Fresh Herb Producer - Turnaround
We created a product profitability model and developed a targeted turnaround plan
Situation
Our client is a major grower and processor of fresh herbs. With operations in Victoria and Queensland, they are a supplier to most of the major retailers.
The profitability of the business had declined unexpectantly over the previous 12 months, with no clear understanding of the causes. There was limited visibility of the costs of growing and packing each products, or which customers and sites were profitable and which were not. In addition, investments in greenhouse automation technologies were failing to deliver a return as cost of capital increased.
Without clear visibility of the drivers of cost and profitability, the business was unable to focus its improvement efforts and was struggling to justify price increases to its customers.
Our Approach
We developed a detailed product profitability model that allocated costs to individual products and customer orders based on the resources required to fulfil the order from farming to packing and distribution.
Using insights from the profitability model, we developed a comprehensive view of the causes of declining profitability and created turnaround plan focused on pricing strategy, packaging cost reduction, labour efficiency and improved asset utilisation
Results
Detailed product cost breakdowns from the model were used to support an 8% price increase with two of the major retailers.
The plan identified low margin herb varieties and packaging formats to be addressed. Improved farm planning and more informed grow vs buy decisions drove a major uplift in profitability, while the decision to exit several unprofitable customers delivered several percentage points of margin improvement.