Souped up and successful
The health of New Zealand’s economy is inextricably linked to the performance of its export community. Yasmin and Ofer Shenhav represent a new breed of exporters tackling niche markets with enthusiasm and innovative products.
In a speech to the Export New Zealand ‘Breakfast for Exporters’ in Wellington in March this year, Trevor Mallard, Minister for Economic Development made the point that New Zealand needs more globally competitive firms if it is to grow its export industry.
He said that while our existing export activities remain critical, the key-challenge will be scaling-up existing export activity, and diversifying into new markets.
Mallard then went on to state the obvious for exporters – “we have a small domestic market, so our performance in export markets will be the main determinant in how prosperous we are as a country”.
If the Minister could have been teleported to a small business park in Auckland’s Mairangi Bay he would have been pleased to find an exporter that is already meeting those challenges of scaling-up and entering new markets.
Pitango is a company founded in 2000 by Yasmin and Ofer Shenhav, a couple who arrived in New Zealand just two years prior with little more than backpacks and a burning ambition to succeed. (Pitango is named after a cherry-like fruit that grows in Israel and other warm climates.)
Ofer had worked as a chef in top restaurants in Israel and London, and is passionate about food. His wife describes him as “very talented and creative – he can make a feast out of almost nothing!”
Yasmin’s own background was far removed from the food industry – a fully qualified dance teacher and choreographer, she had worked in the industry long enough to realise the binding relationship between a healthy body and soul, and that “what we eat determines our vitality”.
Cue New Zealand and it’s abundance of organic raw material. The couple immediately saw the opportunity to produce healthy, premium quality home-made soups free from preservatives. Using fresh, organically grown ingredients is a plus, but Yasmin says customers buy their soups and organic hummus dips mainly for the quality and the taste. Indeed the taste is exceptional – reflecting Ofer’s links to Israel, his heritage and homeland, where “spices of the Middle East are intertwined with the hearty rich food of the Eastern European ghettos”.
Wind the clock forward to 2006 and Pitango is now producing 11 soups, five hummus dips, and has around 30 percent of the fresh soup market in New Zealand. Total sales for year end 2006 is $3.2 million, up from $1.8 million in 2005.
Evidence of the products’ popularity is shown by the number of emails that flood into Yasmin’s in-box every day.
Pitango has already outgrown its first premises, spreading into a neighbouring unit, and is again bursting at the seams as sales increase. What’s even more remarkable is that all growth has been self-funded.
On the export front Pitango has been sending its products to Australia for the past three years, Hong Kong for two-and-a-half years, and has began exporting into Thailand. Other Asian markets are being lined up for expansion.
Exports currently represent 44 percent of total sales, which compares with 33 percent in 2005 and just 2.5 percent in 2004 – indicating the importance of export trade on the company’s growth.
“We thought if the products worked so well in the local market, there’s good reason to believe that they will be popular in other markets too,” recalls Yasmin. They had also visited Australia and seen the potential.
Because they’re dealing with a product that has a 60-day shelf life, Yasmin says they’ve had to be extremely organised, and very efficient with suppliers and customers. (Yasmin admits to being on a very steep learning curve since they set up the company, having had no prior business experience.)
“You need a lot of advice when you get into this game. You think you know better, but it’s not until you actually do it [export] that you realise what’s involved.”
Yasmin says once you see some results you can also see more efficient ways of going about things. She also says exporters must be patient when it comes to securing good distributors who know the local market.
Has exporting been easy? Yasmin says the key to success has been getting the demand from the market, and partnering with a good air-freight and logistics company. It’s also true that if you have an exceptionally good product, many potential problems, in terms of getting product moving, simply melt away.
Would Pitango ever consider moving its manufacturing base offshore to be closer to markets, as a number of other exporters have done? Yasmin says there would have to be some serious number-crunching, but it’s doubtful because it’s imperative that they operate very close to their organic food supply.
A helping hand
Pitango works closely with New Zealand Trade and Enterprise (NZTE) on Food Shows in offshore markets, in order to find new customers, having attended several in Australia, and recently participating on the NZTE stand at a show in Thailand’s capital Bangkok.
Jack Stephens, general manager business and regional capability for NZTE, says this is one of the many ways the Government-funded organisation assists existing and emerging exporters to get established in markets.
“We have a number of channels or entry points for those who want to export. Our 0800 number can lead to a quick assessment, but there is a filtering process – if the companies require help that we don’t provide we refer them on to the nearest Biz office, the biz.org website, or nearest Chamber of Commerce or economic development agency.
“In other cases, one of our client managers will take them through some questions to evaluate their capability and find out exactly where they’re at. This can result in advising some not to proceed, advising some to work on a business plan, or possibly recommending an Enterprise Training Programme or Exporter Education Programme,” says Stephens.
Those with clear export potential are linked up with one of NZTE’s Sector teams to customise a solution for export growth. Stephens says a software company wanting to scale-up for export, for example, may be helped with some necessary market research (for a fee). And potential exporters are made aware of the various funding options.
All grants are generally on a 50/50 cost sharing basis.
Market research is the key – and it’s here where NZTE can help in a big way as it has many resources to call on and can produce comprehensive reports on an export proposition’s viability. Stephens says it’s often just as important to know where NOT to go with a product as it is to find the markets that will work.
NZTE can also help firms establish the best market entry strategy which often won't just be a matter of supplying lists of distributors in potential markets. NZTE may recommend that clients sell direct to a retailer, or arrange a licensing or joint-venture arrangement.
“It’s important that exporters get up the value chain as much as they can and gain as much profit as they can from the product,” says Stephens. “We try to educate clients to consider moving away from the traditional trading model and move to a value-added one, although the traditional model is still relevant for many goods.”
He believes the volatile exchange rate will continue to dog many exporters, and points out that the exchange rate with Australia has become a concern, particularly for South Island manufacturers. Because it’s expensive getting into new markets, his advice is to first build capability in the domestic market; plan well; be patient and be prepared to take the occasional loss on the chin.
Export New Zealand CEO Bob Walters agrees that the exchange volatility is the issue that “nobody wants to talk about”. The fluctuation can often exceed many exporters basic margins – which doesn’t encourage long-term planning or investment.
Walters believes we’re losing out big-time due to the instability of the current business framework, and the temptation is there for companies to set-up in places like Australia, Asia and the US to be closer to those markets and deal in the local currency. The Reserve Bank is under instruction from the government to “avoid collateral damage to exporters” with its policies, but a 20-page report produced by the Bank virtually puts this in the “too hard” basket, says Walters. The feeling is that the current policies aren’t working and are if anything accentuating the fluctuations in the exchange rate.
“We can all see the benefits from giving the film industry tax breaks so why not apply that to other export sectors? The pay back to government is huge.”
Walters says government needs to address this and add some urgency to addressing export issues. His organisation is always ready to provide support services to fledgling exporters. “We’ll put them in touch with someone who is already involved in their industry. We act as a kind of ‘networking house’ and can certainly point people in the right direction.”
Walters also regards distributor channels in overseas markets as a major stumbling block for exporters, and he advises companies to take their time over signing agreements and be very wary of giving ‘exclusives’.
“It should be remembered that New Zealand distribution channels are extremely simple compared to international distribution channels, where they can be so layered,” he says.
Harsh realities
As any exporter will tell you, exporting goods or services requires a great deal more discipline and planning. Export consultant Simon Fawkes of Business to Markets Ltd suggests that exporters are handicapped by the ease of doing business in this country.
“It’s important to understand the nature of the business environment here and see its short-comings,” he says. “Regulations are relatively transparent, they don’t produce any great barriers, and business is fairly informal, while word of mouth referrals usually work. Then when they venture overseas, first-time exporters expect to get in front of top people in the big companies, whereas in reality they’ll rarely get past the front door.”
Fawkes says today’s exporters still need that pioneering spirit to succeed and a disregard for the rules. He says our isolation and New Zealand’s profile overseas can still be a hurdle.
“We can leverage off our high profile when it comes to food or clothing products, but for manufacturers of high technology products, the perception of New Zealand as a South Seas paradise can be a drawback to being taken seriously in the market.”
He advises exporters who’re not in a sector New Zealand is well known for, to piggy-back off the reputation of a world-class exporter in their sector. In the case of consumer electronics mention the fact that you’re from the same neck of the woods as Navman and the door might be opened.
“That at least gets you credibility and attention, then it’s a case of stating what’s your claim to fame,” says Fawkes.
He says NZTE has an export-ready checklist on its website , but the sorts of questions he’ll ask a wannabe exporter is: why do they want to export? Do they have the resources and expertise? Are they aware of the timeframes involved? What makes them think their product has export potential? Who are their local competitors and how do they stack up in the local market? How well do they think they will do in an export market?
And is New Zealand your test market or your main market to fund export growth?
Fawkes stresses the importance of thorough homework – and recommends international trade fairs as a way of sussing out markets (although prepare to return somewhat overwhelmed!)
If you’re a small exporter Fawkes also warns of difficulties when dealing with large overseas companies with multiple layers of management. Could you satisfy a large order, for example? Fawkes likens that scenario to a mouse attempting to seduce an elephant. Getting their attention can be hard, but if the elephant gets excited (ie places a larger-than-expected order) would you end up trampled?
“If a large company likes your product it’s a good idea to ask what constitutes a small order,” says Fawkes. “Could you finance and deliver a large order while maintaining your quality standards? Surprisingly some companies have actually gone under following a huge export order.”
As for finding a distributor that ‘fits’ – Fawkes says the distributor must first know all there is to know about your company, and they need to know that you’re committed to them 100 percent. He recommends flying distributors to New Zealand to meet your people, view your plant, and pick up the vitality of the company. Then hopefully they will take some of the passion back with them.
Fawkes sees challenging times ahead for exporters with the currency exchange volatility; the impact of India and China on manufacturing; and the need for companies to acquire specialist marketing and exporting expertise. “We’re witnessing a move away from the tradesman/craftsman/ hands-on manager to a more professional management structure that requires a bigger team.”
He says New Zealand exporters increasingly need to concentrate on small run, quick turnaround items that can be quickly air freighted anywhere in the world. In other words, doing things that don’t make sense for the ‘super-sized’ manufacturers of Asia.
The final word
Meanwhile, back at Pitango on Auckland’s North Shore, the phone hasn’t stopped ringing, and Yasmin Shenhav obviously has work to get on with – time for one final question. Six years on from opening day, is the company where they thought it would be?
Ofer is the visionary and it’s probably exactly where he thought it would be, concedes Yasmin. Whereas she is a more thorough, methodical, step-by-step person, and Pitango’s progress has exceeded her expectations. Endless patience and fully understanding the markets they sell into have paid off for this enthusiastic business couple.
One can’t help get the feeling that their high energy levels and full-on passion for healthy food has also had something to do with their success.
It would seem that soup not only tickles the soul, but also feeds the profit margin nicely.
Reprinted with kind permission from Glenn Baker, Editor at NZBusiness, and author of this feature article.