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Missouri Department of Agriculture

Ag Business Development

Hotel, Restaurant and Institutional Marketing

While the idea of selling to wholesale markets is relatively new in Missouri, hospitals, restaurants and institutions offer increasing market opportunities for Missouri producers.  Understanding the dynamics of this market can better position a producer to succeed.

What are the characteristics of a wholesale market? A wholesale price typically runs 30 to 40 percent less than a retail price, with specialty items for a restaurant commanding higher prices. A wholesale market offers the opportunity to sell large quantities to a few customers as opposed to retail marketing which typically involves small quantities to many customers. As a result, the producer realizes reduced labor and transportation costs.

Initially, there are several reasons institutions are reluctant to buy local foods:

• Food distributors make buying easy. Ordering is done online and many food items are pre-cleaned, pre-cut, pre-cooked and frozen.
• Food buyers don't have time to search out several local producers,
  determine availabilities and coordinate deliveries and payments.
• Institutions perceive buying local foods as being more expensive.
• A dietician or chef must revise recipes when using fresh foods, so food preparation time increases.
• Consistency in product size varies with local produce.
• Many local foods are seasonal.

Given these obstacles, why then do institutions buy local foods? Institutions feel a strong sense of community stewardship and look for opportunities to connect with their communities. Additionally, a growing number of food buyers and chefs want to know how, by whom and where the food they purchase is grown. Connecting with local producers not only builds these relationships, but also provides their customers with fresh, high quality foods.

Understanding the institutions’ needs and concerns is key to developing a long-term relationship:

• Forming an alliance with other producers to market local foods reduces the time required of food buyers and chefs while supplying a diversity of foods to the institution.
• Case studies have shown that price is not higher when buying from a local producer. Some foods cost a little more, some a little less. Overall, prices average slightly less.
• Preparation time does increase with fresh foods. Kitchen staff may need to be educated on how to most efficiently prepare fresh foods.
• Inconsistent size is more common with local produce. Generally, understanding how the food is to be used and selling produce by the pound, not by the number, resolves these issues.
• Some local foods are seasonal; however, options exist for extending availability.

When buying local foods, institutions typically look for conventionally grown vegetables and fruits. Restaurants look for traditional and specialty vegetables, fruits, herbs, meats, and breads, either conventionally grown or organically grown. Whereas institutions work with two to three producers or producer groups who can supply a diverse array of foods, restaurants may be willing to work with more producers. Deliveries are once or twice a week on specific days. A purchase order is usually required and spells out the items to be purchased and price, but no quantities. Payment is four to six weeks after delivery. The selling of meats, poultry, eggs and processed foods falls under federal, state, county or city regulations, but selling unprocessed fruits and vegetables does not. In addition, many institutions require producers to carry liability insurance.

Market opportunities exist for selling local foods to hospitals, restaurants and institutions in Missouri. The Ag Innovation Center can help you identify potential opportunities and then develop and implement your business plan.

Other resources:

• “Something to cheer about: National trends and prospects for sustainable agriculture products in food service operations of colleges and universities” (Center for Integrated Agricultural Systems, University of Wisconsin)
• “New markets for producers: selling to colleges” (Center for Integrated Agricultural Systems, University of Wisconsin)
• “Dishing up local food on Wisconsin campuses” (Center for Integrated Agricultural Systems, University of Wisconsin)
• “Selling Local Food to Restaurants and Food Services: Why and How” (Food Circles Networking Project, University of Missouri)