Blasting off again

Rocket Farms has roots in adapting to its surroundings.

Founded in the early 1980s, the greenhouse operation started out as exclusively a vegetable transplant company based in Half Moon Bay in Northern California. Years later, when the company’s brain trust saw a growing demand for ornamentals, they pivoted and incorporated ornamentals (namely poinsettias and orchids) into their portfolio. And in 2012, after grower Nurserymen’s Exchange filed for bankruptcy, Rocket Farms bought that business and folded its portfolio into its own.

In recent years, the company has pivoted again. With a growing demand for sustainably produced vegetables, the company has significantly ramped up its production of herbs and vegetables in an effort to tap into that market. In 2021 alone, Rocket Farms doubled down on production, announcing plans to rebuild 128,000 square feet of growing space and to implement a living herbs greenhouse. Overall, the company currently employs over 1,500 workers at 15 different locations in California. Most are in Northern California, but the company’s reach extends as far south as Thermal, California near San Diego. The company also has several growing partners on the East Coast and has eyes on expanding that presence in the coming years.

“It’s in part being aggressive, making moves before our competition does,” says Steven Chan, Rocket Farms’ vice president of strategic planning. “We are all in here.”

The idea behind the business is simple: change up the business and adapt quickly to a changing marketplace.

“I’m a huge believer that the world needs to eat and that the world needs to eat healthy, good, safe and nutritious food,” says Rocket Farms president Nick Bavaro. “That’s really what agriculture is all about.”

Understanding the category

In the broader produce category, Rocket Farms primarily grows herbs (basil, cilantro and mint, among others), as well as potted edibles. It’s a different focus in the market from various leafy green operations popping up across North America, as well as different from what more traditional field grown producers are selling.

According to Bavaro, it was also similar to the potted ornamentals Rocket Farms was already producing that made a pivot easier than it might have been otherwise. They also believe in the potential of the space.

“Our core business for many years has been floral potted plants,” he says. “In Europe, that plays a big part in people’s lives. Here, it helps people feel good, they like it, but it’s not integrated in the exact same way.”

Edibles, Bavaro says, are the key to this strategy. Compared to a standard product, edibles in pots are something consumers can purchase, take home and then yield food from for several months afterward with proper care. Available edibles include a miniature tomato plant and a miniature hot pepper plant with more currently in the research and development stage.

“The model is that people need to eat and I’m a firm believer in the technology of agriculture in the given time we are in,” he says. “People ask questions like ‘Is it safe?’ or ‘Is it grown sustainably or organically or in a controlled environment?’ That’s the cool part of what we are doing here and something I really believe in.”

“This is a category that has really expanded in the last 18 months, which is something we were hoping for and aiming for,” says Wendy Klusendorf, Rocket Farms’ vice president of sales. “We’ve primarily been a floral-focused business, especially with the history of Nurserymen’s Exchange. But when Rocket came in, it expanded greatly and has boomed the last several months as people cook more and people control how they get their food and put it on the table.”

Klusendorf notes, though, that there are still some challenges to navigate. Specifically, it can be tricky to adjust quickly when the market demands it. And over the last 18 months, while sales have increased, it has been complicated at times to keep pace with what’s happening.

“I’ve been in the business for 30-plus years and, at a certain point, you think you’ve seen everything,” she says. “But I can tell you 100% that the last 18 months are nothing like I’d ever thought I’d see. But it’s also exciting because it means that there are new challenges and there is always a fresh approach to come out of the other side a better company.”

Planning to be nimble

According to Chan, Rocket Farms’ vice president of strategic planning, the company’s approach to expanding the business or changing something is data driven, with multiple parties talking through a potential move before it happens.

“We always plan for the future, ranging anywhere from six months to nine months to a year out,” Chan says. “For me, it’s working with sales and seeing what’s going and what’s not. It’s working with production and seeing what’s growing well or what we can boost our production with given time to adjust. But a lot really has to do a lot with the supply and demand balance.”

Chan also spends a large chunk of his time working with the Rocket Farms R&D team to keep ahead of any developments they might be working on.

“It could be new varieties. It could be new packaging or really anything innovative with our categories,” he says. “We want to make sure that we have enough being piloted so that we have enough products going out and new options if we feel there’s an opportunity for it. Day-to-day, that also includes talking to our customers and driving client demand so we know what they are looking for.”

In the pandemic, Chan says the supply chain has “presented quite a few challenges” and that they tie into other issues, including labor shortages and costs, rising trucking costs and shipping delays (notably, Bavaro and owner Charles Kosmont were openly against a city push in 2020 to raise the minimum wage to $15 by the summer of 2020, saying it would disrupt business growth and that many employees did not live locally. The measure was ultimately passed by the city council, although the wage hike did not kick until 2021).

Day-to-day, that involves trying to patch holes as they open. That also includes working directly with retail partners — including Safeway, Trader Joe’s and Walmart — to find what works for them.

“The origin of our herb and edibles program was working with customers we had relationships with in other categories,” Bavaro says. “It started out as a mixed bag. The numbers looked good, but demand was hard to gauge, and this is on a small scale. At the beginning, they were moving around 500 units a week. Now, we move upwards 150,000 units a week. Demand and where it took us was promoting it as a food and not a floral item. We changed the buyers and helped it adapt to us.”

“We believe we are not only selling them a good product, but we believe that we are a good partner that sells them an important product for their customer base,” he continues. “We aren’t overproducing just to move products out of a store. We are asking ‘what is the customer really looking for? What really works for them and how do we right-size the program for their model?’”

The next steps

The pandemic, Bavaro says, had a direct hand in leveling up the edible portion of Rocket Farms’ business.

“In 2020, the COVID year, many categories were smacked around a little,” he says. “In the floral category, we had to become very nimble and adjusted. It’s an interesting year for us there, but we came out well. COVID, on the edible side, saw a 38% increase. Some of that might have been organic growth that would have happened anyway, but we think folks were trapped in their homes and people decided to cook and be healthier.”

Even with restaurants opening up again, Bavaro says there hasn’t been a dip in demand for edibles or in the broader vegetable category. From the company’s view, that category is only going to grow in the coming years.

“It’s a very steady, constant sell-through,” he says. “They can eat at restaurants, but a lot of people have developed a passion for cooking and an attachment to our products.”

In the new production space, Rocket Farms is also adjusting its technology to become more efficient. They’re installing LEDs that they estimate will make them roughly 50% more efficient. Reconfiguring the space should make room for around 2,000 more growing benches. Custom automation equipment will also be implemented in the new herb greenhouse.

The model is that people need to eat and I’m a firm believer in the technology of agriculture in the given time we are in."

Additionally, Bavaro says a to-be-determined portion of space will be used for R&D projects to develop new edible products and herb varieties. A second phase is also in the works, although the official beginning of that phase doesn’t yet have a start date.

Technology, Bavaro says, also played a significant part in making now the time to launch an aggressive expansion. A few years ago, even, the various equipment being utilized wouldn’t have been available.

“It all comes down to money — we know this,” Bavaro says. “We as a company can grow something manually and it will come with a certain cost. But if I instill new technology, it reduces the cost of doing business and keeps us growing a consistent product. We’ve spent a great deal of money here on automation systems, tables, water purification and other spots. It’s a huge investment, but it’s the right move for this category.”

Building out a new facility also involves working with customers to pre-plan what will be grown and if the build is even worth doing. Chan, for instance, says his role in the expansion was working with the sales and marketing departments to first strengthen current retail partnerships and map out their product needs over the next six or 12 months. Additionally, it means looking at expanding into new stores with current retail partners or forging new relationships altogether (currently, Rocket Farms products are primarily available in California and a handful of neighboring states).

“The plan that we’ve had is to leverage existing trends,” Chan says. “Fresh produce has been booming in the last few years, but the pandemic has really pushed that forward. So not only is it looking for new customers, but it means reinforcing relationships with new customers as they ask for more. And we have to leverage our innovation, be it technology or finding the right mix of products or even the right packaging. It all has to be top of the line so we can grow together.”

“Our retailers are trying to read the tea leaves too,” Klusendorf says. “Every single day is a challenge of trying to redirect focus to the right spot for us.”