Imagine a product where it’s completely unstandardised with quality that varies dramatically even within the same shipment, where its value decays rapidly, and is subject to frequent supply gluts and shortages (it’s either one or the other). Yet your customer pays a premium price for this product and you’re expected to consistently deliver in quality and quantity just like you are with any other premium product.
Welcome to the fruit game.
I attended Fruit Logistica in Berlin last week and this was the largest trade show I have ever seen for any industry! (according to the exhibitors – 8,500+ exhibitors). It’s where the who’s who of the industry ply their wares every year – with budgets to show their clout in the industry. The sheer scale of this trade show was mind blowing.
Funnily enough, unlike most other commodities in the world, fruit is a commodity that has never had a properly traded market (like iron ore, grains or pork bellies). Yet it’s an industry that’s worth hundreds of billions of dollars worldwide. I suspect the variability and the difficult in standardising products is the key reason why trading in this commodity still occurs as it does back pre-biblical times with individual market participants quoting prices to each other with very little price transparency.
As a result, there are literally tens of thousands of traders each skimming a little margin from the value chain. Each trade is necessarily once-off and you’re only as good as your last trade.
So how does one build a “moat” in the this game? (which to me is the only way to build a long lasting, enduring business). Here’s what I observed as a common theme between the titans of this industry (e.g. Chiquita, Del Monte, Pink Lady, ENZA etc).
They all went narrow and deep.
Each of the above businesses focused on one particular fruit and went vertical in that particular fruit. They may diversify into other fruits later on, but they always focused on one particular fruit initially to go vertical where they can control the supply chain (to ensure quality) which then goes on to enable marketing under their own branding. They also acquire production (i.e. farms) across different parts of the world which then enables year-round supply across the globe.
In other words, these players build a moat which compounds upon itself as they’re able to consistently match supply and demand across the globe in the most profitable manner. On the contrary, if you looked at a local grower, they’ll basically be subject to the same gluts and drought cycle with everyone else – not a great position to be in.
As always, there’s competing hard, and there’s compete smart.