Paradise Farms Organics (PFO)
Overview
Paradise Farms Organics (PFO) was created by Mary Jane Butters to pursue her vision of
‘creating social change through business’. The company grows, processes, and distributes
convenient, transportable, gourmet organic foods. Mary Jane started the company in 1989 and
incorporated in 1992. The stock is not publicly traded and most of the investors are close friends
who admire Mary Jane and support her vision. They are more interested in promoting the goals
of the company than in profitability.
Although they have not created a strong market presence, PFO has received recognition
for its gourmet food and environmental practices. Mary Jane does not believe in traditional
marketing and relies on word of mouth marketing. She has a list of reliable, regular customers
but has not tracked sales. Despite their somewhat haphazard way of doing business PFO has
excellent resources, capabilities, and potential and they have no long term debt. However, it has
been cash flow negative for the last three years. PFO has been unable to capitalize on its
capabilities to create competitive advantage.
Mary Jane is committed to maintaining their core values, but recognizes that she needs to
grow the company and create a plan to become profitable. Her stockholders also are “looking of
a plan and clear direction” about how to grow PFO. To succeed and grow in the current market
conditions PFO must establish a strategic plan that builds on their resources and competencies
and recognizes their weaknesses. The issue addressed in this brief is that the lack of an effective
strategic plan prevents growth of the company.
Mission, Objectives, and Strategy
Mary Jane’s vision for PFO is to create social change through business. The company’s
mission is not explicitly stated, but can be inferred to be to provide “real food – transportable,
easily prepared and not adulterated by chemicals or over processing.” The company is highly
value driven and the vision and mission of the organization are put before profit considerations.
The company is not profitable and has considerable accumulated losses. However, they do not
have any long term debt.
Paradise Farms uses a focus differentiation strategy. Their product is differentiated by its
quality, packaging, processing methods, and convenience. Mary Jane provides an exceptional
product at a reasonable price, creating good value for her customer. However, she has not clearly
defined her customer, a critical element in a focus strategy. PFO has a core set of customers,
primarily women, but their market runs the gamut from single mothers to two-income couples
and from backpackers to office workers. Because they don’t have a clear market definition, they
are unable to produce targeted advertising, catalogues and mailings, or specific product offerings
aimed at meeting particular needs.
PFO’s strategic approach can best be described as emergent. They are continually
developing new products, introducing brand names, and utilizing web pages, catalogues, and
mailings to promote and distribute their product. They have not, however, followed-up on their
initiatives by consolidating learning and pursuing promising strategic initiatives. Instead, they
seem to abandon methods when they begin to be successful and don’t build on a core customer
base. Because she dislikes traditional marketing, Mary Jane has not used their experiences to
identify a focus market. Instead, she prefers to let people find her. Rather than actively
identifying a target market, PFO has passively let their market define itself.
Analysis
This analysis examines conditions in the natural and organic foods industry. This
includes small independent producers like Paradise Farms, mail order and internet distributors,
specialized health food stores such as Whole Foods, and mainstream grocers that carry organic
foods along with their conventional foods. Several factors in the external environment create
favorable conditions for the industry, but conditions are changing as the industry consolidates.
Remote Environmental Conditions: Recent changes benefit the industry

Political/Legal: The USDA issued standards defining “organic foods.” This allows organic
food producers to clearly differentiate their products from conventionally grown foods and
increases consumer awareness of “real organic food.” The term “natural foods” remains
undefined, however, which still creates confusion in the minds of consumers between
organic, natural, and conventional foods.

Social/Cultural: Americans were spending less time preparing food. Frozen food sales
increased by 18% in five years. Food purchases away from the home accounted for 45.5%
of total food expenditures in the US in 1999. Consumers were becoming more aware of the
sources of their foods and of food production methods.

Demographic: The number of both dual-income and single-parent families is increasing,
creating greater demand for prepared foods.
Industry Conditions: Attractive but changing

Strong and growing market. The health food market was a growing niche in the broader food
industry. The case states that 53% of American consumers purchased natural or organic
products, and 25% of the US food market consisted of health food seekers. Currently, the
demand for organic food regularly exceeds supply.

Consolidating market. The organic food industry appears to be consolidating. Hain Celestial
Food Group had acquired a number of natural food companies and Homegrown Natural
Foods was also acquiring other natural food providers. Mainstream food companies such as
Kraft , Kellogg, and General Mills were also expanding into the natural food market.
Mainstream food companies selling through large grocers, and natural food specialists such
as Whole Foods and Wild Oats Markets were creating convenient access for natural food
consumers. Small producers were locked out of these outlets, making it necessary for them to
identify niche markets and effective means of reaching and serving these markets.
Industry Competitive Conditions: Porter’s Five-Forces indicates low profit potential

Rivalry: High. The food industry generally is extremely competitive and the organic food
segment is becoming much more competitive as it consolidates. More than half of natural
food sales were through mass-market food processors supplying mainstream supermarkets.
Natural food specialists, such as Whole Foods and Wild Oats, provided organic products and
the convenience of a supermarket. Combined, these outlets provide natural food shoppers
many attractive alternative sources for natural and organic food shoppers.

Power of Customers: High. Customers in the organic food industry are natural food retailers,
traditional supermarkets, private label buyers, and final consumers. Each of these has
considerable power over producers, especially small producers. Because there are many,
fragmented producers and few large retailers, the retailers can impose terms on the
producers; private label buyers impose terms through long-term contracts; and consumers
have virtually no switching costs, so can easily switch to more accessible or more attractive
providers. Overall, the power balance is strongly tilted to customers over small producers.

Power of Suppliers: Low. Although the industry is growing, supplies and suppliers do not
seem to be limited. The number of organic farmers was increasing by around 12% per year.
There is no indication in the case that suppliers exert power in the industry.

Threat of New Entrants: High. Mainstream food companies had little trouble entering they
market. And it is relatively easy and inexpensive for small producers to set up local outlets or
a mail order or internet presence. New government regulations impose some conditions on
producers and sellers of organic foods, but in general there are few entry barriers and the
threat of new entrants must be considered high.

Availability of Substitutes: High. There are numerous alternatives to organic and prepackaged foods. The easiest substitute would be conventional foods, but other substitutes
include convenience foods, and restaurants. Since there is virtually no switching costs for
consumers, substitutes are a significant threat to small producers and retailers.
Overall, the demand for organic food is growing and the market seems attractive. Recent
regulatory changes and increased awareness of health and food issues increases overall demand.
However, the competitive conditions indicate that the profit potential for the industry is very low.
The high degree of rivalry from both existing and potential competitors along with the
availability of numerous substitutes will drive profits down. Companies competing in this market
will need to address these issues with a strong strategic plan to create competitive advantage.
Resources and Capabilities: Excellent but not creating distinction

Tangible Resources. Palouse area provides excellent support for their mission and
operations. Facilities are currently operating at only about 50% of capacity; although this is
not efficient, it does allow for growth with little additional investment. Original recipes have
been recognized for quality. Processing and packaging methods have been created to
differentiate their product.

Intangible resources. Their greatest intangible resource is Mary Jane herself and her
knowledge, abilities, and enthusiasm that engenders support. This has led to a very strong
organizational culture that supports the mission of PFO. PFO also had developed an
excellent reputation due to articles in National Geographic and Backpacker magazine.
However, because of frequent name and webpages changes, branding at PFO is weak.

Financial Resources. Sales increased by more than 300% from 1967-69, but the company
consistently shows a net loss. There is a very large accumulated deficit from continued
losses. Fixed assets have also been increased substantially without incurring long-term debt,
but these assets are underutilized. Output could be increased with only marginal increase in
costs and assets could be leveraged to provide capital for increased marketing and sales.

Capabilities. PFO’s core competencies are their skill in producing and packaging award
winning gourmet convenience organic, and Mary Jane’s dedication and personality, which
attracts near cult-like supports. These capabilities lead to highly valued products that are rare
in the backpacking and organic food industry. Since they are based on Mary Jane’s experience
and skill, they are difficult to copy and there are no substitutes for taste and quality.
Unfortunately, PFO has not capitalized on this to create a distinctive brand identity that truly
differentiates them from competitors. They have switched from one brand name to another
without giving any a chance to become stabilized and recognized; they have not created a
brand name identified with their outstanding products. Likewise, they have had some success
with different marketing and distribution approaches, but have not followed up by tracking
outcomes or sales. Consequently, although Mary Jane has some feel for her customers, PFO
has not identified a specific need or a target market that they can satisfy.
Diagnosis
Increasing health concerns, government standards, and growing demand have created
very good market opportunities for organic and health food companies. However, the “big
players” have recognized this opportunity and have moved in, resulting in consolidation and
intense competition. In these conditions, it is critical for companies to establish and defend their
markets. For small niche providers like PFO, this is best done through superior quality, brand
image, and customer loyalty. PFO provides excellent quality, but because they have not
attempted to define and defend a customer base and have not been consistent in their marketing,
they have not been successful in creating a brand image or loyal customer following. With many
convenient alternatives available to consumers, it will become increasingly difficult for Mary
Jane to establish her customer base.
PFO Seems well positioned with good resources and an excellent product in a favorable
but changing environment. However, they have not attempted to define and defend a customer
base, they have not been consistent in their marketing, they have not been successful in creating
a brand image or loyal customer following, and they have not formulated a strategy to create
competitive advantage.
PFO’s emergent strategy was well matched to the environment when the organic market
was diverse and changing. But the market has become more stable and predictable. The
government has recognized the organic market and produced standards, mainstream grocers and
producers have entered the market, there are large chains devoted to natural and organic foods,
and there has been considerable consolidation in the industry. With many convenient alternatives
available to consumers, it will become increasingly difficult for Mary Jane to establish her
customer base and distinctive brand identity.
Conclusions and Recommendations
To respond to these changing conditions, PFO needs to adopt a more rational strategic
process. Mary Jane has shown reluctance, if not aversion, to more rational strategic approach.
Despite their somewhat haphazard way of doing business, and despite the increasingly
competitive conditions, PFO has excellent resources, capabilities, and potential to succeed.
Currently, PFO’s strategy is difficult to assess, as emergent strategic initiatives come and go with
little or no follow-up or learning. To succeed and grow in the current industry conditions they
must establish a strategic plan that builds on their competencies and recognizes their failings.
One alternative would be to form an alliance with one of the larger companies and have
them provide marketing and other business capabilities. This would relieve PFO of having to
make business decisions, which Mary Jane admits to dislike, and allow PFO to focus on what
they do best – creating great organic products and promoting social change. However, this would
necessarily involve some loss of control and inherently introduce conflicts between the beliefs of
Mary Jane and business interests of her partner.
A better alternative would be for Mary Jane to bring in additional business help as an
experienced professional manager. She could then concentrate on her main interests and strengths
while someone else concentrated on business issues. Mary Jane would be able to play a role in
deciding on marketing, distribution, and customer support to assure the company stays true to its
vision, but details and implementation could be left to a professional manager. They should
continue to focus on developing a website, the lowest cost methods of reaching a broad market,
but they must identify a target market so they can focus their products and create brand
awareness.
The company is at a critical point as it tries to “break-out” and achieve growth. It is clear
that their current approach is not appropriate in the changing industry conditions. The
recommended actions would allow the company to move forward while maintaining their
strengths and core beliefs.