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TRUFRESH: A COMPANY THAT'S TRULY VIRTUAL

A high-tech fish processor keeps costs low with a bare-bones organization

Open up the direct-mail promotional piece from Trufresh Marketing Group, and you will find a rather, well, distasteful item. A scratch-and-sniff card--for fish. Then pick up the cover panel and take a whiff. Nothing. Because, as the copy inside points out, ''fresh'' fish should not smell fishy.

The mailer for the company's ''fresh-frozen'' farm-raised Atlantic salmon is not the only innovative thing about Trufresh. Involved in everything from harvesting the fish to distributing it, the company is using a patented freezing technology from Japan to flash-freeze salmon in Maine. Experts say the freezing process is so effective that Trufresh salmon is indistinguishable from fresh.

SPARTAN. In the nine years since its founding, Trufresh has flopped in retail but is finally making major inroads into the institutional food market. Last year, sales topped $1 million. And thanks to a new deal with Sysco Corp., the nation's largest food distribution company, sales are projected to surpass $5 million in 1997, enabling the company to turn a profit.

The key to Trufresh's success is a leanness unique in its industry. It's a virtual company--no headquarters, a bare-bones sales staff, and no plans to add bricks and mortar. Distribution and warehousing, as well as direct sales, are all outsourced. ''We built this business as a virtual business out of necessity,'' remarks Kevin Vandervoort, CEO of Trufresh Marketing. But now he's sold on the concept. ''We're not looking to have a traditional corporate structure. It just isn't necessary.''

In fact, staying virtual may be what's necessary because it has enabled the company to focus on technology and sales, without diverting resources. Vandervoort estimates, for instance, that the operation would be at least 10 times more expensive if Trufresh maintained its own distribution infrastructure, not to mention a roster of employees. ''The value of the company is the patent, the technology, the trademark, and the marketing,'' he says. Trucking and distribution are ''just not our business.''

The company's structure also maximizes its value to investors, says majority owner Barnet L. Liberman. Moreover, by keeping the licensing, sales and marketing, and production arms separate, Trufresh has a built-in exit strategy: It could sell the sales and distribution arm unencumbered by potentially costly hard assets, while continuing to license the company's freezing technology.

Trufresh's ''office'' is far-flung. Real estate executives Winthrop Davies Chamberlin, 55, and Liberman, 50, the majority owners of Trufresh, keep a handle on finances from their Manhattan office. Robert J. Peacock II, 48, a retired ocean tanker captain, oversees production in a 4,800-square-foot rented space carved out of the weather-beaten sardine canning plant his great-grandfather built in Lubec, Me., in the early 1900s. James C. Gallagher, 44, the company's national sales manager, works at home in Pittsburgh overseeing five freelance sales reps. The only Trufresh office with overhead is Vandervoort's--one room in Windsor Locks, Conn., furnished with a computer, a fax machine, a telephone, a filing cabinet, and a couple of second-hand desks. The son, grandson, and great-grandson of commercial fishermen, Vandervoort shares his office with his marketing team--sons David, who is an 18-year-old high school senior, and Matthew, 21, a college junior. Together, they came up with the sniff o' salmon mailer.

ROYALTIES. The idea for Trufresh was spawned when Liberman and Davies stumbled on the cryogenic freezing technology in 1986. A heating contractor they knew introduced them to a Brooklyn butcher who bought beef frozen with a process developed by Nissin Gourmet Beef of Osaka, Japan. In 1988, they negotiated an exclusive 16-year North American license agreement for the technology. While Nissin retains exclusive rights in Japan and 11 other Pacific Rim countries, Trufresh pays a fixed fee and royalties for sublicenses elsewhere. This year, the company partnered with processing plants that process fish in Micronesia and Chile.

The company's retail failure turned, oddly enough, on freezers. In a 1993 test run with a Quebec supermarket chain, it found that the rapid defrost cycle of conventional retail units causes ice crystals to form quickly inside the fish, transforming it into a typical frozen specimen.

Then, in 1995, the company landed a customer: giant Marriott International Inc. The already cleaned and filleted Trufresh fish appeals to institutional food-service operations as a labor-saving, waste-reducing product that poses less risk of bacterial contamination than fresh fish. Even at $6 a pound wholesale, compared with $2.60 a pound for fresh salmon, ''it works out very well,'' says Michael Fischetti, executive chef at the Doubletree Hotel in Pittsburgh. And, says Bill Prachyl, seafood product manager at Sysco in Houston: ''You can't tell the difference between their salmon and fresh.'' In fact, in December, when the Culinary Institute of America tested Trufresh salmon against fresh-cut, its expert tasters couldn't tell them apart.

That may be attributed to what goes on at Trufresh's production arm, Maine Freeze. There, farm-raised salmon are ''harvested'' and then within an hour of being plucked from the pen, cleaned and processed in what Maine Freeze President Peacock calls a ''state-of-the-art surgical'' packing room. Boned and skinned filets, sealed in airtight plastic, are plunged into a patented cryogenic brine at -40F, and they freeze so quickly that, unlike conventional frozen fish, Trufresh salmon loses very little moisture. (A fresh fish, by contrast, may be out of the water for more than a week before it hits the plate.)

In the last two years, Trufresh has added impressive customers--first Club Corp., a food-service company managing dining rooms at 236 private clubs. And Vandervoort now is negotiating a deal with a U.S. airline. But the biggest catch yet was a contract made with Sysco in November. Trufresh gained access to Sysco's sales force of 5,000 working out of 59 distribution offices. Sysco's people receive training from Trufresh's contract sales team, along with direct-mail marketing support. In return, Sysco is the exclusive U.S. distributor for Trufresh.

The partnership gives Trufresh ''big fish'' status that such a small company could scarcely achieve on its own. Sysco, meanwhile, is looking at a potentially huge market. According to the Maine Aquaculture Assn. (MAA), Americans ate nearly 109 million pounds of farm-raised Atlantic salmon in 1995, and consumption is growing by about 20% annually.

To date, Trufresh and its parent Winterlab Ltd. have gone through more than $9 million dollars. Most of it has come from the two real estate executives, though conventional debt financing and a handful of equity investors have also played a part. But the clock is ticking: The Nissin license costs a flat $1.5 million a year, and Trufresh's goal of capturing 5% of the U.S. market for farm-raised salmon is at least a couple of years off.

Vandervoort and Liberman are relying on the low-cost virtual structure--a strategy endorsed by knowledgeable observers. Thomas M. Compernolle, a food distribution and retailing consultant with Ernst & Young LLP in Chicago, says a lean organization allows companies such as Trufresh to focus their financial and technological resources on winning product acceptance. On the other hand, virtuality also poses the risk of limiting the company's growth, says Compernolle, if Trufresh ever becomes captive to expensive outsourcing partners or needs an in-house sales and marketing team to penetrate retail markets.

''Outsourcing everything that is not part of your core competency is something people have been talking about for years. But I don't know of anybody who has implemented the virtual concept,'' says Compernolle. ''Theoretically it can be done, but it will take a few guinea pigs to see if it can happen.'' Or a few brave fish swimming upstream.

By Gregory Sandler in Northampton, Mass.



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