The irony is stark. The organic grocer that is arguably most closely identified with the local sourcing of food is moving away from the practice while the country's largest supermarket chain is edging closer to the source of its produce. Whole Foods Market has begun centralizing its purchasing to become more efficient and profitable just as Kroger (NYSE: KR) has unveiled its "We Are Local" campaign.
While Whole Foods' decision may appear to simply be a corporate one made by a far-removed management team following Amazon.com's (NASDAQ: AMZN) purchase of the grocer, in reality, it's a smart move that eliminates some of the hypocrisy that seemingly surrounds a lot of the "buy local" movement.
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Everything is local
Through no fault of their own, consumers likely don't understand what local really means. Like the image of Juan Valdez pulling his burro high in the Andes and carefully harvesting every coffee bean, the reality of "local" for supermarkets is vastly different than the image.
The Agriculture Department defines local as being less than 400 miles away from the source, or about the distance you would drive from New York City to Cleveland. I'd venture most people would not view that as buying local.
Grocery stores have their own idea of what constitutes local. Safeway, for example, says it's anywhere one of its trucks can drive in an eight-hour period, though at 55 miles per hour, that puts it 440 miles away from its store. Wal-Mart (NYSE: WMT) says that if the food is grown within a state, then it is considered local, regardless of whether the state is Texas or Rhode Island.
Even Kroger's "We Are Local" effort has fluid definitions of what locally sourced means. It doesn't define any specific distance, but suggests produce grown within a state or a particular region is local, highlighting food produced in states like Michigan and Ohio, as well as the Pacific Northwest.
A radius of 200 miles from Michigan's center would encompass the entire state while a 250-mile radius would gather in the Pacific Northwest states of Oregon and Washington. Consumers, however, think differently, with one consumer marketing firm discovering they consider 80 miles or less to be local.
An eye on costs
The move by Whole Foods actually isn't the cultural change many make it out to be. In early 2016, it began to centralize purchasing of nonperishable items as a means of improving efficiency as competition heated up. And Whole Foods' own "locally sourced" foods already came from 11 regions, so it might not have been as local as some thought.
It also operates three seafood processing and distribution facilities, a specialty coffee and tea procurement and roasting operation, and four bakehouse facilities. According to its Securities and Exchange Commission filings, Whole Foods also has a long-standing agreement that runs through 2025 with United Natural Foods (NASDAQ: UNFI), a natural and organic foods supplier with over $9 billion in annual sales, which accounted for a third of Whole Foods' total purchases over each of the last three years.
Earlier this year (and prior to the Amazon acquisition), activist investor Jana Partners called on the organic grocer to take greater control of its supply chain. With Amazon's laser-like focus on squeezing efficiency out of everything, centralizing more of Whole Foods' procurement practices will help it to remain competitive.
Farm to fork
But it also raises the question of how committed consumers are to shopping locally. While plenty of surveys purport to show almost everyone prefers the buy local idea, pricing remains a primary consideration and helps explain why deep-discount chains like Aldi and Lidl are having a big impact on the grocery store landscape.
When Amazon took over Whole Foods, the first thing it did was drop online prices for the grocer that were available through its Prime grocery delivery service, and ended up moving a half-million dollars' worth of product in the first week.
Still, there are some very good reasons to shop local, particularly if we define it a lot more narrowly than either the government or some supermarket chains do and closer to what consumers think of as local.
Shopping locally at farmers markets means you're really supporting local farmers. The Farmers Market Coalition says more than 85% of the vendors who sell at farmers markets travel fewer than 50 miles to get there, and more than half travel less than 10 miles.
Moreover, more of your financial support is actually getting into the hands of farmers when you buy produce locally. The National Farmers Union says farmers typically earn less than $0.16 of every dollar spent on food in the U.S., but as much as $0.90 of every dollar spent at a farmers market goes into their pockets.
Don't let the hay bales and cornucopias grocery store chains' displays fool you into thinking you're actually buying locally produced produce. You may be, but supermarket chains need farms with sufficient capacity to supply their needs because making more trips to a bunch of small farms is much less efficient and more costly. Your supermarket's claim to "local" may not be as close as you think.
Amazon.com's decision to centralize more of Whole Foods' procurement won't have much impact on that trend and it remains a smart business decision to make the grocer more competitive. But for consumers who really do want to support farmers, there are better ways to shop local and achieve that goal.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.
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