ESTABLISH MARKETS FOR VALUE-ADDED POTATO PRODUCTS
Project Opportunity
The owners of a production facility are looking for a management team who can come up
with a plan to reopen their plant, bring in the necessary investment, and manage the business. The
owners would be open to discussing an ownership stake with the management team.
Project Description
Colorado typically produces 25 million cwt (one cwt = 100 pounds) of potatoes annually and
sells approximately 17 million on the fresh market. The remaining 8 million cwt. cannot be sold on
the fresh market because they get classified as “off-grade” i.e. they are not the right shape, size or
have external or internal defects. Approx. 2 million cwt (200 million lbs.) of these off-grade
potatoes get dumped or fed to livestock each year. The price for grade potatoes in the fresh market
varies by season and averages $5.00/cwt (or five cents per lb). Most of the off-grade potatoes are
sold at approx. $0.60/cwt while those send to a dump cost the grower dumping fees and
transportation.
In 1998, a group of 13 potato growers built a state-of-the-art facility in Center, CO (close to
Monte Vista, CO), to produce refrigerated fresh whole peeled and fresh cut potatoes with up to 21
days of shelf life. The potato farmers had seen evidence of a healthy market for fresh peeled and cut
potatoes in Europe and expected the same results in the USA. They invested over $3 million in debt
and equity to buy the equipment, construct the plant and hire a management and employee team.
They have, since the plant opening in 1999, spend another $1 million on operating costs and
consulting fees but a market niche for refrigerated fresh cut potatoes was never found. The business
has been shut down due to a lack of customers for the past six years. The potato growers believe
that their fresh cut potato products were simply ahead of their time.
The Current Process at the Gourmet Potato Facility in Center:
Refrigerated fresh cut and peeled potatoes are produced utilizing off-grade and B-grade
potatoes grown locally. After arrival at the production plant, the potatoes are peeled, thoroughly
washed and cut into various sizes and shapes. The potatoes are then run through a governmentapproved, non-sulfite solution to stop discoloration. The products are subsequently moved through
a flume where chilled water and chlorine solutions controlled by a computer instantly chill the
product to 32-35 degrees. The end result is a product with an expected shelf life of up to 21 days.
The existing facility equipment is as follows:
Equipment
Abrasive peeler
Knife Peeler
Finishing
Chiller
Packaging
Capacity (lbs/hr)
10,000
5,000
5,000
10,000
10,000
Comments
Shorten shelf life of refrigerated potato
Lengthens shelf life of ref. potato
bottle-neck operation
Citric acid soln to freeze outer layer
In 5 lb. to 500 lb. bags
We wish to re-evaluate the market for fresh peeled and cut potato products and extend the
market analysis to complementary products such as fully or partially cooked refrigerated or frozen
potatoes in various forms (whole, cut, mashed or powdered). ICAST believes there is a market for
cooked potatoes. Grocery stores currently sell mashed, scalloped or other variations of cooked
potatoes cut in various shapes and sizes, with other ingredients such as salt and spices added to
increase value.
We will also need to evaluate the modifications to the existing plant and equipment to
accommodate any new market requirements. Our objective is to find the markets for value-added
potatoes and evaluate if the existing “Nature’s Finest Gourmet Potato Inc.” plant can be upgraded
to meet the market demand in an economically viable manner.
Project Tasks
This project has three components:
1. An analysis of the multiple markets and marketing strategies needed to sell refrigerated fresh or
cooked potato products .
2. An assessment of additional production equipment that may be required to produce the
product(s) for which a market currently exists.
3. Exploration of markets for alternate “special” potato varieties, such as yellow flesh and or red
varieties, rather than using only the off-grade and B-sized potatoes.
Project Deliverable
Using estimates of capital costs, production volumes, operating costs, and product sale price, a
business plan needs to be completed for the financial viability of the enterprise. The business plan
will pull together all of the project information and analysis into a document that contains:
 The Market Opportunity
 The Service (Product Description and Operation Details)
 Market Description and Marketing Strategy
 Management and Personnel
 Financial Projections and Risks
Appendix I
Benefits to establishing a market for the off-grade and B-sized potatoes that would be dumped into
a “Cull Pile”:
Reduces Chances of “Late Blight” Associated With Cull Piles:
The cull piles often contribute to the spread of wind borne fungal diseases for potatoes. The piles
are often left unchecked so that spores can get blown by wind to infect the potato fields. Potatoes
that decompose in these cull piles can be a source of innoculum for the devastating potato disease
“Late Blight”. It was Late Blight that caused the Irish potato famine. Using these off-grade
potatoes for the production of refrigerated fresh potatoes will eliminate the risk of late blight.
Reduces Risk of Ground Water Contamination With Cull Piles:
As potatoes in large cull piles decompose, they pose a risk to the ground water. The water table in
the San Luis Valley is usually very shallow (3 to 4 feet below ground level). Growers are very aware
of this and take extra caution to prevent any harm to the ground water but cannot always ensure
safety of the ground water. Using these off-grade potatoes for the production of value-added
products will eliminate the risk of contaminating the ground water.
Additional Revenue Opportunity:
Growers would benefit from a value-added potato production plant by having a market for their
potatoes. Currently, the off-grade potatoes cause a loss of revenue (due to the cost of transportation
and dumping fees). A revenue stream would create an economically sustainable potato industry.
Economic Development Opportunity:
The plant would provide jobs to local residents in a region that is economically distressed.
People Quick Facts
Conejos
County
Saguache
Costilla County County
Colorado
Land area, (square miles)
1,287
1,227
3,168
103,718
Persons per square mile
6.5
3
1.9
41.5
Persons of Hispanic or Latino origin, percent
58.9%
67.6%
45.3%
17.1%
White persons, not of Hispanic origin, percent
39.3%
28.2%
51.6%
74.5%
Median value of owner-occupied housing
$57,000
$61,200
$73,900
$166,600
Persons per household
2.8
2.44
2.56
2.53
Median household money income, 1999
$24,744
$19,531
$25,495
$47,203
Per capita money income, 1999
$12,050
$10,748
$13,121
$24,049
Persons below poverty, percent, 1999
23.0%
26.8%
22.6%
9.3%
Retail sales per capita, 1997
$2,866
$1,012
$5,084
$10,417
Source: US Census Bureau State & County Quick Facts. All figures are for the year 2000, unless stated otherwise.
Appendix II
Potential Markets for the “Gourmet Potato” Plant:
A wide variety of food-related markets may exist for refrigerated fresh cut and peeled potatoes.
Such markets include:
1. Cafeterias: such as those at universities, correctional facilities, etc.
2. Restaurants
3. Catering Companies
4. Retail Commissaries
These markets were targeted by the “Gourmet Potato” management in 1999-2001 without achieving
any success. CPAC and the potato growers believe that these markets are now ready to purchase
refrigerated fresh cut and peeled potatoes. This business team can evaluate the validity of that
statement by surveying the above-mentioned target markets as well as other markets such as:
 Retailers (Grocery stores, Convenience stores, Deli’s, etc.)
 Wholesalers (Cysco) and Food-marts such as Costco and Sam’s Club.
 Food manufacturer’s (frozen food makers)
for their capacity to sell a variety of value-added potato products such as:
 Fully cooked refrigerated and/or frozen potatoes.
 Partially cooked refrigerated and/or frozen potatoes.
 Uncooked (fresh) refrigerated and/or frozen potatoes.
in various forms such as:
 Whole potatoes
 Cut into various shapes and sizes (fries, crinkles, waffles, diced, hash browns, etc.)
 Mashed or
 Powdered (flakes)
and sold in small or large serving packages that may include other ingredients or value-added
products such as:
 Vegetables (e.g.: diced potatoes with onions and peppers)
 A recipe for a potato based dish
 A pack of gravy or some spices to go with the potato in the package
The frozen potato market is very well established and market entry for a new upstart such as
“Gourmet Potato” may be difficult given that players such as Ore-Ida and Simplot Foods are very
large and well established.
Simplot Food Group
Simplot Food Group is
based out of Boise, Idaho
and produces frozen
potato products such as
French fries, hash browns,
and mashed potatoes.
Some of their specialty
foods include:
Ore-Ida
Ore-Ida, a
subsidiary of HJ
Heinz in
Pennsylvania,
produces a
variety of frozen
potato products.
They are the best
known brand in
the market
currently.
Spudsters™: Mashed potato
bite-sized snacks.
Twice Baked: 100% prebaked Idaho Russets, scooped out,
stuffed and quick frozen.
Golden Fries®
Golden Crinkles®
Shoestrings
Country Style Steak Fries
Potato Wedges
Country Style Steak Fries
Onion Tater Tots®
Country Style French Fries
Zesty Twirls®
Zesties!®
Fajita Seasoned Fries
Texas Crispers®
While the frozen potato market has these large players, the same is not true for the refrigerated
potato market because it is relatively new and without any large established players yet. Current
market data from the potato industry indicates that the market size for refrigerated (not frozen) precut potatoes (fresh and cooked) is currently at $50 Million/year with an 8% growth rate. Most of
this product is placed either next to the meats, pre-cut salads, or egg shelves in grocery stores (and
not next to the frozen potato products). Additionally, the potential for a “niche” market exists.
Yellow varieties are currently being used with success in Europe. There is virtually no fresh or
process market in the USA for “off grade yellow flesh”. Competition in this market may be less
fierce, and market studies indicate strong consumer interest and growing demand (per CPAC).
The current competition in the refrigerated (fresh and cooked) potato market includes:
Marten’s Farms
This is a 900-acre potato farm based out
of Port Byron, New York. In 2001 they
expanded operations to supply the food
service industry on a direct basis with fresh
field packs and fresh pre-cut potatoes in all
popular sizes and varieties. They produce a
line of fresh pre-cut refrigerated potatoes
products made from red, white, russet,
and yellow potatoes. These potatoes are
prepared in various styles: sliced, diced,
French fries, shredded, whole peeled, and
mashed.
Reser’s
Reser’s is located in Beaverton,
Oregon and produce Potato
Express Brand potato products.
These products are pre-washed,
peeled, cut, and then delicately
pre-cooked, thereby requiring
little preparation by the consumer.
Reser’s sells Potato Express
through supermarkets like
Albertson’s, Wal-Mart, Safeway,
and several others.
Potato Express fresh-cut potatoes
– sliced or diced cooked and ready
to serve.
Potato Express mashed potatoes
Reser's Seasoned Potato Express
Lamb Weston
A subsidiary of Con Agra Foods, Lamb Weston specializes in a
variety of value-added potato products. Some of their products
include:
Mashed potato and pre-sliced (see picture) products under the
brand name TimeSavor® products geared toward busy, high-volume
operations that demand high quality, portion-controlled sizing and laborsaving convenience.
French fry-type products under the brand name Stealth® Fries
Michael Food’s Northern Star
Michael Foods out of Minnesota
produce a versatile line of refrigerated,
prepared potatoes. They prepare their
potatoes by peeling and boiling,
minimizing preparation time for the
consumer. Michael Food’s Northern
Star subsidiary produces the brand
Simply Potatoes, which has multiple
potato products. Some of these
products include fresh cut potatoes
that are pre-sliced or pre-diced and are
sold in grocery stores.
TimeSavor® pre-sliced
Simply Potatoes Hash Browns with Onions
The advantages of refrigerated (fresh and cooked) potatoes are:
 Potatoes are pre-cut thus saving
a. labor - no peeling, washing or cutting to prepare
b. eliminating waste- they are 100% usable with no peels to dispose
 Easy inventory management - Due to long shelf life
 Price would be fixed – eases the budget planning process
 Prevent introduction of bacteria in kitchens- no bulk potato processing
As stated above, there are a variety of value-added potato products that can be marketed to multiple
target markets. The marketing strategies needed to sell the variety of value-added potato products
may be different for the various target markets. The market analysis will evaluate the various
options and recommend the best target market and the optimal marketing strategy to break into the
target market.