentage of total sales for successful organic companies who plan with foodservice providers, operators and distributors for incremental and sustainable growth. “Sign contracts and let them know what you can supply,” said Green, “think big, start small and don’t oversell.

Katherine DiMatteo leads the policy, regulatory and international services at Wolf, DiMatteo + Associates, whose mission is to deliver strategic expertise to help organic, socially and environmentally responsible products and projects reach their full potential and flourish. Formerly the executive director of the Organic Trade Association from 1990 to 2006, she was instrumental in shaping the outcome of the U.S. National Organic Program (NOP) standards and the U.N. Codex Guidelines for Organic. She currently serves on the board of directors of the International Federation of Organic Agriculture Movements (IFOAM) and is a founding member and secretary of the board of The Organic Center. Katherine can be reached at kdimatteo@organicspecialists.com.