Produce is really its own economic animal. Matthew D Arrigo, D Arrigo Brothers Co. of NY, Inc.

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1 PHOTO COURTESY OF FOUR SEASONS Four Seasons is among the wholesalers providing merchandising services to retailers. Wholesalers Up Their Customer Services To Keep Things Moving Beyond day-to-day buying and selling and what this means to profitability for everyone in the supply chain, the wider economy is creating ripple effects that have led to challenges and opportunities for produce wholesalers. BY CAROL M. BAREUTHER, RD The produce business is like no other when it comes to tough economic times. Matthew D Arrigo, vice president of D Arrigo Brothers Co. of NY, Inc., in the Bronx, NY, explains, Produce operates within its own economics. It doesn t thrive or decline in a good or bad economy. It s supply and demand driven. Markets do their own thing. For example, demand for blueberries has grown exponentially over the past 10 to 15 years, in spite of the recession. Another good example is that when it is 11 degrees outside, demand for fresh produce drops because no one is going out to the supermarket. Yet prices remain high because there s a freeze that has created a shortage. Produce is really its own economic animal. Money Matters The top economic challenges we face as a wholesaler are the same as any well-run wholesaler in any part of the country, says Nathan Stone, chief operating officer of Ben B. Schwartz & Sons, in Detroit, MI. That is, watching expenses and watching credit. For example, it s easy to let the floor help costs get out of control, especially in a union shop. The new federal tax hike and its effects are something that Steven Piazza, president of Community-Suffolk, Inc., in Everett, MA, is watching. That $20 to $30 out of a pay check could easily represent a Friday night dinner. Produce is really its own economic animal. Matthew D Arrigo, D Arrigo Brothers Co. of NY, Inc. This could produce a trickle-down effect, especially to moderate and low price restaurants. There s overall less produce used when restaurants serve less dinners. Also, this could drive chefs to look to other areas. Maybe storage potatoes, parsnips and carrots, for example, which are closer to home and have better pricing and consistency. However, easy money in the form of low interest rates presents an economic opportunity. Says Stone, It s easy to borrow money now and expand facilities, the fleet and even update technology. For example, we ve updated the technology to operate our coolers so they run more efficiently than a decade ago. In the long run, this will save us money. Ron Carkoski, president and CEO of Four Seasons Produce, Inc., in Ephrata, PA, agrees that the ability to borrow is an important opportunity. We as wholesalers are assetstrong, he says. There are trucks, trailers, warehouses, forklifts and more. We need a stable banking environment and the availability of funds at a reasonable rate. This provides the opportunity for acquisitions to develop a deeper business model and for capital improvement in order to maintain relevancy. Four Seasons built a 240,000-square-foot facility in Since that time, the lighting system has been completely retrofitted to lower operating costs, and 10 ripening rooms were added along with all new refrigerated MARCH 2013 PRODUCE BUSINESS 29

2 rack storage. The company plans to expand another 55,000 square feet over the next one to two years. Added Services One of the chief economic challenges, according to Joel Fierman, president of Fierman Produce Exchange, in the Bronx, NY, is that of getting paid. There s a need to be extraordinarily careful on credit, he warns. The risk versus reward isn t as great as it used to be. Carkoski agrees, adding, These are tough times and it s tough on businesses. We ve seen multi-generational family-owned retail businesses that have decided to close up shop and head into a different realm. As a supplier, it affects us, and it provides us opportunities toserveaswell. Added benefits are one way Fierman courts repeat business from good-paying customers. With the economy the way it is, it costs more for us as merchants. Delivery isn t a value-added for us, it s a value-subtract. I m absorbing the cost in order to appeal to a customer with a better pay rating. I don t really have any choice. If I don t do it, someone else will. Community-Suffolk s Piazza confirms this, too, We re definitely offering more services, especially for our good customers, he says. Longer hours, more cross-docking, palletization and delivery. Economy or not, another challenge for produce wholesalers is retail consolidation, shares Greg Cessna, President and CEO of Pittsburgh, PA-based Consumers Produce Co., Inc. There s been a lot of consolidation in our area as the independents disappear and the large national chains centralize buying 30 PRODUCE BUSINESS MARCH 2013

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4 offices, he says. This has shaken up our customer base. It s also created a different supply structure. We re not the primary supplier to the chain; we supply the shorts instead on demand. That means we have to be nimble, faster on our feet and respond when demand is difficult and this is a challenge. One way Cessna has turned this situation into advantage is to make his company indispensable by astutely managing the supply chain. We supply the retailers with what they need, and we manage the perishability, he explains. We can also repack and service an order the same day. This makes us more valuable as a result. Retail consolidation has led large chains to have the strength and capability to buy, manage, distribute and market their own produce. Four Seasons Carkoski says his organization took a strong look at what they 32 PRODUCE BUSINESS MARCH 2013

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6 We as wholesalers are asset-strong. There are trucks, trailers, warehouses, forklifts and more. We need a stable banking environment and the availability of funds at a reasonable rate. This provides the opportunity for acquisitions to develop a deeper business model and for capital improvement in order to maintain relevancy. Ron Carkoski, Four Seasons Produce, Inc. termed wholesaler by-pass in What this created was a plan to not replace the company s traditional wholesale business, but actually enhance it by looking at where strengths lie and turned these into other businesses. Today, Four Seasons is a family of companies that provide services such as logistics, transport and international sourcing. Carkoski says, We look to provide the services that will help our retail customers be successful, because that s a win-win for us. Merchandising expertise is one way wholesalers coast to coast provide essential services to retailers. For example, Four Seasons hired the director of produce from Genuardi s, who, with his staff, keeps customers up to date with current trends and provides technology and other resources for maximizing the profitability of ad programs. Similarly, Coast Produce Company, based in Los Angeles, CA, also brings merchandising expertise to its retail customers. Mark Morimoto, senior director of sales and business development, details, We especially work with small independents that don t have a large staff in areas like merchandising sets, point-of-sale, schematics and ad promotions like deals-of-the-day. Independents have an advantage in that they can react faster to opportunity and attract customers. That s why we often see large national chains that are struggling. 34 PRODUCE BUSINESS MARCH 2013

7 Trucking, freight car and piggyback... It s all about manipulating the manifest for greater effectiveness and efficiencies. That means consolidating loads, diret delivery and partial delivery, such as making deliveries along to the route to Boston, not just going straight to Boston. Steven Piazza, Community-Suffolk, Inc.. PHOTO COURTESY OF FOUR SEASONS Transportation And Logistics The high cost of transportation isn t helping to grow produce sales, says Fierman Produce Exchange s Fierman. Consider that when lettuce sells for $6 or $7, transportation can cost $8 to $9 per box, he says. Most of us are absorbing it. It s difficult to pass on to the consumer. The consumer is price-sensitive, too. To minimize freight costs, Community- Suffolk s Piazza says it s essential to mix it up on the logistics. Trucking, freight car and piggyback... he says. It s all about manipulating the manifest for greater effectiveness and efficiencies. That means consolidating loads, direct delivery and partial delivery, such as making deliveries along the route to Boston, not just going straight to Boston. The loss of business from retail consolidation in Southern California has provided Coast Produce an opportunity to work in areas other than strictly supply. One of these areas, says Coast Produce s Morimoto, is logistics. We foresee transportation as huge. Moving produce around, especially in a time of transition, such as when a vegetable item moves from northern to southern California or from the Imperial Valley to Yuma, is a vital need, he explains. It s even more difficult now with MARCH 2013 PRODUCE BUSINESS 35

8 We especially work with small independents that don t have a large staff in areas like merchandising sets, point-of-sale, schematics and ad promotions like deals-of-the-day. Independents have an advantage in that they can react faster to opportunity and attract customers. That s why we often see large national chains that are struggling. Mark Morimoto, Coast Produce Company transportation laws restricting the number of hours a driver can run. As a result, we ve seen an opportunity to get distribution of a product from Point A to Point B. This allows us to be a conduit within the supply chain and be able to connect independent retailers to growers of unique products they may not otherwise know about or had access to. This helps both the supplier and buyer. Similarly, the Four Seasons family of companies includes Sunrise Logistics. Sunrise is a third-party logistics company that works withimportersaswellasdomesticgrowerson the West Coast who need a place to store product and then manage it on the East Coast. The company operates some 100 trucks that collectively travel 18,000 to 25,000 miles a day. We are a logistics facilitator, says Carkoski. We work in liaison with big retailers to transport their products as well as our own wholesale produce. For example, we might have five purchase orders on one truck going to a single distribution center. One might be a Four Seasons product and the other four POs are for other companies stores. Sunrise is a separate business entity, but it fits in with wholesaling. It s also the fastest growing of our companies. Earth Source Trading, another company belonging to Four Seasons, is a direct source 36 PRODUCE BUSINESS MARCH 2013

9 available and its quality in real-time. This way, they can take advantage of special pricing and just-in-time deals. Another way produce wholesalers are using technology to grow is through social media. Consumers Produce Co. s Cessna states, This is especially true in the area of B2B (business to business). We follow retailers on social media and can therefore better anticipate where they are going, what they will need and where we can be strategic. Four Seasons Produce has embarked on a five-year program to look at every major information technology function the company now performs and assess it against future needs and wants. Carkoski says, This is a deep dive on the human resource side, but it s essential to maintain relevancy in this business. Relevancy is more important than simply buying and selling. Morimoto agrees, adding, There are always opportunities out there. It s just about finding them. After all, people have to eat and they know produce is healthy. pb shipper with access to retail chains that warehouses produce for offshore suppliers who seek to market and distribute their product on the East Coast. The opportunity to provide warehouse facilities is something that Coast Produce has capitalized on as well. Morimoto contends, Large national retailers that own and operate a warehouse are experiencing rising costs and overhead in the form of electricity and healthcare costs of employees, for example. One component of our new Partner Program, which we ll launch in April, is to serve as a third-party warehouse or distribution center for retailers. The Power Of Technology Computer technology has taken off over the past five to ten years. Fierman says, Payables... receivables...they are all at my fingertips. Yet it s hard because a lot of the independent grocers in our region are oldschool. They still use manually generated checks. We re cutting-edge, while 60 to 70 percent of the retailers we work with haven t upgraded to computerized systems. Coast Produce is working with its independent retail customers to show them the benefits of technology. Morimoto points out, The traditional advantage of the wholesale market was the buyer s ability to walk and talk and touch and feel the product. We re seeing a de-emphasis in this at the Los Angeles Wholesale Market. Now, to keep in touch, we ll be offering the closest thing as part of our new Partner Program. Even the old-school produce guys have Smartphones. We re making it possible for them to upload a live interactive video feed and see what s MARCH 2013 PRODUCE BUSINESS 37