Group 5
Keith Hermes
Nathan Matroodnejad
Terence Alost
Ashley Miller
Hall Schneider
Matthew Troxler
Adrian Nikdast
Travis Clapp
Case Study Analysis
2012
.
[Type the company address]
[Type the phone number]
[Type the fax number]
3/31/2011
Table of Contents
FRESHTEC..................................................................................................................................................................2
CENTRAL PROBLEM: ..................................................................................................................................................3
GOALS AND OBJECTIVES:...........................................................................................................................................3
CONSTRAINTS: ...........................................................................................................................................................4
INDUSTRY ANALYSIS .............................................................................................................................................5
MAIN ISSUE.............................................................................................................................................................. 10
ALTERNATIVES ...................................................................................................................................................... 11
Alternative 1: ...................................................................................................................................................... 12
Alternative 2: ...................................................................................................................................................... 12
Alternative 3: ...................................................................................................................................................... 13
WORKS CITED ........................................................................................................................................................ 15
[1]
FreshTec
FreshTec LLC was officially created by Craig Machado, founder and chairman with over
forty years in the food product industry, in July 2004. He is the designer of a produce package
technology known as SmartPac. With interests in reinventing the fresh produce supply chain,
Perry Lidster joined FreshTec as the Chief Technical Officer in 2003. The two worked diligently
to perfect SmartPac though alternative solutions to address design issues. By the end of 2010,
five different designs and ten produce-specific uses of SmartPac were ready for promotion, and a
CEO was appointed: Bob Wright, a supply chain expert with multiple leadership positions
Senior management of FreshTec is faced with a set of circumstances that require making
a series of strategy-oriented decisions. The firm developed an innovative technology for produce
packaging by the name of SmartPac. They believe it could significantly change the way the fresh
produce industry would ship all their produce including fruits and vegetables, enhance the
growth of the company, and reduce externalities to the environment.
The senior management team includes newly appointed CEO Bob Wright, founders Craig
Machado and his son Christian, and other FreshTec owners. The idea of this packaging plan
known today as SmartPac came upon Machado in the early 2000s when he noticed something
had to be done to address the problem of waste and taste issues that were considered normal for
the industry. According to surveys that were given to consumers, 87% of them answered that the
taste of the produce is "very important" when they buy such products. Furthermore, the need to
deliver consistent produce is a year round objective. Machado had always faced these issues
while in the food transportation industry because many obstacles can deter the quality of the
produce during the process of delivering it from farm to fork. They believed this unique
packaging technology by the name of SmartPac would be the answer.
[2]
Central Problem
The central problem is introducing the SmartPac technology to a market which has not deviated
away from static growing practices and standard packaging solutions.
Goals and Objectives:

Implement Smart Pac into the domestic and global market
o New and advanced technology gives FreshTec a competitive edge. SmartPac allows
consumer expectations to be met and exceeded. Productivity and repeat purchases at
the retail level will increase due to the improved quality and new standard of produce.
o Expanding exports to developing economies and untapped markets will increase
global and domestic interest in the product. Access to new and distant markets is
obtained through lower rate maritime freight shipping relative to existing practices.

Improving the quality and safety of the fresh products to the end user
o SmartPac allows the produce to ripen through its natural biological processes.
o Reducing senescence through dry oxidizers is essential for FreshTec.
o It reduces post-harvest losses and physical injury through packaging design, also.
o The design allows for extra safety from bio-terrorism and provides accountability.

Reduce Carbon foot print of shipping
o It allows for flexible shipping alternatives through bulk loads and lighter packaging.
o It eliminates the need for repacking, rejected loads, and repackaging yield loss.

Obtain and sustain a significant advantages in the industry
o FreshTec wants to assist in providing quality and consistent produce during off-peak
times.
o They want to empower growers in the US and in developing countries to export
produce and bring additional employment and business in less developed regions.
[3]
Constraints

High Costs
o SmartPac boxes cost is significantly higher than traditional packaging. While
traditional standard packaging averages approximately $0.85 per carton for tomatoes,
SmartPac averages approximately $2.00 per carton.

Production capacity – Scale of operation
o FreshTec must have the ability to bring operations to a level in order to accommodate
demand. The growing foreign markets are populated yet have relatively lower
incomes. The best suited business colleague to scale with is unknown.

Influencing growers to change picking philosophy “Pick when ripe”
o The packaging requires a new philosophy of later picking times that the firm will
have to implement into an existing system. Proving the box works could require
visiting partners and farmers for instructing them on the purpose of the box.

Expanding the product’s use beyond high-end or luxury retailers will be difficult.
o Management must convince standard retailers to utilize the product because of the
cost/benefit trade-off. The CEO Bob Wright believes the SmartPac technology will
become a niche market for high-end retailers.
[4]
Industry Analysis
While consumers around the world persistently demand fresh quality produce and
consider quality as a major purchasing decision, FreshTec is devoted to compete for a segment of
the market in the fresh produce packaging industry. In order to obtain and uphold a market share
that has the potential to be colossal, management is required to unceasingly plan and organize
implementation strategies. These strategies are particularly targeting revolutionizing the fresh
produce industry with SmartPac Technology. The analysis reveals a structure of the strategic
positioning by utilizing Michael E. Porter’s five forces that determine industry profitability.
These five forces intend to create a basis for the influences and expectations concerning
competition and profitability: the threat of entry, the threat of substitutes, bargaining power of
suppliers, the bargaining power of buyers, and rivalry among existing competitors.
As FreshTec aimed to capture a portion of the produce packaging market with their
unique packaging technology, they were faced with various entry barriers that would have major
effects on the profitability of the company moving forward: customer switching costs, supplyside economies of scale, unequal entrance to distribution channels, and incumbency advantages
independent of size. Before they could enter the industry and compete with their rivals, they had
to conquer many other problems such as the senescence problem, the loss of fruit post-harvest,
the physical injury from harvest to delivery, temperature injury, and many more. Fresh tech
needed to solve all of these problems and to overcome the moderately high threat of entry in the
industry.
One of the first barriers to entry FreshTec encountered was customer switching costs.
Although the variable cost per unit is more than double for much of the produce items, the
switching costs the clients could incur could be detrimental to their operations. Very large
[5]
retailers already have a major logistical information technology system in place. Growers would
have to switch picking times and modify existing processes to allow for ripening; they would
have to adapt to a short term decrease in yield turnover to make up for the post-harvest loss that
is no longer being lost, also.
As a regular producer within the industry, there are few rules and regulations on the
production of boxes and production facilities to begin production. However, the company hopes
that it has taken the necessary precautions in order to protect their product from imitators and
therefore prevent entry into their blue water market with SmartPac. The patents extend to the US,
Japan, Mexico and South America. Although, the patents in foreign countries cover modified
atmosphere packaging, the American patents are only for the lid, the style of sealing that is to be
used with these items, and the specific type of box to be used in conjunction with the lid. This
does not include the actual concept of Map packaging as does the acquired foreign patents. This
may allow a competitor to begin use of the concept in other countries that the patents were
unattainable for and ship to the US. These patents represent the extent of barriers to their blue
ocean and if they should prove to be too weak FreshTec could soon find itself in a crowded red
ocean with little to no profit to show for their work in opening the market.
An additional barrier to entry they confronted was supply-side economies of scale. The
fresh produce industry’s leading private producer, Dole, currently applies a grower-to-retailer
supply chain in which they hire farmers and packers in order to distribute and advertise the units
to nearly 100 countries at every level of the industry: wholesalers, bulk merchandisers, food
servicers, and supermarkets. Unequal entrance to distribution channels is a barrier of entry for
FreshTec because the industry is very standardized with the use of the existing low cost
packaging.
[6]
Expected retaliation will need to be monitored, too. As more of the market is established
by FrechTec, competition will begin using strategic tactics in order to retain their clients
including price cuts and developing substitutes for SmartPac. With no salaries paid to
management, FreshTec does not possess the resources to take on the incumbents with established
market share and excess resources.
All current competitors will not have their market share taken by the SmartPac technology
because the channels are so restricted from the continued standardization of produce packaging
practices. Regardless of their size, incumbency advantages are cost, experience, and brand
identity. FreshTec must match these efficiency advantages with the benefits from the innovative
technology of SmartPac.
The threat of substitution should always be on the mind of the managers because it is low
for the existing competitors, and it affects the amount of profitability a firm can achieve. Several
factors such as cost, performance, quality, and availability determine whether or not there is a
threat of substitute products in an industry. Due to the high switching costs and priceperformance trade-off, FreshTec will need to shift the substitution threat in their favor if they
want compete in the market without causing negative deviations in the industry’s profitability.
The demand from growers in emerging economies may be able to assist in this shift and
growth potential. SmartPac is still at its implementation stage, but it contains attributes that exist
in no other type of shipping standard. SmartPac technology and performance is far more
superior then any existing shipping box due to its MAP technology. The standardized products
used in the industry are not the only competition to SmartPac technology. With the issue being
revolutionizing the industry’s normal procedures, rivals will always use innovative practices to
compete with the best SmartPac product in the market. At the moment, no other packaging
[7]
technology can match the performance and deliverance from post-harvest loss than that of
SmartPac. FreshTec must be able to provide clients with a mindset that the technology will be a
gateway to efficiency, also.
Within the industry, the bargaining power of suppliers is very low. Since the SmartPac
technology is the first of its kind in the fresh produce shipping and transporting chain, FreshTec
is attempting to acquire the power solely on the basis that it is the first time this product idea
with new technology has been brought to the market. Surely, the supplier concentration for this
new type of packaging technology is more concentrated than the industry. One can imagine;
there is not much that can be differentiated between boxes other than the materials used to make
them. The different types of materials that are currently used in the industry are wood, cardboard,
and plastic. Each of these materials has their own flaws that could be resolved through the use of
SmartPac. The wood containers are subject to mold and jagged edges can further injure fruit. The
cardboard box was weak and does not last long. Plastic containers are subject to theft in many
countries. Numerous suppliers of these boxes exist because of the ease of creating the box. The
degree of differentiation is low, also. All of these issues with currently used technology were
ignored simply because the materials were economical and movement towards another solution
would carry high costs that the majority of the industry is unwilling to tolerate.
This parsimony is what will allow SmartPac to enter the market with its “new” product.
Because the industry suppliers are completely focused on being the inexpensive alternative, the
only factor that comes into their minds is how much they can decrease the amount of fixed costs
and total production costs. This has helped to lower the industry standard of product even lower
and leaves plenty of room for an alternative quality product to enter relatively unhindered.
Buyers will take this into account, and they will look to FreshTec to find a way to offset the
[8]
higher price for added benefits. If the product impacts the market in a way to change the entire
way we ship produce around the world, then Fresh Tech can vertically integrate to gain more
bargaining power as a supplier.
The bargaining power of buyers refers to the pressure consumers can exert on businesses
in order for them to provide higher quality products, lower prices, and better services. The
bargaining power of buyers affects the competitive environment for sellers and influences the
industry’s profitability. Fresh-Tec’s customers would be retail stores or farmers who wanted to
keep their fruits and produce fresh before they were sold to consumers. Although the SmartPac
technology was expensive, it would benefit the end consumer, allowing produce to be picked
ripe; therefore, be able to stay fresh, maintain desirable texture, contain optimum sugar-to acid
ratio, and maintain superior vitamin retention. Retailers would end up saving due to SmartPac
significantly reducing spoilage and waste, improving food safety.
The bargaining powers of buyers in this industry are high with cardboard boxes being the
standard for shipping. Since only SmartPac boxes possess the technology that differentiates it
from the normal cardboard boxes, if the product took off, then the SmartPac would be the only
one of its kind and would be the only distribution channel for this type of packaging technology.
The buyers of the Smart-Pac technology are very powerful because they have the power to drive
prices up or down, demand better or less quality, and could choose to purchase from one of many
other competitors using homogenous items. If the buyer was not satisfied with that specific box
product, or with the price, then they could switch suppliers for a minimal cost, with similar
benefits. However, FreshTec has slim competition because of their unique technology. A buyer
has negotiating leverage if the industry’s product is standardized or undifferentiated, and there
are no other products equivalents to the Fresh-Tec technology. Therefore, their customers could
[9]
not go from one vender to another. SmartPac technology cannot easily backward integrate due to
its patented technology, and this raises buyer power also. Its' customers would typically be
buying in large volumes, which allows for higher customer bargaining power.
Because fresh produce is attempting to grow worldwide, numerous competitors already in
the packaging of fresh produce exist. Dole, who was the largest private company producing
fresh produce at the time, was under contract with growers and packers and developed a growerto-retailer supply chain of its own. They would then distribute and market their produce to many
in the foodservice industry, including supermarkets, mass merchandisers, wholesalers, and others
in more than 90 countries worldwide. Other growers who would supply larger firms were
independent contractors as well. Some of the larger growers would supply the packaging while
dominating the export and global market, while the smaller growers looked domestically. Some
of these growers owned packinghouses whose responsibilities included closely working with the
packer who handles, cleaned, and packed the produce before it was sent to the destination.
Traders and brokers also owned such packinghouses, and they would purchase the produce
straight from the farmer. They then transport the produce themselves to the foodservices when
they believed it was ready. The packaging used by such competitors varied: natural materials
such as bamboo, straw, or palm leaves were attractive because of the low cost and reusability.
However, FreshTec realized that such materials had flaws, such as awkwardness in shape and
substance was hard to clean.
High rivalry occurs in the industry mainly due to a lack of industry leadership and high
exit barriers. Intense pressure on competition arises from price competition and high fixed costs.
This can be damaging for the profitability of an industry. Another condition that leads to price
competition and declining profitability is capacity. The industry rivals are price cutting due the
[10]
desire to operate the business at very high capacities in order to reach efficiency goals. FreshTec
hopes to win customers from their rivals on the dimensions of quality, brand imaging, and
subsidiary servicing. This could cause a reaction that would increase the overall profitability of
the industry by expanding to new market shares and satisfying the needs of other customer types.
Choosing the right strategy will ultimately direct the nature of the industry rivalry toward the
direction of positive outcomes for other rivals.
Main Issue
Due to the fact that the industry has not deviated away from static growing practices and
standard packaging solutions, the central issue has been identified as supply chain
transformation. In order to determine the most profitable processes to ensure a reliable and
sustainable supply chain, FreshTec needs to implement the appropriate strategy to achieve the
appropriate scale of operations and logistical system that will provide the means to obtain and
uphold a substantial market share. With capital, time, and preference issues still needing
attention, they believe the human capital on the management team will be sufficient to bring
SmartPac technology and FreshTec to a level of boundless achievements.
Alternatives
FreshTec has an innovative product that has not yet been perceived as an item that could
revolutionize an entire industry. They must respond to the matter by implementing a series of
strategies that pinpoint the issues that need to be resolved. While implementing these strategies
are significant, nothing is more substantial that selecting the appropriate strategy from the
options that are on the table.
[11]
Alternative 1
In order to scale the operation to great scopes quickly, FreshTec would require finding a
partner with the capability of cooperating with a project that could bring about extreme change to
the current supply chain system. Although a retail businesses and food service businesses would
have to initiate SmartPac into their existing supply chain gradually, they give the impression to
be an ideal choice for intensely increasing the operation with their orders of vast volume. If
partnered with such an organization, FreshTec would immediately be viewed as a major
competitor in the industry, and the characteristics of the brand would unquestionably be noticed:
long lasting freshness, quality, tastiness, visually appealing, and green.
The advantages of SmartPac technologies are significantly greater than the existing
packaging solutions. The expectations of the consumer for freshness and taste of produce will be
exceeded domestically and abroad. The demand will rise for these products while untapped
global markets can be reached because of the lasting freshness and a resolution for the global
shipping issue. The bulk loads, lighter packaging materials, design, and technology possessed by
SmartPac allow for the flexible shipping alternatives while reducing externalities and carbon
expenditures to the environment. It eliminates the need for repacking, rejected loads, and
repackaging yield loss, also. The logistics change will be assisted with FreshTec providing
support processes by educating the grower, packer, broker, and customer. These advantages are
the factors which will contribute to the added value of the partner deciding to team up with
FreshTec.
The advantages of SmartPac technologies ominously affect the existing logistics system.
Constraints
The favorite idea among the executive staff at FreshTec Inc. was to find a developed partner in the
produce industry who would allow them to scale up to their logistics operation in order to implement
[12]
the SmartPac technology. Mochado notes that it will take an extensive education effort in order for
growers to accept the new packaging. This being one of the main concerns for FreshTec partnering with
an established produce company would allow them to concentrate on educating the growers on proper
use of the containers. While the partner could simply continue to conduct business as usual with other
products; the specific produce going through the overhaul to increase the efficiency could be
concentrated on by an education team from FreshTec. By diving up the labor in such a way a maximum
amount of efficiency could be achieved with the lowest amount for risk for FreshTec. However because
this strategy would require a large amount of trust on the part of the partner Mochado must make a
great effort to sell SmartPac to the partner. He must really get them to understand all the benefits that
the product has to offer them and by extension their customers. Because of the cost of the new
technology executives feared being locked in to a luxury market. However with proper selling of the
product escape into other markets could be achieved this however will also take a great amount of
salesmanship in order to convince companies to accept the benefits to their shipments that the
technology could achieve.
Benefits such as; the ability to ship from markets with lower labor costs that had been made
unfeasible by the large labor costs of shipping from such a great distance away. Also the ability to
reduce the post-harvest loss of produce a substantial amount will allow the executives to effectively
pitch the idea to low cost companies that may be reluctant to take on the new technology. And while
the benefits are more so to produce companies that wish to differentiate themselves by quality as well
the cost saving ability of SmartPac technology can be just as effective for Low cost producers.
Alternative 2
Another alternative Wright and the others at FreshTec believed could be a viable option for
implementing their packaging was partnering with local farmers in California. This attracted
[13]
Wright because it appeared to be less stressful in terms of making FreshTec a revenue producing
company. He also believed it would catch the eyes of the local farmers because "They have
already got the ripe idea in their head, they have a hunger to export and make more money, and
they've seen the technology and they believe in it." This option makes since because starting off
the whole new packaging technology locally would allow for FreshTec to enter the market fairly
easier than trying to expand globally right from the beginning. On the other hand, such
partnership would slow the growth potential the FreshTec team had sought. The farmers would
have to learn a whole new process of packaging, serving as another challenge to the alternative,
also. Regardless of which alternative they believed would be most successful and thus deciding
to go with, a learning curve would have to be overcome by the customer. Although this choice
could slow the growth potential of the company, it appears to be a wise decision in terms of
getting FreshTec off the ground and patiently becoming the revenue producing company they
were striving to be.
Because of the things they had to overcome they needed a partner who believed
in them. One option is partnering with local farmers in California. With farmers
they already have their foot in the door. This allows Fresh-Tec to supervise more
closely as well. Because the fresh-Tec crew wasn’t generating any revenue they
needed to go the cheapest route. Farmer’s household income isn’t the best either. A
lot of farmer’s income comes from that of off farm sources especially small-scale
farms. Because this option could benefit farmers as well as the hard workers of the
SmartPac technology this could be a cheap route for Fresh-Tec. Large-family
farms are important because they contribute to most of the agriculture sales. If
[14]
Fresh-Tec partners with a large farm operation this could quickly boost their sales
and put SmartPac on the map. Farmers also have the hunger to be prosperous. This
is the type of partner the company needs for their high price packaging.
A second alternative that Fresh Tec could implement is to find a global wholesaler or retailer to scale up.
Scaling up would be the quickest way for them to cut into the market, grow their business at a very fast
rate, and in turn make huge profits. Fresh Tec would be at the helm of taking over the market, as they
desired to do so with Smart Pac technology. However, this option could be a risky one if the business is
not prepared to keep up with demand. Starting a business on a global level leaves little room for error, and
if Fresh Tec has any mishaps in manufacturing, logistics or management, it could stain their reputation
setting them up for failure. If Fresh Tec can make a good impression on the market, this option will prove
to be very profitable in the long run and will set the company up to take over the packaging industry.
Alternative 3
Innovative product strategy for Buy/Sell- see case
 Diversify the product for the consumer market with take home technology and retail style
packaging to extend life.
A third alternative for Wright and his FreshTec team was for them to take the place of
already existing brokers and perform buy-sell operations where they would purchase the produce
straight from the farmer themselves. After such purchase from the farmer, they would then
clean, pack, and deliver the food to all sellers, including supermarkets, wholesalers, and food
service operators. Wright suggests that this alternative would eliminate repackaging costs that
the brokers already in existence are paying, and thus, would lead to making and saving more
money in the future. They would have the opportunity to reach out to countries and growers that
hadn't been given the chance to exist in markets that were already implemented, setting limitless
boundaries per say. However, this type of risk has some significant challenges that would
require Wright and his team to make a much larger up-front investment and would also involve
significant logistical challenges as well. The idea seems like a great one, indeed, but would it
[15]
necessarily be the best option in providing the best opportunity both short AND long term?
Would this be the best way for FreshTec to break into the market? It might not. Later down the
road, when they believe they have established FreshTec, built some revenue, and feel they are
solidified in the packaging industry, maybe this option would make more since. But until then,
we believe they should start a little smaller.
A possible altenative for Wright and the FreshTec team is for the company to play the role of
broker and perform buy-sell operations. This process would allow FreshTec to purchase the
produce straight from the farmer effectively replacing the broker. After such a purchase from the
farmer, FreshTec would then clean, pack, and deliver the food to all sellers, including
supermarkets, wholesalers, and food service operators. Wright suggests that this alternative
would eliminate loss of produce and the repackaging costs borne by farmers. This option would
eventually lead to greater savings and allow all parties involved to earn more money in the long
run. FreshTec would also have the chance to reach out to the countries and the growers that had
not been given the opportunity to exist in markets that were already implemented. SmartPac
offers these potential clients the ability to distribute their product in an almost limitless capacity
and allow for breakthrough into established markets. However, this type of venture has some
significant challenges that would require Wright and his team to make a much larger up-front
investment. It would also involve several significant logistical challenges. This concept would be
a legitimate business option, but would it necessarily be the most viable option in providing the
best opportunity both short and long term? Would this be the best way for FreshTec to break
into the market? Due to the many obstacles that FreshTec would have to overcome, a Buy/Sell
strategy would probably not be the best step for the company to take. Perhaps later down the
road, when Wright believes they have established FreshTec, built some revenue, and have
[16]
become solidified in the packaging industry, can this option be more feasible. Until that time
FreshTec should consider an option that does not require such large risks.
An alternative approach for Fresh Tec involves diversifying the market and
differentiating the existing SmartPac technology. This would incorporate using the buy-sell
option as a channel to enter their product to the market. Buy-sell would mean that Fresh Tec
would act as the broker between the farmers and the end users. Fresh Tec would buy the product
from the farmers for a negotiated wholesale price, supervise the packaging of the product, and
then sell them to the retailer for a similar price, yet delivering a fresher, better-tasting product
than a competitor. (1) BY incorporating the buy-sell option, Fresh Tec can diversify the market
by focusing on untapped markets and trying to connect consumers worldwide. Many products
can come from all over the world, but delivering a fresh, undamaged product challenging due to
transportation flaws, which lead to enormous amounts of waste and spoilage. The ability to
connect an untapped market, such as Panama, to a tapped market, such as the U.S would drive
the focus of Fresh Tec’s technology to expand the global trade amongst worldwide consumers. A
few constraints would inhibit the headway that Fresh Tec could make if they decided on the buysell approach. For instance, the amount of initial capital needed to buy vast amounts of produce
from farmers would be substantial, too substantial to overcome without the right investor in
place. With the right investor in place, Craig and Christian Machado, as part of the Research and
Development team, can discover ways to differentiate the SmartPac technology to meet the
diverse needs of many consumers. The main need is being able to keep the produce fresh for as
long as possible. With emphasis on research and development, various individual SmartPac
packaging can be designed to market the product in supermarkets. Fresh Tec can partner with a
supermarket, such as Whole Foods or Wal-Mart, which allows Fresh Tech packaged produce can
[17]
be sold in their stores in a certain section. This specific section in the supermarket would be
dedicated to Fresh Tech produce in their own unique SmartPac packages. This will build the
brand name of Fresh Tec, tying their name with the fresh, ripe product they deliver to the end
consumer. Separating Fresh Tec produce from regular produce in the supermarket will be a
convenient way to attract end consumers to all their products offered as well.
- Statement of alternatives that provide a solution to the problem.
Advantages and disadvantages related to the goals and constraints must be included
[18]