More than Milk

Dusty Highland is firmly rooted in modern times, but the fourth-generation owner of rapidly growing Smith Brothers Farms still centers his company on a time-tested business practice that dates back to colonial New England.

Despite having a fancy app and a business model built around acquisitions, new products and corporate partnerships, Kent-based Smith Brothers still assigns an employee to each delivery route.

“At the end of the day, it comes back to that personal level of service,” says Highland, who has served as president and chief executive officer for almost 10 years. “Every week, the same man or woman comes to your door, and gets to know the names of your kids, or leaves a milk bone on your porch box for your dog.”

The Smith Brothers Farms box, with its vintage-style image of a milkman making his way to a customer’s home, is a nostalgic sight in Seattle. The family-owned dairy has been delivering milk for 103 years. It still does, yet now does so much more.

Though the company had been peddling grocery items for a decade, the concept really took off during the pandemic. When thousands of panicked customers tried grocery delivery services for the first time, many chose grocery stores or apps like Instacart, but a good portion landed on Smith Brothers Farms. Existing customers also added more to their carts. Since then, weekly customer delivery has risen from 53,000 to 73,000, while the average order size has grown along with it.

The 375-employee company — it has 14 family shareholders — now makes 2.7 million deliveries a year, a 35% increase from three years ago. Privately held Smith doesn’t reveal revenue, but Highland says it has increased 50% since the pandemic began.

The groundwork for all of this had been laid in previous years when Highland and his team invested in technology that streamlined their operations — from delivery and route optimization software to a process for signing up customers. “We were fortunate that was ready to go, and we were able to ramp up much more quickly than we would have otherwise,” he adds.

Smith has also established partnerships with about a dozen high-profile restaurants and vendors to sell and deliver their products, including Tutta Bella, Blue Star Donuts, Ellenos Yogurt, Beecher’s Handmade Cheese, several bakeries (including Alki Bakery and Macrina), Trophy Cupcakes, Uli’s Famous Sausage and Pacific Coast Fruit Co.

In tandem with Pacific Coast, for instance, Smith Brothers offers a seasonal harvest produce box. The partnership allows both to compete with traditional grocers.

“While we are best known for our fresh milk and dairy products,” Highland says, “we’re excited to expand our delivery service to include a greater selection of produce, meat and other locally grown and prepared foods.”

More partnerships are coming. Highland hopes to expand the product catalog by up to 800 products in coming years. “It’s been kind of a crazy four years,” he says. “So, this year, we’re finally, hopefully, getting back to a solid foundation that is less about massive change and more about tempered growth.”

“When you’ve been around for more than 100 years, you don’t want to be the one to screw it up.”

Dairy, though, remains a core part of Smith’s business. In 2019, the company bought a Portland dairy company, Alpenrose, dripping in history. The purchase gave Smith Brothers a significant foothold in the Portland market, and Smith now delivers dairy and other food products throughout the city and surrounding areas. The iconic Alpenrose brand still exists, but shares many common products and operational functions with its parent company.

Prior to the acquisition, Alpenrose had focused on wholesale delivery, but is now growing in the home delivery space and, like Smith Brothers Farms in the Puget Sound region, has its own iconic cooler box.

“One of the magic things about this business is, once you see a neighborhood with a certain number of porch boxes, it becomes a badge,” Vice President of Revenue Josh Reynolds says. “People think, what’s that? Where do I sign up for that? It’s fun to see that evolve in Portland.”

Alpenrose owns the dairy facility in Southwest Portland, but not the land, which is being redeveloped, so the dairy purchased Larsen’s Creamery in Clackamas, a Portland suburb. Alpenrose will move its operations to the new 9-acre campus later this year. Smith will use the new facility to expand on the butter products Larsen’s is known for (including European-style butter).

Smith two months ago also opened a new 40,000-square-foot distribution center in Federal Way to serve as its hub for local deliveries. The $20 million warehouse has 28,000 square feet dedicated to refrigeration, almost four times the refrigerated space in the Kent warehouse. The facility employs 90.

As orders began increasing, the company’s Kent warehouse was physically “bursting at the seams,” Highland says. Limited space meant the company had little room for error. Highland recalls a time workers couldn’t find a pallet for baked goods in the warehouse that needed delivery, and the company found itself paying lots of overtime to keep up.

“We had to do more real-time ordering, our purchasing had to be tighter, all that,” he says, adding that the new facility paves the way for exponential delivery growth, especially for produce, meat, and other locally grown and prepared foods. “We realized, unless we got a new distribution center, we weren’t going to be able to give customers everything they want.”

Many, though not all, products are locally sourced, and the company today finds itself at the intersection of fresh and fast. In 2021, Zion Market Research pegged the online grocery delivery services market at $286 billion, with no signs of slowing. The subscription e-commerce market is also exploding, and is expected to reach $904 billion worldwide by 2026, more than seven times what it is now.

Historically, Highland and his predecessors have benefited from the fact that the company’s core customer base — families with young children — drink a lot of cow milk. One of the company’s most effective marketing strategies is partnering with groups for new parents.

“When kids stop breastfeeding or drinking formula and they started getting on milk, it’s kind of been, all right, now I’ll sign up for Smith Brothers,” Highland says. The company also captures the family demographic at farmers markets, fairs, and summer events. However, families phase out of the service once kids have grown up and drink less milk. A wider product menu is a hedge against that. People are drinking less milk, but are increasingly consuming items such as ice cream, cheese, butter, and yogurt.

Still, the company faces fierce competition from large grocery chains and national players such as Instacart. Highland says it all comes down to a matter of trust. That’s where the milk-delivery model comes into play.

He vividly remembers the lessons he learned as a child when his great-grandfather (Ben Smith) and grandfather (Dan Smith) were running the company.

“What I’m proud of is that while we’ve made changes with technology, and added products, we’ve kept the same general business model and it’s still working,” he adds. “It’s still resonating with people. When you’ve been around for more than 100 years, you don’t want to be the one to screw it up.”