Toronto, ONT, Canada, Ontario --
Look at today's biggest business successes. Then recall how many entrepreneurial shooting stars you've seen burning bright one year - - and burnt out the next.
Indeed, few companies can sustain high-speed growth year after year. To maintain that pace, you must do more than deliver super products to sharply defined markets. You have to expand your product line or target new customers in a strategic and focussed manner. That demands a keen eye for the latest trends, a knack for new product development, and the ability to develop the relationships needed to crack new markets. But as the following PROFIT 100 companies prove, strategic expansion can put you on the fast track to lasting growth, no matter what business you're in. Less like fiery meteors and more like blazing comets, these fast-growing firms position themselves to keep coming back.
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PUTTING DOWN NEW ROOTS
Chai-Na-Ta Corp. (No. 66) is doing very well selling Canadian- grown ginseng in China. That might seem like carrying coals to Newcastle, but not all ginseng is alike: Asian ginseng is a short- term energizer, while North American ginseng cools and calms the body and increases stamina. Priced up to 10 times higher than its Asian cousin, it's the centre of a $300-million international market.
By focussing on a niche within a niche, Chai-Na-Ta won a $34- million piece of the global pie in 1996, up from $3.5 million in 1991. But make no mistake: selling ginseng in China is not like fishing in a barrel. Chai-Na-Ta's sales expansion demanded strategic expansion developing distribution channels, pursuing demographic shifts, formulating new products and integrating production from farm to pharmacy. Chai-Na-Ta now aims to use its experience and resources to tap growing markets for all naturopathic products.
While Asian ginseng has been used in China for 3,000 years, North American ginseng first found its way into China in 1716, severral years after a Jesuit priest spotted the bright red berries of this leafy shrub near the shore of Lake Huron. By the late 1800s, the North American ginseng industry had grown large enough to put this wild plant on the brink of extinction, catalyzing formal cultivation in Ontario and Wisconsin.
Ginseng cultivation began in B.C. in 1981, when John Latta founded Chai-Na-Ta as a five-acre farm that sold whole root -- the medicinal part of/ ginseng -- to brokers in Hong Kong. The firm went public in 1986, and by 1990 sales had topped $3.7 million. Wanting to explore growth options, Latta brought in current president and CEO Gerry Gill to gauge the possibilities. One was to simply increase production, a risky move for two reasons. First, extensive capital investments in land and equipment would be tied up for the crop's four-year growth cycle. Second, "We recognized that the majority of the distribution really went through a handful of brokers" who dictated price, says Rob Miller, VP finance and administration. "To increase our production further and rely on that small group of brokers made us vulnerable." In 1992, Chai-Na-Ta established its own ginseng brokerage in Hong Kong.
The same year Chai-Na-Ta entered a joint venture with a ginseng processor near Shanghai to produce grated ginseng , after seeing that China's growing middle class was shifting demand from whole root -- traditionally boiled for hours to make soup -- toward processed ginseng . Since margins increase higher up the value chain (a $24 bottle of ginseng tablets contains less than $2 of raw root), Chai- Na-Ta upgraded facilities in 1994. to produce capsules, tonics and teas. The move seems to be paying off: 1997 first-quarter sales of processed product in China were up 75% from the same period last year, and are expected to bring in nearly US$5 million this year.
With a firm foothold in Asian markets, Chai-Na-Ta is looking to capitalize on the growing acceptance of natural healtth supple
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rapidly," says Miller. "More and more people are turning to natural supplements, so we're increasing our scope to address that trend."
In fact, North Americans spend $350 million on ginseng products each year. But native ginseng accounts for only 2% of sales, pointing Chai-Na-Ta to an excellent growth opportunity.
To create a U.S. marketing presence and process and develop new products for domestic markets, in 1994. Chai-Na-Ta spent $75,000 on 50% of Unique Formulations Inc. of Portland, Ore., which it co-founded with three naturopathic doctors.
Chai-Na-Ta has since increased its stake to 90%; UF's sales to North American distributors and retailers hit $2 million in 1996, double the previous year.
Another key to continuing growth, says Gill, is to integrate the company from top to bottom. Many companies dilute their products with lower-grade ginseng , making it a tough sell to already skeptical North Americans. But by running the show from top to bottom, "We'll be one of the only companies that controls the process from supply to finished product," says Gill. "That's what's needed to get North American consumers confident The firm has also sponsored several research projects, which it expects will yield more evidence of ginseng's efficacy.
Chai-Na-Ta is also breaking into Mexico, where "the market is more in tune with herbal remedies," says Miller. He predicts Mexican sales will top $3 million this year. Finally, Chai-Na-Ta has begun growing and processing echinacea, a popular immune-system booster, and will plant Golden Seal, an internal cleanser, later this year. "A little bit of diversification helps sell all of our products because you bring a basket of goods to the retailer," says Miller.
Furthermore, "the more diversified we are, the better risk profile our company presents Like Chai-Na-Ta, companies looking for strong but steady growth might do well to branch up, down and out.
- BY : Richard Wright
- SOURRCE : Profit1997.06.01
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