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Thursday, July 18, 2024

A revitalized Durham produce wholesaler aims to make organic farmers healthy

Happy Dirt has gotten serious about helping smaller organic farms compete with corporate farming.

The Durham-based fruit and vegetable reseller, which is owned by 16 farmers around the state, has expanded its produce buying with farms as far away as California and Pennsylvania to make its offerings more appealing to food retailers. It changed its name from the staid “Eastern Carolina Organics” and began using bright colors on its boxes to build brand-name recognition.

Additional management has been hired to improve operations, and new sales efforts around food delivery and restaurant chefs have started. The additional profits accruing to its smaller farmers are churning into land purchases and upgraded farm equipment.

The result: Happy Dirt revenue has increased by double digits each year since 2019 and is projected to hit $22 million this year. The company now works with 140 different farms, up from a dozen in its first two years. It’s now selling to nearly 400 customers.

Last year, 62% of the produce that Happy Dirt sold came from North Carolina farmers, and 88% from farms in the Southeast. “We wanted to rock the produce industry world,” says CEO Sandi Kronick. “We were stuck in not stepping up to the plate the way our markets and staff wanted. We had to get bold.”

Happy Dirt buys produce from the farmers based on market pricing, then sells to retail grocers and other customers. The farmers don’t pay a fee and appreciate that another party is handling the logistics of regular delivery. Happy Dirt makes money by slightly marking up the produce.

To be sure, organic growing remains a small part of farming, with $11.2 billion in sales nationwide in 2021, according to the latest available data. That is roughly equivalent to total North Carolina farming revenue for one year.

Happy Dirt has peers in the state, such as Fresh List of Charlotte and Feast Down East in Burgaw. But most are nonprofits and not showing similar growth.

Organic sales rose 13% countrywide in 2021, while the number of organic farms increased 5%. The growth stems from conventional farmers wanting to make more money and differentiate themselves.

Government statistics confirm that organic farming results in higher sales. More than half of the state’s 45,100 farms produce less than $10,000 in annual revenue, compared with only 6% of the state’s organic farms. More than 38% of the organically certified 335 farms have $500,000-plus in annual revenue, compared with 11% of all N.C. farms.

Randall Watkins is an Oxford farmer working with Happy Dirt.

Oxford farmer Randall Watkins’s revenue has soared more than 1,800% in the past four years working with Happy Dirt. The 100-acre Watkins Farm, started as a tobacco grower in 1955, now harvests organic Covington and Garnet sweet potatoes. The third-generation farm makes more money because organic vegetables have a higher profit margin, Watkins says. He’s bought a packing line, a bagger, a sizer and a tractor-trailer.

On this day, Watkins, 38, and his workers have packed 800, 40-pound cases of sweet potatoes, and his tractor-trailer is headed south to Happy Dirt, which will then sell them to Whole Foods, Sweet Greens and other groceries. “We would not be connected with the customers we have now without Happy Dirt,” says Watkins.

It’s hard to convince some farmers to switch from traditional farming, but Kronick says Happy Dirt is getting traction. Hiring Randall Diers as president and chief operating officer in August 2017 helped.

Happy Dirt founder Sandi Kronick was joined by Randall Diers, president, in 2017.

Diers grew up on a Wisconsin dairy farm, later owning a Massage Envy franchise and founding a video-game operation, GameFrog. He was looking for a new venture when  he noticed the increasing popularity of organic produce at groceries. As he wrote a business plan, he discovered Kronick and Eastern Carolina Organics.

Kronick realized she needed help. The farmers on the company’s board didn’t want to be involved in oversight and governance, but they “wanted to continue to grow,” she says. “And it was very easy for me to tell you what was broken. I knew I was not managing well. Randall was perfect for the job. I need help in terms of scaling my passion into an efficient operation.

“He’s a natural at helping people be accountable for their jobs, and how to work on contracts.”

Diers overhauled operations and the name was changed in 2019 with an assist from Raleigh’s The Republik ad agency. Working with its farmers, the company chose Happy Dirt and bright colors — think lime green and sky blue — on the boxes. Farming superheroes such as the Worker Bee and the Love Bug adorn the packaging and the walls in the company’s east Durham headquarters and warehouse. “We wouldn’t have done that without our farmers and one of our truck drivers at the table,” says Kronick.

Food retailers have noticed. Approximately 55% of what Happy Dirt sells is bought by chains, while about a quarter goes to independent grocers. The top five sellers are sweet potatoes, greens, squash, cucumbers and broccoli.

The company is also selling to home delivery operations, and a link on its website allows restaurant chefs to place orders. Happy Dirt is moving tenants out of its warehouse because it needs the space.

Herbie Cottle in his corn and kale fields; Seasonal pumpkins in the Happy Dirt warehouse.

Last year, Matthews-based Harris Teeter started buying from Happy Dirt for some Triangle-area locations. Since then, the Kroger-owned chain has expanded its Happy Dirt buying into other North Carolina markets. “It has to be at the right pace to support the local business,” says Karin Humanik, senior director of produce merchandising at Harris Teeter. “That’s one way that we can serve the community.”

Diers and Kronick are now thinking about out-of-state expansion, eyeballing smaller farms in the Midwest and the South. Says Diers: “There isn’t any reason why this model can’t work all over.”

They can point to plenty of success stories, mostly with farms that cover fewer than 500 acres. Randy Massey, owner of M&M Plant Farms in Elon, has seen his revenue more than double in the past four years.

“With farmers, it’s kind of a badge of honor here that we will always be committed to them,” says Kronick. “We are trying to bring more people into farming and improve the planet and do no harm.”

LESS PRESSURE

Herbie Cottle grows about 30 different crops at his 400-acre farm in Duplin County. Revenue has increased by 66% since Happy Dirt’s name change, and he’s bought 60 more acres for his farm, which has been in his family for generations. His great-grandfather, a former logger, started off by growing strawberries. Cottle owns equity and is a board member.

Cottle switched to organic farming, starting in 2007, because it differentiated his farm from the huge growers in Georgia and Florida. “In the conventional market, you have to do a lot of volume, and your profit margin is very small,” he says. “I didn’t want to get into that rat race. Plus, the organics are definitely better for your soil.”

About 40% of what Cottle grows, including kale, mustard, sweet corn, beets and rutabagas, is sold through Happy Dirt. “They take the pressure off me,” he says. “I don’t have to spend hours and hours on the phone with buyers. I can focus on growing the crops, which is what I like to do.”

Growing organics is more expensive because farms use more labor. Herbicides can’t be used to eliminate weeds, so they’re pulled by hand. But he notes the higher prices he gets for his crops. “Squash can be quite lucrative.”

Cottle also has helped improve Happy Dirt’s relationship with farmers, a voice that conventional farmers rarely have. Originally, the company would send him an order in the morning and expect a delivery by the afternoon. “If you don’t know until 7 o’clock where to put the guys in the field, you’re behind the eight-ball,” he says. “It was really unrealistic.” Now, he and other farmers get orders a day or two in advance.

Cottle also talked Happy Dirt into decreasing the time between when orders are placed and farmers are paid, and putting farm brands on the boxes, which helps build an identity with the grocers. Kornick invited Cottle to help interview applicants for a sales manager post, providing his first exposure to an essential business endeavor. “I’ve never sat in a job interview in my life,” he told Kronick.

TRUST BUILDER

Kronick is an unlikely choice as an N.C. agriculture change agent. The Long Island, New York native graduated from Ohio’s Oberlin College with a degree in environmental studies, without taking any business classes. She wrote a request to the Carolina Farm Stewardship Organization and received a $48,000 grant in 2004. She then talked to growers at farmers markets and farmers growing tobacco for Oxford-based Santa Fe Natural Tobacco at its annual meeting. The Fair and Equitable Tobacco Reform Act, which paid tobacco farmers to grow alternate crops, had just passed Congress.

“Not local, not a farmer, a woman,” remembers Kronick. “I knew how little to expect in terms of trust.” Her strategy was to convince them to grow other crops when it wasn’t tobacco season. “They had labor and equipment and this gap in the tobacco season. Their labor was hanging around without much to do.”

In the first year, starting with more than a dozen farms, she sold about $240,000 worth of collards, kale and other vegetables. Sales more than doubled during the following year. Early on, a Whole Foods in Morrisville gave her access to docks, and workers  taught her how to use a pallet jack and a forklift.

The first customer was Carrboro-based Weaver Street Market, a co-op that now has four locations and a commissary. “It’s a huge benefit for us because we’re able to source so much local produce from one source without having to buy direct from multiple farms, which is complex and time-consuming,” says Carolyn Twesten, who has been the co-op’s produce merchandiser for 21 years. About 75% of Weaver Street’s produce is organic, and 18% comes from local farmers.

Twesten appreciates how Happy Dirt has expanded its farm base. “If I say, ‘I’d really like to buy from this farm in California,’ they have been able to make that happen.” 

That’s the kind of geographic expansion that Happy Dirt believes is its future.

Chris Roush
Chris Roush
Chris Roush is executive editor of Business North Carolina. He can be reached at croush@businessnc.com.

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