Local producers fight for supermarket shelf space

By Andrew Gomes
Advertiser Staff Writer

From left, Ted's Bakery delivery driver Nelson McCormick and Times Supermarket courtesy clerk Chrystal Paiva load pies into the display at Times Liliha. Ted's locally produced pies can be found in several supermarkets. Richard Ambo • The Honolulu Advertiser

The family-run North Shore business known for its cream-filled pies has more than quadrupled sales in the past three years by supplying the state's smaller grocery retailers, and is expanding again after recently landing Hawai'i's largest supermarket chain as a customer.

But while breaking into big-league supermarket retailing for Ted's was relatively easy, hundreds of other Hawai'i food manufacturers, processors and farmers have found the same road riddled with challenges and difficulties.

"It can shut you down," said Neal Arakaki, president of the Hawai'i Food Manufacturers Association. "Since we're the bottom rung, everyone comes to us for product promotion and price discounts, and sometimes that can be a pretty big burden."

Local supermarkets say to varying degrees that they try to give an edge to quality products made locally by Hawai'i-based producers. But the stiff competition and costs often still are difficult for local producers and entrepreneurs, who face a dizzying array of issues in one of the state's most challenging industries.

Failure rates for new products introduced in supermarkets are as high as 80 percent, according to the nonprofit trade group Food Marketing Institute.

And a recent study by universities in Pennsylvania, California and Singapore shows that many retailers are experiencing ever-increasing product turnover rates, with as much as one-third of all supermarket items replaced in a two-year period.

That selection and rejection cycle, to a large degree, depends on whether consumers buy a product. But several other factors influence what shoppers find available on shelves, including product competition, changing consumer tastes, growing clout of larger and more well-established brands, and special fees and discounts retailers regularly seek from manufacturers to carry new products.

Fees can be an obstacle

For local suppliers and producers, even the smallest of fees or free products sought by retailers can be the difference between success and failure in placing products.

Derek Calibre, who has made Tropilicious Ice Cream and Sorbet in Kalihi since 1996 and started selling it in major supermarket chains two years ago, said one retailer stocked it willingly, one wanted a new-product introduction fee, and one wanted part of the first delivery for free.

"They say they want to support local manufacturers, and they do, but boy they do make it difficult," Calibre said.

Calibre said that eventually the retailer that had sought the introduction fee agreed to no fee after Calibre said he couldn't afford it.

Michael Capuano, owner of the company making Wow-wee Maui's Candy Bar, said that as part of his efforts to get his candy into stores, he donates 200 candy bars to big retailers for first-time trials.

"It's like buying shelf space," he said.

Waimanalo farmer Dean Okimoto of Nalo Farms said he is considering supplying local supermarkets, but is unwilling to pay any special fees.

"I don't agree with it," he said. "But I understand that supermarkets have to make their money."

Fees sought by retailers — a common and longstanding practice in the industry called "slotting allowances" — can range from several hundred to many thousands of dollars.

Dick Botti, president of the Hawaii Food Industry Association, the trade organization representing food retailers, said the fees are a way for supermarkets to avoid taking all of the risk for carrying new products that might not sell.

"There are so many new products ... most of them fail," he said. "It screws up the sales for a supermarket, so they charge for it."

Manufacturers also routinely pay slotting allowances for premium eye-level shelf space, special displays or to keep products on shelves. Retailers also consider other factors, as well, in whether to carry a particular product — including packaging, pricing and distribution.

Capuano said labeling tripped his effort to get Wow-wee chocolate bars into some stores in Waikiki.

He said he was supplying 7,000 bars a month to a retailer on Maui, but the convenience-store chain didn't want to stock the candy in their stores in Waikiki because of the label reference to Maui. Capuano said he was unwilling to make alternate labels.

Ira Uradomo, who operates M. Uradomo Farms Inc. on Maui with his brother, makes about a dozen lines of mostly pickled vegetables. One, a pickled ogo he thought was a winner with shoyu and Korean flavoring, turned out to be too expensive for consumers and didn't sell well.

"If it doesn't sell, you have to throw it away," he said.

Distribution is another key. Many small manufacturers start out distributing their own products, then, as business grows, switch to a distributor who handles delivery, as well as sometimes marketing and negotiating special fees with stores.

Such distribution links, however, have risks, too. Capuano said distributors can fail to give products enough attention and marketing, causing them to fail or not get the best placement at retail sites.

In other cases, manufacturers have lost retail accounts when retailers stop doing business with a distributor. Glenn Sakuda, vice president of Five-O Marketing Services Inc., said his distribution company and two others on Maui and Kaua'i were dropped by Star Markets Ltd. last month.

The severed relationship affected 30 local manufacturers, he said.

"Everything in this business is a wrestling match between the manufacturer, the distributor and the retailer as to who's going to get the biggest cut of the consumer's dollar," said Calibre of Tropilicious.

Helping hands

But some local producers have found ways to unite and leverage that force in their favor.

Uradomo Farms has been processing foods on Maui for 30 years and received help getting into grocery stores, so Ira Uradomo recently launched an initiative to help other members of the Hawaii Food Manufacturers Association's Maui chapter.

Using relationships with buyers at grocery chains such as Big Save Markets on Kaua'i and KTA Super Stores on the Big Island, Uradomo has begun offering to introduce products made by other Maui food producers.

"I think we can help small people get their food into stores," he said. "I'm there to open the door, not to sell the product. We hope it works."

Another aid is the annual Made in Hawaii Festival, which sells exhibit space to manufacturers and attracts a variety of retail and wholesale buyers.

Derek Kurisu, executive vice president of KTA, also recruits local grocery suppliers through the company's Mountain Apple brand.

In nine years, KTA has formed 70 partnerships with mostly Big Island food producers representing about 280 items, helping them develop products and packaging under the private label, Kurisu said.

"I make a big push as far as the local products," he said. "To me, if it's locally made, it really helps the local economy."

According to Kurisu, KTA meats are 20 percent to 30 percent local; eggs, roughly 80 percent; produce, about 90 percent; and milk, 100 percent.

"There's no room for Mainland milk in our case," he said. "If somebody came and gave me a slotting allowance for Mainland milk, I wouldn't put it in."

Another thing Kurisu does for Hawai'i manufacturers is try to be more flexible with product placement. For instance, if a new Kona coffee isn't selling well, he might move it to the freezer case next to some waffles. "I give it as much (chance) as possible," he said.

Officials with Safeway, which also sells many local products, could not be reached for comment on their policies regarding locally manufactured products and how much of what they sell in Hawai'i is made or grown in the state.

Foodland said it typically gives new products four to six months to generate sufficient sales, according to Joe Detro, company vice president for merchandising and sales.

But because there are relatively few Hawai'i food manufacturers who can supply the supermarket chain with the quantities it needs, the percentage of local items in Foodland remains small — with produce representing the most, at about 30 percent.

The open door

Still, Detro said he's constantly looking for new local suppliers, and is considering Big Island beef and strawberries for a new store in Waimea.

"We see anybody," he said. "If it makes sense, we're going to put it in."

Henry Lee, Foodland's grocery director, meets every Thursday with presenters of new products, but of the more than 100 proposals received each week, typically only 15 or 20 are local.

Ted's Bakery was one that impressed Lee. The company's cream-filled pies were among 46 new products, including Bumble Bee sardines in mustard and cookies-n-cream Pop-Tarts, introduced to Foodland stores during one recent week.

A popular tourist stop at Sunset Beach, Ted's already had built a strong reputation with local consumers by delivering pies to offices around the island for more than 10 years, so the bakery doesn't pay any slotting allowances, according to bakery owner Ted Nakamura.

Ted's also has been in smaller supermarket chains for about three years, during which time sales jumped from roughly 50,000 pies in 1998, to about 220,000 last year.

"Ho yeah, the volume is big," Nakamura said, noting on one recent day he was distributing 3,000 pies — about 2,800 of which were headed for supermarket shelves.