Following an issue of the Pundit that featured two articles focused on corporate change, Univeg Intends To Buy Ready Pac and Sunkist And Pure Gold, we received this letter from one of the trade’s more eclectic minds:
It interesting to speculate from outside why companies make the decisions they do. Our business is dominated by family and closely held private companies, so we never really know who is successful.
Looking at the Univeg/Ready Pac article and the Sunkist article one after another, one wonders if they are making bold future thinking moves or are they just preparing to slog through more of trench warfare that is the produce business.
At the most basic level most of us have a fixed cost through which we must move sufficient units in order to make a profit. The biggest killer of businesses is where scale gets out of whack, especially in the capital intensive parts of the business.
The Pundit speculates that Univeg benefits from being bigger and being able to serve a larger retailer like Delhaize, and comments on the European model of a few traders serving a large customer.
Think eggs and baskets and K-Mart and Fleming. It is less global supplier than more like outsourcing the buying function. You’re not the life long partner, you’re the guy from the temp agency.
Sunkist has a lot of sheds and a lot of people not doing anything right now. It needs to move the volume through the system, and it might as well. If not the parallel and totally old school system of recent immigrants in rented u-hauls will come to a farmer with a van full of unemployed freeze victims and offer him cash for his crop, pick it, haul it to the LA market, sell it to a wholesaler, and it will end up on the shelves of a supermarket owned by a publicly traded company. No food safety, no green cards, no bank accounts. Maybe not the ReadyPac business model but at least this guy didn’t have to merge his business to pick up working capital.
Pundit, don’t you just love this business?
— John Pandol
Partner, Pandol Bros.
John is always good for getting to the heart of the matter, and business transition is always a challenge to analyze. Yet we do know some things.
Heinz Deprez, the Univeg founder and CEO, has a reputation as among the shrewdest minds in the European produce trade. Here is how one of our friends in Europe put it to the Pundit:
“Hein Deprez is probably one of the smartest and brightest operators in the business that I know. Low key but very focused and strategic thinker.”
One perspective, as John points out, is that if one becomes dependent on one big customer, one can be in trouble if that customer gets in trouble as did K-Mart. Which is really to argue that one needs to select one’s customers with care if one is going to seriously align with them.
Although we may have all grown up being told not to put all our eggs in one basket, Mark Twain had a different take:
Put all your eggs in the one basket and — WATCH THAT BASKET.
Pudd’nhead Wilson, Pudd’nhead Wilson’s Calendar, Chap. 15
This perspective was endorsed by Andrew Carnegie in his essay How to Succeed in Life and, in variations, by Warren Buffet and others.
And, put bluntly, who has made more money in the produce industry than those who grabbed on during the early days of Wal-Mart’s produce program and just kept picking up product lines and DC assignments?
As John points out, few of these relationships are contractual. However, in the sense one is a “temp agency,” the reality is that once one has, as John puts it, gone the route of “outsourcing the buying function,” it is not that easy to pull it back in.
One is reminded of the old saw that if you borrow $100,000 from a bank, then the bank owns you, but if you borrow $100,000,000 then you own the bank.
A given banana company may be dependent on Wal-Mart for an irreplaceable amount of its sales, but Wal-Mart is also dependent on that banana company for a not easily replaced amount of supply.
It is not exactly an equal relationship but it is far from a trivial matter for someone to dismiss a global supplier.
Yes, Sunkist is in a difficult place as is any shipper whose focus is one commodity grown in one place. And, indeed, they need to sell what is available. So packing some sub par citrus under another brand may make perfect sense.
But this is not the first and presumably not the last freeze. The saying goes “Fool me once, shame on you, fool me twice, shame on me.” The real question is what is the management of Sunkist going to do to make sure that it will not be so vulnerable to a freeze in 2012?
The business has its wacky moments. I vividly remember some retailers rejecting product and the shippers then consigning it to my family’s wholesale operation. Then I remember the product being bought up by the street buyer for the same chain that rejected it in the first place.
As Yogi Berra said upon hearing that a Jew had been elected Lord Mayor of Dublin: “Only in America!”
Many thanks to John Pandol for his intriguing letter.