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ID Innovator Costa: Niche Produce Distributor, Processor

When Manuel Costa was thrust into running the successful fresh fruit and produce distributorship that his father had founded, he soon realized that his Boston University English degree was hardly representative of the skills that he could tap to lead the business.
To be sure, Manny, as he is called by his friends and associates, was not unfamiliar with the produce business for he did load the company's trucks when he wasn't in class. Nonetheless, undaunted, young Costa searched for inspiration and guidance, and found both some 24 centuries ago and half way around the world.
By immersing himself in the teachings of Sun Tzu, a fourth century BC Chinese military strategist, as he elaborated in his "Art of War," the emerging distributor executive learned that "every army has places, where it cannot fight." Costa discovered that he could not successfully operate his small, niche distributorship in the same manner as the behemoths of the foodservice distribution industry did. In order to service his customers with high-quality produce, develop new products, compete with the large corporations and thrive, Costa realized that he would have to design his own strategy.
Costa inherited not only the business from his father, Manuel Sr., but his love for the product, as well. The elder Costa, a native of the Azores Islands, started in the business in the 1930s as a buyer for a local company and during World War II he formed his own business to supply U.S. warships with produce. With the armistice he lost his war trade and declared bankruptcy. Soon afterward he launched another company, which evolved into Costa Fruit & Produce. Its first warehouse was located on Congress Street and a couple of decades later it grew into a 100,000-square-foot facility in Boston's Bunker Hill Industrial Park. By 1975, the company was enjoying annual sales of $3 million and a great reputation with hotels and white tablecloth restaurants in south Boston.
That's when Manny, fresh out of college, joined the firm and shortly thereafter his father fell sick and ultimately succumbed to his illness in 1981. The younger Costa found himself running a foodservice distributorship through what he called "baptism under fire." Though it wasn't his first choice for a career, he found it interesting enough to accept the challenge.
"You realize that it's one of the basic services of the world, selling potatoes. And if you were going to succeed, you had to add an element of creativity to what you were doing, to sell potatoes differently than someone else. To be a little bit better than the other company and to offer products in a slightly different way," says Manuel R. Costa, now president of the distributorship that was awarded ID Magazine's Innovator of the Year 2001. In tribute to his father, Costa created a company logo, which features a picture of his still youthful father running all over his native islands, delivering fresh fruit and vegetables.
Turning his weakness into success, Costa was able to develop key strategies that grew the business: potatoes expanded to an entire cornucopia of produce, fruit, meat, seafood and non-produce products, value-added processing, food safety expertise and sales and brand-name and marketing tactics based on product type rather than territory.
Costa encapsulated the distributorship's mission as developing "our value-added service to essentially shape our products and services, systems and methods to complement our customers operations in an increasingly specialized manner." The company handles that task by increasing its customers' sales profitability or reducing their cost, he says, adding that "we're very bottom-line focused with them, somewhat like co-management of results."
This business model has produced enviable results for the company. Costa notes that when he assumed leadership of the firm, it had steadily grown to $8 million in sales. He then set it on a sales pace of $20 million and today the figure is at $95 million.
Costa's principal marketing and sales thrust consists of three teams of sales representatives, each one focusing on a market segment rather than on territory. They are: Team Foodservice for Retail, Schools Pro and Team Fresh. The former two teams' segments are obvious, while the latter's, the largest, includes hotels, restaurants, colleges, and B&I. Realizing that no two customers have the same program, Costa's sales teams work "hand-in-hand" with their customers in developing customized, unique, even seasonal products.
"What differentiates us is that we are market focused rather than territorially focused. So we have sales teams that focus on very distinct marketplaces and that's all they do," Costa explains. "They don't venture out of the market segment. And all of the teams are branded."
As a small, niche distributor, Cost determined that in order to engage the marketplace with a phalanx of DSRs, he would have to devote more resources than were at his disposal. "That led to the notion of funneling resources to very specific marketplaces. There was an opportunity to take some of those resources that we weren't allocating to a large DSR network and to convert them to operating programs, to convert them to degrees of specialization. That was our goal with our Team Sales System. That's what we have done, we've taken a very focused approach," he explains.
Costa points out that even though the distributorship does not staff sales reps, the company still contacts and visits with customers on a regular basis. "We don't have people dedicated day in and day out to routinely visiting customers. We're out there, conferring with them, consulting with them, but I think that it's a different bent than procuring orders from them. It's more in the vein of new programs, new products, asking the customers what are some of your challenges that you want us to get working on. It's the whole consultative selling approach, except I really think that we brought it to a certain level, where we are very closely knit with our customers."
The company's successful operator salad bar program, recalls Costa, did not evolve from that side of the foodservice industry but from the retail segment. For Costa, it was a penetration strategy. "We looked at that market several years ago and saw that salad bars were popping up everywhere but the customers didn't have expertise with them," Costa says. "We started serving the market, which was perfect for us. For one thing we have a perishable specialization, we have a fresh-cut specialization and we sought to develop a whole how-to program right down to managing it for the customer, consult for them, come up with their themes for the signage. Then we extended that to the foodservice world."
Prior to Costa's involvement in this product sector, operators had large salad bars that were left virtually unattended, a foodservice orphan. "By branding the salad bar, we boosted its visibility. We added themes, posters, signage, merchandising," Costa notes. Furthermore, he continues, salad bars were getting a bad rep among operators because the labor was so demanding and without attention the product could lose its fresh element - "its essential value." Satisfying this market need grew into one of Costa's most visible attributes.
The benefit of ready-to-use products, Costa says, is "that you have just so much time and labor and do you want labor peeling carrots or cutting cucumbers or do you want labor keeping the salad bar full, abundant and clean, and the latter is what the consumers are looking for." In a home meal replacement environment, he saw a doubling and tripling of revenue just by doing a salad bar makeover and adding appealing signage.
Having developed the successful Team Sales System, Costa is humble enough not to cast aspersions on the traditional DSR structure, adopted by many large and small broadline distributors. "You have to have a lot of resources to develop a large DSR presence. We brought in a large number of people and duplicated a model of a larger broadliner and from a resource standpoint I realized that this was not where we were going to be," Costa recalls.
Costa is adamant that specialization will remain a hallmark of the distributorship. "It's a model that works for a niche specialist and the thrust of this isn't that there aren't a lot of salespeople on the road, the thrust of it is that the focus is on the customer. That's incidental to the end product, which is a customer who feels that you're really tied in to their challenges," explains the Innovator laureate.
Costa's says his company's proficiency is in the following fields: abundant quantity of high-quality products, fresh fruit and produce, food safety and quick turnaround. One factor contributing to this was the establishment of Pro*Act in 1991. Conceived by him and a couple of his colleagues, Pro*Act is a purchasing and marketing collective for broadliners and produce specialists that allows the members to compete nationally while retaining their independence. Today its membership roster numbers 35 companies with 45 distributing centers and annual sales of $2 billion. Inspectors monitor the handling of the fruit and produce from the time they are harvested to when they are loaded onto trucks. "Produce, of all the perishable lines, requires the highest degree of specialization," he points out. In addition to HACCP rating, the distributorship has also earned a "superior" rating from the American Institute of Baking for the work done in its value-added fresh-cut processing facility. Costa is also a member of UniPro.
Costa's concern for supplying his customers with a sufficient amount of useful fresh-cut produce information is also reflected in the company's website, www.freshideas.com. He says it was a conscious tactical decision to make the site active, rather than passive. "I saw a lot of people putting a lot of money into websites, and that's great, they're very useful," Costa observes. "But I also found that they have been passive in that you look at it once, you gain the information that you want and you go on."
In order to retain customer interest, Costa takes advantage of e-mail as the driving force in promoting not only the firm's website but key industry sites, as well. "Our thought was that e-mail was such an effective tool to reach somebody and everyone wants product information in a quick and concise format. Take that information and place several links below it, which would then induce the recipients to hit the links and go to our website to find out about new products, a new salad bar program, new operator programs and even contests," he says.
Costa also added links to Epicurean locations, food safety experts and the Produce Marketing Association, www.aboutproduce.com, which, he believes, "offers the quintessential information about produce." He found that the hit rate on the "value-oriented" and "fun" site "would climb dramatically" after sending 1,200 e-mails every week. "You have to be inventive on how to reach customers," he reasons. "You have to be inventive or else you'll be competing on price."
While he believes that company- or industry-hosted websites as well as e-commerce, in general, are the sign of the future and his distributorship even employs an information systems manager for this purpose, Costa expressed his concern about the perceived confusing proliferation of sites and the costs needed to maintain them. "For the midsize distributor, it's a struggle, you really have to have a technical department to keep up with the interfaces. It's the shape of things to come but hopefully there will be some harmony in all of this."
On the other hand, Costa is not as equally convinced of the benefits of EFR and standardization of codes. To be sure, the company is participating in some EFR initiatives that could help his firm, but, he adds, they would probably benefit more other companies. Larger firms, with an immense number of skus, need standardization to keep track of their products, he notes, but as for Costa, "As specialists, we're used to handling a product."
Another proactive tactic, used by Costa, is food shows, though he frowns on that name as it pertains to his company. "Ours are focused presentations. They're not standard food shows. We do very focused, segment-oriented food shows," he says, explaining that they would be geared toward each team sales unit, feature keynote speakers and offer new product ideas. The company hosts one presentation a week, either at its headquarters or offsite.
With an emphasis on high-quality, fresh-cut produce that is prepared and handled safely as the outward drivers of his business, Costa also comes forward for his customers with well-documented analytical studies. A self-avowed frustrated writer, Costa quenches his desire to be published by preparing each research paper by himself - though in this case it's not cloak-and-dagger, or adventure, or romance but how to be successful in your business.
"Part of the sales and marketing effort is making the customer understand that though they might be paying a dollar or two more a case, it's actually cheaper for them. We'll show it with mathematical formulas and by actually testing it," he says. For example, a recent study compared yield from an $8 bag of onions versus a $10 bag. After contrasting labor, time and yield, Costa discovered that the more expensive bag is actually cheaper for the customer. "We did another study that has been replicated and it has become a sort of bible for operators. It dealt with peeling a bag of carrots. And that's the difference in selling produce. You really have to deal with the product in order to have to sell it," he suggests.
As busy as he is in running a successful company, Manny Costa is not miserly with his skills and experiences. His founding of Pro*Act is but one example of his gregarious pro-industry involvement. He has been chairman of the National Freshcut Produce Association, a member of the Produce Marketing Association, and has readily participated in industry conferences and seminars. He spoke at a seminar during a recent National Restaurant Association Show for the National Association of Purchasing Managers.
"If like to devote so much time to industry associations," he says. "You try to work for the betterment of the whole industry. Realizing that in the freshcut industry you're as strong as the weakest link in the industry. You really even want to help your competitors become safer producers because if people get sick on their product, it affects everybody."
Not oblivious to the business benefits of his industry activism, Costa continues, "I get out there a lot. It helps with the name recognition of the company." Inasmuch as his customer base is basically national, "then you want to be known nationally and when I'm sitting on these boards, you're rubbing elbows with national buyers for restaurants."
And, he humbly recaps, "it satisfies something that I need to do."
Costa's knowledge and involvement are not without public recognition. In the past he has been recognized by ID Magazine with its Achievement of Merit distinction and was inducted into the NRA Hall of Fame. He has also been dubbed chevalier by the Confrerie de la Chaine des Rotisseurs, an international gourmet society.
Costa does not intend to sit complacently on his laurels but is looking to expand his territorial horizons beyond Boston. He believes the company has a "nice leadership position" in the produce market and he will keep building on its capabilities. A 14-15 percent growth rate would be effective for the firm, Costa says, while anything more will jeopardize its achievements and ability to service the marketplace. As for acquisitions, Costa is looking to branch out, for example, to Burlington, VT, southern Connecticut or northern Maine, wherever his company could offer a value-added business model, become a competitive entity, provide more products and improve service. "That sounds like a tempting model. Something that sparks my interest," he replies thoughtfully, probably savoring the same taste of interest that convinced him to head the company some 25 years ago.

Product safety, flexibility
Attract Naked Fish to Costa

By being able to distribute not only fresh produce but also seafood and meats expeditiously and safely, Costa Fruit & Produce Co., Boston, has earned the respect and business of the management of the Naked Fish restaurant chain.
Arthur Morris, vice-president of purchasing for the Massachusetts-based chain, explains that the distributorship was able to provide consistently value-added products, at competitive prices, while maintaining freshness and a high degree of safety.
"We needed someone to distribute products while we would drive that product through their distribution network, and do it competitively. We needed someone with experience in quality control of that product. We didn't want temperature abuses. We needed for them to respect the value of the product in the box. And really important for us is freshness of the seafood. It is paramount to turn the product quickly," observes Morris.
The Commonwealth of Massachusetts is the venue for nine Naked Fish restaurants, which are mid to upscale casual restaurants, featuring seafood and meat dishes with a Caribbean, Cuban and Latin flair. Opened in May 1999, the chain boasts $3-3.5 million in sales per location, with the average check at $25.
Morris, who does not consider himself a fan of large broadline distributors, prides himself on doing his own purchasing. For example, he says, he would locate a seafood supplier and make a deal with it. "We asked them not to be a seafood distributor but seafood supplier and do a certain level of processing for us, value-added cutting. And we said we would take distribution because we have a strong player who can handle distribution and drive the product out to the restaurants for us. And we wanted Costa to fill that part for us," Morris says.
"What was real critical to us was that we could place orders in the morning and the following morning our restaurants would get the orders. What would happen in between was that Cost would consolidate the order. We did the same with our meats, chicken and pork," he notes. Costa supplies the chain with most food products, except desserts.
Morris' relationship with Manny Costa's distributorship began in the late 1980s, when he was in charge of distribution and manufacturing for Naked Fish President and ceo Joey Crugnale's first restaurant chain, Bertucci's. "We did our own distribution until 1993. During that time I introduced Costa to Bertucci's because I needed processed vegetables for our manufacturing operation, making soups, lasagnas and sauces for Bertucci's restaurants," Morris recalls.
Bertucci's fulfilled that task in house until the chain grew to 40 locations. "When we hit the New York market, we began to look at the advantage of outsourcing both the distribution and production," he says. "While we were growing distribution to a point, where we needed to outsource, we began to use Costa in the restaurant for direct delivery of produce. And they were very successful."
"By being willing to stretch their capability," Morris notes, Costa handled Bertucci's distribution throughout New England, New York and the mid-Atlantic market. "They helped us grow down the Eastern seaboard - and they supported restaurants in Washington, DC, and Virginia."
"They brought excellent processed vegetables to us, fresh cut products, and in the early 1990s, when we had a labor crunch, it was excellent to have someone to deliver quality cut products into the restaurants on a consistent basis. They filled the bill and eventually took over all of the restaurants, maintained all of the distribution of produce for 74 restaurants," Morris states.
Another beneficial feature of the chain's relationship with Costa, according to Morris, has been the distributorship's analysis and consultation, not only on products but also on costs and labor. "Periodically they would come to us and say, 'We have aligned ourselves with a supplier and we could bring this product in to you at a competitive rate,' and he gave us a yield analysis and factor labor costs and help us make a decision if we wanted to move in that direction. They would do that proactively on numerous items," Morris points out.
Costa's value-added processing of fruits and produce improved efficiencies for Naked Fish. "They are saving us money and we're a partner in that. They may give us a product that may save us money but we still have to do the actual savings," Morris observes.
Meticulous attention to safety, good service, knowledge and business style are a few additional characteristics of Cost Fruit & Produce that Morris spoke of during our talk. "Costa had enough expertise in distribution. I truly wanted them to bring their experience in maintaining the cold chain. They have strong experience with HAACP guidelines through their Fresh Ideas program. We are certain that their focus is on constantly making sure than cold things stay cold, handled well, and nothing gets abused. You don't see products sitting out on the docks. Handling the product, to me, is a critical piece of distribution," Morris says. This trend is evident throughout the organization, he adds, "from customer service, to the purchasing team, to their warehouse guys and their drivers. They're top notch."

Harvard feeds students' brains,
While Costa satisfies their stomachs

College student's feeding habits no longer consist of a greasy burger with fries and a dollop of ketchup on a bun with a cherry Coke. College cafeterias have evolved into dining halls, with a more sophisticated array of foods, according to D. Michael Miller, assistant director and campus executive chef at Harvard University Dining Services, Cambridge, MA.
"College students' dining habits have changed tremendously in the past 20-25 years. The student is a far more savvy consumer," Miller observes. "At Harvard, you have the best and the brightest and you want to keep them happy."
According to Miller, today's students are more attuned to health, dietary and food-safety information and adjust their eating habits in conjunction with what they have read or what is healthfully in vogue. "Students are eating a lot healthier and there's a lot more vegetarianism," Miller says. These factors along with labor issues pose challenges for Miller and his staff.
The dining service at this prestigious American institution of higher education is a self-sustaining department, which means that it pays its own bills and funds itself, Miller explains. Furthermore, the 630 employees in 24 dining facilities, providing some 25,000 meals a day during the academic year, must compete with local fast-food establishments for the student's lunch money.
Miller relates that contemporary students demand chicken in any form, as much fresh fruit as they can get, options running from healthy food one day to tacos the next, stir fries and salads. In some instances, Harvard's chefs do not cook meals in unseen kitchens but to order, right in front of the students.
Partnering with Harvard in satiating students' palettes for the past nine years has been Costa Fruit & Produce Co.
"We have a fresh fruit salad that we make every year for commencement. We literally make thousands of pounds of it. To make that much fresh fruit salad, I had to dedicate a whole bunch of labor to it. We came to Costa and they packed the Harvard fruit salad because I wanted it packed only in water and I didn't want it packed with any preservatives in the water. So they pack it just for us and to this day they just pack Harvard fruit salad for us," Miller recalls. "At that point we were really looking to improve the way we were doing business and buying produce and Costa partnered with us. We came over to see the facility, to see what they were doing and they just keep doing new and better things."
Miller and his staff have also picked Costa's brain about new product development and food safety. With the number of meals that the staff prepares for the Harvard community, food safety is critical. "We need all the protection and security we can get." As for innovative foods, Costa again came to the rescue, Miller notes.
"They've helped us with some tough items that we wanted, some specialty Asian products, black bean sauce, rice noodles. They've helped us much more broadly," Miller points out, adding that the distributorship also assisted with theme salad bars for the dining halls and a variety of seasonal promotions.
"We really feel like we have a partnership with them. And they're just as interested as we are in providing good service so that we could provide good service to our customers," he says.

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