Question

Beckett Organics :

John Beckett enjoys vegetables, so much so that he has given up his full-time job as a lawyer to concentrate on growing and marketing organic vegetables. He started growing vegetables 20 years ago in his back garden and eventually became fully self-sufficient in supplying vegetables for the family. Partly bored with his legal job and tempted by an attractive severance package, John decided he would try to establish his own vegetable supply business. Eighteen months ago he looked around for two fields to lease in which he could grow organic vegetables.

Organic products including vegetables, is a growth market in the UK. Growers must adhere to strict guidelines in order to gain organic certification. Increasing awareness of the problems associated with many pesticides and fertilizers, coupled with an increased interest in healthy eating habits and ‘wholesome’ food, has meant that many consumers are now either purchasing or interested in purchasing organic vegetables. This is true not only of household customers, but in addition, many restaurants are using the lure of organic produce to give them a distinctive edge in the market place.

All this has meant that many of the larger supermarkets in the UK have begun to stock more and more organic produce from what was a relatively specialized market in the 1990s; the market has grown to where overall organic produce accounts for some 12% of the total UK grocery market and in worldwide terms as of January 2010 it accounts for approximately 3% of all food sales. The market for organic vegetables has grown more rapidly than other organic products and it is estimated that by 2014 some 25% of all vegetables marketed in the UK will be organic. This growth has been sustained at a rate of around 20% per year in developed countries. However, organic yields are between 10% and 20% lower than conventional agriculture, with crops like potatoes some 40% lower. Unsurprisingly, this makes organic produce on average around 40% more expensive than non-organic produce.

A.C.Nielsen Co. cite the case of the United States where organic sales eased in the second half of 2009 as middle- and upper-income families have felt the strain of layoffs and declining investment portfolios. Sales in December 2009 were up 5.6 percent, year on year, against a 25.6 percent rise a year earlier.

Organic vegetables offer several advantages over their non-organic counterparts:

• They are generally tastier, and because they are not treated in the same way, are usually fresher than nonorganic products.

• They are good for a healthy lifestyle as they contain no pesticides and chemicals.

• The fact that no pesticides or herbicides are used in their production means that they are much ‘greener’. For example, they help to reduce the problems associated with nitrates in the soil and water supplies.

• On the downside, organic vegetables are generally less uniform, and as far as some consumers are concerned, are less attractive in appearance. This lack of uniformity has also been a problem in the past with supermarket buyers who have traditionally looked for uniformity in fresh products to aid merchandising and marketing in retail outlets.

• Generally, organic vegetables are more expensive than their non-organic counterparts. Currently, on average they are somewhere in the region of 40% more expensive.

In the UK, anyone wishing to claim that their produce is organic, and market it in this way, needs to obtain the approval of the Soil Association, which checks the organic credentials of a supplier. For example in this case, they check the conditions under which the produce is grown and how the seeds used.

Two interesting developments are taking place in the organic produce market. One is the growth of home supplies. This is where the producer supplies direct to the householder. There are a variety of ways of doing this. Some smaller growers use mail-shots and leafleting to build up a client base. They then deliver locally to customers who order from a list. Very often the supplier will simply make up a box of a pre-determined value or weight containing a selection of vegetables which are in season and ready for picking. Other suppliers are using a similar system, but take their orders via the Internet. This is particularly suitable for this type of product as customers can check on a regular basis what is available and order from home. The produce is then delivered at a pre-arranged time.

The second development in the organic produce market is the growth of farmers’ markets. These markets are usually run by local authorities, often on Saturdays or Sundays. Local and other producers attend these markets, paying a small fee for a stall and then sell their produce direct to the consumer. These farmers’ markets partly came about as a result of the frustration felt by many farmers and growers at the way they were being treated by retailers and at the margins they were receiving. In addition, such markets have been successful because consumers feel they are getting fresh produce at lower prices than they might be able to obtain through supermarkets.

Despite the growth in the market for organic vegetables, after 18 months in his business, John is worried. Quite simply, his business has not been as successful as he envisaged it would be, and as a result he is not earning enough to make a living. The real worry is that he is not sure why this is the case. His produce, he believes, is as good as anything in the business. He is a very good grower and the land he has leased is perfect for the range of produce he wishes to grow. Starting with organic potatoes he now produces a range of organic vegetables including beans, sprouts, carrots, lettuce and his latest venture organic tomatoes and corn grown in poly-tunnels. Although customers he currently supplies are very loyal to John, indeed many are friends and acquaintances he has known over the years when he grew vegetables in his back garden, there are simply not enough of them.

As a result, his turnover which increased rapidly over the first year of the business has for the last six months has stagnated. He mainly supplies locally and has tried to increase his customer base by taking leaflets out and posting them through letterboxes in the area. He has done this by dividing up the housing areas in a ten mile radius around his growing area and dropping leaflets throughout the area to as many houses as he can cover on a systematic basis. Only some 2% of customers have responded with an order, usually contacting by telephone. These customers seem to come from the middle class areas. He has considered taking a stall at one of the farmers’ markets, the nearest of which is some 40 miles away and operates one day per month, but he realises this would not be enough to reach the turnover levels he requires. He has in the past supplied one or two local restaurants and hotels, but usually only when they have contacted him because they have had a problem with their existing supplier.

He has never followed these up. His growing area is currently too small to supply a major retailer, although he has been approached on an informal basis by the buyer of a voluntary chain of local grocers representing some 40 retail outlets in the county.

John is wondering where he goes from here. He cannot understand why his superior products are not selling well. A friend has suggested that John needs a more strategic approach to marketing. John is not convinced. He feels his business is too small to warrant any kind of marketing, never mind strategic marketing, and he has always felt that a good product should sell itself. He is, however, anxious to grow the business and become a leading organic vegetable supplier.

Answer all the questions, each question carries 10 marks.                                                (10x6=60 marks)

1. What advice would you give to John about developing his business through more effective strategic marketing?

2. Perform the SWOT for Beckett.

Answer 1

Introduction

The organic food market has been rapidly rising over the years, and is seeing increased sales, thanks to the fitness element which is now a part of the routine of people. The focus of people in today's fast paced life is changing to allow for such products to become more worthy. Even though the total population who wants to consume such products may initially be low, it is believed that there benefits are such that other customers usually follow. Either by word of mouth or through created awareness.

In this case, John's idea of selling organic food in my opinion is correct to the sense that he has identified a unique product which is of a superior value to the end customer willing to purchase the product. However in my opinion further, the marketing strategy which John is following is incorrect. John today follows a hit and trial method of marketing which revolves at creating local awareness and his limitations are highlighted from the fact that he never follows up with restaurant owners for a repeat purchase.

The concept of Strategic planning here has not struck him as yet which is the main downside and reason for him not being able to grow his customer base.

Strategic Marketing and how John will reap its benefits:-

Strategic Marketing is an approach which looks at increasing the overall sales of business by targeting the correct audience, and making sure that they are serviced in the best possible manner.

In this case, John is using a hit and trial approach in which his marketing efforts are limited to the area in which he produces. Further, he never tracks back the restaurants which have ordered its produce once and rather wants to sell to each one at the same time.

He also has no clear direction as to which product he would specifically want to grow so that he can maintain supply levels, thus allowing him to meet production targets and achieve profitability.

The first and foremost task of John must be to analyze the market and decide on the demand which each sector would offer him. Door to door selling or mailing would not offer high profit margins on one hand but would relatively allow lesser investments to be made. On the other hand restaurants would offer higher margins but would require higher investment.

In my opinion the best way to sell organic food for him would be to produce in bulk only one specialized vegetable which is seasonal and is required at a particular time and avail the benefits of profit.

After reaching back to restaurants for an example he would be able to trace the products which sell relatively higher and can then produce those goods only which are usually short in high demand season.

In the remaining months he can continue targeting smaller market segments for now and this would help him in maintaining profitability.

Thus, a mix of strategy in which for some months John produces specific goods is what is desirable for him. This would reduce the per unit cost and will allow him to sell relatively easily in the market place.

SWOT analysis for Beckett:-

A SWOT analysis is done to analyze the Strengths, Weaknesses, Opportunities and Threats for any business owner. In case of Beckett, these are as follows.

Strengths:-

The strengths of Beckett are that it offers a unique and growing segment product which has a higher margin if it sells in the right quantity. Further, Beckett has the required land which is necessary for producing such organic produce.

Also, the fact that these sell at multiple locations such as supermarkets, mail selling or to restaurants highlights that he has a large number of potential buyers to choose from.

Weakness:-

In my opinion the biggest weakness for Beckett is the fact that it produces in small quantities and that it does not follow up with the existing customers. This discourages repeat purchase. Beckett also does not have any plans of long term contracts and the approach of marketing which is restricted to 10 miles would not yield many results unless the demand in the region is relatively higher.

Also the fact, that the

Opportunities:-

Beckett has the opportunity of being an alternative supplier to the major restaurants which had earlier approached it for purchasing their produce. If the product quality is higher than current suppliers they could even hand permanent contracts which could be a game changer for the company.

It has also been approached by major retailer’s grocers of 40 stores which can give it business if he improves the production and uses targeted marketing approach his product can be a better seller.

Threats:-

One of the biggest threats currently is the strict government rules and increased cost of operations which are a big problem for him. Further a decrease in the income of the middle class may also have an effect on demand in the sector which is already under pressure from existent produce of conventional methods.