You’ve heard it before—when it comes to size, just about everything is bigger in Texas.
As a big, bustling city full of consumers eager to get their five servings a day and a major market for millions of pounds of fresh produce from Mexico, you might think Houston is home to multiple thriving terminal markets. Given the metropolitan area’s reach and high population, it could support at least two markets, like Boston or Detroit, where each city has two wholesale markets to serve the needs of their respective regions.
But there is only one official terminal market, the Houston Produce Center, on the aptly named Produce Row, to serve the expansive area. Set on 56 acres just south of downtown, the Houston Produce Center leases warehouse space to various wholesalers. In recent years, it has upgraded equipment and modernized operations—though some suppliers want more and believe the city and county could do more to support the fresh produce pipeline.
“The problem is the disconnect between the real cost of doing business now versus the prices consumers want to pay,” explains Jorge Vazquez, president of Latin Specialties, LLC in Houston, which imports a wide range of produce from Mexico, and Central and South America. “Produce houses need and want new facilities, but they’re unwilling to pay the higher rent or real estate prices.”
Further, he notes,“the state of terminal markets in Houston is dismal; there’s a huge need for state-of-the-art produce facilities.”
Real estate plays a role in the other venue in the vicinity for procuring fresh fruits and vegetables, the Houston Farmer’s Market, better known as Canino’s Market after its biggest tenant, Canino Produce Company, Inc.
The 18-acre mixed use property on Airline Drive has been owned and operated by the Farmer’s Marketing Association of Houston since it first opened in 1942. While it’s a busy place with storefronts, bakeries, and stall upon stall of fresh produce, early last year the property was sold to a local commercial developer and will be undergoing major changes.
In what’s being dubbed a three-year $10 million project, the new owner plans to renovate and transform the property into a spiffed-up version of itself as a
‘retail destination,’ while preserving some of its original ambience. Although work has yet to begin, some think the cost of renovation might prove challenging and will end up limiting fresh produce availability in favor of other retail pursuits.
You’ve heard it before—when it comes to size, just about everything is bigger in Texas.
As a big, bustling city full of consumers eager to get their five servings a day and a major market for millions of pounds of fresh produce from Mexico, you might think Houston is home to multiple thriving terminal markets. Given the metropolitan area’s reach and high population, it could support at least two markets, like Boston or Detroit, where each city has two wholesale markets to serve the needs of their respective regions.
But there is only one official terminal market, the Houston Produce Center, on the aptly named Produce Row, to serve the expansive area. Set on 56 acres just south of downtown, the Houston Produce Center leases warehouse space to various wholesalers. In recent years, it has upgraded equipment and modernized operations—though some suppliers want more and believe the city and county could do more to support the fresh produce pipeline.
“The problem is the disconnect between the real cost of doing business now versus the prices consumers want to pay,” explains Jorge Vazquez, president of Latin Specialties, LLC in Houston, which imports a wide range of produce from Mexico, and Central and South America. “Produce houses need and want new facilities, but they’re unwilling to pay the higher rent or real estate prices.”
Further, he notes,“the state of terminal markets in Houston is dismal; there’s a huge need for state-of-the-art produce facilities.”
Real estate plays a role in the other venue in the vicinity for procuring fresh fruits and vegetables, the Houston Farmer’s Market, better known as Canino’s Market after its biggest tenant, Canino Produce Company, Inc.
The 18-acre mixed use property on Airline Drive has been owned and operated by the Farmer’s Marketing Association of Houston since it first opened in 1942. While it’s a busy place with storefronts, bakeries, and stall upon stall of fresh produce, early last year the property was sold to a local commercial developer and will be undergoing major changes.
In what’s being dubbed a three-year $10 million project, the new owner plans to renovate and transform the property into a spiffed-up version of itself as a
‘retail destination,’ while preserving some of its original ambience. Although work has yet to begin, some think the cost of renovation might prove challenging and will end up limiting fresh produce availability in favor of other retail pursuits.
While the announced renovation of the Market is a step in the right direction, it will leave much of the wholesale portion of the market underserved. This is a vast opportunity just waiting for a creative solution, one that may be usurped if not met quickly as the way consumers want to buy their perishables continues to evolve.
Given Texas’ many seasonal offerings, from tomatoes and melons to citrus and berries, consumers can turn to roadside stands, popup farmer’s markets, and CSA (community supported agriculture) subscriptions services for some of their fresh produce needs. Restaurants and foodservice firms are making deals
with local growers, or putting in rooftop gardens, while larger, national chains are ordering direct and cutting out the middlemen.
The good news is that Houstonians, like the rest of the nation, want to eat healthy and are seeking more fresh fruits and vegetables. And with Houston’s proximity to the Mexico border and its own functional port—the foundation is there to bring much more fresh produce to the city’s receivers.
Opportunity Nearby
One advantage for both the Produce Center and the Farmer’s Market is their proximity to the Port of Houston. Although it is the U.S.’s second-largest port in terms of total trade, traditionally, the Houston Port hasn’t been much of a player in the fresh produce arena due to a lack of refrigeration capabilities. But this is changing: in the spring of 2016, the Port announced plans to build a 300,000-square-foot refrigerated facility next to its Bayport Terminal.
The goal, of course, is to attract more refrigerated cargo to the port, which would be great news to wholesalers who rely on imports from McAllen and Mex-ico, and surprisingly, from the Port of Philadelphia, to maintain supply.
Once the new facility opens, which will feature multiple temperature control areas for both fresh and frozen product, suppliers can rely far less on the faraway Port of Philadelphia for fruit and vegetables and get them to retail shelves and foodservice handlers faster and at lower cost.
Competing for Shopping Dollars
Shopping for fresh produce is something Houstonians love to do. As a result, the city boasts a wealth of regional and national supermarket chains, all competing for the cart space of residents. The three biggest players in the market are San Antonio-based H-E-B with 94 stores; Walmart with 100 stores; and Kroger with 101 locations.
While these giants dominate, there are plenty of other chains to keep price and and availability top of mind, including Aldi, Randall’s, Fiesta Mart, Trader Joe’s, Austin-based Whole Foods (under new ownership by Amazon), as well as membership wholesalers like Costco and Sam’s Club.
Moreover, specialty stores abound; there are 140 La Michoacana stores across the state with more than 50 in Houston and dozens more in outlying suburbs, and there’s also Phoenicia Specialty Foods, a Mediterranean/Middle Eastern retailer with two locations in Houston.
The proliferation of Asian markets is gathering momentum as well, with Korean supermarket chain H Mart (two locations) and Japanese grocery store Seiwa, which opened in 2016 after testing a first location in Costa Mesa, California. There is also a 99 Ranch Market and a number of Vietnamese specialty stores across the city.
FRESH FORUM What do you consider the most critical issue facing the Texas produce industry this year?
Jorge Vazquez, Latin Specialties, LLC
A “perfect storm” of two opposing forces. On the one hand, industry consolidation along with regulation is making it more difficult to compete with bigger and better capitalized companies. Increased competition is causing a price war between big companies that is having a deflationary effect on the whole industry.
On the other hand, however, shortages of labor, increased regulation, and irregular supply due to climate change are increasing the cost of doing business for everyone else in the industry.
Scott Blanchard, Tomato Management Corp.
I think it’s going to be the political climate. What’s going to happen with the rules in Mexico?
Is President Trump going to allow the same flow of product to come in? Or is he going to make [Mexican shippers] mad so they slow the flow of product?
I’m feeling more comfortable because I’ve seen more opportunities as more produce is coming in…; I see a lot more opportunities and less red tape.
Shane Barzilla, Tropic Brokers, Inc.
The cost of transportation… If you have to increase a day or two in transport times, what are you going to do with sensitive product? There will be massive demand for team trucks, which can deliver product in two days.
The East Coast market has teams running to Miami and New York from California. The cost is going to go way up since we’re already short drivers.
Even with an onslaught of new entrants, established grocers like H-E-B and Kroger are coming up with ways to attract new customers while keeping loyal shoppers happy. With so many options, both online and bricks-and-mortar, the challenge is to innovate.
Walmart, for example, launched a smartphone-based payment system in all of its Houston stores in 2016 to allow customers to bypass the checkout line. Kroger touts its online ordering and curbside pickup service, ClickList, which it introduced at Houston stores in 2016.
In addition, homegrown favorite H-E-B is replacing a store flooded by Hurricane Harvey by moving into the underserved Meyerland area in southwest Houston with a two-story, 95,000-square-foot property. The new store will have a few new perks like a kosher bakery and is scheduled to open in 2019.
Weather Once Again
Houston’s location, while attractive to supermarket retailers and more than 10,000 restaurants, is also subject to extreme weather. This was particularly
evident in 2017: Hurricane Harvey dumped more than 50 inches of rain on the city, then it contended with storms and extreme cold months later.
The effects of Hurricane Harvey, however, were felt far and wide and will not be forgotten anytime soon. Just ask Shane Barzilla, chief financial officer of third-party transportation broker Tropic Brokers, Inc., whose location on Produce Row was impassable for days.
“Harvey created a lot of insurance claims,” remarks Barzilla. “We had trucks that couldn’t get in, receivers that were underwater for a week, and we even had a truck go underwater where the driver had to swim to safety.”
Drivers: a rock and a hard place
Tropic Brokers lost two trucks out of 50, so it certainly could have been worse. The real aftereffect has been the loss of drivers; unable to bring loads into Houston, many drivers wound up looking for loads going to other locations. And while some have come back, many haven’t.
There weren’t enough drivers to go around before the hurricane, and Vazquez of Latin Specialties notes that finding reliable drivers now is even more of a challenge for any produce company. “As the oil industry comes back to life, drivers in Texas have more choices and demand higher pay,” he says. “Produce companies are caught between a rock and a hard place.”
Gabriela Martin, director of McAllen-based AG Freight Services, LLC says her company, a third-party logistics coordinator that helps move product around the state and country, had a truck stuck in Houston for two days unable to pick up or deliver.
“For every load that was [scheduled to go] out of Texas, we had to find another way,” she says, recalling the aftermath of Harvey. “Two days doesn’t sound like a long time to the consumer, but in the shelf-life of produce, it can mean all the difference.”
In-truck monitoring
Happening here and throughout the industry is the advent of the electronic logging device (ELD), which synchronizes with a truck’s engine to track driving time and duty status. The goal is one of safety, but more than a few companies are struggling to adjust. This, too, is exacerbating the already tight market for trucks and drivers.
“Demand is so great that prices are going up really fast,” points out Martin, and there are too few drivers and trucks to meet escalating demand. “Between that and ELDs, the impact will be felt all the way down to the end consumer,” she predicts.
“Your time is being tracked, and you can’t drive more than 8 hours, at which point you have to have 10 hours off duty,” comments Vazquez. “If you’ve been on duty for 70 hours in 8 days, you have to take 34 hours uninterrupted; ELDs are making things worse.”
Scott Blanchard, head of Latin grower relations at Tomato Management Corp., agrees. “It’s going to be harder for old guys to make the change,” he says. “You’re going to have to order a day early, because your truck will be a day later. In the produce industry, a day or two late is a lifetime.”
The Problem with Pests
As weather systems vacillate from one extreme to another, the threat of pests and diseases has growers increasingly concerned. All the wet weather from Harvey encouraged the growth of bacteria and mold, and Houston has experienced very warm, humid spells and cold snaps in the months since.
Vazquez of Latin Specialties is particularly worried about the effect weather extremes are having on his growers. “When it comes to insects, pests, and plant disease, climate change is definitely not helping,” he observes. “Look at what happened with Costa Rican pineapples in 2016; hot and humid conditions at production sites created favorable conditions for pests to grow.”
By the same token, ‘hitchhiking’ insects are also on the rise, coming into the United States on containers from various countries and into the Port of Houston.
Pedro Camacho, CEO of McAllen-based Traveler Produce, LLC, which imports a range of product from Mexico and often distributes through Houston, points to the proliferation of protected agriculture as a result of both weather and pests.
“The pests we’re seeing are becoming more aggressive and more resistant,” Camacho explains, “so it’s more challenging to have optimal production in the open field.” For this reason, the rise in greenhouses and the like are a solid choice. “A protected crop is more profitable, more secure, and has a longer shelf life.”
A Growth Industry
As Houston continues to grow—and the consensus is it will—the city’s produce industry will be forced to innovate, be more creative, and grow alongside
the population. Whether it’s drive-through groceries, curbside pickup, urban farms, or ready-to-prepare meal kits, everyone from growers to farmer’s markets, wholesalers to retailers, and suppliers to receivers is rising to meet the challenge.
