Costco is Getting Creative Trying to Meet Shoppers’ Huge Appetite for Organics
Categories: On The Farm
In a mayor effort to boost its supply of organic foods, Costco is trying something new: It’s working with farmers to help them buy land and equipment as it struggles to keep pace with customer demand for organic produce.
Kimberly Fee pushes a shopping cart holding her son, Cameron, 4, at Costco in Issaquah. Costco is working to boost its supply of organics. (Bettina Hansen/The Seattle Times)
At Costco’s recent shareholder meeting, CEO Craig Jelinek touted the vast amounts of food the company sold last year, from 83 million rotisserie chickens to $6.1 billion worth of produce.
As for organics, one of the fastest-growing categories in food sales and one in which Costco has become a major player?
“We cannot get enough organics to stay in business day in and day out,” Jelinek told the gathered investors.
A shopper’s cart full of organic produce at Costco in Issaquah. (Bettina Hansen/The Seattle Times)
So to boost its supply, Costco is trying something new: It’s working with farmers to help them buy land and equipment to grow organics.
The effort is still in its infancy. So far, Costco is working with just one partner, loaning money to help San Diego-based Andrew and Williamson Fresh Produce buy equipment and 1,200 acres of land in the Mexican state of Baja California.
But Costco is looking at expanding the initiative. The idea is to ensure a greater supply of organic foods at a time when demand is soaring but supply has not kept up.
While other retailers might have loan programs for suppliers to upgrade equipment or offer financial incentives such as advance payments or long-term contracts, helping farmers buy land to grow organics appears to be unusual in the industry.
The nascent program joins a list of other Costco food initiatives that try to ensure the warehouse giant can meet the voluminous demand of its customers.
The Issaquah-based retailer, for instance, has a poultry plant in Alabama dedicated to raising chickens for the fresh meat and rotisserie chickens it sells.
It started working with a Mexican vendor two years ago to get wild shrimp from the Sea of Cortez, allowing the retailer to diversify from relying on shrimp caught in Thailand, where human trafficking and slave labor in the fishing industry are pervasive.
Shoppers check out the produce department recently at Costco in Issaquah. The warehouse giant is increasing its focus on organics, a fast-growing food category. (Bettina Hansen/The Seattle Times)
And in the last year, Costco bought cattle and is contracting with owners of organic fields in Nebraska to have ranchers there raise the livestock to ensure supply for its organic ground-beef program.
“A few years ago, Craig [Jelinek] came to me and said: ‘Fresh food — we need to have sustainable lines of supplies into the future,’ ” said Jeff Lyons, Costco’s senior vice president of fresh foods.
Behind each of the initiatives, Lyons said, are the questions: “What do we see down the road that could be a challenge in terms of supply? And what can we put in place today to grow that particular scarce resource?”
Organic food is one such scarce resource, its supply limited in part because the transition from conventional farming to organic farming takes several years and is costly. Virgin land that is ready to grow organics is scarce or prohibitively expensive.
Demand, meanwhile, has leapt with sales of organic food jumping from $11.13 billion in 2004 to $35.95 billion in 2014, according to the Organic Trade Association, which represents the supply chain from farmers to retailers.
“Demand is increasing. But we’re not seeing the same level of farmland,” said association spokeswoman Angela Jagiello.
While organic-food sales reached nearly 5 percent of total food sales last year, organic farmland makes up only about 1 percent of U.S. farm acreage.
“We’re not seeing the level of growth we need in domestic supply to meet demand,” Jagiello said. “It’s the No. 1 strategic issue facing the industry.”
So stretched is the supply chain that some organic packaged-food companies, such as Nature’s Path and Pacific Foods, have bought their own farms or are raising their own chickens, according to The Wall Street Journal. Restaurant chain Chipotle Mexican Grill, meanwhile, began providing financing to help farmers shift from conventional to organic food, the newspaper reported.