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THE CARROT KING OF KERN COUNTYTurning the peeled baby carrot into a new food sensation is only oneof the marketing achievements of Bob Grimm and Grimmway Farms.

By Kevin T. Higgins

Bob GrJmm, president and CEO of Grimmway Farms,

GIVEN AMERICA'S 3 MILLIONsquare-mile size, one would assumefresh vegetables came from locai andregional growers. That frequently is notthe case, as efficient California operatorsexpand their share of the crops harvest-ed and processed for market. In the caseof the carrot, concentration is extreme;Two processors handle more than 85%of the products that find their way ontoconsumers' plates.

The biggest is GrimmwayEnterprises Inc.. doing business as(irimmway Farms. Along with primarycompetitor Wm. Bolthouse Farms,Grimmway is based in Bakersfield,Calif., in the heart of Kern County. Thearea's fertile soil yields two crops annu-ally, and relationships with growers asfar east as Colorado keep Oimmway'splants busy processing carrots year-round. While most of the more than 10million pounds handled daily go throughCirimmway's frozen and fresh iaclliti(!s.the highest margin goods are processedat a 750.000 sq. ft. behemoth that'shome to the peeled haby carrot. One ofthe American food industry's greatestsuccess stories in the last decade, babycarrots have keyed a 33% increase inU.S. carrot consumption.

Although Grimmway didn't inventthe fresh baby carrot, the firm gets muchof the credit for nurturing its remarkablesales growth. Crimmway was instrumen-tal in positioning the uniformly cut andpeeled product as a healthy and convtm-ient snack item and introducing a num-ber of packaging innovations thatexpanded distribution beyond supermar-kets to include school lunch programs.

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airplane galleys, and other channels. In1998, Grimmway was honored hy theProduce Marketing Association for itscarrot-marketing efforts.

Hut hahies use half the carrot andare half the story; how Grimmway findsother potential markets for the byprod-ucts is the other half. Juice concen-trates, carrot coins, carrot shred, anddehydrated and pelletized carrot pumicesold as a snack for horses are part ofthe steady flow of recovery items thathave been marketed. Enough of themhave heen successful to growGrimmway into a $3r)() million opera-tion with five plants in the United Statesand Scotland, and products shipped tomore than 20 countries.

Still a family firm. Grimmwaytraces its origin to the mid-1960s, whenpresident and CEO Bob Grimm. 48, wasin the eighth grade. He and older broth-er Rod. who succumbed to cancer twoyears ago. began with five acres of cornin Anaheim, Calif., eventually addingother crops. By the late 1970s, thebrothers were deeply in debt, urbaniza-tion was crowding out southernCalifornia farming, and the future beck-oned from north of the lehachapirange, in Kern County.

Through intensive capital invest-ment, key acquisitions, and shrewdproduct development, the brothersGrimm built the operation from a minorplayer in the early 1980s to the nation'slargest packer by 1995. with 55% of theCalifornia market. The growth came ina period of rapid consolidation and fun-damental changes in how the root cropgoes to market.

A modest man. who downplays therole he and his company played inreshaping its segment of the food indus-try. Bob Grimm recently discussed theGrimmway Farms story with MarketingManagenuml. He holds a BS degree inbusiness management from CaliforniaState University in Fullerton.

MM: The carrot business hasundergone significant change. Whatwas it like when you and your brotherstar ted?

Grimm: When we started packingcarrots in 1976, there were about 25carrot shippers and packers in

California, and there were many region-al packers in other parts of the country.Today, only four are left.

Before, it was strictly a cello mar-ket, with fresh carrots sold in cello-phane bags with the tops chopped off.The consumer was asking for a uniformproduct, though, and that required thepacker to invest in more equipment todeliver it. Big capital investments had tobe made, and the sheds that took profitsand reinvested in the business wereable to survive; those that didn't wentout of husiness.

For example, hydro cooling wasneeded to remove the field heat whenthe carrot was harvested if consistentquality was to be delivered. Wheneveryou harvest a crop, a vegetable begins togenerate its own heat, with temperaturesrising to 85 to 90 degrees in the carrot'scenter. By quickly getting the tempera-ttu"e down to 35 to 40 degrees, thenholding it at 32 degrees, we can shipproduct even back East with confidence.

MM: Why has there been suchtremendous consolidation?

Grimm: The arrival of mechanicalharvesters changed the husiness consid-erably, though the harvesters in the |1970s were not big-volume machinesby today's standards. If you harvested25 tons an hour with those machines,that was a good clip. Now we have har-vesters that can dig up 75 tons an hour,and they can go into a field on a rainyday and still perform. The advent of thatkind of machinery made the Californiashippers very reliable, which made gro-cers, foodservice operators, and theindustrial markets want to buy from us.

Higher production volumes loweryour operating costs and let you delivera better and cheaper product to themarketplace. Shredded carrots are anexample. We used to ship bulk produceto a chophouse in Boston, where theyshredded it. But tremendous waste isproduced when you shred carrots, andyou're paying to transport that waste. Ifit costs $4,000 to send a truckload ofcarrots from California to Boston andyou have 25% waste, you've paid$1,000 freight on product, and you gotnothing out of it. Shipping finishedgoods is much more efficient.

MM: Was the decision to Invest inthis market a calculated gamble or theresult of careful business planning?

Grimm: Part of it was simply anentrepreneurial decision based on aperceived business opportunity. We alsowere driven by our customers. Once thechains told us. "Get into this or we'll goto another supplier." we had to make acommitment. The Malaga Road facilitywas only a third of its present size in1992. but would still have been a prettybig white elephant if the market hadn'tdeveloped. Sometimes you just have togo on instinct.

MM: How did the peeled babycarrot come about?

Grimm: As the fresh segment shift-ed more and more to cellos, there was abig increase in culled carrots because ofdefects that made them unsuitable forsale. We were cutting, slicing, and freez-ing those culls for the industrial seg-ment for use in stew mixes, but therewas more cull than the market needed.

Then Mike Yurosek. a Bakersfieldprocessor later acquired by Grimmway.started doing some tests with 2-inchcarrots in supermarkets in the l.osAngeles area. Consumers respondedfavorably, and supermarket-chain buy-ers encouraged us to get into it. Itquickly turned into a race to see whichprocessors could put in equipment fastenough to serve this emerging market.Fortunately, we had the ability to buildthe Malaga Road plant, put in theacreage needed to grow this type ofcarrot, and tell our customers what wewere going to have available andwhen. In 1992, '93. and "94. productsales grew 100% a year, and for threeyears we were involved in one continu-ous construction process as we devel-oped the capacity to process millionsof pounds of haby carrots a day.Because of the baby carrot, per capitaconsumption of carrots has increased3-lbs since 1990.

MM: How did the baby's namecome about?

Grimm: I guess it's a happy acci-dent. We always called it a haby. and theappearance of the processed productresembles a small, peeled carrot.

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although they come from a regular lengthcarrot that has been developed to have anarrow circumference. People just thinkIt's grown to he that length, but of courseit's not. Today, the overall market forpeeled baby carrots is about $400 million.

MM: Why did consumers respond sofavorably?

Grimm: When the working house-wife comes home, she demands some-thing that's easy to cook, and peeling acarrot isn't easy. By supplying a carrotthat is sweet, peeled, and designed to beeaten raw, we were able to make her lifea little easier.

Today we package baby carrots ineverything from 1-oz. bags for airlines'sandwich-type meals, to 5-lb. hags forsale in wholesale clubs. Variations likesmall hags for school lunch programshave helped expand the market and buildon the carrot's positioning as a healthysnack item.

MM: Was it a challenge to get con-sumers to try a food they had never seenbefore?

Grimm: That was the easy part. Inthe early '90s. i imagine 50% of con-sumers tried the product, and that result-ed in the sales growth. By now. morethan 90% have tried the baby carrot.

Early trial of the product did notinvolve in-store sampling. Stores adver-tised the product, hut most of the growthcame from packaging. People knew whatto expect in terms of taste, and packagingpresented a new approach to a familiarfood. More than 80% eat babies as asnack, with the rest using them in theircooking. America is on something of ahealth kick, and hahy carrots are a healthyalternative to traditional snack foods.Broccoli also is very good for you, but notvery portable. By taking the labor-intensivepreparation out of the carrot, the industrywas able to provide people with a healthy,convenient snack for their lunchhox.

MM: When Grimmway started pro-cessing babies, half the carrot ended upas animal feed. Today, waste is said tobe down to 10%.

Grimm; I can't say we've cut it to 10%yet, hut we've made progress. We gener-ate a tremendous amount of cull that nor-mally would go to cattle feed, so a bigfocus is trying to turn that cull into highermargin products. We've gotten into carrotcoins, little dippers {packaged with veg-etable dip), and shred, hut the most signif-icant byproduct is carrot juice concentrate.

MM: Was anyone else producingcarrot-juice concentrate when Grimmwaygot into that segment?

Grimm: There were four or fiveplants in Australia growing carrots strict-ly to produce concentrate, which is soldprimarily in Japan. Our entry into thebusiness came after those operationswere firmly entrenched. What aiiowed usto grow so rapidly is that we were usinga byproduct at a very cheap cost. Westarted with one production line inOctoher 1997 and were able to come intothe market at a lower price than anyoneelse. Since then we've added two addi-tional lines.

MM: How did Kern County come tobe America's carrot capital?

Grimm: The carrot industry is some-what unique in the fruits and vegetableshusiness in that we're a shed-packeditem. Most vegetables are field packed.

with people putting the produce in thecarton when it's harvested. '

Carrots, on the other hand, are verycapital intensive. You have to bring tbemto the plant, sort them by size and length,hydro-cool them, cut and peel them, andperform myriad other processes. In orderto do all that, automation is necessary,and that meant going into debt.

MM: Why do Fast Coast buyers pur-chase a commodity like carrots fromsomeone 3.000 miles and a mountainrange away?

Grimm: We compete with processorsin Florida, Michigan, Oregon. Washingtonstate, and Canada on a regional basis, andtraditionally buyers also would sourcethose areas because they were cheaperwhen product was ready for market. Butsoil conditions and the dry climate heremeant California had better quality andbetter tasting carrots, and when we wereable to combine that with reliable delivery,processors in other regions were nolonger able to compete with us.

Some buyers continued sourcing sea-sonal suppliers after we startnd doliver-ing 52 weeks a year, but the consumerhas demanded the quality and taste ofthe California carrot, Most grocers nowstock our products alongside local carrotswhen those are in season.

Consistent ordering also became aconsideration. It's a problem if a chainleaves for three or four months and thenwants to resume ordering from you. Theyweren't exactly welcomed back becausewe couldn't plan on those orders, andthat created problems with plantingschedules. As a result, buyers now staywith us year-round.

MM: How would you describe yourpartnership with your brother Rod?

Grimm: We started growing and sell-ing corn from a roadside stand when wewere still in high school. We grew up ona chicken farm in Southern Californiaand ended up farming together for 30years. I handled the field end. getting theproduce into the plant, and my brotherwas more involved with the constructionend. When it came to spending money.

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we would sit down and. if one wasagainst a particular project, we put it(in hold.

We had a lot of respect for eachother, and we shared a common workethic and approach to religion. We werefamily. I miss him; thore's not a day thatgoos by when I don't think about him.

MM: How has Grimmway Farmschanged as it evolves into a multination-al company?

Grimm: We started out as farmers,and 1 always got a lot of enjoyment fromgetting out on a tractor and into thefields. Hut bringing the harvest to marketforced us to get into the processing andsales end of the business just to survive,I miss being in the Reid, but I'm not com-plaining. To have this company grow theway it's grown is very rewarding, and Igive the credit to the people in thetrenches for our success.

We're just getting our feet wet inliurope and seeing if the value-addedcarrots we produce have potential. Weluive the ability to offer new products.

and we're gauging if there's an interestin them.

We eat to stay alive in America,whereas Europeans approach eatingmuch differently. The way we consumefood here is laughed at over there. Wewant to hit the McDonald's or BurgerKing and bo done in 20 minutes; theyspend half the day preparing a meal andmaking sauces.

MM: Can Grimmway maintain itsgrowth curve in a consolidated business?

Grimm: There is a level of satura-tion, with sales growth dependent onmarket expansion. Carrots are theNo, 2 vegetable in America, withper capita consumption over 12 lbs.Potatoes are No. 1. with l<i!9-lbs, percapita consumption.

We recently purchased a potatopacking facility in the San JoaquinValley. The potato industry is justgetting into fresh-cut potatoes thatare sliced, shredded, and processedin other forms, and that interests us.We're always looking for new opportu-

nities, and that is an area in which weperhaps can grow.

We want to be able to give cus-tomers any size or type of product theywant, any way they want it. We producemore than 50 different stock keepingitems so our customers don't have to goto any other .supplier to fill their needs.

MM: Was the baby carrot an anomaly,or might we see another vahie-added prod-uct come along and expand the market?

Grimm: I don't think it was ananomaly. A lot of thought went into babycarrots as packers looked for ways tomake their plants more efficient, and theconsumer drove product development toa large extent by demanding greater con-venience and healthier eating. There willbe more new products in the carrot busi-ness. Industry is forever changing. Wemay wish it wasn't so. but it is. H

About the InterviewerKevin 1. Higgins is a Liusiness

journalist and iormer managing editorfor Marketing News.

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