Grand Forks, North Dakota

“Direct Line was born out of necessity,” says a confident Rod Holth, one of the founding partners of this innovative partnership composed of North Dakota food processors and private investors. He believes firmly in the future of his venture. “I see Direct Line as becoming one of the major North Dakota food distribution companies,” he says.
An accountant by training and formerly a banker by profession, Rod believes that the future of North Dakota agriculture involves more than generating income from high-value crops. He also believes producers of high-value crops must become processors and distributors so they can take what they? grow from “farm to fork” and make money by adding value at as many points in the food supply chain as possible.

But it is a challenge for a small business to effectively produce, process, and distribute their products to large institutional buyers. Rod is also involved with KIP Farms, a 7,000-acre operation near the town of Karlsruhe, and Dakota Fresh, a company near Jamestown that sells fresh-cut vegetables packaged as bagged salads. He learned about the challenges firsthand almost as soon as Dakota Fresh began operations in 2002. “Large institutional customers such as hospitals and universities want to buy as many different products as possible from only a few vendors. One more truck backing up to their door is just one more invoice that needs to be processed and paid. It doesn’t matter if you have a superior product and the price is right. They don’t want to go there. It’s additional work,” he explains.

While trying to expand KIP Farms’ customer base, Rod learned more about the realities of being a small producer. KIP Farms’ primary crop is potatoes for the frozen french fry market, but to avoid insect and disease problems, KIP Farms can produce potatoes only every third year. In order for the operation to be able to grow high-value vegetables every year, it needs a market for those vegetables—a market Rod hopes Dakota Fresh will help create. But to increase its customer base, Rod realized, Dakota Fresh must penetrate those markets currently being served by the larger food distributors.

Reflecting on this challenge, Rod knew there had to be other North Dakota food processors experiencing the same problems. He says, “We started calling around and found several others with the same experience. We decided that if we would join forces on our marketing and distribution, we could then start our own distribution company. These conversations are what helped spawn Direct Line.”

Along with the money from partners and private investors, financial support for Direct Line has come from a variety of local funders, including the South Central Regional Council, the Jamestown-Stutsman County Job Development Authority, and the Ottertail Power Company in Jamestown. Direct Line has recruited companies such as Schepp’s Dakota Deli in Lansford; Master Potato, processor of refrigerated hash browns and other potato products in Hatton; the Granary, a processor of frozen beer-cheese soup in Fargo; Maverick Meats and Bar V Meats, both in Jamestown; Kidco Farms, an onion processor in Dawson; and Folson Farms of East Grand Forks, Minnesota, which sells red table potatoes.

Schepp’s Dakota Deli has been in business since 1995 and has expanded sales beyond North Dakota, but company owner Lyle Schepp did not feel as though he was managing a regional operation. As Lyle sees it, acquiring a regional status is contingent upon penetrating the restaurant market; for help with that objective, he joined Direct Line. Lyle explains, “When you get into a customer’s place, it’s good to have a menu so you can offer them a variety of products, not just one.”

Time constraints are another reason Lyle now relies on Direct Line for help in marketing and distribution. Customers expect deliveries at specific times, and meeting those demands can tax a small company and its owner, whose responsibilities range from making sales calls to ensuring that the delivery trucks remain in working order.

Another challenge small producers experience is competing against large, established food distributors with well developed sales programs that often include customer incentives. As a result, some companies in North Dakota that Lyle approaches are not always willing to give a start-up a try—even if the start-up is based in North Dakota. “It’s not really a fair playing field,” Lyle notes. Here, too, Direct Line helps small businesses compete.

Initially, Direct Line is focusing on sales within North Dakota, and its logistics and strategy seem to be working. Rod explains, “We stop at each plant at a certain time and load up product. We already have three different routes throughout the state, so the truck is running almost continually every day of the week. During the summer months, we’ve been doing a lot of bidding on food packages for schools, universities, hospitals, and state institutions.” The potential for Direct Line looks promising, especially if partners such as Dakota Fresh have access to more North Dakota-grown produce. Rod says the majority of vegetable consumers live east of the Mississippi River, which makes transportation from the Midwest rather than from California an attractive option. Or, put another way: a one-day truck trip from the Midwest would reach a market of about 80 million people.

Rod concludes, “In time, Direct Line will be able to build warehouse and office space right in Jamestown. Everyone’s heard of the saying ‘If you can’t beat ’em, join ’em.’ Well, in our case, when you think about going up against the bigger food distributors, it’s more like ‘If you can’t join ’em, ?beat ’em.’ That is just what Direct Line plans to do.”