Bulk Distribution Goes Sour

Syrup Maker Exits Costco

By Alexis McCombs
Black Enterprise

August 8, 2007--As one of the first participants in Costco’s minority supplier program, Michele Hoskins launched her high-end maple syrups throughout the wholesaler’s Midwest stores in January.

After reviewing several months of sales data, Hoskins, 55, decided the business venture was not in the best interest of her Chicago based company because of slow product movement.

"I wanted to expand into the wholesale market and I met a broker with Costco contacts that paved the way. The challenge came when they requested I make the butter pecan line organic and in larger bottles. We had done (3) 13-ounce packs with Wal-Mart but the 64 ounces they were requesting was too much and would last for 3-4 months. Because turnover is so low, you have to market to more people (through advertising and demos) to make a sizeable profit," she says.

Hoskins, who has a Doctorate in Food Service Management and has been seen on Oprah, expressed her concerns to the retail giant, which reports $60.2 billion in annual revenue and has 49 million membership holders. Her concerns were overridden.

Hoskins says, "I thought they knew their customer better than I did but it was a learning experience—don't go against your better judgment when making key decisions."

The venture was also a costly one. Michele's Foods was established in 1984 but entering the organic market was like creating a new start-up company. "We had to reformulate the recipe and procure organic products like rice syrup from Argentina to replace corn syrup. We also had to do extensive forecasting to accommodate [international] tanker shipments, our plant was inspected to make sure nothing with chemicals ran through the machinery and we created new bottles and labels," she says.

Absorbing the upstart cost, Hoskins thought the product would eventually be rolled out to the remaining Costco regions and become more profitable. However, the buyers were basing expansion decisions on current movement and as predicted, turnover was sluggish.

"In the end, the Costco customer had to maneuver over several obstacles" to get to my product which included "being a member, wanting organic syrup, wanting the butter pecan flavor and having a family or a need for large quantities. Ultimately it wasn't a good fit for their customer nor for me to [produce]," said Hoskins.

Despite the setback, Hoskins still recommends diversity supplier programs like Costco's. They allow smaller businesses that don’t have a lot of start-up capital to get in the door because retailers often waive sliding charges which can range from $30-90K for use of shelf space.

The partnership with Costco also positioned Michele Foods with the ability to tap into the organic food market, which is expected to reach $23.8 billion in sales by 2010, and its retail sales have grown 20-24% each year since 1990. The owner of her own manufacturing plant, Hoskins says, "We are now a world-class facility for organic and kosher products since we passed rigorous inspections." Michele’s Foods can still be found in every major retailer across the US including Wal-Mart, Albertsons, and Safeway and is exploring expansion opportunities in South Africa and Bermuda.

quote:

Hoskins, who has a Doctorate in Food Service Management and has been seen on Oprah, expressed her concerns to the retail giant, which reports $60.2 billion in annual revenue and has 49 million membership holders. Her concerns were overridden.

Wow, she was just on a re-aired program from the Michael Baisden show today. She didn't mention she's gotten around to going to college. Way to go Michele!

I need to invest in a bottle of her syrup. Has anyone tried it?

www.michelefoods.com