Supply chain fruitful for Yarra Valley Farms

By The Australian | October 25, 2008

A TOMATO "is not simply a tomato", says Bill Kollatos, managing director and founder of Yarra Valley Farms.

Claiming to be one of Victoria's largest distributors of fresh fruit and vegetables, he says: "When you are supplying the hospitality industry, knowing that a chef is very particular in what he wants, you must have a highly efficient ordering system."

From an outsider's perspective, when you have 500 such customers, and supply perishables in an industry where quality, availability and price change daily, you could also have mayhem.

From a start-up in 2003, Kollatos has presided over a dramatic growth period with revenue now in the "multi-million-dollar" range. "We've grown 1000 per cent in four years and moved warehouse four times.

"We distribute to cafes, bars and restaurants across Victoria direct and through our seven franchise operators."

The son of immigrant Greeks, Kollatos, equipped with an MBA and graduate credentials in IT, is hardly your typical fruit and vegie provedore. Yet he says his 17 years in a variety of industries together with his education and software knowledge have been a godsend for the business.

Operating in one of Australia's most fragmented markets, Kollatos wants to both consolidate and transform the industry throughout Australia, while focusing strongly on customer service, satisfaction and retention.

His experience in other industries gave him "unique" insights into how he could make "disruptive" and "transformative" changes to the industry.

"I knew I could apply my business acumen and IT skills in this market. This is a very old industry established by earlier generations -- the Italian and the Greek families.

"The central market system in this country is one of the most efficient market systems in the world and has served both producers and retailers very well for a century.

"But their children became doctors, lawyers, market analysts. They didn't want to get up at 3am and work till 10 at night. The mentality was 'I have to control everything that happens'.

"They didn't have the systems to expand. They start running out of family members. No one has picked up the opportunity.

"I saw that a supplier and distribution business which was based on offering only the highest quality and widest variety of fresh produce had the potential to succeed on a wider scale."

In his industry, business skills and investment in IT and logistics can deliver enormous advantages to an entrepreneurial operator.

Kollatos says the company is able to deliver fresh produce to its customers within 24 hours of it leaving the farm. He says the company's "intelligent" ordering systems allows franchisees to tailor details to each customer.

"When an order is placed with Yarra Valley Farms by a customer for tomatoes, the system knows exactly what kind of tomatoes that customer is after. Chefs are very particular, so the system needed to be particular too.

"Despite tight margins you have got to keep re-investing. You need good people, to handle the relationships; you have got to have good cost measurement to keep driving the greater efficiency. And you have to be innovative in the business models." This combination of advanced in-house IT and logistics supporting a growing delivery fleet positions Yarra Valley Farms to scale up the business.

"We're only in Victoria at the moment proving the business model," he says. "Customers enjoy close relationships and personalised service with their 'local' Yarra Valley Farms supplier -- the franchisee -- whilst experiencing the benefits of buying power, product range, weekend deliveries and product information supported by the infrastructure systems. We have a highly localised quality control: the franchise operator is the last yard in quality control."

Entrepreneurs invariably look up and down the supply chain for where they can add value to their existing business. Kollatos says his franchise and distribution model has proven its competency with the hospitality industry.

He says retail is a "natural extension" of his provedore, supply and distribution model.

"We've done a lot of research; we've looked at how far this model could travel. Can it go interstate? Can it go to other parts of the food chain? Can it go overseas?

"Following the opening of our Geelong retail store, franchisees within our distribution network have expressed interest in expanding their business by entering the retail sector. A retail outlet means they can enjoy the benefit of customers coming to them."

Kollatos says he has seen interest from fruit and vegetable store managers who want to own their own business, but don't want the added hassle of rising early for the morning markets.

"They come from all walks of life. We have a retired banker, a manager from the rag trade. They want the independence, to be master of their own domain.

"They want the quality of life change: to start at 6am and finish at midday. They have all the systems to support them."

He says the retail franchise operator is different from the distributor.

"They generally are more ambitious: they want to make more money; they're willing to do more but want more back.

"A lot of people like bricks and mortar. Look at how Bakers Delight and Subway operate. You have some franchises that are 10-15 store consortiums -- very substantial businesses."

With the company-owned Geelong store, a franchised store about to be opened in Carnegie and a further 10 sites earmarked across Melbourne, all this must seem light years away from the 1960s and the way the world used to flog fruit and vegetables.

"It's not easy to create the system. It's been a challenge; it's been a journey.

"You have to be crazy to do what I did from an investment point of view. The chances of success in an entrepreneurial venture from a standing start are low.

"If I extrapolated my lost earnings and the amount of money I have invested, you'd be nuts. Then the entrepreneur inside kicks in. Every time I go past a shopping centre, and I see these specialty franchise stores, I think, there could be a green grocer one there too. No one is doing it, because no one has got the systems and trucks on the road."