Issue 17: Niche Markets

Issue 17
Jul/Aug – 1994
Story Title: Niche Markets
Author: Steven Carruthers

At a recent Sydney Hydroponic Association grower meeting, the Managing Director of Pacific Hydroponics, Garry Cahill, delivered a well-attended lecture on niche marketing. Garry’s lettuces now fly the world, not as packaged exports, but dished up as salads and garnishes in thousands of airline meals. Pacific Hydroponics is situated on the Central Coast of NSW, and it is the major lettuce supplier to Qantas and Ansett airlines.

Garry began his lecture by describing today’s typical hydroponic lettuce operation, its method of marketing, and identified a number of niche markets that could be developed. He concluded his lecture by challenging his listeners to a debate on changing the present marketing strategy for hydroponic lettuce.

“You don’t need me to tell you that the price of lettuce is dependent upon supply and demand,” he began. “And you don’t need me to tell you that if the demand is not there, then the price goes down again.” Garry said that the price of lettuce can not be rationalised under the present marketing system, such as at Flemington, Sydney’s major produce market.

“It’s just too fragmented,”he said. “I think that not only hydroponic growers, but all growers, need a different marketing strategy.”

Garry described the typical hydroponic lettuce operation as a family-run enterprise, where mum, dad, and the kids, and perhaps a few other people to assist, put in their labour for often little return. And in many cases, mum and dad don’t get paid in order to make ends meet.

“You only have a family business propped up by the goodwill of the family,” he said. “If you are going to establish any business where the produce is going to be a saleable commodity, then it’s got to survive on its own two feet. If mum or dad go, and someone else takes over, then the lettuce must continue to be produced and marketed at a profit.

“He emphasized that the first thing growers should do is value the product correctly, by getting out of what he terms the ‘family mentality’. He believes growers should change their attitude from installing more channels, to grow more lettuce, in order to balance the farm revenue when the price of lettuce falls.

“Growers should be channeling their energy toward a different marketing ploy; to prop up the price of lettuce,” he said. “Instead of propping up the production, they should be propping up the price.

Niche markets provided an opportunity for growers to increase their revenue. However, to develop these markets successfully, a number of sales techniques are required.

Packaging is an area that needs to be improved. According to Garry, every box should be the same. The size of the box will dictate the number of lettuce it will hold, but each box should contain the same number and quality of lettuce for it to become a saleable commodity.

“The bloke who sells his lettuce is the bloke who has a box crammed full of lettuce.”

“The ideal box is a celery box, and people will tell you they can only fit 8 or 10 lettuce to a box,” he said.

“That’s a lot of rubbish. I know you can squash lettuce into a box and it doesn’t affect their quality at all; the buyer knows that. You give the customer something he wants.The bloke who sells his lettuce is the bloke who has a box crammed full of lettuce.

“Consistency is important. The buyers know whether you have loose packaging or tight packaging. If you’re going to achieve a market, and hang onto that market, then you can’t vary the product.

Giving away samples is another method used to develop niche markets.

“We were over generous in giving away samples,” he said of Pacific Hydroponics. “We would make up 20 boxes filled with every type of lettuce we produced – about 11 varieties. It wasn’t costing us anything because we didn’t have a market.

“We also have free delivery 6 days a week. If the customer wants fresh lettuce Monday, Wednesday and Friday, we deliver Monday, Wednesday and Friday.

Garry added that when he first captured the airline market, he spent four hours a day packaging and transporting 8-10 boxes of lettuce for nearly two months. He was convinced that eventually the orders would increase, and they did.

Product variation was another area that Garry considered needed development.

There is such a wide variety of produce that can be grown hydroponically including herbs, endive and Asian vegetables. I have found that chefs get a real kick out of saying they have a farm that grows produce for them. But you have to be able to grow for their requirement,” he added.

The lettuce Pacific Hydroponics grows for the airlines is different from that grown for retail suppliers or restaurants. According to Garry, some want big hearts, some small hearts; some want small leaves, others big leaves.

So you’ve got to speak to the buyer and find out exactly what they want.

Price was an area which had the growers undivided attention.

“When it comes down to price, after packaging and delivery you need an absolute minimum of around 35 cents a head. That’s your base, and you start from there.”

The niche markets Garry identified were local fruit markets, clubs and hotels, restaurants, schools and hospitals and supermarkets. He also spoke on interstate and export markets. Flemington, he said, should be considered as a last resort; not the first. In his opinion, if a lettuce only fetches 35 cents a head, there’s not enough margin to give an agent $1 to $2 a box. He added that there are no guaranteed sales, and the price was subject to wild fluctuations.

“Fancy selling lettuce to someone without knowing at what price, until the cheque arrives from the agent,” he said. “If you went to a bank for a loan, they would laugh at you if that was the basis of your income.

“Flemington is being used less and less by the big growers. They now sell their produce direct from the farm.

“The providor is your only competitor.”

Local fruit markets offer growers an advantage because they save the proprietor having to go chase produce.

“You may be surprised,” he said. A reasonable fruit market will go through 15 boxes of hydroponic lettuce a week – that’s 3 drops of 5 boxes a week. All you need to do is string together a run of these markets.

Clubs and hotels always want fresh produce. At the present time they are supplied by providors.

“The providor is your only competitor. He buys the lettuce from the market, sticks it in his cool room, and delivers it to clubs and hotels every second or third day; and he says it’s fresh.

“You’ve got the perfect answer, because you can show him your produce is farm fresh, “said Garry.

Restaurants want variety. If you are growing several different types of lettuce, a restaurant will take half a box of one, half another, and so on.

“You might sell 5 boxes of mixed lettuce once or twice a week, and if the restauranteur knows it’s fresh, the chef will often pay more. The owner of the restaurant may not; but the chef is only interested in quality.

“Now, if you are getting $12 a box from a restaurant, as opposed to $2 or $3 a box at market, it means you only have to sell one box to the restaurant, or 6 boxes to the market, to achieve the same revenue,” Garry said.

Hospitals and Schools are niche markets which only operate by account. According to Garry, that’s the way business is today, and growers have to change and be prepared to offer an account.

“So you have to spend some time on the phone chasing money from time to time; but what the heck if you get a cheque every fortnight.”

Supermarkets and chain stores are other niche markets, where the central buying office for some branches of Coles and Woolworths allow managers to buy direct from local markets.

“All the manager can say is no. But you won’t know unless you ask. All the manager needs to do is make a call to the central office, and more often than not, Head Office will give the manager permission to purchase produce locally.”

Interstate markets also offer niche marketing opportunities. This is one area where the grower needs to establish a good relationship with a reliable interstate agent. When the price demands it, an interstate agent will often ring an interstate grower for supply.

If he wants it, give it to him,” said Garry. “Don’t tell him you haven’t got it. Ring other growers and give the agent what he wants, and you will always have that market. This is a market where you can move reasonable quantities.”

“The future of hydroponic marketing should be debated now . . . “

The export market strategy is short and simple. Make contact with overseas buyers, which can be assisted by contacting various government bodies. Export markets, according to Garry, will not happen overnight, but he sees it as perhaps providing the solution to long-term pricing strategies.

“The future of hydroponic marketing should be debated now,” said Garry. “We should develop closer associations with each other so growers can become stronger, instead of being fragmented like they are now.

“There is no doubt in my mind that major buyers will ultimately buy direct from the grower. Traditional markets like Flemington are going to fall out of favour because growers have been kicked for so long, and I think they have had enough.

“There’s going to be a large increase in out-of-season hydroponic crops. There is a fabulous market for Asian vegetables. And there’s going to be large production areas established once the demand for Asian vegetables is realised.”

Garry also predicted that growers will eventually process their own produce, which they will sell to chains such as Sizzlers, McDonalds and KFC. These buyers, he sees, will eventually carry salad bars to compliment their menus.

“Overseas buyers will also go direct to growers. They don’t want to talk to agents. The decision maker is the grower, and the buyer wants to elliminate the middleman.”

Garry believes strongly that the way we do business today is going to change. He believes small, family-run operators will combine and market under one arm. He believes growers will gain strength in order to develop new markets. He believes growers will form themselves into an organisation with a marketing arm that gets out there and markets hydroponic lettuce; conducts promotions; establishes packaging policy; and develops a rapport with the market. This same organisation will police the quality of its produce. In such an organisation, growers will receive an agreed price, and profits paid as a dividend.

“The changes I have outlined are not going to happen in 10 years; they’re going to happen in two years,” said Garry. “Particularly the development of Asian vegetables, and export markets.”

In concluding his lecture, Garry invited the growers to discuss the present marketing strategy, and to debate with other growers the points he had raised, particularly the future marketing of hydroponic produce.