Each week, we seek out expert advice to help a small or medium-sized company overcome a key issue.
In the beginning, Evelyn and David Ernst couldn't grow cranberries quickly enough. Demand was high, and they were so busy at their operation, Terra Beata Farms Ltd. near Lunenburg, N.S., that they bought and marketed cranberries from other producers in the area.
But over the past five years, the market has become more crowded, with bumper crops in recent years from Quebec and Wisconsin, the cranberry capital of the United States. "The world supply of cranberries has been getting bigger and bigger," Ms. Ernst says. Ample crops make prices drop, and Terra Beata's profit margins have at times swung like a yo-yo.
The obvious answer is to find new markets. But Terra Beata hasn't been able to do that too successfully, especially in its own backyard. Established in 1998, the company ships frozen cranberries all around the world, even to Russia. (But not the United States, where competitor Ocean Spray Cranberries Inc. of Plymouth, Mass., looms over all others.) Terra Beata's revenue was about $3-million last year, and it employs from eight to 30 people, depending on the season.
The company's profit margins can be quite thin, especially when it ships overseas. Ms. Ernst says that recently, they sold cranberries at $1.46 a kilogram to buyers in Rotterdam, the Netherlands. But they had to pick the berries, clean them, freeze them, grade them and package them in 18-kilogram cardboard boxes. Terra Beata pays the shipping costs. By the time the berries reached Europe, the Ernsts were left with just 22 cents a kilogram. Five years ago, they kept $2.20 for the same amount. "We can't survive doing that," Ms. Ernst says.
So Terra Beata would prefer to sell berries closer to home. It has managed to crack the Canadian retail market in a few small ways, such as when Sobey's Inc.'s Atlantic division started a campaign to sell local produce and began carrying Terra Beata's fresh berries and finished cranberry products such as salsa, chutney, jelly, cranberry mincemeat and no-sugar-added sauce.
The Ernsts would like to sell across Canada, but they are finding it difficult to crack the two major grocery chains, Sobey's and Loblaw Cos. Ltd. They could sell to independent grocers, but high freight costs make the product more expensive.
Ironically, U.S.-grown berries are sold across Canada. Ocean Spray is the world's largest supplier, with a co-operative of 600 farmers, including some in Canada. About 18 per cent of Ocean Spray's supply is grown in Canada, but all of it is shipped south for processing.
So Terra Beata pines for more retail trade, where prices are more stable than commodity markets, and they figure they have something to offer: Their dried cranberries are not as infused with sugar as those of their competitors, their juices are not made from concentrates, their products do not contain additives or preservatives, their 10 gourmet chutneys, salsas and marmalades are premium products. Their canned cranberry sauce, they note, does not slide out like a solid tube.
The Challenge: How can Terra Beata Farms get its foot in the door of domestic retail markets?
THE EXPERTS WEIGH IN
Ed Strapagiel, freelance consultant in retail marketing and advertising, Toronto
There are two ways to make money in this business: volume or margin. Terra Beata will likely never be able to play the volume game and take on a large and established player like Ocean Spray.
Getting out of the commodity trap and gaining high margins requires a very high-product quality, or at least a strong perception thereof. In short, go gourmet. This includes not only the physical product and creative spinoffs, but also how everything is packaged and presented. Then charge whatever it takes to make a profit.
Terra Beata should try to hold onto its international markets, too. These can be extremely valuable and could be very difficult to replace. But the product has to be desirable enough for Americans, Europeans and others to be willing to pay a significant premium. Terra Beata could then price in U.S. dollars and mitigate its foreign exchange exposure.
Steve Letovsky, senior partner with LBC Consulting Services, Saint-Laurent, Que.
Marketing research is required. They need to look at the market size and determine the degree of loyalty by brand, and the strengths, weaknesses, opportunities and threats to both your brand and Ocean Spray. Do this for the U.S. market, probably on the Eastern U.S. coast.
Terra Beata also should investigate the possibility of establishing a relationship with a small producer in the U.S. Often there are medium- or smaller-volume companies that need a little help to move up to the next level. Adding a strategic partner will help both companies. Maybe a joint brand, but for sure a joint venture.
At the same time, see if there is an interest in private labelling, such as President's Choice, the store brand of Loblaws.
Terra Beata should also network, building relationships with individuals who can effect change such as distributors, brokers, buyers and suppliers. Work the trade shows. Unique marketing plans, including social media, are also important.
Alain Menard, co-founder, Green Beaver Co., Hawkesbury, Ont.
I called the health food stores, and I see they are carrying conventional cranberry products, and that tells me that the organic cranberry market isn't quite saturated yet. Maybe there is an opportunity there.
From our own experience, we just recently got into Loblaws [Green Beaver makes and sells personal care products such as toothpaste, sunscreen and shampoo with all-natural ingredients]. We had tried for four or five years. We got a broker, a middleman who has established relationships with retailers and distributors, who can provide support and promotion for your product. Buyers can be bombarded by 10,000 companies, so they'll go through the brokers, who will sift through a lot of stuff for them. Of course, you'll have to give away a couple of points by doing that – in other words, pay the broker a percentage.
Terra Beata needs something to differentiate their product somehow. If they can't, then they should try some novel delivery, such as with packaging or marketing. But the advantage of that is short term, because somebody can come along and copy it.
Another thing: We buy certified organic cranberry seed oil, and there's definitely a market for that. You use seed oil for personal care or sunburn prevention. I buy it from B.C., but I would buy from a supplier who is closer. You need a cold press to get the seeds out. Find a certified organic cold press place in the Maritimes or buy your own and process other seeds. This is something you can get into because it's more of a high-end thing, a byproduct of the cranberries.
THREE THINGS THE COMPANY COULD DO NOW
Aim for a high-end market that could include organic products and cold-pressed oils.
Do market research
Find a way to create a unique position for the brand, through product innovation or packaging.
Get a broker
Build relationships with people who can effect change, such as distributors, brokers and buyers.
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