Why Does Local Food Matter for Investors?

More consumers are demanding locally grown produce from supermarkets and restaurants. Some innovative businesses, such as Chipotle and Whole Foods, are already capitalizing on these trends. Here is why local food matters for investors.

Jul 6, 2014 at 8:00AM

Local food seems to be all the rage these days. Chipotle Mexican Grill (NYSE:CMG) recently announced that it will purchase more than 20 million pounds of locally grown produce in total this year, up from 15 million pounds in 2013. Whole Foods Market (NASDAQ:WFM) prides itself on supporting local vendors with a variety of products, noting, among other things, the positive environmental impact of buying local by reducing "the environmental impact and costs of transporting the products." 

Is local food all it's cracked up to be, or do companies like Chipotle and Whole Foods need to reorganize their priorities? Let's have a closer look. 

The potential problem with conventional produce 
When you sit down for dinner tonight, how far do you think that food will have traveled before arriving on your plate? The Worldwatch Institute estimates that food in the U.S. typically travels between 1,500 and 2,500 miles from "farm to table," a distance increase of as much as 25% over the past 20 years. 

"The economic benefits of food trade are a myth," contends Brian Halweil, Research Associate at Worldwatch and author of "Home Grown: The Case for Local Food in a Global Market." As opposed to food that is shipped across the country, local food, says Halweil, is "harvested at the peak of ripeness and doesn't have to be fumigated, refrigerated, or packaged for long-distance hauling and long shelf-life." 

The Le Cordon Bleu College of Culinary Arts encourages people to eat fresh and raw foods, claiming that a "raw food diet has been credited with lowering blood pressure, obesity[,] and even the chance of developing diabetes." Indeed, research published in the Southern Medical Journal in 1985 found that a majority raw foods diet helped patients lose weight and reduce hypertension. 

In light of growing awareness regarding the environmental and health benefits of eating fresh foods, it is not surprising that consumer trends are following suit. 

Consumer trends 
It would make little sense for businesses to focus on obtaining and selling local foods unless there was a clear need or demand from customers. The trends in this area are striking and reiterate the initiative taken by businesses such as Chipotle and Whole Foods. The organic food market as a whole in the U.S. is expected to grow at a 14% annual rate through 2018. Additionally, the National Restaurant Association's annual chef survey identified the top 10 menu trends for 2014, of which the top three were:

1. Locally sourced meats and seafood

2. Locally grown produce

3. Environmental sustainability 

Hyper-local sources (such as restaurant gardens), sustainable seafood, and farm/estate-branded items also rounded out the top 10 menu trends this year.

Similarly, the National Grocery Association's 2014 Consumer Panel found that 32.1% of shoppers desired "more locally grown foods." This was second only to price/cost savings. 

In a report published in March, the United States Department of Agriculture expanded on some of these key trends. "Today's consumers," says the USDA report, "are more interested than ever in what they eat and where their food comes from." 

Capitalizing on consumer demand 
As of 2011, more than half of local food sales -- $2.7 billion to be exact -- came from farms selling directly to regional distributors, grocers, and restaurants such as Chipotle and Whole Foods. 

Chipotle defines local produce as anything within 350 miles of the restaurant in question. While 350 miles may seem like a hefty distance to consider "local," remember that it's significantly less than the typical 1,500 to 2,500 miles food travels from farm to table in the U.S.

Chipotle purchased 5 million pounds of local ingredients in 2010, equating to approximately 4,600 pounds of local ingredients per restaurant in 2010. That number is slated to grow to more than 20 million pounds of local ingredients -- well beyond 11,400 pounds of local ingredients per restaurant -- this year.

With its stores Whole Foods tends to define local as within state lines -- except for big states such as California -- and each Whole Foods store is encouraged to find and support local vendors. Taking it a step further, Whole Foods is providing up to $25 million in low-interest loans to "independent local farmers and food artisans" through its Local Producer Loan Program, supporting the cultivation of local vendors and products. 

Foolish bottom line 
There is little doubt that there are significant health benefits that come with eating fresh produce in addition to minimizing the environmental impact with less transportation and storage. These factors are now conjoining with crystal clear economic trends supporting an ever-growing advance to fresh, local products. Innovative companies -- such as Chipotle and Whole Foods -- have already benefited from clear consumer trends toward local foods.

Companies that don't adjust their focus to local foods are not only ignoring the health and environmental consequences but are resisting significant consumer and economic trends toward local food. Expect more companies to follow the lead of Chipotle and Whole Foods and support locally grown produce in the years ahead. Those that don't, in my opinion, will be unlikely to reward investors with market-beating returns over the long haul.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. David Kretzmann owns shares of Chipotle Mexican Grill and Whole Foods Market. You can follow David on his Foolish discussion board, Pencils Palace, on CAPS, or on Twitter @David_Kretzmann. Learn more about David's Pencils IRA Project at Fool.com. The Motley Fool recommends Chipotle Mexican Grill and Whole Foods Market. The Motley Fool owns shares of Chipotle Mexican Grill and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information