Small farmers were thinking small. Big customers were thinking big. It wasn’t working. Chip Hoagland sees how it can. Chip bought Cherry Capital Foods in 2008. Since then, the Traverse City food distributor has been in a constant state of growth. Read more about the case for the middleman in this feature originally published in the April 2016 issue of Traverse, Northern Michigan’s Magazine.
Most days, no one knows exactly where Chip Hoagland is. You won’t find him in his office, because he doesn’t have one. He might be at home. If he is, CNBC is buzzing in the background and he’s likely reading the newspaper—casually but purposefully scanning The Wall Street Journal or The New York Times for trends or tremors in the global economy that might ripple through his little corner of the world. He’s the boss of the company, but he doesn’t have the appetite for managing the day to day, which is why no one really needs to know where he is. His mind would rather chew on bigger stuff. Really big stuff. Like how the changing demographics brought on by the one-child policy could bring the Chinese economy crashing down in 20 years. Chip’s two cents is that it could be sooner.
If it’s past midnight, say 2 a.m., he might be asleep. Just as likely though he’s awake. And if he’s awake, it’s because he’s being held hostage by something that won’t let his brain go back to sleep. So now he’s sending an email. Maybe fragments of an idea. For the most part, coherent. Writing somebody—not with a sense of urgency, but with a ‘by-the-way-I-thought-of-this- and-thought-of-you’ sort of tone. The date stamp on the email will be somewhere between 2 a.m. and 4 a.m.—marking the moment soon after which Chip, freed of the idea, likely went soundly back to sleep. Hours later, the recipient reads the email from her desk in the office. She considers whether these traces of Chip’s burned midnight oil require a response, or they’re just another 3 a.m. FYI.
Meanwhile, Chip Hoagland could be anywhere. It seems like the appropriate way to run a company if some of your heroes are the titans of Silicon Valley. In fact, ask Chip to talk about his own business, and within a few minutes, you won’t be discussing his small food distribution company in Northern Michigan. Instead he’ll be telling you about his recent tour of SpaceX—Tesla founder Elon Musk’s private space travel company—and how he styled his own Traverse City warehouse, a renovated hockey arena, after it. And the pride is subtle, but palpable, when he recounts the time he was chatting up Google cofounder Larry Page while the two were relieving themselves at a pissoir during a technology conference in California. These are, of course, some of the country’s big-time innovators. People who are doing things in ways that Hollywood likes to make movies about. Not that anyone is going to be making a movie about Chip. But if he’s able to take things where he wants, it’s not a stretch to think that someday he’ll be browsing The New York Times in the middle of the night and read his own story.
That piece might start out as something of a comeback story. Something about how Chip bought Cherry Capital Foods in 2008, when it was about ready to become one of those countless small companies that fail in their first year. Back then, the vision for Cherry Capital was more or less what it is today—to establish a food distribution business to service the burgeoning small farm scene in northwest Lower Michigan. But in reality, it was just a guy and a truck delivering lettuce from farmers to restaurants. And it’s pretty much universally agreed that the guy with the truck, however well-intentioned, didn’t have the business sense to pull it off.
￼￼No one would say the same thing about Chip Hoagland, who, in the ’80s, worked as a day trader and made a ton of money betting on interest rates. Over the past couple decades, he’s had his hand in everything from software companies that were “a little too far ahead of the market” to the business of non-GMO food genetics. His CEO at Cherry Capital, Evan Smith, likes to call him the “Warren Buffett of food.” A hyperbole for sure, but one which efficiently summarizes Hoagland’s talent for sensing the invisible currents that indicate where the market may be heading next. ￼￼￼￼￼
It’s the thing that probably drew Chip to buy up a corpse of a company like Cherry Capital Foods. In fact, back in 2000, he toyed with the idea of starting just such a company, but backed off, thinking the market wasn’t quite ready yet. If you have an eye for such details, you could see the fundamentals were all there. In Northwest Lower Michigan, you had a region that was experiencing a renaissance in small farming.
And there was an eager, food-literate population ready to eat as much heirloom this and artisan that producers could throw at them. But when it came to connecting that supply with demand, the system looked pretty medieval: Farmers markets. Deliveries by pick-up truck. Farmers with calloused hands and dirty jeans trying to hawk a few tomatoes to local chefs. It was old-school, but not in the good way.
￼￼￼￼￼Certainly nothing like SpaceX. And it was no way for anyone to make money. “The pure grower-to-consumer concept is a flawed model,” Hoagland says, trampling an idea that’s been a sacred cow in the local food scene for the past two decades. “I support the idea of farmers markets, and you can do a little bit at a certain scale. But in this business, there’s a role for the middleman.”
That role, Hoagland says, is “logistics.” The same kind of logistics that global delivery company UPS has turned into a marketing slogan. “In its simplest form, it’s about having fewer trucks on the road.” In the direct-to-consumer model, Hoagland says the fundamental problem is that farmers are doing too many things. They’re not only producers. They’re delivery truck drivers. And salesmen. And in trying to do everything, they’re spending too much time doing things that aren’t the fundamental thing that makes them money: growing food. Handing off some of that work to a distribution company that can coordinate pickups, deliveries, routes and sales between farmers and businesses like restaurants and grocery stores, puts farmers back on the farm, where they can concentrate on their core business.
This, Chip says, is the recipe for real growth in local food economies. For example, Cherry Capital can give farmers access to clients that might be beyond the reach of a handshake contract with the local grocer. Bigger buyers, like grocery store chains or even larger restaurants, require a kind of steady supply that would entail individual contracts with literally hundreds of small farmers—something that the big guys simply don’t have the infrastructure or attention span for. But Cherry Capital can coordinate purchases from multiple farmers, aggregating supply to accommodate these clients with larger demands. Now, a farmer in Leelanau County might not just get her peppers on the shelf of the local co-op. They’ll also be at Kroger stores across Michigan. And pushing Northern Michigan produce to a wider audience is something which Chip says is going to become vital for a region that is likely reaching a saturation point of farmers markets and small farmers.
“I expect to see more production than can be consumed here,” Chip says. “The growth potential here is limited because of population. The 10-county area of Northwest Michigan has a full-time population of roughly a quarter million. The population centers are all downstate. I don’t expect to see us exporting to Florida or Arizona. But when I talk to people, I say your target market is Detroit, Chicago, Indianapolis, Cleveland—maybe Pittsburgh—places where people have some identity with Northwest Michigan because they’ve come here for generations in the summer to escape the heat.”
This idea of marketing local food well outside its region of origin might seem counterintuitive, even sacrilegious. But Chip says the model works because the term “local” is more psychological than geographical. As such, it comes with a ton of plasticity. “Local is whatever the consumer defines as local. And to a chef in Chicago, Michigan is local because it isn’t Mexico.” In Chip’s mind, building the Northern Michigan brand beyond its geographic borders is the obvious next step to increasing farmers’ and food producers’ reach. It’s working so far: Cherry Capital has been growing more than 50 percent a year for the last several years—meaning more players in the local food economy are embracing the wisdom of the middleman.
But Chip says there are many more creases in the food economy to exploit—if he can get farmers to follow him. One of the more innovative frontiers: Leveraging the expertise of a specialty foods company Chip also owns called Earthy Delights. Back in the 1980s, the company invented the model of overnighting difficult-to-source ingredients to elite restaurants across the country. Situated in this niche, the company has always been on the “bleeding edge” of what the next big food trend might be. Right now, based on what ‘Earthy’ is seeing, it’s looking like that could be super hot specialty peppers. And Cherry Capital could easily bring that knowledge of emerging markets to farmers in Northern Michigan, more-or-less offering them first dibs on growing a high-value product. It’s the insider trading of the specialty food economy. “We’ve had a feedback loop like that on the drawing boards for years,” Chip says. “But you have to understand how conservative the food business is. There’s a lot of churn on the edge. But the core business in agriculture is slow moving. You have the crop cycle. So any changes farmers make, if you can get them to make changes, are likely put off into next year.”
Also on the agenda: A complete retooling of the foraged foods economy. A hot trend for years, foraged foods like morel mushrooms and ramps (known in Michigan as wild leeks) have become a lucrative product. But at the moment, it’s a vulnerable niche. The popularity of ramps, for instance, has created an overharvesting problem, which now threatens to wipe out the species in many parts of the East. A few places in the country have already banned the commercial harvesting of ramps. So Chip is funding new research to look into how “agro-forestry” foods can be harvested sustainably—before the regulatory hammer comes down. The hope is that it will lead to a labeling and certification program similar to the Fair Trade system. Meanwhile, in Northern Michigan, Chip is working with land conservancies to see how commonly foraged native foods could be introduced to areas to control invasive species—which would in turn provide new territory for producers to forage in a more managed and sustainable way.
For an ideas guy like Chip, though, the ultimate innovation would be to make an idea out of all these ideas. To aggregate all of these “best practices” for running a local food economy and turn them into a model that could be replicated elsewhere. “I think of it like a ‘Food Hub in a Box.’ A kit. Like you used to get software in a box. At that point, we’re not talking about moving the physical product. We’re talking about packaging up the concepts. The logistics. The technology. Then, we’d really have something.” Walking around Cherry Capital Foods’ 60,000-square-foot office/warehouse/former hockey arena, it seems possible that Chip could pull it all off. It’s not Silicon Valley. It’s not as cool as SpaceX. But it does have a certain air. Here, Evan Smith, CEO of Cherry Capital, walks around the office wearing a suntan and shirt with palm trees, subtle suggestions of the way they might do things in California. The guest chairs in Smith’s office are two bucket seats his brother got him from the old Tiger Stadium. And out of all the innovative projects he’s working on, he seems most excited to talk about the standing desk he’s building out of hockey boards—leftovers from the renovation of Traverse City’s old Glacier Dome.
Meanwhile, Chip is in the building too. Somewhere. There he is. Alone. He’s found a spot at the head of a 1,000-square-foot conference table in an empty 5,000-square-foot conference room. A makeshift office for the man with no office. Maybe the room’s dim lighting is helping him re-create the liminal nighttime space in which he does some of his best thinking. In this simulated midnight, he taps away on his laptop, focused. Somebody is about to get an email.
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