April, 1991

Fruits of Thought

Bold New Venture

An extremely interesting experiment has been going on this year down in Houston, TX. A brand new produce company was recently born using geographical, technological and organizational advantages combined with an experienced staff and an awful lot of good old-fashioned money to establish itself as a contender in the produce field.

The new company is ICN Produce, and it looks like this firm will end up as the fourth or fifth largest importer of Chilean fruit in the U.S. this year.

How did they do it? And is there a lesson about opportunity that we all would do well to learn from this experiment?

The basics of what ICN has done is this: The parent company built an extraordinary new facility in the Houston port. The quarter-of-a-million-square-foot facility is extremely modern and up-to-date. The produce quickly goes from a ship to the facility, which is completely refrigerated – not only in the actual holding rooms, but also in the staging area where produce is being prepared for either storage or shipment. The facility has high-tech gizmos with bar codes going on every pallet and a computer-guided produce retrieval system ensuring that the proper produce is shipped out to customers.

But it is not the high technology that really makes this company interesting. Though the facility is certainly top-notch and is unique, a big part of ICN’s business is actually importing its own fruit.

The facility by itself wouldn’t have built this business. A bigger idea was needed for that. Philadelphia is, to coin a phrase, the mother of all ports for imported Chilean fruit. On the west coast, Long Beach has carved out a niche. Aside from those two, most of the efforts to diversify ports of entry for Chilean fruit have failed. And principally they have failed for five reasons.

1) No trucks, 2) No variety, 3) Inadequate supplies, 4) Irregular supplies, and 5) Improper facilities to handle the fruit.

When people decide to bring a little fruit into a port, they almost ensure the project will fail. Trucks are not attracted to the small shipment of a full range of supplies, and fruit that isn’t shipped out daily or isn’t inspected promptly will be stored in conditions that guarantee a deterioration of quality. So the first thing that gives the ICN project a chance is that its managers were very bold: They went in and made an enormous investment and commitment not only in the facility but by chartering the ships, advancing money on the fruit and putting together a sales staff. This has enabled ICN to show buyers they are in business to stay and are serious. It is this seriousness that really gives the project a chance.

Another point that makes it feasible is that, in effect, geography is in their favor. It is not just because transportation costs can be cheaper from Houston to many Midwestern and southern areas than from Philadelphia or Long Beach. Though that is true, it matters less than people think. The produce industry has unusual distribution patterns, and the business of putting together truck routes takes produce on unusual paths. You will likely see ICN fruit in Boston and San Francisco if it’s not there already.

What may be crucial is the way geography warps the sales efforts. In March, when Chilean fruit is overflowing, every salesperson from Philadelphia is pushing every customer they can think of, including Southern and Midwestern ones. But in December, when grapes are scarce and you are talking $30.00 prices, everyone knows the market is going to collapse.

The natural inclination of an importer is to sell as close to the port as possible. So the chains and wholesalers in the Midwest and South often don’t get pushed. It’s not necessarily that the chain buyers couldn’t get fruit if they call and ask, but absent that, importers are likely to see where they can sell it within hours of Philadelphia, not days. After all, who wants to risk a bad arrival claim on $30.00 grapes?

This exact dynamic will probably push the ICN folks to offer early fruit to their Texas and Midwestern customers. This will likely mean that these customers will start the season working with ICN, and this will help ICN hold onto a good portion of the business.

If ICN’s marketing of the fruit makes them willing to work closer on warehousing and shipping than others, that will make a difference as well. One thing you can be sure of is that the Chileans will be carefully comparing the account sales from ICN and the boys in Philadelphia. If ICN can produce higher returns by keeping expenses down or selling stronger, the point will be noted.

And, of course, where it will stop nobody knows. ICN is already planning and scheming on how to handle more product in more diverse areas. Other commodities such as seafood and beef are already being handled. Product from Mexico and the Caribbean can’t be far behind. Others seeing this project go, as well as ICN itself, might look at opening other facilities in other places such as New Orleans, or perhaps the Pacific Northwest.

Out there is some giant who may just read this article and see in this modern building on the port of Houston an entrée into the 21st century’s produce trade. All the elements are there to tap into industry trends such as increased imports and exports, diversified points of entry and exit, high technology utilization. People who invest in businesses like this often take risks in the hope that they will be able to cash out to a really big boy. No one at ICN told me about this, but it’s the way of the world. Any takers?     pb