Road to profitability not paved with commodities – The Bottom Line

A commodity is a mass-produced unspecialized product, which is why commodity producers are price-takers.

Superior quality garners a bit of a premium, but at the end of the day producers either sell their commodity grain, livestock, fruits and vegetables at the world price or watch their buyers go elsewhere.

So imagine selling corrugated boxes, which is a plain Jane product if ever there was one. Then imagine what it’s like to be a tiny player – say, someone with one small plant in Mississauga, Ont. – trying to battle it out against industry giants with dozens of plants.

“People look at paper and corrugated packaging as a commodity, and I’ve certainly got lots of competitors who are hanging onto that commodity mindset,” says Larry Cooper, owner of that little Mississauga plant.

“But you know what? They’re seeing their margins vanish. And they’re still losing customers to the larger companies. We don’t want to sell a commodity. We want to sell a value-added niche product.”

C&B Display Packaging has done just that. While Cooper’s fellow small-fry are being hammered, C&B increased its sales by 15 percent last year, and he expects 20 percent growth in the current fiscal year.

As its name suggests, Cooper’s company now focuses on those snazzy, graphic-laden cardboard display cases and boxes. In fact, if anyone has bought a Tim Hortons gift pack, it may have been a C&B display rack that first caught their eye.

So how did Cooper transform his 25-year-old company?

Oddly enough, not by obsessing about his business. Instead, he obsesses about the business of his customers and his would-be customers.

He and his design experts go to their plants and look at how they use packaging and what causes them problems. They buy products packaged by competitors, take them apart and try to figure how to do it better.

“We research our customers up and down,” Cooper says.

For one auto parts company, C&B looked at its product and how the company’s workers inserted the parts into boxes. It came up with a new design that allowed the parts to be inserted more quickly. What’s more, it offered to assemble those boxes and deliver them every eight hours, which would dramatically cut warehousing costs. The pitch was irresistible.

“They just went, ‘do you know how much that will save us? That is huge,’ ” Cooper says.

“We did our research and thought about it, instead of just going to them and pitching on price. If you do that, all you’re doing is inviting a competitor to come in, offer them a penny less per unit and steal that account.”

This may seem far removed from agriculture, but it’s not. Lots of agrifood companies are built on helping their customers prosper.

Do the users of what you produce have problems with quality, traceability, delivery schedules or product characteristics? Sure they do. Do you have a solution that could win you their business? You’ll never know if you don’t investigate.

If you go this route, be ready to change the way you operate.

And the changes never stop. Don’t expect to hit a few home runs and then coast. Cooper figures he loses 25 percent of his business every year, often because the big boys have seen what he’s accomplished and moved in on that business. Today’s value-added niche product can quickly morph into tomorrow’s commodity.

“You can have four big accounts today. Three years from now you’ll probably only have one of them left,” Cooper says.

“Doing things differently, coming up with new ideas and finding new customers isn’t something you can afford to stop doing.”

There’s no doubt that finding a way to make a commodity into a value-added niche product is tough. But that doesn’t mean it can’t be done.

Glenn Cheater is editor of the Canadian Farm Manager, the newsletter of the Canadian Farm Business Management Council. The newsletter as well as archived columns from this series can be found at www.farmcentre.com.

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