Serving An Upscale Market

San Francisco Skyline

Wholesalers stay sharp by keeping one step ahead of the trend-setting, high-tech foodies and emerging ethnic communities.

As San Francisco added high-tech, biotechnology and medical research to an economic base that already included finance and a robust tourist industry, the city morphed into an upscale community with a median household income greater than $75,000, according to the U.S. Census.

This region of relative affluence with an alternative cultural history led to a distinctive regional produce profile. A number of wholesalers built much, or all, of their business around supplying interesting and high-quality seasonal fruits and vegetables to the restaurants and retailers.

“In the restaurant business, people are very particular,” says Paul Weismann, president of Healthy Avocado, Inc., a Berkeley, CA-based wholesaler specializing in Mexican avocados. “Eating out is a big deal here. There is a lot of money, and people want fancy stuff. There are also specialty wholesalers here like Veritable Vegetable.

Veritable Vegetable is a San Francisco wholesaler that follows a mission to be environmentally, socially and economically impactful in every aspect of its business. From rooftop solar panels, to diverting 99 percent of the company’s waste, to hybrid trucks and tractortrailers.

According to stats from Golden Gate Restaurant Association combined with the U.S. Census, there is more than one restaurant for every 250 residents in San Francisco — the highest concentration in the country — and the industry developed rich relationships with nearby farmers.

“San Francisco has nearly 4,000 restaurants, the most restaurants per capita of any U.S. city,” says Gwyneth Borden, executive director of the Golden Gate Restaurant Association, San Francisco. “In addition to great produce, San Francisco has great local seafood and meat. Sourcing locally and sustainably is often even of greater importance.”

The emergence of high tech also led to some of the highest housing costs in the nation, as the California Association of Realtors estimates it takes an annual income of $268,000 to buy a median-priced home in San Francisco.

Even in Alameda County, on the traditionally working-class side of the bay, it takes an income of $161,000 to qualify for the average home, which is 30 percent more expensive than in the nearby upscale Napa County Wine Country, and more than three times the national average.

This fast-paced gentrification remade San Francisco’s demographics as the city’s African-American population plummeted from more than 13 percent to less than 6 percent since 1970, according to the U.S. Census.

But the greater San Francisco Bay Area still has tremendous ethnic diversity with large Hispanic and Asian populations making up nearly half the residents of the two counties.

“We sell to Caucasians, a lot to Hispanic companies, and to Chinese customers because we get papaya, rambutan and longan [which is similar to lychee] from Hawaii,” says Weismann of Healthy Avocado. “We sell a lot to Chinese customers. In California, there are many Chinese people. They buy longan from China when it is available. They are even crazier about fruit than we are. We sell longan to wholesalers and one retailer mostly on the West Coast.”

Healthy Avocado ships and wholesales avocados as well as tropical fruits out of Michoacan, Mexico, from its spot at the Oakland Produce Market across the Bay Bridge from San Francisco. High-Quality Wholesaling

Whether the produce is organic, ethnic, seasonal or all three, the San Francisco Bay Area is packed with consumers looking for interesting and flavorful fruits and vegetables.

“People are looking for new varieties,” says Paul Schumacher, president of Earthquake Produce Inc., located on the Golden Gate Produce Market. “They are definitely looking for high quality. They’re looking for flavor over appearance.”

Earthquake Produce displays photos of beautiful fresh limequats, kumquats, citrons and Melogolds on its Facebook page, but the feature entry is an article from one of the most liberal newspapers, San Francisco Bay Guardian, on a new law enacted by the French Assemblee Nationale requiring supermarkets to give away unsold food.

“In San Francisco,” says Schumacher, “we’re a little more progressive.”

The area is definitely at the head of the pack when it comes to embracing diets high in fresh fruits and vegetables and lower in animal fats. “Customers are less reliant on animal products, and they want the alternatives to taste good, not just look good,” says Schumacher.

Cultivating a Network

Earl’s Organic Produce moved to a larger facility at the Market to handle business that keeps growing in the double digits. “The San Francisco Bay area is kind of the capital of organic produce,” says Earl Herrick, owner of Earl’s Organic Produce, San Francisco. “The organic consumer is well traveled, well educated, and has a little more money. They are interested in healthy food, and willing to pay a little more for it.”

Herrick got his start in 1975 selling fruits and vegetables out of a converted beverage truck at the Fulton and 10th Street entrance to Golden Gate Park, and the business has enjoyed steady growth to occupy 33,000 square-feet as the only 100 percent organic produce wholesaler at the San Francisco Wholesale Produce Market.

“Two years ago, we expanded from one side of the building to a larger area on the other side,” says Herrick. “We went from 20,000 square feet to 33,000. It gave us extra square footage for both warehouses and offices. We added a banana room.” The company’s website bears witness to the strong presence of foodies with recipes for hot ginger Satsuma tea, persimmon and pomegranate fruit salad, as well as Satsuma cranberry sauce.

“We’re continuing to grow,” says Herrick. “We opened in 1988, and every year we’ve been here we’ve grown. We used to deliver to Sacramento, and now we go as far as Reno, NV. We used to go to Santa Cruz, and now we go down to Carmel. We have 10 trucks, and we mostly service retailers and some restaurants that are within a day of us. We’ve grown around 10 percent every year.”

Earl’s Organic Produce cultivated a network of more than 50 organic farmers in California — most of them are two hours or less from the San Francisco Market, and nearly that many in Mexico. But the organic sector was not always that ubiquitous. “When I walked the market in the 1980s, organic was a joke,” says Herrick. “Now everybody has something organic. If you don’t have something on your shelves or menu that is organic, you are behind the times.”

Even before Herrick started peddling organic produce on a San Francisco street corner, Veritable Vegetable started a thriving business as a pioneer wholesaler sourcing produce for the natural food stores where organics first gained a foothold.

“Typical growth for us the past four or five years is 4 or 5 percent, but if you go back farther, it was double digits,” says Karen Salinger, sales director and co-owner of Veritable Vegetable. “It’s leveled out.”

Veritable Vegetable sources organic produce, half of it from nearby Northern California farms, and distributes it to natural-food markets throughout most of the West and Hawaii.

“All the retailers we sell to are co-ops or independent natural food stores, like Bi-Rite Market and Rainbow Grocery Cooperative, Inc.,” says Salinger. “Organic has become so ubiquitous, you can buy it at Safeway, Walmart, Costco, Target or Trader Joe’s.”

The San Francisco Bay area has not been entirely taken over by new-age foodies craving exotic fruits and vegetables grown locally, according to the USDA organic manual.

“We don’t get much demand for organic,” says Robert Bulawsky, owner of Banner Fruit Company, Golden Gate Produce Market. “We’re doing a lot of berries out of California and Mexico, melons out of Mexico, citrus out of California, and a lot of apples out of the Northwest.”

Banner Fruit was among the original businesses when the Golden Gate Produce Market opened in South San Francisco more than 50 years ago.

“The South San Francisco area is the strongest wholesale market in the Bay area,” says Bulawsky. “It is viable and ethnically diverse. We’re a third generation family business. We were one of the founders when this market [Golden Gate] opened in 1963.”

There is some produce export activity coming out of the San Francisco Bay Area markets, but it is limited. “We do them all — grocery stores, restaurants and exports,” says Bulawsky. “Only about 15 percent leaves the state.”

Expanded Reach

Export activity is limited in comparison to Los Angeles, which has location advantages and one of the largest modern ports in the world.

“Los Angeles is a hub,” says Weismann of Healthy Avocado. “They ship easily to Las Vegas and Denver, and they’re closer to Mexico. We ship to wherever we can find customers. A lot of it is to the East Coast, and some to the West Coast. We export avocadoes to Japan, and we’re working on going to China.”

Weismann’s core business has steadily grown along with the increase in shipments to the U.S. of Mexican avocados, which have grown over the past decade from 76 million to 1.3 billion pounds.

“We’re selling avocados in more parts of the country than we were when I started in 2002,” says Weismann. “Now everybody buys them. There’s a big increase in the number of wholesalers who buy avocados. More than twice as many people are buying [avocados], because you have to have them. We have had good support in Mexico since 2002.”

Wholesalers at the terminal markets have seen increased demand for fresh produce, even among people who are not part of the organic movement.

“The doctors are all saying you must eat fresh fruits and vegetables,” says Peter Carcione, president of Carcione Fresh Produce Co., Golden Gate Produce Market.

Carcione is also the president of the Golden Gate Terminal Market, and son of the late Joe Carcione, who became well known extolling the virtues of fresh produce on local television and radio stations as the “Green Grocer.”

Peter Carcione witnessed a change in the produce market brought on by incredible improvements in the technology that keep fruits and vegetables fresh.

“When I first came here 45 years ago, this was a commission market, and a terminal market,” he says. “Most inventory came in on consignment. It came in hot, and you had to sell it the same day it arrived. Hydro cooling and vacuum cooling changed everything. We can ship around the world. Lettuce lasts a week; before it was a day.”

What has not changed is how buyers shop the market and the product available for purchase. “If you walk the market, you can look at the produce, touch it and smell it,” says Carcione. “Now we have fruit coming in from Chile, such as peaches, cherries and nectarines.”

National Chains Take a Back Seat

One of the customers who comes to look, touch and smell the produce in the middle of the night is Gus Vardakastanis, who walks through the offerings at both the San Francisco Wholesale Market and the Golden Gate Produce Market in South San Francisco to source fresh fruits and vegetables for his family’s three neighborhood markets.

Although the family sources some of its produce directly from a few nearby farmers, most of it comes from walks Vardakastanis takes at the wholesale markets since the 1980s.

“My dad goes to the produce markets in San Francisco and South San Francisco every morning,” says Bobby Vardakastanis, who serves as general manager alongside his brother Dimitri of the stores their parents Gus and Georgia started after they immigrated from Greece in the 1980s.

“The owners of the facilities used to come down here to look at the produce and do the purchasing,” says Bob Andrighetto, president of Market Produce Sales, South San Francisco. “Now I think for the big chains it’s more corporate, and they’re concerned more about the percentage than the quality.”

Relatively small local market chains have come to predominate among customers at the wholesale markets.

“You had a lot of people who would come every day to buy produce,” recalls Carcione. “Now the big retailers have their own warehouses. They don’t come to the market. Now it’s the smaller chains with a handful of stores or buyers for restaurants. They all sell to everybody. You don’t just see Chinese vegetables in a Chinese market. He’s going to sell to everybody.” There is a decidedly upscale trend in the major produce retailers in the greater San Francisco Bay Area.

According to the 2015 Chain Store Guide’s market share report, Whole Foods Market has more than a 7 percent market share in the region and increasing; Costco has more than 16 percent; and Trader Joe’s is at nearly 9 percent. When Whole Foods Market opened its fifth store in San Francisco — a city that is less than 50 square miles — the location was just four blocks from the Vardakastanis’ store on Haight Street.

“The competition makes everybody a better businessperson,” says Bobby Vardakastanis.

The family had already been offering organic produce at its stores since the 1990s, so the family responded to the new competition by expanding to include a coffee bar, deli and full-service meat counter, and soon after opened its third store on Harrison in the Mission.

“We sell organic at all three of the markets,” says Vardakastanis. “Our new store in the Mission has a lot of younger people — many of them are newly married and starting families. Our store on Noriega has more larger families, and there are more single people at the Haight.”

With the national chains taking a backseat, and usually sourcing through their own distribution centers, the small chains and ethnic retailers have become an indispensable part of the business for wholesalers at the San Francisco area markets.

An Ethnic Mix

“Compared to 25 years ago, there are far more Asians and Latinos,” says Schumacher of Earthquake Produce. “They are some of the biggest shoppers at the market. We would call their specialty markets small by appearance, but they do a lot of volume in a small area.”

Numerous wholesale businesses with core clientele among ethnic retailers and restaurants have grown at the wholesale market. “At the San Francisco Wholesale Produce Market, we have many ethnic produce companies, mostly Asian produce,” says Calvin Leong, vice president at San Francisco-based wholesaler, VegiWorks, Inc. “Some are working side-by-side, and some are scattered throughout the market. Every company usually has a certain product that they are strong in that separates them.”

Many wholesalers catering to ethnic markets carry products in addition to fresh fruits and vegetables. “More merchants are carrying a lot more other products than just fresh fruits and vegetables,” says Leong. “Many customers are looking for ‘one-stop’ shopping. So, it’s consumer driven. VegiWorks for example, carries a full line of dairy including eggs, egg white, and cheeses, and a full line of frozen products including purees, frozen ready-to-use fruits and vegetables, breads, noodles, etc. We also carry dried fruits, nuts, chilis, fresh and dried herbs, and a full line of Asian specialty products used by Japanese restaurants and catering companies.”

Wal-Mart has less than a 2 percent market share in San Francisco and Alameda counties, and is trending downward; while Target and Winco have just a 3 percent market share combined.

Safeway (Pleasanton, CA) still enjoys better than 27 percent market share but is not a factor at the three wholesale markets in the Bay Area, according to the Chain Store Guide report.

Many of the produce trends showing up nationwide came to markets in San Francisco a little earlier and are a little stronger. “Kale has been big the past few years — not so much 10 years ago,” says Vardakastanis. “We also have more packaged, value-added produce than we used to.”

The Vardakastanis find plenty of variety for their diverse customer base at the wholesale markets and a few nearby farms. “We sell the same produce at all three stores,” says Vardakastanis. “At the new store on Harrison, we sell more of the newer specialty items like gem lettuce or different types of mushrooms.”

The family also follows a common practice among San Francisco producer retailers, buying fruits and vegetables directly from a small number of nearby small farms. “We use some local family farms, like Knoll Farms and some other small farms,” says Bobby Vardakastanis. “The quality might be better, and you’re helping out a family farmer.” Knoll Farms is a 10-acre patch in nearby Contra Costa County where fruits and vegetables are produced using a biodynamic system that emphasizes, not just the absence of synthetic chemicals, but also the interaction between plants and the soil.

The Price Was Right For Market Expansion

The importance of fresh fruits and vegetables in San Francisco culture is evidenced by the city’s willingness — as the booming high-tech and finance industries take real estate values to the stratosphere — to offer a discount on more land to the San Francisco Wholesale Produce Market.

“We began a new 60-year lease with the City of San Francisco in 2013,” says Michael Janis, general manager at the San Francisco Wholesale Produce Market, located in the city. “It was a real significant year for the San Francisco Produce Market. It’s extraordinary that San Francisco continued its commitment to this sort of business. With real estate off the charts, they even added 3 acres of adjacent property. We’re pushing 25 acres now. The city did a fabulous job of understanding the need to do this in an affordable way.”

An expanded market will allow for greater diversity in the businesses and services available to the public. “The new San Francisco Wholesale Produce Market will allow for more space and a complete foodservice hub that can offer farmers-market-type merchants to service retail-type consumers,” says Calvin Leong, vice president at San Francisco-based wholesaler, VegiWorks, Inc.

The first phase of the Market’s refurbishing and expanding was a new building constructed to strict environmental standards. “In 2015, we opened our 82,000 square-foot LEED gold building,” says Janis. “A LEED gold building for produce distribution is unique. It’s everything from using material that had been on the site, building a very efficient HV system, and a number of other things. We’re going to be doing a phase at a time over the years — rerouting roads around the facility, and refurbishing or redoing existing buildings.”

This new building, which opened at the San Francisco Market last year, is testimony to the demand for produce that is sourced locally, organic, or both.

“Our goal is to continue to make improvements to the market, so our businesses can grow, and new businesses can be added,” says Janis. “Our new building is 100 percent full, and our existing market continues to be full. We’re seeing strong growth in organics, and strong growth in local.

“One of our new businesses is Good Eggs. They bill themselves as a farmers market. It’s eggs, flour or meat in addition to produce. You make out your list online, and they deliver to the Bay Area. Earl’s Organic Produce also expanded significantly on the market.”

Good Eggs, which is a regional online grocery platform, makes home or office deliveries of local organic produce, as well as dairy, meats, deli and bakery items, to upscale locations across the Golden Gate Bridge in Marin County, down the Peninsula toward Silicon Valley, and across the Bay Bridge to Berkeley and Walnut Creek.