Facing the most challenging financial climate since the Great Depression, Sundia Fruit's investment in innovative technology hasn't just helped it survive, it's made the company stronger than before.
One company that almost went bad when the economy turned sour is Brad Oberwager's Sundia Fruit. Using money from friends and family, Oberwager, 39, founded Sundia Fruit four years ago in his Oakland, Calif., basement. The $7.5 million company provides freshly cut, ready-to-eat organic fruit to grocery store chains like Albertson's, Kroger, and Food Lion. Sundia's biggest competitors are forbidding, to say the least: Dole and Del Monte. To compete with these produce giants, Sundia turned to technology that not only helped the company grow but also kept it from collapsing during the credit crunch that hit many businesses hard last fall.
Lauren and Sundia's Fruit Cups
Value-added produce is a high-risk business. Because fresh produce has such a short lifespan, suppliers won't deliver it until Sundia pays for it, and Sundia's customers won't pay for it until it's delivered to them. That means virtually all value-added produce companies must borrow money to buy their watermelons and mangoes. After delivery to customers, they borrow money against their receivables in order to buy more watermelons and mangoes. With margins hovering around 35%, these companies can afford to pay high interest rates; Oberwager wouldn't flinch at paying 22% to keep his buy-sell cycle going.
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But in November, when the credit crisis hit, even that wasn't enough. Sundia's lenders simply turned off the flow of money. Without money to borrow, Sundia faced insolvency in a matter of weeks, or even days.
Oberwager and his employees were scared -- especially when they lost a midsize account because of credit woes. "Our supply chain runs around half the world -- from Turkey through Thailand through Mexico and the U.S.," Oberwager says. "Everything in the chain is financed." When lenders stopped lending, Sundia still had to pay its suppliers. "Every day our bank balance got smaller and smaller and smaller," he recalls.
But Sundia's innovative investment in technology offered a lifeline. Oberwager had built the 120-employee company on an intranet-based platform that includes NetSuite ERP and supply chain management, along with custom software. The system provides up-to-the-minute information on which customers owe money, how much they owe, how long it's taking them to pay, and who the best payers are. It also provides a weekly, company-wide reporting system.
This emphasis on visibility was critical when credit dried up. Oberwager looked at the data and quickly decided to discontinue an unprofitable fruit juice product line to buy some time. But that was only a short-term fix; Sundia needed a multimillion-dollar equity infusion to replace its lost credit line -- and it had to happen fast.
Armed with detailed supply chain and ERP data, including inventory turns, booked orders, and negotiated prices, Oberwager was about to reach out to his existing investors and start courting new backers. But the user interface that made sense to his staff would have been Greek to investors, he says, so he spent more than $100,000 to have his Indian developer, Digital Avenues, convert the data into graphs and charts that investors could readily understand. That's pricey, he notes, but "what's the value of not going out of business?"
Oberwager was able to show potential investors sales data up through the prior week -- in contrast to many of his competitors, who he says can tally sales only after a month closes. It took just 10 days for the 20 investors to come through with the millions Sundia needed. Oberwager believes the deal closed as quickly as it did because he was able to reassure the investors with so much real-time data.
Today, Sundia's in a better position than most of its competitors, Oberwager says, its banks are lending again, and the company has capital for growth. Some small competitors are struggling, he says, and Sundia is picking up some of their business.
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