Don’t scale your business out of existence: Marty Halphen, The Fruit Box

Don’t scale your business out of existence: Marty Halphen, The Fruit Box

When you’re not the biggest fish in the pond, scaling is everything. But as Marty Halphen of The Fruit Box reveals, scaling a business needs to be done right or not at all.

 

“We don’t want that way of thinking to go away because it keeps us hungry … The way we look at it, it just incentivises us to actually keep on improving and getting bigger and growing in the right direction.”

Returning to the My Business Podcast, Marty reveals the driving forces behind growing The Fruit Box nationally, the ways in which he engaged wholesalers to create a marketplace unique to the business, as well as the steps he took to successfully adapt the business to target markets and connect with consumers.

Tune in as he explores:

  • Why a business is only as good as its last delivery
  • His approach to scaling a business that is realistic and sustainable
  • How he unites his 250-strong team from multiple locations nationwide
  • The importance of continued learning and development as a business owner

And much more! 

Full transcript

Adam: Thanks for tuning into the My Business podcast. It's Adam Zuchetti here, the Editor of My Business. I'm joined by my regular co-host Andy Scott.

Andy: Hello, Adam.

Adam: Hi Andy. We've got someone else back in the studio making his return. He's gone from 300 customers in suburban Melbourne to 30,000 orders a week, with turnover in excess of $50 million. For those of you who haven't heard before, we had Marty Halphen of The Fruit Box Group in a little while ago. He was talking about his business and some of the initiatives there. Marty, I was keen to get you back into the studio to explore some of the different aspects that we didn't get to cover before. Thanks so much for coming back again. In terms of your suppliers, in particular, being a delivery service you're essentially a logistics service and you're dealing with a number of different suppliers from all around the country. It must be a really big challenge to, I suppose, find them in the outset, but then to manage them on a day-to-day basis. How do you actually manage all that?

Marty: Well, half our business is with fruit, so we have a national buying team that operates in each of the wholesale markets of the big states, Melbourne, Sydney, Brisbane, Adelaide and Perth. What happens is there's multiple suppliers for each line of fruit and what happens is that we would probably tend to deal with three or four different wholesalers or agents per product line in each of those states. The way in which it happens in the markets is it's quite an honour system, is that you're only really as good as your last delivery. If your delivery's no good, the supplier knows that you could go to a multiple number of other vendors. The way in which it works with us is that we have developed over many years a market within a market of a whole lot of suppliers that we dealing with on each line in all the markets. We like to think that they feel as if they've got a stakeholding in our business and then what happens is that through trust and nurturing relationships and generally dealing with people over a long period of time, is that there's a dependability and a reliability that we've built.

With milk, which is very different, it's consolidated through one supplier. We deal with Lion. Our product is brands like Pura in the southern states and Dairy Farmers in the northern states. That generally works off a contractual basis.

You have very, very different scenarios with each of our product lines. One's consolidated and contractual and the other is basically every week's a different week.

Andy: You mention that you've obviously evolved with multiple partners and multiple suppliers to work with the business. I'm sure there was, as we spoke about in your last podcast, you were doing 27 hour days and the business wasn't turning much money. You were doing everything you can. At that stage, were you finding with suppliers that if things weren't being delivered, because that was going to affect your business, was that then, "Yeah, we're partners, mate. It's all right," or were you irate? Did you have to learn to change that relationship or did it just happen with scale and size.

Marty:  Yeah. It happened with scale and size. Actually I've got some great stories that happened in the early days. You need scale and size to have presence. In the early days, banana vendors were giving us green bananas that we really couldn't deliver to our corporate customers. I remember when I first moved to Sydney and walked through the Flemington markets, I actually asked a mandarin vendor if he could deal with me. He actually told me to go away. That's what happened in the first five to six years. It wasn't until we had a bit of volume that some of the wholesalers started to take notice of us. Look, it's the way it works, the markets work. I think volume sort of dictates an attention from the supplier, but in the early days we had a lot of times where we were just told to go away. You would just get clearance stock. You wouldn't get anything good.

Andy: How did you deal with that as a business that was, obviously, not necessarily struggling to make ends meet, but you weren't necessarily where you wanted to be? It wasn't just a question that you could turn round and go, "Well, forget you. I'll go and choose someone else, somewhere else." You had to get these people onboard. How did you deal with those, I suppose, from an emotional point of view, those continual knock backs, those frustrations, that little flag in the back of your mind going, "Jeez. You know what, Marty? Maybe this isn't going to work?"

Marty: Well, it's again very interesting. I mean, I feel as if we entered an industry where there's a whole lot of Goliaths and we've always pitched ourselves as David, as that we've got something to prove. I remember in the early days, not only in the markets where we were knocked back by suppliers, but when we started with milk, none of the milk companies wanted to deal with us, because we just had no volume to speak for itself. There were potential third party distributors that we approached and they just told us to go away. I mean, over a long period of time we've always felt like our back's against the wall. Even today, we've got a fair volume, but when you look at our volume compared to major supermarkets or major stationary suppliers, I mean, it's still not of equal volume.

We always say to ourselves, "If you want to be number one, you train like you're number two." We just don't want that sort of culture or way of thinking to go away, because it keeps us hungry. We're not angry or upset because we're told to go away. The way in which we look at it is it just incentivises us to actually keep on improving and getting bigger and growing in the right direction.

Adam: In the example of adding the milk business, and you kept getting those no's, no after no after no, what was it that really took to get the first yes? How did you get that first supplier on board?

Marty: Look, the way in which the milk industry is it's controlled by about, the majority of it's controlled by three different companies and then the rest is sort of maybe local vendors that might just operate in one state. When we first started, we started in Melbourne and then we were able to transport some of the milk to Sydney. We started off small, but we had traction because our customers, our fruit customers, wanted to give us more product. We felt that we were doing such a good service with the fruit from a delivery perspective, they thought, "Well, they're doing a great job and we sort of like to consolidate our suppliers, why don't we give them milk?" Over a period of one, two, three, four years while we were scratching and biting for a supply solution, eventually we were able to have a dialogue with bigger suppliers because our volume started speaking for itself. "Well, this is a volume that we don't have." That's the way in which they thought, and, "We'd rather work with them than work against them."

That was something that took about five to seven years to cultivate and to get up and running. I mean, certainly it was just one long short term solution after another.

Andy: You mentioned that, obviously, you started in Melbourne. A lot of physical businesses, well, by definition, they start somewhere local. A lot of them want to maybe dominate the state. A lot of them maybe want to go national. When you moved from Melbourne to ... Or Victoria. When did you move to New South Wales? Straight away?

Marty: No. No, goodness no. I was in Melbourne from 2001 to 2005 and the Sydney business started in 2006. I felt that it was a great learning opportunity so I actually, with my family, we moved to Sydney. It was initially for a year, but we ended up going for four years.

Andy: Did you find you could pick up what you'd been doing in Melbourne, drop it down in Sydney and it worked? Or did you find there were many differences with what you actually had to do, starting again in effect?

Marty: I think that what's been interesting for us is that local knowledge, every city is different. There's a different culture, a different geographic footprint in each city, and I think that ... I mean, for me, personally, coming to Sydney was a great exercise because I could see how different the local knowledge was in Sydney. It's very different in Brisbane and it's very different in Adelaide and it's very different in Perth. For example, in places like Perth and Adelaide it's very parochial. Everybody wants to deal with somebody who's local, and we were local because our operations are in Adelaide and are in Perth, but people sort of always felt that we were a business coming out of Melbourne. It took a long time to get the trust of customers, for them to understand that we had local operations, we were employing local people, we were buying fruit and milk from local growers and local farmers. It takes a long time to get that knowledge and then to translate that knowledge into good marketing activity.

Andy: Did you find that, with these local markets that you were moving into, were you trying to condition them that, "Look, this is how I've done stuff before. We're good. Just a bit of trust," or did you find that you internally had to sit down and go, "Yeah, it's not going to work how we're doing it in Melbourne. We're going to have to adapt to our local market a bit here"?

Marty: Yeah, absolutely. I think we adapted very well. I mean, for us, and it's also best practise. I think we came with a very open mind. I think we've been open minded throughout the whole journey. I'd like to think we continue to be open minded. We're learning new things all the time, but I think what was very important to me, once I had the experience in Sydney, that I had the same experience in Brisbane. Not that I moved to Brisbane, but I actually travelled to Brisbane for at least the first three to six months of its operation to really get an understanding of how that market worked. I remember even Canberra. When we started in Canberra, I was on the road for the first three months, going to Canberra, getting an understanding of how it all worked, the way in which customers spoke, the type of customers that were there. Same with Brisbane. Same with Adelaide.

To answer your question, I think we adapted to what the demands were for that particular market, but we have been able to apply best practise once we've gained that initial trust.

Adam: I'm curious to hear, Marty, about your supply chain and are you warehousing huge amounts of stock or does it come in on a per order basis? How does it actually operate?

Marty: We're not a stock management business. We're pretty much a clearing house. We don't hold stock for more than two to three days. That's just the nature of the product that we deal with. It's a perishable product. Typically, fruit we're buying in two or three shipments per week and with milk we're buying on about four or five shipments. With our milk we're wanting to deliver it with at least 12 day shelf life and you're not going to get that if you hold it for a week or two. We have a business that is literally a clearing house. Not much stock is held, and if it is held, it's not held for more than 48 hours.

Adam: How does that impact on your cost structure, because are you having to pay suppliers up front on delivery or is it per ... You've got your customer orders, so once you've got those invoices and those orders filled, you can then pay them a portion of the revenue that you're getting? How does that actually work?

Marty: No, because we're a subscription based business where the only change is to our order on a week to week basis is typically new customers and customers that we lose. We're 99 per cent confident of what our orders are going to be in a month's time. We're able to project those orders to our suppliers. Our suppliers are able to accommodate that because they've had the time to do so and we're not paying them any extra for them to hold stock. It's stock that comes in and goes straight to us and then we pack it and it goes out.

Adam: I mean, the business though is at a stage now that you can forecast that with a fair degree of accuracy, but during a really fast growth period, that's got to be quite difficult to try and forecast. Thinking back to those kind of periods, how were actually balancing stock levels, supplier invoices and things like that with incoming new orders?

Marty: It was difficult. In the initial stages where we didn't have the systems or we didn't have the volume to project what we needed, it really was one band aid solution after the other. It was working long days. It was working weekends. Sometimes we just didn't know how we were going to get across the line. I would say for the first seven years where we did have that massive growth spurt, when we did start the business to getting to a reasonable level, it was definitely just thinking on your feet all the time. We had a lot of situations where we came close to not fulfilling orders, but at the end of the day probably the comfort that we had is that we're dealing with fruit and milk. It's not major machinery that saves lives. It's really just fruit and milk.

We've been fortunate. We've had a lot of near misses. We've made a lot of mistakes, but I think that, again, looking back at it, is that just incentivised us to get to a bigger volume where we didn't have to have that constant pressure of how are we going to fulfil orders?

Adam: Now, the previous podcast you did with us, you were basically saying that you're a service business. To do that you've got to have really good people, but when you operate in such a model that you're spread out across five different cities, you've got suppliers coming in, you've got people based just everywhere doing different things, that's got to be a real challenge. How many employees do you have and are they all in-house or do you use contractors as well? How does it all work?

Marty: No, we've got 250 staff.

Adam: 250?

Marty: 250 that operate in five operations across Australia. It is very difficult. The culture is very difficult, because first of all we're spread so far away from Perth, from Brisbane, but also where it's hard for us is that our operations, they work different hours to our administration staff. It's very much the risk is being a disconnect workforce. What we try to do is we do newsletters, we really put a lot of effort into our operations teams nationally that are able to communicate a lot of the messages, whether it's strategy or where the business is going and keeping everybody engaged. I have to say, it is challenging. It's not very easy for myself or senior people to hop from one state to the other. One of the privileges we have is that we do have a national business, but the challenge is how do we keep it together and how do we keep everybody united as part of the one team?

Adam: It's interesting too. It's one thing to keep everyone informed of what's happening around the business, but to keep all of your employees engaged and actively knowing and learning what's happening around the business in different units, that can be a separate challenge in its own right. You were saying about newsletters and things like that, but how do you really engage with employees to make sure that they're not just receiving the information, "Yeah, delete," and it's out of their inbox again.

Marty: I think that, I mean, one of the things we spoke about last time was our CSR initiative. That's something that we felt that could potentially help in bonding our organisation.

Andy: Just quickly, Marty, for those that may not have heard you last time, just remind us what that CSR initiative is that you guys do at The Fruit Box.

Marty: Over the last 6 or 12 months, which we're soon to launch actually this month, we've developed a business called The One Box. What The One Box is, is that we've worked with a number of different agencies, 13 agencies, where they've identified a thousand families in need, young families in need, that don't have access typically to fresh produce like fruit, vegetables, milk and bread. What we're doing in 2017 is that we've committed a 25 week period where we supply a box of fresh fruit, milk, vegetable and bread to each of those families over a 25 week period, which is 25,000 boxes in total. We're partnering with La Trobe University that are going to ... Well, what they've done is they've created a platform where they're able to measure the impacts, both qualitative and quantitative. The hope for us is that we build a compelling case where something like this does make a difference and we're able to set up a public charity in 2018 or maybe 2019, depending on how it goes.

What we're really doing over the next year is we're gathering information. We feel that this is something that is quite important to us. I mean, we deal with fresh fruit and milk and we're a bit shocked that in a country like Australia there are so many people that are doing without and don't have access to a healthy foundation for their young families.

Andy: It's a fantastic initiative, mate. I suppose to bring that back, how that fed into the culture of the organisation, because I know what it's like when you've got two groups that don't necessarily seem to work. It's the same here with editorial and advertising. They think they're against each other when really they're working on the same team. How did you find initiatives like that and other things enrich the culture for you guys?

Marty: For us, with our launch which is coming up, we're flying a lot of our senior people from each of the states to be part of it. We've got conversation and dialogue with them all the time and we've got a number of senior staff that are actually travelling from state to state, but it's just a great example or a reason for us to get together. I hate to use the world celebrate, but to basically to sit back and think to ourselves, "Well, this is the organisation that we're part of and this is something that you're able to talk about within your operations when you go back to your particular state." I just feel as if those type of things make people walk a little bit taller. I know it's something that sort of gives us enormous satisfaction that we're all brainstorming and collaborating to do something like this. We feel, as an organisation, it just brings us closer.

I mean, there's a whole lot of things that we do do proactively. We do have somebody employed in our marketing team that is basically half their time is specifically dedicated to communications internally. We saw a limitation a couple of years ago that it is a massive challenge to keep everybody engaged. We actually employ a person whose job half the time is to constantly think of ways of keeping everybody engaged. I spoke about newsletters before. We do something called road test. What we do there, which is actually quite interesting, is every, I think, fortnight what happens is that one of our marketing team goes out with a different staff member and interviews them and asks them a number of personal questions. We actually circulate that to the whole organisation, so it's really getting to know people that are working as part of the organisation who you've never met. That's one of the initiatives that has come up recently over the last year.

Andy: You spoke, when you were in last time, about the importance of how the business has evolved really from taking a lot of customer feedback onboard. From a position of culture, has that been something that you guys have realised you'd have to do because you're getting this feedback from staff, or is that something that you think you need to be driven from the top of, "No, this is how we want to be to attract the people that we want"?

Marty: I think it's a combination of both. I definitely think that culture comes from very strong leadership and I think that strong leadership comes from collaborating with the rest of the organisation. I think it walks hand in hand. I mean, the worse thing is that somebody stands on a pedestal and says, "This is the way it is." That's the last thing that's going to engage anyone. I think that what happens is that leadership comes a lot from leading by example. Not "Do as I say," it's "Do as I do." I think that over a course ... Once you feel comfortable and people trust each other, at that point in time you can talk about the things that matter to you and the values that you want to be part of. I think that as a leadership group at The Fruit Box Group, we talk about those things a lot. The things is, obviously, trust and honesty are a big thing in our business, but probably the two big values that we go by is humility and empathy. Humility and empathy. Never take anything for granted. Always have an open mind. With empathy is always be open minded towards our customer and try to walk the journey as if you were in their shoes. I think that they're the type of things that we've come up with, but it hasn't come from me, it's come from me working together closely with the people in the organisation.

Adam: Just to wrap up, Marty, you've been doing this business for 17 years now, what would you say has been the really biggest lesson that you personally have taken away from it? Across any sort of field.

Marty: Probably the biggest lesson I've learned in my business is probably going back to the last question. Not that it's just fresh in my mind. Is that it's just really important to keep your feet on the ground and just be thankful that you're in a position that the business is a going concern and it employs a lot of people and a lot of customers are dependent on you. I just think in a lot of different ways, you feel very lucky that people have supported you from all different angles, whether it's customers, people that are working with you, to suppliers. You sometimes can get carried away with what you've achieved, but I think that...

Adam: You're talking about gratitude.

Marty: Yeah, it's all about gratitude. For me, I often pinch myself. As I said to you, I think, earlier is that the business is far bigger and different to what I ever envisaged. I just feel very fortunate to be able to be talking about it. I feel very fortunate that we're in a position to actually have a CSR platform and I think to myself, there's so much you can do. You don't want to feel as if ... You never want to think to yourself, "I'm going to solve the world's problems," but if you can do things a little bit better for your customers and make it a good environment for your staff to work in and do things that are good for the community, I feel very lucky and humbled that we're able to do that. For us, it's about doing good.

Adam: All right. Mate, thanks so much for coming in. There's been some great insights from you. Anyone listening, where can they go if they want to hear more about you?

Marty: Our website, www.thefruitbox.com.au. In that website it has links to all the information that you need.

Adam: All right. Brilliant. If you've got any questions for us or you'd like to come on the podcast yourself, you can shoot us an email, This email address is being protected from spambots. You need JavaScript enabled to view it.. You can follow us on all the social media channels, including iTunes, Twitter. Our tag is @mybusinessau on Twitter. Until next week, we will see you then. Thanks for tuning in.

Don’t scale your business out of existence: Marty Halphen, The Fruit Box
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