In addition
to new products and
updated packaging and promotional
materials, we have made a major commitment to sales growth by
bringing back our National Accounts
organization. We have given this group the task of soliciting
and serving chain accounts.
For more
than 10 years, we have not made a concerted effort to call on or acquire
these large accounts. This group, led by Delbert Jordan, is reaching out
to this significant market segment. Today we have 22 sales professionals
in this organization. Most of them are former branch managers –
professionals whose sales skills have allowed them to advance in our route
sales division. To this team of 22, we will add four more in January.
Let me put
this in perspective for you. In the past six months, we’ve promoted (to
the National Accounts group), and replaced, approximately 20% of our
branch managers. This has presented opportunities, but it has also
stretched our capabilities: new managers, new assistant managers and new
route sales people all require lots of on-the-job-training. The
administrative cost is not minimal, not only in dollars spent, but in
effort, hours worked and, admittedly, in some lost opportunities.
The members
of our new National Accounts department are distributed throughout our 28
state marketing area. They are plowing new ground. They are soliciting
accounts today that we haven’t approached for a decade: some of these
potential customers didn’t even know we sold coffee to chain accounts.
But, before we’re done, they will.
The payroll
commitment for this new division is likely to exceed $1 million per year.
We are making a long-term commitment. We know it will take time to bear
fruit: we are the “new company” to some of these customers; plus, we don’t
expect our competitors to roll over and make it easy for us. But, we
believe we have what it takes to earn back our reasonable share of this
market.
Our
competitive strengths in pursuing this market include our distribution
system, our broad product line and our people, who can go head to head
with anyone. Large chains, as much as the small mom-and-pop cafes, value
service – and we believe that no one in our market provides better service
than Farmer Bros.
As we
approach these larger accounts, we have carefully considered one of the
pitfalls of this business – a pitfall that led our managers to look beyond
chains for their customers. Many chain buyers ONLY want coffee, and they
want it at the cheapest possible price. We have developed plans to work
with and even to accommodate these ultra-price-sensitive buyers: but we
know (as Mr. Farmer used to remind us) it isn’t worth wearing out our
machines unless we make a fair profit. We think this business can bring
both volume and profitability.
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[page 7]
In closing,
let me reiterate, our Sales organization is the life’s blood of this
Company. More than 40% of our people work in our Sales organization.
They are the drivers of our business model, which is one of the last, and
to my knowledge, perhaps the largest of its type: a route sales
organization.
As we
continue servicing our customer franchise and try to re-grow our chain
account business, we know we will face pressure to treat our product as a
commodity, to ignore the value that we create in our distribution network,
and to discount the face-to-face relationships that are kept alive by the
nearly 500 Sales people on the front line.
We also know
that service is not a commodity – it is something unique and in our
business it has been woefully shortchanged in recent years. We think our
tradition of service has given and will give us an advantage.
Even though
some customers – some chains, for example – today represent a distinctly
different marketing channel better served outside the route system, but we
also believe that service can’t be ignored and is something we bring to
customers that NO ONE ELSE CAN.
We believe
we know our customers and their needs, that we are an integral part of
their profitability, and that we produce new and compelling products and
ideas that make all of our business relationships into partnerships.
Our
infrastructure is designed to facilitate this business model and our human
and financial capital supports this model.
For nearly a
century our human and financial capital has been sufficient to support the
Company during World Wars and energy crises, has supported the Company
during downturns in the economy, faced commodity risks, management
turnover, and hasn’t missed a dividend.
So, although
we do not expect our operational results as recorded in our financial
statements to be measurably better in this coming fiscal year, we do
expect to make meaningful progress in strengthening our infrastructure,
extending our reach to new customers, and taking important steps to
position the Company for the future.