UNIVERSITY OF CALIFORNIA COLLEGE OF AGRICULTURE AGRICULTURAL EXPERIMENT STATION BERKELEY, CALIFORNIA Sales Methods and Policies of the Calavo Growers of California E. A. STOKDYK JOBBER — GROCER CALAVO GROWERS RECEIVING GRADING PACKING SHIPPING LOS ANCELES SAN DIECO SANTA BARBARA — CLUB, HOTELAND RESTAURANT FRUIT STAND CALAVO GROWERS SALES OFFICES CHICAGO LOS ANCELCS NEW YORK SAN FRANCISCO - DINING CAR SYSTEM SHIPPING JOBBER — — ROADSIDE STAND i RETAIL UNIT CHAIN STORE SYSTEM RETAIL UNIT TRADE CHANNELS EMPLOYED BY THE CALAVO GROWERS BULLETIN 539 September, 1932 CONTRIBUTION FROM THE GIANNINI FOUNDATION OF AGRICULTURAL ECONOMICS UNIVERSITY OF CALIFORNIA PRINTING OFFICE BERKELEY, CALIFORNIA CONTENTS PAGE Introduction 3 History of the Calavo Growers 4 General policies of the Calavo Growers 6 Increasing the demand for avocados 6 Exchange's actions for the benefit of members 9 Flexibility of policies 11 Trade-channel policies 12 Volume of sales : 12 Selling expense 13 Gross prices 15 Uniform jobbing prices 16 Sales on fruit auctions 16 Employment of subsidiaries 17 Trade-relations policies 17 Price policies 19 The naming of asking prices 19 Retail margins considered 21 Distribution policies 22 Seasonal distribution 22 Distribution among market areas 23 Advertising methods and policies 29 Types of advertising 30 Publicity 30 Distribution of printed and lithograph materials 30 Demonstration on methods of utilization 31 Space advertising 31 Dealer-service work 34 Dietetic research in relation to advertising 37 Grading policies 37 Packing policies 40 Factors affecting prices 41 Summary and conclusions 44 Acknowledgments 49 Appendix: Costs of operation of the Calavo Growers 51 SALES METHODS AND POLICIES OF THE CALAVO GROWERS OF CALIFORNIA 2 E. A. ST0KDYK3 INTRODUCTION The purposes of this study were to identify and state clearly the past and present sales methods and policies employed by the Calavo 4 Growers of California, to determine the factors which were taken into considera- tion in adopting- these methods and policies, to test and appraise the effectiveness of some of them, and to determine what changes, if any, in present sales methods and policies might be advisable. The principal source of data was the records of the Calavo Growers, including the records of the sales, production, and accounting depart- ments, the minutes of the meetings of the Board of Directors, and the official publication of the Exchange 5 — The Calavo News. Other sources of data included the publications of the Federal-State Market News Service at San Francisco and Los Angeles, the 1930 Census, the annual reports of the California Avocado Association, interviews with mem- bers, officials, and employees of the Calavo Growers, and interviews with dealers who handle avocados. Since many persons are unfamiliar with the avocado, a brief descrip- tion of the fruit will be of interest. The avocado, alligator pear, or ahuacate (Spanish), is a subtropical fruit belonging to the genus Persea, a member of the laurel family ; such plants as camphor, sassafras, and cinnamon also belong to this family. The plant is native to Mexico and Central and South America. The date of its introduction to Cali- fornia is not certain but interest in the fruit was stimulated in 1871 when three trees were imported from Mexico by Judge R. B. Ord of Santa Barbara. 1 Received for publication June 17, 1932. 2 Paper No. 34, The Giannini Foundation of Agricultural Economics. 3 Associate Professor of Agricultural Economics, Associate Agricultural Economist on the Giannini Foundation, and Associate Agricultural Economist in the Experiment Station. 4 The word " Calavo " is an abbreviation and combination of the two words California and avocado. s The term " Exchange' ' used throughout this bulletin refers to the Calavo Growers of California. 4 University of California — Experiment Station The tree is evergreen, although some varieties drop a considerable part of their leaves for a brief period during the flowering season. The leaves vary from 3 to 15 inches in length and are usually bright green. Hodgson 6 describes the fruits of the numerous varieties as extremely variable in size, shape, color, and other characteristics. Some varieties bear fruits which are no larger than olives, while others produce fruits weighing more than 3 pounds. The shape may be round, oval, pyrif orm, "bottle necked," or any of the numerous graduations between these forms. The color ranges from light yellowish-green, dark green, maroon, brown, reddish-brown, to purplish-black. He states : "The fleshy, edible part, lying between the skin and the seed, is of a buttery consistency, creamy to bright yellow in color, often greenish near the skin. It con- tains a high percentage of oil. ' ■ The flavor of the fruit is distinct from other fruits in that it is not sweet or acid. It is used primarily as a salad fruit, although it is also served as a sandwich spread, as a cocktail, and as a flavoring for bread and ice cream. The distinctive flavor of the fruit makes it highly prized by con- sumers who have become acquainted with it. The first fruits from California production sold for extremely high prices, often more than one dollar per fruit. As a result, plantings were stimulated and by 1915 an organization known as the California Avocado Association was formed to consider the problems of the growing industry. The commercial plantings of avocados in California are located in southern California extending from San Diego to Santa Barbara, including parts of San Diego, Riverside, San Bernardino, Los Angeles, Ventura, and Santa Barbara counties, and all of Orange County. HISTORY OF THE CALAVO GROWERS The cooperative marketing of avocados was sponsored by the Cali- fornia Avocado Association which was organized May 15, 1915. This association had as its purposes "the improvement of the culture, pro- duction and marketing of the avocado. ' ' 7 The early deliberations of the association contained numerous discussions of the increasing acreage and production of avocados and the necessity of developing markets outside California if prices were to be remunerative to growers. 8 s Hodgson, Eobert W. The California avocado industry. California Agr. Ext. Cir. 43:8. 1930. 7 Calif ornia Avocado Association Annual Eeport 1915:7. Los Angeles, Cali- fornia. s See: California Avocado Association Annual Eeports, Los Angeles, Cali- fornia, annual issues; 1915, p. 7, 22; 1921, p. 71; 1923, p. 27, 34. Bul. 539] Sales Methods of the Calavo Growers 5 The California Avocado Association took up the problem of market- ing with several agencies. In 1921 a committee approached the Cali- fornia Fruit Growers Exchange with the view of arranging with the latter organization to market the crop of the members of the California Avocado Association. The committee reported that the California Fruit Growers Exchange did not feel it advisable to handle avocados when "shipments were uncertain, scattered, and comparatively small, but the question could be reopened when sales were in carlots. ' ' 9 In the same year, 1921, a contract was made between members of the California Avocado Association and a large fruit and vegetable marketing agency which had selling agents in a number of the eastern cities. The contract provided that the marketing agency would receive 15 per cent commission for its services. The grower reserved the right to market fruit locally and could withdraw on six months' notice. A small quantity of fruit was handled under this arrangement but it was discontinued in the same season that it was undertaken. From 1921 to 1923 considerable thought was given to the problem of whether to organize a marketing agency distinct and separate from the California Avocado Association or to expand the activities of this organization. It was decided to form a separate organization and on January 21, 1924, under the leadership of members of the California Avocado Association, the California Avocado Growers Exchange was incorporated as a nonstock, nonprofit, cooperative marketing agency with a board of directors composed of elected representatives from designated districts and three directors elected at large. During the first year of operations the California Avocado Association paid one- third of the manager's salary while the California Avocado Growers Exchange paid two-thirds. On May 20, 1927, one year after the name Calavo was adopted for first-grade fruit, the name of the California Avocado Growers Exchange was changed to the Calavo Growers of California, Since then operations have been conducted under the latter name. A summary of the volume of business handled by the Calavo Growers and the number of members is shown in table 1. During 1924 (first 9 months) approximately 148,000 pounds of fruit were handled while during the 1930-31 season (October-September) more than 3,000,000 pounds were handled. In the same period, 1924 to 1931, the number of members increased from 104 to 1,606. ^California Avocado Association Annual Report 1922:37. Los Angeles, Cali- fornia. University of California — Experiment Station TABLE 1 Volume of Fruit Handled by the Calavo Growers and Number of Members, 1924-1931 Crop year, October-September Pounds of avocados handled Number of members at the end of the year 1924* 147,915 193,800 351,630 955,575 478,620 1,683,404 589,045 3,097,332 104 1924-25 163 1925-26 385 1926-27 332 1927-28 353 1928-29 480 1929-30 1,129 1930-31 1,606 * First 9 months. Source of data: Records of the Calavo Growers of California. The handling of the marked increase in volume has been the major sales problem of the Calavo Growers. That it is likely to continue to be the major problem is indicated by the Exchange 's forecast of the volume it will probably handle in the future. It is estimated that by 1935 the Exchange will market 13,000,000 pounds of avocados and by 1940 nearly 24,000,000 pounds. GENERAL POLICIES OF THE CALAVO GROWERS A policy is frequently denned as a plan of action to be followed rather consistently for a long period, usually several years. At times it is difficult to ascertain when a policy was formulated because fre- quently a series of acts have been performed before it is realized that a policy has been adopted. As a result, policies are not always clearly stated or readily identified. It is also often difficult to determine the factors taken into consideration in the establishment of a policy, particularly when a policy has not been definitely stated. Those policies which could be identified from the records of the Ca- lavo Growers are presented below. The more general policies around which minor policies and specific methods have been developed are dis- cussed first. Increasing the Demand for Avocados. — One of the major policies of the Calavo Growers has been to attempt to increase the demand for avo- cados. It was realized that the avocado was an unknown fruit to most consumers and that it would take considerable effort to introduce it. At the same time it was recognized that with a marked increase in produc- Bul. 539] Sales Methods op the Calavo Growers tion, prices would become unremunerative to growers if market develop- ment were not undertaken. In the preceding- discussion of the history of the Exchange it was pointed out that the principal reason for the organ- ization of the cooperative marketing agency was to increase the demand for avocados by expanding the market. This reason for the existence of the Exchange has always been kept in mind in the adoption of specific sales methods and policies. It was felt that the expansion of markets, together with other policies, would result in an increase in demand. The expansion of markets meant, primarily, obtaining new customers which is a difficult undertaking. However, it also meant inducing consumers who were already acquainted with the fruit to purchase larger quan- tities. The testing of the more inclusive policy of increasing demand is dis- cussed below (pages 41 to 44). The results of the policy of expanding the market are shown in table 2 and figure 1. Primary Distribution of Calavo Growers' Sales, 1930-31 V J2r +jT f v^ J2r to V63 >~ 99. 39 ./ ,\ H 52-921 ^ 1*1 >2 -~L / w r/zH •esm ~h~ [ y ^ '158 XT \ .705 \ "1 m SALES DISTRICTS "MlDDLEWEST V - Southern California 21 - NORTHERN CALirORNIA HI-NORTHWEST Fig. 1. — The extent to which market development has been accomplished by the Calavo Growers is shown by the distribution of sales in 1930-31. Nearly every city in the United States with a population of 50,000 or more received avocados from Cali- fornia. Arabic figures indicate number of flats. (Data from the sales records of the Calavo Growers of California.) University of California — Experiment Station 43 tirt a) *j N N >* M OO lO H co &* CO »H 00 Tji hH O O 8 £ CO *3 co 00 t-^ »o 00 00 CM ■«* UO CO .— 1 r- to O C 03 N N M O »H H H 00 §2 O" >o" OS d i(" rt £ 1^ CM 1H rt CO CM 43 cle §1 N * © W ^ i< O O as cm t— »o co »-h O a o co (2° CO ^H OS O O N N * ■* Tf O) O O -"f CO »o CO CM O O O OS to ° t^- T— 1 O CM 00 CM gV t^ CO -f •* ■* 10 IN O s -° -e •*fi CO -*tl «3 t> s^ CD *-< CO r^ as -* cm" 3 i-T co" co" TtT cm" -1 CM fc OS I-H c"3 O ■* CM Tt< OS rH O O O CO CO CO CN r-l O 8 oo Q) «*H cm cm PL, ° O^ln OS T-H OO O 00 00 CO ■<*< 00 ,Q +-> to «o to to CO Hog OS © CO CM © ■**! 3 "O to CM »-i »-H 1^ £0 CM CO 4-> , els 01 J t~- t~- 00 00 as «-i CM to © I~~ CO -H T}< ,-( lO CM i-H 8 to CM 02 Q> 03 ■* N OJ N «5 -H IN •0 J3 +J O ■* N 1-1 to CO ■* CO s^ 00 tj< as to co t>. as n noo n h 10 ■^ ,-! 43 c"3 OJ 43 CM Tt< CO "0 CD © © O OO lO •"*! 1— 1 O O co * © © CO CM CM -h O t~- «5 1* ^ -f 10 w ■* 00 CO CM t-i 1-1 00" £^ CM CM "SiS OJ +3 00 CO ■>*< t- 00 O O >C CM t"~ CM 1— 1 O O O (M to ° r^. ,-h O ■*f OS <3"w co 00 as t* -° -y O) tO N H H CO sd as "*< 00 co cm 00 3 00 »-i £^ 1 a a a ■-. 00 43 t_, t» a> a) *i TO Q o4 2 c a> 4-. 4-. G & * 1 | §J oj ? S c ~ = xi 43 £ "3 ^3 43 43 K u 13 •^ m -O c c s ^^^§ S O C K ; 99 > O OJ X' CO P) O B c S a ft e co o o .3 U fe to Bul. 539] Sales Methods op the Calavo Growers 9 It will be noted from table 2 that although the percentage of total sales in areas outside California has remained relatively constant, the absolute quantity sold in districts outside California has increased re- markably. For example, the 1930-31 sales in the eastern district were more than double the total volume of sales in all districts in 1924-25. The extent to which the Calavo Growers have developed markets out- side California is also indicated in figure 1 where the primary distribu- tion of the Exchange's sales is plotted by cities. Most of the principal cities in the United States are now receiving avocados from California. 10 Judged by the distribution of sales and the increase in volume sold outside California the policy of developing markets has been effective. Exchange's Actions for the Benefit of 31 embers. — A second major policy of the Calavo Growers is that specific activities of the Exchange shall be conducted in such a manner that the returns from sales to mem- bers shall be as high as nonmembers' returns, if not higher. This policy was not clearly stated nor definitely employed until the third year of operation. Evidence of its formulation is available from the minutes of the meetings of the Board of Directors and the sales records. From table 2 it is apparent that the Calavo Growers are in a position to influence prices in the various sales districts by marketing various quantities in the several sales districts. This is brought out more fully in connection with market capacity (pages 23 to 29). The Exchange might elect to place twice the quantity in the eastern district, which action would decrease supplies in California markets to such an extent that returns from sales in California would be higher than returns from sales outside California with the result that average net returns to mem- bers of the Exchange would not be as high as the returns received from nonmembers who sell the bulk of their crop locally. The net effect would be that members would pay the expenses of developing out-of-state mar- kets but would receive a lower return than nonmembers. At the same time, as will be pointed out below (page 27) the total returns to mem- bers would be lower than if supplies were so distributed as to maintain more equal pressure in all sales districts. Figure 2 shows the net returns received by the Calavo Growers from sales on the Los Angeles market and from sales in areas outside Los An- geles. From 1924-25 to the middle of the 1926-27 season, it will be noted, the returns from sales outside Los Angeles were often lower than io Some avocados are redistributed from the cities shown in figure 1 to nearby cities. For a discussion of this phase of the distribution of fruits and vegetables see: Stokdyk, E. A. Marketing globe artichokes. California Agr. Exp. Sta. Bul. 524: 10. 1932. 10 University of California — Experiment Station returns from sales in Los Angeles. Since the middle of the 1926-27 season, however, with few exceptions the reverse has been true. 11 Differential Between Net Prices Received by the Calavo Growers from Sales in Los Angeles and Outside Los Angeles, January, 1924, to September, 1931 +5 1 PRICE OUTSIDE . (OF LOS ANCEl *S 5+ 3 C a. +l 5 i o 1 ' > PRICE IN LOS ANGEL ES -2 , , 1 1 imiiImii Mini. mm MMlltMI. OCT. MAR. SEPT. MAR. SEPT. MAR. SEPT. MAR. SEPT. MAR. SEPT. MAR. SEPT. MAR. SEPT. 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 Fig. 2. — From 1924-25 to the middle of the 1926-27 season returns from sales outside Los Angeles were often substantially lower than returns from sales in Los Angeles. On May 20, 1927, the policy of developing markets outside Los Angeles was made secondary to that of placing supplies in the various markets in such a manner that if any advantage is to be gained from sales in outside markets it would accrue to members. Since then returns from sales outside Los Angeles have usually been higher than returns from sales in Los Angeles. (Data from the sales records of the Calavo Growers of California.) On May 20, 1927, 12 the Board of Directors adopted the policy that market development would be secondary to immediate returns to mem- bers. Shortly thereafter, and since then, returns from sales outside the Los Angeles area have usually been higher than returns from sales in the Los Angeles area. This policy was put into effect by distributing supplies in the various sales districts in such a manner that the returns received from sales outside the local markets were as high as returns from sales on the local markets, or higher. ii The data from which figure 2 was constructed include returns from sales of all grades, sizes, and varieties. A question might be raised as to the validity of compar- ing returns from sales in Los Angeles with the returns from sales outside Los Angeles because of a tendency to market more low-grade fruit locally. A comparison of the returns from sales in Los Angeles and outside Los Angeles by grades shows, however, that since 1926-27, the Los Angeles returns, grade for grade, are usually the lower. It sometimes happens that by the time the shipments reach markets outside Los An- geles the grade is somewhat lower than when they were packed because of ripening and some decay in transit. This tends to offset the advantage that shipments to out- side markets may have in quality over the fruit sold locally. When these factors are recognized, the comparison between returns from sales for all grades, all sizes, and all varieties seems more logical. 12 Minutes of the Board of Directors of the Calavo Growers of California, May 20, 1927. Bul. 539] Sales Methods of the Calavo Growers 11 The effect on the membership in the Exchange of the foregoing policy of making market development secondary to immediate returns to members is indicated in tables 1 and 2 and figure 2. Table 1 shows that at the end of the 1926-27 season there was a decrease in member- ship ; since that time, after the policy of making returns to members of first consideration was adopted, there has been a marked increase in membership. Table 2 shows that during the 1926-27 season the per- centage of sales outside California (42.3 per cent) was higher than in any year previous and subsequent to that time. Figure 2 shows that during a large part of the 1926-27 season returns from sales outside Los Angeles were lower than returns from sales in Los Angeles. Specific actions of the Calavo Growers have centered around the formulation of this policy. For example, on July 18, 1930, 13 the adver- tising committee of the Board of Directors of the Calavo Growers, after discussing the advisability of increasing the expenditure for advertising, decided against such a procedure on the grounds that mem- bers might receive a smaller net return than nonmembers because the latter do not contribute to the advertising expenses. This major policy is to be commended. It is a policy which most cooperatives would do well to adopt and follow consistently, if they are in a position to do so. 14 The actions of a cooperative association fre- quently affect nonmembers as well as members. If such actions benefit nonmembers they should be of secondary importance, however, to the members' interests. Flexibility of Policies. — A third major policy of the Calavo Growers is one of modifying or changing specific methods or policies in accord- ance with changing circumstances. A corollary of this policy is that as information becomes available which was not previously at hand, the data are taken into consideration in planning future operations. For instance, it is the policy of the Calavo Growers to give one jobber in each city the exclusive agency for handling their products. This policy was adopted when the organization first began operations because at that time the commodity was little known and a jobber would expend little or no effort to introduce it to retailers unless he were assured that he would handle volume enough to compensate him for his efforts. In some cities, however, where the avocado has become well known and it is Minutes of the meeting' of the Board of Directors of the Calavo Growers of California, July 18, 1930. 14 An exception to this general principal might be made in case a cooperative with industry control engaged in an industry advertising campaign or in surplus control. Yet even here there is danger that the proportion outside the cooperative 's control will increase if such measures are carried too far. 12 University of California — Experiment Station is apparent that the volume of sales could be increased if more than one jobber were selling avocados, the policy has been modified and two jobbers are appointed the agents of the Calavo Growers. In still other cities, where the situation is such that the volume of sales is likely to be greater if several jobbers are selling the products of the Calavo Growers than if only one or two jobbers are their agents, sales arrangements are made with several jobbers. TRADE-CHANNEL POLICIES The chart on the cover page depicts the principal trade channels employed by the Calavo Growers in 1931. The Exchange's sales are made principally to jobbers and to those classes of dealers who are performing the jobbing function. 15 The sales offices of the Calavo Growers located in Los Angeles, San Francisco, Dallas, Chicago, and New York, perform the sales functions which are usually conducted in the fruit and vegetable trade by brokers, carlot receivers, and wholesalers. 16 Several factors were considered in the selection of the trade channels which are employed. Among these were (1) the volume which is likely to be moved, (2) the expense in- volved, (3) the gross prices received, and (4) the degree to which uniform prices in the jobbing market are maintained. Volume of Sales. — In giving weight to these several factors, the underlying policy is that, all other factors being equal, those trade chan- nels will be employed which will result in the largest volume of sales in a given area. Since the handling of larger quantities is likely to be the major sales problem of the Exchange, this policy is significant, and one which warrants emphasis. This policy accounts for the fact that in some market areas the trade channels employed are slightly different from those in other market areas. In Chicago, for example, the shippers of mixed fruits and vegetables, frequently called shipping jobbers, are important factors in the fruit and vegetable business. Sales are made directly to them. In Cleveland, however, where such business is of minor importance, the regular jobbers make sales to shipping jobbers. is Numerous firms which handle the products of the Calavo Growers are whole- salers of some commodities in that they handle carload lots and sell to jobbers as well as to retailers, hotels, etc. In the handling of the products of the Calavo Growers, however, they act primarily as jobbers in that they sell to retailers. For a. detailed discussion of the functions performed by the various dealers in the produce trade see: Erdman, H. E. American produce markets. Chap. IV, p. 55-76. D. C. Heath & Co., Boston, 1928. is For a discussion of trade channels see: Stokdyk, E. A., H. E. Erdman, C. H. West, and F. W. Allen. Marketing California apples. California Agr. Exp. Sta. Bui. 501:10-11. 1930. Bul. 539] Sales Methods of the Calavo Growers 13 Again, in some cities where chain-store organizations conduct a large portion of the retail business, sales are made directly to them, while in other cities where the chain-store business is small, sales are consum- mated through jobbers. Selling Expense. — The second factor considered in selecting trade channels — the expense involved — is appraised from the point of view of the expenses which would be incurred if sales were made through one series of channels as compared with another. The policy is, other factors being equal, to use those channels which are least expensive. The relation of expenses involved to the trade channels which will be employed, comes to the foreground in the case of the Calavo Growers whenever a decision is to be made concerning the establishment of a branch sales office. Table 3 shows the type of data which were utilized in judging whether to use established trade channels or to set up branch offices to perform the services of one or more factors in the trade. The commission charges which would be paid for certain services are balanced against the costs of operation of branch offices. It will be noted that in most cases the costs of operating branch sales offices are less than the com- mission charges which would be paid. In the first year or two of opera- tion of branch offices the costs may be somewhat higher than the com- mission charges but with the increase in volume of sales considerable savings (estimated at $26,411.32 in 1930-31) have been made by selling through branch offices. The policy of utilizing the least expensive trade channels, from the standpoint of a cooperative association, may be stated in another way : The Exchange will carry its products as near to the ultimate consumer as it is profitable to do. However, it should be stated that there may be other motives for carrying the products near to the consumer which justify, temporarily, a disregard of the expense involved. For example, in 1924 the Calavo Growers operated a retail store in Los Angeles. The costs of operating the retail store exceeded the income that was obtained when estimated from the prevailing margin between jobbing and retail prices. It was recognized before the store began operations that it would be an unprofitable undertaking. However, it was estab- lished as a means of introducing the avocado to the public and to learn what retail merchandising methods would result in the largest volume of sales. 17 !7 It was found, for example, that pricing large-sized avocados by the pound and small-sized avocados by count resulted in a larger volume of sales than by pricing large-sized fruit by count and small-sized fruit by the pound. 14 University of California — Experiment Station **«, ^T CO ,„ f- o -2 « to fa o 00 8 GO >-, ^H >-< ^- CO 0) o 05 Oj 00 S CO a-a O 1-1 13 -« - 1 1 CM a> 6§ a> • VC OS Tj< 0> «, CO e^ S3 IO CO t- (O N M CTS CO CM 1 ~ CM 0) "8 l^ CT> ■«*< 10" ic rC 00 03 O CO "oS J3 d oa 00 42 fl d c3 .2 i> io 42 r, <=> .2 m a £ «o c br 03 N 113 O) lO CO CO 00 £ -2 <© r-H -^ O -0 CO o IS -8 CO CO CO •* ij( a Q 10 o CO CO 0) CO K CO 10 t- £ "3 SJ2 5 « «i e OO N CO O 1(3 « 8 ^ "3 t^ OS © O ■*! 'o 13 0" 00" ^*" -* CO" > i EC N (O CO HI o* C -*■ OO CO OS ai ° d « S3 § 5 « 11) N O 2 -* •<*■ -2 ©O CM CO t-( ,3 od ~-i t* O 1^- CO O CM ^ °° -8 1 " " "« - Q- S 1 i-H t- ■* a; © 0> es -> ° t> -f CM 1-1 to 03 -2^5 So GO 03 a O CM CM O r* ■* ce cm 1 ,d O rt OS Tf •* '3 03 "8 N X M «5 ^rC M ^2 c c c3 Pi O J3 w O O -# 1C 00 <* Sol "£ *- O O OO N '0 £ CO «J C 8 CO ■* OO CM fl ^2 °° ^ OJ 00 00 o> 03 Ei-d o * ^3 » N 00 ffl ® M lO Ci M ta O CM 0) ""* CM CO o O M rt M 60 '^ O 03 aJ ^ !D •* Ol O co co 06 10 8 <^i Sis ^h 03 * in rn S CM a CO 10 CM CO >o O > *8 co" 00" Oi" Tfl ^ M * 10 ra 00 ■>* 0) .O -a c« ^ jfl >> 03 *«? i M tP °s 00 Oi O I-l CM CN CO CO CO (^ OO OS C CM CM CM CO co Oi Oi Oi O"" Oi £ a ~ if ^2 o o .2 •« S g ^2 03 ft J3 ^ . 11 »-i y •43 JD A § a s^ PI S ^ 03 •S £ O !>. 03 8 >> ^2 2 * -d^ « -rt S 5 & a g f, ti 3 d-d W CJ -^ s g ^ 1-1 03 CST3 2 ca ?s fe O (B OJ Ss T1 ^2 ^^ CO M< 03 03 «£ fe °^ O O to .2 O O O^ u u Q fe s ^ Bul. 539] Sales Methods of the Calavo Growers 15 The foregoing discussion assumes other factors to be equal, but other factors are seldom equal and the expense involved must be balanced against such factors. For example, as is pointed out in the following paragraphs, the gross selling prices are usually higher in the cities where sales offices of the Calavo Growers are located than in cities without sales offices. This factor would warrant somewhat higher selling costs through one series of trade channels than another. Gross Prices. — The third factor considered in the selection of trade channels — the gross prices received — is important in the case of the Calavo Growers because the product is not well known ; it has a high value per unit of weight, and it is highly perishable. Dealers who are not thoroughly familiar with the avocado are likely to allow the fruit to become overripe or to sell it before it is ripe. They are also inclined to look upon the product as high in price and when difficulty is experi- enced in making sales, to think first of lowering prices rather than to take steps to correct their handling practices in order to interest and educate buyers concerning the product. This situation was vividly impressed upon the author during December, 1931, when dealers in two middle western cities were interviewed. They invariably inquired when prices would be lower rather than how they could stimulate sales and many of them were doing little or nothing to interest consumers in the product. In those cities in which the Calavo Growers have established sales offices, dealers have been instructed by the representatives of the Ex- change to handle the fruit properly. This fact, together with the closer supervision of jobbing sales, which is possible when a representative is located in a city, has resulted in higher gross prices from sales in the cities where sales offices are located than in cities without sales offices. Table 4 shows the gross sales prices from sales in cities (outside the Pacific Slope) where sales offices are located as compared with gross sales prices in cities without sales offices, for the period January 5 to May 30, 1931. This period was chosen for comparison because at that time the volume of fruit sold was large and the complications which arise at the beginning and the end of the principal marketing season were not involved. Here it will be seen that the gross selling prices were considerably higher (from 35 to 75 cents per flat) in the cities where sales offices are located. At times, during the period under consid- eration, returns from sales in cities without sales offices were the higher ; at times they were equal ; but most frequently they were the lower. 16 University of California — Experiment Station TABLE 4 Comparison of Gross Sales Eeturns from Cities (Outside the Pacific Slope) With and Without Branch Offices, January 5 to May 30, 1931 Weighted average prices from sales Sales district In city with branch office In cities without branch office Difference in price* / S 3 Dallas dollars per flat 4.25 4 00 3.fi9t dollars per flat 3.54 3.23 3 34 dollars per flat 0.71 Chicago 0.77 0.35 * Col. 1 subtracted from col. 2. t Weighted average price in New York is low because during the weeks ending January 17 and January 24 a carload of fruit which became overripe in transit had to be sold for less than $2.00 per flat. If these two weeks are omitted the weighted average price from sales in New York is $4.00 per flat. Source of data: Calculated from the sales records of the Calavo Growers of California. Uniform Jobbing Prices. — The fourth factor influencing the selec- tion of trade channels — the degree to which uniform prices in the jobbing market are maintained — is closely related to that of the gross returns from sales. In cities where the fruit has become fairly well known and the volume of sales is so large that several jobbers handle it, the problem of maintaining uniform jobbing prices arises. As will be brought out below (pages 18 to 19) , jobbers frequently handle the prod- ucts of the Calavo Growers on consignment. Should they be permitted to compete for volume of sales on a price basis rather than on a service basis, jobbing prices would tend to fluctuate widely and returns from sales would probably be lower. It is difficult for a seller to correct such a situation unless sales offices are in or near the jobbing market. The Calavo Growers' experience has been that they can maintain fairly uniform jobbing prices in cities where sales offices are located. Conse- quently, this factor is given weight when decisions are to be made concerning the trade channels to be employed. Altogether the four factors considered in the selection of trade channels — the volume of sales, the expense involved, the gross prices realized, and the ability to maintain uniform jobbing prices — have tended, in the case of the Calavo Growers, to favor the policy of estab- lishing branch sales offices in the larger markets. Sales on Fruit Auctions. — A question that will ultimately arise in the choice of trade channels when the avocado is marketed in larger volume will be whether or not to sell on fruit auctions in the larger cities. Bul. 539] Sales Methods of the Calavo Growers 17 It would appear that the same factors which have been considered in the selection of trade channels and in making decisions on the advisa- bility of establishing branch sales offices should be considered. Judging from the experiences of other cooperative organizations, such as the California Fruit Growers Exchange and the California Fruit Exchange, it is probable that when the avocado becomes better known and pro- duction increases, the auction markets can be utilized to advantage. Employment of Subsidiaries. — In connection with the selection of trade channels, it is interesting to note that in a few market areas the Calavo Growers have formed subsidiaries to perform the jobbing func- tion. The motives were, in nearly every case, somewhat different but most of the motives can be classified under the four principal factors considered in choosing trade channels, In some areas the problem of obtaining volume of sales was paramount. Jobbers were indifferent to the handling of a new product and could not be induced to expend much effort in promoting sales until a demand had been established. In these areas, the subsidiary acted as a trucking jobber, calling on retailers, educating them in the display and care of the fruit, and making sales. It is the policy of the Calavo Growers, however, to curtail the selling activities of the subsidiaries and have them devote their efforts to dealer-service work (see also pages 34 to 37) as soon as the established jobbing trade demonstrates that it will give enough attention to the sale of avocados to move a large volume. In one market area a sub- sidiary was established because of a controversy among jobbers over the location of the physical facilities of the jobbing market. In order not to become involved in this controversy and possibly curtail their sales in the area, the Calavo Growers have employed a subsidiary. In another market area, the problem of maintaining uniform jobbing prices was outstanding. Here subsidiaries were established and they were able to dominate the jobbing market to such an extent that other jobbers followed the prices (usually at fixed differentials) of the Calavo Growers. TRADE-RELATIONS POLICIES The factors considered in establishing trade relations have been much the same as those taken into account in the selection of trade channels. Here again, the underlying policy is that, all other factors being equal, those trade relations will be established which will result in the largest volume of sales in a given area. In applying the fore- going policy, other factors are, however, seldom equal and the factor of the largest volume of sales is balanced against these factors. Conse- 18 University of California — Experiment Station quently, in certain areas, trade relations are sometimes established which aim to increase the volume of sales even when all other factors are not equal. Here a flexibility in methods and policies is evident. The problem of introducing the avocado in many market areas is of such importance that definite inducement is necessary to interest jobbers in expending the needed amount of effort in promoting sales. Hence, the policy of giving one jobber exclusive territory (usually one city) was adopted. This policy was modified, however, when it became appar- ent that in some areas the fruit had become fairly well known and that a larger volume could be sold in the area if more than one jobber were handling it. Furthermore, in some cities, where the product has become well known sales arrangements are made with several jobbers. The sales arrangements with jobbers vary in different market areas and from time to time. In the cities other than those in which sales offices are located it is the policy of the Calavo Growers to consign to jobbers (see pages 19 to 21). In the cities in which sales offices are located some jobbers handle the fruit on consignment and some make outright purchases. Those jobbers who handle fruit on consignment do not obtain title and are subject to the direction of the Exchange in the matter of naming prices to retailers, while those who purchase outright obtain title to the product and are at liberty to name their own prices to retailers. There are a number of reasons for the variation in sales arrange- ments. In the cities in which no sales offices are located, the jobber, in addition to performing the jobbing function, also performs functions similar to those of the broker and the wholesaler. He informs the sales offices of the Calavo Growers of his market needs, the rate at which the product is moving, and the prices which are being obtained. He also makes collections on sales and forwards them to the sales offices. It is customary in the produce business for such services to be paid for on a commission basis. In the cities in which sales offices are located the functions of broker and wholesaler are performed by the office manager and many sales are made to jobbers outright. Some jobbers in these cities prefer, however, to handle the fruit on consignment while others wish to purchase outright at times and handle on consignment at other times. In the cities with sales offices, the representative of the Calavo Growers knows the day-to-day price, supply, and demand conditions well enough to accede to the various jobbers' desires. However, in cities without sales offices the consignment arrangement is adhered to because the local situation is not well enough known and a change from one arrangement to another would be likely to result in jobbers buying when Bul. 539] Sales Methods of the Calavo Growers 19 there is an active market and handling on consignment when the market is sluggish. Another reason for selling on consignment to areas outside those in which sales offices are located is that in numerous cities it would otherwise be impossible to induce jobbers to purchase the commodity. A distinct policy of the Calavo Growers in their trade relations is to center their advertising efforts around the trade channels which are employed. The dealers who handle avocados are assisted in several ways in promoting sales. This policy is discussed in a section below on "Ad- vertising" (see pages 30 to 31). The relations of the Calavo Growers of California, as a legal entity, with the individual members may be considered as trade relations. It is not among the purposes of this study to go into detail on this phase of the Exchange 's activities. It is worthy of note, however, that the organ- ization of the Exchange, its methods of operation, and relations with members are in accordance with the principles recommended by the Giannini Foundation 18 in another study of a California cooperative marketing association. PRICE POLICIES The principle upon which the price and distribution policies of the Calavo Growers are founded is that, at a given time in a given market area, the quantity consumers will purchase depends upon the price they must pay. It is recognized that once a commodity is produced it matters little what the expenses of production may have been : the prices that consumers are willing to pay is the chief factor determining prices. The price problem, then, of the marketing agency is one of judging as accurately as possible the highest prices that consumers will pay at a given time, in a given area, for a given quantity. Consumers can often be influenced to pay higher prices for the same quantity or take larger quantities at the same prices through advertising (see pages 29 to 37). However, the effects of advertising are usually not an immediate but rather a long-time influence. Consequently, during short periods, such as a week or a month, demand as affected by advertising is relatively constant. The Naming of Asking Prices. — With a given quantity of fruit to market at a given time, it is the policy of the Calavo Growers to name an asking price which, in their opinion, will move the particular quantity into consumption. The naming of too high a price might is Tinley, J. M., and E. A. Stokdyk. Operations of the Poultry Producers of Southern California. California Agr. Exp. Sta. Bul. 516:80-92. 1931. 20 University of California — Experiment Station result in the accumulation of supplies with deterioration in quality and a severe loss when they are finally sold, while the naming of too low an asking price might result in lower returns to growers than would have been realized if the asking price had been higher. The policy is easily stated but the determination of the asking price presents many diffi- culties. Several factors must be considered, the first of which is the prices at which consumers have purchased specific quantities in the past ; the next factor to be taken into account is the probable effect of the prices of competing products on consumers ' demand for avocados ; a third factor is the season of the year as it may affect demand ; a fourth is the probable effect of the general business situation; a fifth is the quality of the product ; and finally, the long-time trend of demand. Many of the factors considered do not lend themselves readily to statistical measurement because of constant variation and little or no regularity in their occurrence. However, three factors — the prices at which consumers have taken given quantities, the quality of the product, and the trend in demand — can be calculated. An illustration of such calculation is given below (pages 41 to 43) . After the asking prices have been determined, it is the policy of the Calavo Growers to instruct the jobbers, who handle their products on consignment, to sell at the prices named by the Exchange and also to in- struct their sales managers in the various branch offices to sell at these prices. A price schedule for the several grades, sizes, and varieties is fur- nished each jobber or sales agent. These prices vary for each sales district in accordance with the freight and other charges incurred so that the net prices to the Exchange at Los Angeles will be somewhat comparable. This pricing system and other price policies, together with the trade relations which the Calavo Growers have established (pages 17 to 19), tend to maintain a fairly uniform price situation throughout the United States. If it is found necessary to lower asking prices to sell larger quantities, asking prices are lowered uniformly; while when smaller quantities are available, prices are raised uniformly. Actual returns from sales fluctuate around the asking prices. Sales agents are sometimes able to make sales at prices higher than the asking prices, while at other times they are unable to sell the quantity of fruit they have on hand without a reduction in price. The asking-price system employed by the Calavo Growers is used in connection with the method of making returns to members as well as in making sales. The accounting department tabulates the returns from sales in all market areas and calculates these returns as a per- centage of the asking prices. The number of fruits of a given variety, Bul. 539] Sales Methods of the Calavo Growers 21 size, and grade which a grower had in a particular pool, multiplied by the percentage of asking price received, is the basis of settlement with members. This method of making returns to members eliminates the possibility of extremely high or low returns to a particular grower on a particular shipment. It spreads the marketing risks over the entire volume and thus is a fairer method of making returns to members than if the returns from sales for each grade, variety, and size were calculated separately. The asking-price system has, then, two principal advantages, namely, it tends to make jobbing prices uniform, and it furnishes an equitable basis for making returns to members. 19 TABLE 5 Betailers ' Gross Margins in Handling Avocados in Berkeley, California, February 5 to April, 9, 1931 Date Retail price Wholesale price Gross margin Percentage gross margin / 2 3 4 cents per pound 51 48 46 43 49 52 46 46 44 49 cents per pound 25 25 25 25 25 25 25 24 23 24 cents per pound 26 23 21 18 24 27 21 22 21 25 per cent 51 12 48 19 46 26 42 49 12 52 19 46 26 48 April 2 48 9 51 Sources of data: Col. 1: Average of prices at four retail stores in Berkeley, collected by Mr. S. Yama- moto, senior student at the University of California. Col. 2: Average of jobbing prices at San Francisco as reported by the Federal-State Market News Service. Col. 3: Calulated from cols. 1 and 2. Col. 4: Calculated from cols. 1 and 3. Retail Margins Considered. — Another price policy of the Calavo Growers is to induce retailers to handle avocados on a reasonable margin. Many retailers are inclined to take a wide margin with the result that movement into consumption lags. Table 5 shows the retail margins which prevailed in Berkeley, California, during the period February 5, 1931 to April 9, 1931. The gross percentage margin ranged between 42 and 52 per cent. Such a margin is regarded as too high and not in 19 A further advantage is that it simplifies the accounting procedure in that average prices for each variety, grade, and size need not be calculated. 22 University of California — Experiment Station accordance with the gross retail margins on other fruits. 20 A margin of from 30 to 35 per cent is considered reasonable by the Exchange, and efforts are constantly being made to induce retailers to keep within this margin. In some areas the sales representatives of the Calavo Growers have been markedly successful in this effort ; many retailers have adopted the retail prices suggested by them. This policy is one of particular importance to the Exchange because it is handling a commodity which is little known in many market areas and a wide retail margin tends to check its introduction. It is a policy which will warrant increased attention as the volume of fruit to be handled increases. DISTRIBUTION POLICIES Seasonal Distribution. — The planning of the distribution of the products handled by the Calavo Growers begins with the planning of the harvesting of the crop by the production department, A census of the number of trees, the ages of the trees, and the varieties owned by members is kept and constantly checked by field representatives. From these records, together with an estimate of yields, the total quantity to be handled by the Exchange during a given marketing season is fore- cast. 21 The field representatives also estimate the probable time of maturity of each variety in each of the principal districts served by the Exchange. With the information on probable total volume and time of maturity at hand, weekly picking quotas for members are calculated. Growers' quotas are, however, not regular quotas in the sense that each grower is assigned a quota each week. Some growers may not be assigned a quota during a particular week because it may not be advis- able to harvest their particular lots of fruit. Several factors are con- sidered before these quotas are made up. Some varieties must be picked soon after maturity while others can remain on the trees for a consider- able period without deterioration. The fruit which must be harvested immediately is considered first. Next, the volume of fruit to be marketed from Florida and Cuba, and its probable time of movement to market, is estimated. The volume and rate of movement of nonmembers' fruit 20 The gross retail margins on apples from July 17 to September 25, 1929, were 25 per cent in San Francisco and East Bay cities and 37 per cent in Los Angeles. See: Stokdyk, E. A., H. E. Erdman, Charles H. West, and F. W. Allen. Marketing California apples. California Agr. Exp. Sta. Bui. 501 : 149. 1930. 2i The forecast of volume to be handled during the 1930-31 season was within 2 per cent of the actual volume handled. Bul. 539] Sales Methods of the Calavo Growers 23 is also considered, and finally, the seasonal trend in demand, as indi- cated by the prices of competing products and the records and contacts of the sales department, is evaluated. After consideration has been given to these several factors, growers are assigned weekly picking quotas. Deliveries have been remarkably close to quotas, except when unf orseen conditions, such as heavy winds which cause fruit to drop, have occurred. The picking-quota method of harvesting tends to prevent excessive marketing in periods of weak demand and to encourage heavier market- ing in periods of strong demand. The limits of flexibility are denned, however, by the volume of fruit which must be moved because of its maturity. Beyond these limits, the degree to which the method will work to the advantage of members of the Exchange depends on the accuracy of production data, the knowledge of the factors affecting prices, and the skill with which the employees of the Exchange are able to fit the movement-to-market to the periods when conditions are favorable to the heavy marketing of the members ' supplies. Distribution Among Market Areas. — Having determined the quan- tity that will be harvested and marketed during a given period of time, the problem of placing this quantity in various market areas confronts the sales department. It was pointed out above (page 19) that the principle upon which the price and distribution policies of the Calavo Growers are founded is that, at a given time, in a given market area, the quantity consumers will purchase depends upon the price they must pay. Attention was also called to the fact (page 9) that the Calavo Growers are in a position to influence the prices in various market areas by putting varying quantities in the several market areas at a given time and that their action would influence the net returns to members as com- pared with nonmembers. The problem, then, of deciding upon the quantities to be placed in various market areas is one of major signifi- cance to the Exchange. As an aid in assisting in the solution of this problem the following analysis was made of the market capacity of the four principal market areas in which sales are made. The records of the volume of sales and the records of prices received by the Exchange were tabulated and charted as shown in figure 3. The first problem which arose in the analysis was the determination of the market areas, A market area is often defined as ' ' the sphere in which price-making forces act. ' ' It was thought that the market areas 24 University of California — Experiment Station m — z 2 t- o Ul m * ! I 9 j I / • ft / it i! / h —rr i \ Z 1 *8 t y'< t / "1 I 2 g / t o 8 1 / t t c soAvnvo aoj ivij a3d sav-noo o p 32 c! a z / 1 1 o Id «0 l i ! a 2 O I / o 7 ' J / / 2 ! | / / / / / ' i ■ a / soATivo aoj xvtj «3d savnoo ol!2 ZJC ^5 u i 1 7 i J O / f o / / / / / / / f , y i • * / =i s i / o / / a £ / i a k / /, S3 / h 6 •* r / 1 y § . / / / g / i ; 1 1 1 / i / i / t , , ,- soavivo aoj iwnj a3a sav-noo IT 5 « S£ 2 H- •p R t! rt ^•h ^ a d w * ^ ^"^ -H r^ +J ^ c! rt ^ * -'■gig o a, be °° ^rt^ .£ * s S ° "^ OQ «2 > ^ -H !tj 03 cs ^^ fe ft b£)° *S g.S £ rtf m fl » O) o fJ ? !> t> rt o O &H ^H £ ft.2 o a; +3 ®£ J* VI rO. "^ EH 3 ^'H H ^ CO OS , as os ^ ^R 5| CD R3 ^ 02 o &c 05 I— soAwnva aoj i.vu «3d savmoo Bul. 539] Sales Methods of the Calavo Growers 25 for avocados, from a short-time standpoint, 22 such as a week, would coincide with the sales districts of the Calavo Growers (figure 1) because carloads are sent to a principal city in each district and sales are made in smaller lots to other cities in the district. This was found to be the case : for example, prices for avocados in New York were more closely related to the total volume of sales in the New York district than to the volume of sales in New York City alone. The volume of sales was also more closely related to the prices for avocados of the Calavo quality than to the average prices for all qual- ities of avocados, the reason being that at times there were no sales of avocados of other than the Calavo quality, while at times considerable quantities of the lower qualities were sold. Yet it was found that the volume of sales of the lower qualities influenced the prices for Calavos because there was a closer relation between the volume of sales of all qualities and the prices for Calavos than between the volume of sales of the Calavo quality and the prices for Calavos. In other words, the total supply of avocados influences the prices of Calavos to a greater extent than the supply of the Calavo quality alone. The avocados of qualities lower than Calavo tended to sell at fixed differentials below Calavo prices. The curves in figure 3 represent the demand schedules for the four principal market areas — the Chicago, Los Angeles, New York, and San Francisco sales districts — as they existed during the 1930-31 season. It was not possible to calculate similar curves for the southwestern, northwestern, and inter mountain market areas. The volume of sales in these areas was probably too small for a demand schedule to have become established. The curves are averages for the principal part of the marketing season. Deviations from the curves were caused by a number of factors including variation in sizes and varieties, the degree of ripeness of particular lots of fruit, the prices of competing products, the volume of Florida and Cuba avocados on the markets, and seasonal increases and decreases in demand. The solid curves in figure 3 show the average of gross prices received with given volumes of sales, while the broken curves show the net prices to the Exchange at Los Angeles, except in the case of Los Angeles where the solid curve represents both the gross and the net price. By interpolation from the net price curves in figure 3, table 6 was constructed. This table shows the net price per flat and the total amount 22 From a longer-time point of view, such as a month or a year, the various market areas in the United States might be considered as parts of a larger market area including the United States and Canada. 26 University of California — Experiment Station of money which would be received by selling a given quantity avocados in each of the four market areas. of TABLE 6 Average Net Prices per Flat at Los Angeles for Oalayos ani> Total Value Which Would be Realized by Selling Varying Quantities in Four Market Areas San Francisco New York Los Angeles Chicago Volume Price Total Volume Price Total Volume Price Total Volume Price Total of sales per flat value of sales per flat value of sales per flat value of sales per flat value flats dollars dollars flats dollars dollars flats dollars dollars flats dollars dollars 500 3.75 1,875 100 5.55 555 2,000 4 00 8,000 100 5.68 568 600 3.47 2,082 200 5.15 1,030 2,500 3 65 9,125 200 4.90 980 700 3.24 2,268 300 4.80 1,440 3,000 3.35 10,050 300 4 35 1,305 800 3.03 2,424 400 4.45 1,780 3,500 3.15 11,025 400 3.95 1,580 900 2.84 2,556 500 4.15 2,075 4,000 2.97 11,880 500 3.55 1,775 1,000 2.69 2,690 600 3.90 2,340 4,500 2.83 12,835 600 3.28 1,968 1,100 2.55 2,805 700 3.65 2,555 5,000 2.75 13,750 700 3 10 2,170 1,200 2.43 2,916 800 3.40 2,720 5,500 2.67 14,685 800 2.90 2,320 1,300 2.33 3,029 900 3.20 2,880 6,000 2.60 15,600 1,400 2.24 3,136 1,000 3.02 3,020 6,500 2.55 16,575 1,500 2.16 3,240 1,100 2.85 3,135 1,600 2.08 3,328 1,200 2.73 3,276 1,700 2.03 3,451 1,300 2.60 3,380 1,800 1,900 1.98 3,564 1,400 2.50 3,500 1.93 3,667 1,500 2.35 3,525 2,000 1.88 3,760 Source of data: Calculated from figure 3. The point of greatest significance to be gained from table 6 is that in each of the market areas, although the price per flat decreases with an increase in the volume of sales, the total amount of money received by the Exchange from sales increases with an increase in volume of sales. 23 This situation has an important bearing on the planning of the distribution of supplies in the various market areas. An illustration of the relation of the market capacity of the various areas to the planning of the distribution of supplies in the various market areas is shown in table 7. Here it is assumed that the Calavo Growers have control of the total volume to be marketed during a particular week and that the four market areas, Los Ajigeles, San Fran- cisco, Chicago, and New York are the only areas in which avocados are 23 Expressed in statistical terms: the elasticity of the demand in each of the market, areas is such that the total value curves rises with an increase in the quantity sold. This applies within the limits of the data presented. It should be recognized by producers, however, that it will not be profitable to expand production indefi- nitely because as production increases total production costs rise and the total net returns from production tend to decrease. Bul. 539] Sales Methods op the Calavo Growers 27 marketed. 2 * It is also assumed, for the purpose of illustration, that 6,500 flats are to be marketed during a particular week. Under the heading "Distribution No. 1" in table 7 it is shown that if 750, 3,900, 1,030, and 820 flats were sold in the Chicago 1 , Los Angeles, New York, and San Francisco market areas respectively, a net price of $3.00 a flat at Los Angeles would be received from the sale in each market area. It is also shown that a total return of $19,500.00 would be received. The Exchange might choose, however, to distribute supplies among the various market areas in a somewhat different manner. Under the head- ing ' ' Distribution No. 2 " in table 7 are shown the returns that might be received by selling 200, 5,000, 400, and 900 flats in the Chicago, Los Angeles, New York, and San Francisco market areas respectively. The net prices per flat from sales in Chicago and New York would be higher while the net prices per flat from sales in Los Angeles and San Francisco would be lower than under distribution No. 1. The point of most im- portance, however, is that under distribution No. 2 the total returns would be $19,066.00, or $414.00 lower than under distribution No. 1. TABLE 7 Net Price per Flat at Los Angeles and Total Eeturns Which Would be Beceived by Placing- Varying Quantities of Avocados on Four Important Market Areas Distribution No. 1 Distribution No. 2 Distribution No. 3 Market area Quantity placed on market Net price per flat Total value Quantity placed on market Net price per flat Total value Quantity placed on market Net price per flat Total value Chicago flats 750 3,900 1,030 820 dollars 3.00 3.00 3.00 3.00 dollars 2,250.00 11,700.00 3,090.00 2,460.00 flats 200 5,000 400 900 dollars 4.90 2 75 4.45 2.84 dollars 980.00 13,750 00 1,780.00 2,556.00 flats 750 3,000 1,450 1,300 dollars 3.00 3.35 2.40 2.33 dollars 2,250 00 Los Angeles... New York San Francisco 10,050.00 3,480.00 3,029.00 Total 6,500 19,500.00 6,500 19,066.00 6,500 18,809.00 Source of data: Calculated from figure 3. 24 Adjustments can be made for the volume marketed by nonmembers and for the volume sold in the less important market areas. By recording the total receipts of avocados on the Los Angeles market and subtracting the volume of sales of the Calavo Growers on that market, the volume of sales made by nonmembers can be closely approximated. The trend of such data, together with data available from the production department of the Calavo Growers, can be used in forecasting the amount which is likely to be marketed by nonmembers. By subtracting the volume which will be placed in the less important market areas from the total volume for disposal, the quantity to be distributed among the four principal market areas can be ascertained. 28 University of California — Experiment Station It will be noted that under distribution No. 2 approximately 1,000 flats more were allotted to the Los Angeles area than under distribution No. 1. Under the heading "Distribution No. 3" are shown the net prices per flat that would be received by placing approximately 1,000 flats less on the Los Angeles market area than under distribution No. 1. Under distribution No. 3, the total returns would be $18,809.00 or $691.00 lower than under distribution No. 1. A series of calculations might be made for the disposal of 6,500 flats in a week similar to the calculations in distribution Nos. 2 and 3, but in each case the total returns would be lower than under distribution No. 1 where a net price of $3.00 a flat would be obtained from sales in all market areas. The reason for this fact is that the elasticity of demand for avocados in all market areas is similar. 25 From the standpoint of total returns, then, it is a sound policy to plan to distribute supplies of avocados in the various market areas in such a manner that the net price at Los Angeles from sales in each market area will be equal. This plan of distributing supplies, which may be termed putting equal pressure on all market areas, has a further advantage, namely, that it gives little encouragement to dealers to purchase in one market area for resale in another market area. Under distribution No. 2 in table 7, dealers in Los Angeles would be encour- aged to reship to eastern markets because the price in eastern markets would be higher than the price in Los Angeles plus shipping charges. If the situation were as shown in distribution No. 2 it is probable that shipments to eastern markets would be heavy and by the time these shipments arrived they, together with other supplies in these markets, would result in lower returns than was anticipated. It was pointed out above (pages 9 to 11) that one of the major policies of the Calavo Growers is that the Exchange 's activities are to be conducted for the benefit of the members and the policy of developing new market areas would be secondary to the immediate returns to members. Since most of the nonmembers ' fruit is marketed in the Los Angeles area, the execution of these policies means that in case there is uncertainty whether to place a smaller or larger quantity on the Los Angeles area, the larger quantity will be marketed in that area. Then returns to members will be higher than returns to nonmembers by the difference between the net prices received from sales outside Los Angeles and the net prices from sales in Los Angeles. For example, if 25 If demand were highly inelastic in one or more market areas the highest total returns would be obtained by placing the particular quantities in the areas of inelastic demand which would yield the highest total return in these areas, Then the net price per flat from all areas would vary. Bul. 539] Sales Methods op the Calavo Growers 29 under distribution No. 2 in table 7, 1,000 flats were marketed in Los Angeles by nonmembers, the weighted average price received by non- members would be $2.75 a flat, while the weighted average price re- ceived by members from sales both in Los Angeles and outside Los Angeles would be $2.97 a flat. The Calavo Growers are in a position to make such a policy effective within certain limits because the Exchange is the only selling agency which handles a volume sufficient to enable it to send carloads to eastern markets by freight 26 at a rate of 37 cents a flat while the express rate which other agencies must pay is 96 cents a flat. 27 Several forces are acting to change the position of the demand sched- ules shown in figure 3, which are based on data from the 1930-31 sea- son. The demand for avocados is increasing (pages 42 to 43) and it is likely to continue to increase if the advertising activities of the Exchange are continued. On the other hand, the decline in the general price level has tended to lower the prices for avocados (page 42). These factors, together with the fact that production is increasing rapidly and that larger quantities than have ever before been sold must be marketed in the various market areas, lessens the usefulness of the data in figure 3 and table 6 in planning sales. However, similar data can be recalcu- lated from time to time and the principles demonstrated in the preceding discussion applied to the new data. ADVERTISING METHODS AND POLICIES The advertising methods and policies of the Calavo Growers have been modified from time to time as circumstances have changed and as experience with advertising methods has been gained. The principle governing changes has been to employ those methods, other factors being equal, that will most quickly increase the demand for the products marketed by the Exchange. The chief factor holding in check the application of the principle has been the expense involved. In con- sidering the expense involved the fact that nonmembers do not con- tribute to advertising funds is constantly kept in mind. If too large an expenditure were made for advertising, members who are inclined to judge the effectiveness of the Exchange by comparing the prices they received with the prices received by nonmembers would be likely to withdraw from the organization. 26 The Calavo Growers handled 71.2 per cent of the commercial marketings of avocados during the years 1928-29, 1929-30, and 1930-31. 2T The express rates to middlewestern markets are 84 cents a flat and to south- western markets 72 cents. 30 University of California — Experiment Station Types of Advertising. — Several types of advertising have been and are employed by the Calavo Growers. Among these are publicity con- cerning the avocado industry, the dietetic and nutritive values of the fruit, and ways and means of preparation for consumption ; the print- ing and distribution of recipe folders and booklets among consumers, posters and display material to retailers and jobbers, and menu riders to hotels, clubs, restaurants, and dining car systems; demonstrations and lectures at public gatherings, in retail stores, and to special groups on uses of the product and ways of preparation ; space advertising in newspapers and magazines ; and personal contact, called dealer-service work, with jobbers and retailers to interest them in handling the prod- uct, to educate them in methods of handling it to avoid losses, and to assist them in making sales and displays. Publicity. — The fact that the avocado is not well known in many areas and that its commercial production in the United States has only recently been undertaken (1910-1915) 28 gives the product considerable news importance. Up to the end of the 1925-26 season, the furnishing of publicity material to newspapers and magazines was the principal means employed by the Calavo Growers to advertise the avocado. 29 This method of advertising is still utilized : in fact, a definite portion of the advertising budget is set aside each year for publicity and one employee devotes full time to the preparation of news material. It is realized, however, that as the product becomes better known it will become increasingly difficult to obtain publicity. At the present time (1931-32) the fruit still has news importance as evidenced by the thousands of newspaper and magazine clippings which the Exchange has at hand. The publicity method of advertising is perhaps one of the least expensive forms of advertising. It is difficult to measure its effect on sales, yet it is probably one of the most effective means of arousing interest in a product. It appears that the Exchange will be justified in continuing its publicity work until definite evidence is at hand that the news importance of the product has decreased markedly. Distribution of Printed and Lithograph Materials. — As the pro- duction of avocados and the volume handled by the Exchange increased, it became feasible in 1926-27 to make a small assessment per flat for more direct advertising than the publicity type. The expenditures in that year were confined primarily to the distribution of printed and 28 Hodgson, Eobert W. The California avocado industry. California Agr. Ext. Cir. 43:4. 1930. 29 California Avocado Association Annual Report 1927:133. Los Angeles, Cali- fornia. Bul. 539] Sales Methods of the Calavo Growers 31 lithograph material, such as posters and streamers picturing the avo- cado and stating some item of importance concerning the fruit, recipe folders, and booklets. These were distributed to jobbers and retailers. At that time (1926-27) the policy of coordinating advertising efforts with sales efforts was adopted. 30 The distribution of printed and lithograph material continues to be an important item in the advertising budget of the Calavo Growers. Additional materials have been utilized from time to time such as menu riders and special recipe booklets for cooks and chefs. This type of material is considered effective in promoting sales by the Calavo Grow- ers, particularly when its distribution is made through its sales and dealer-service agents. Demonstration on Methods of Utilization. — One of the most effective methods of stimulating sales of avocados is through demonstrations at public gatherings, in retail stores, and to special groups on ways and means to prepare the fruit for consumption. This method is, however, rather expensive because a demonstrator must be employed and samples must be furnished. It is the policy of the Calavo Growers to employ this method only after careful consideration of the number of people that are likely to be reached through the demonstration and the influ- ence it is likely to have on sales. During the period of this study, October 1, 1932, to April 1, 1932, several demonstrations were conducted in leading retail stores in a number of cities. One of these demonstrations was conducted in the city of Tulsa, Oklahoma, under the direction of the author. During the week prior to the demonstration approximately 21 flats of Calavos were sold in a particular store, during the week of the demonstration 56 flats, and during the week following 34 flats. The results of this demonstration, according to the sales representatives of the Exchange, are typical of the results of most demonstrations. The volume of sales increases remarkably during the period of demonstration, decreases after the demonstration, but shows a permanent increase after the demonstration as compared with the period before. Space Advertising. — When the volume of business of the Calavo Growers increased to a point where more than 100,000 flats were handled during the marketing season (1928-29) and sales were to be made in most of the larger cities in the United States, a portion of the advertising budget was allotted to advertising in magazines with a national circulation. The magazines chosen were those read in metro- so California Avocado Association Annual Report 1927:135. Los Angeles, Cali- fornia, 32 University of California — Experiment Station politan areas where buying power was high because it was realized that the avocado was a high-priced delicacy. 31 This principle in selecting space-advertising media has been adhered to since the first year it was employed. The effectiveness of space advertising is difficult to measure. Many organizations attempt to measure it, however, by tabulating the requests for further information, a free sample, or a recipe booklet. The objec- tion to such a means of measurement is that the organization is not selling information, free samples, or recipe booklets, and that the re- quests received for these items may not give an indication as to the effect of space advertising on the volume of sales. Nevertheless, such requests are often the only basis upon which judgment can be based when a decision is to be made concerning the advisability of utilizing space advertising. Volume of Sales in States Outside the Pacific Slope and Number of Inquiries from Space Advertising Calavo Growers, 1930-31 <*,wu • £ 3,000 _i #» • • • I • ^* i i i I ) 2 4 6 8 l( DO 12 >0 \A 16 >0 18 iO 2C )0 2< >0 24 NUMBER OF INQUIRIES FROM SPACE ADVERTISING Fig. 4. — There is some relation between the volume of sales and the number of inquiries received from space advertising, but the relation is not marked, particu- larly in those states where the volume of sales was 1,000 flats or less. (Data, from table 8.) The requests received by the Calavo Growers for booklets as a result of space advertising in relation to the volume of sales in 1930-31 are tabulated by states in table 8 and charted in figure 4. It will be noted si Fifth annual report of the Calavo Growers of California, p. 17. 1928. Bul. 539] Sales Methods of the Calavo Growers 33 TABLE 8 Distribution of Sales of the Calavo Growers, Number, of Days of Dealer- Service Work in Designated Areas, and Number of Inquiries Keceived from Space Advertising, and Population, 1930-31 State Volume of sales Dealer- service work Inquiries received from space advertising February, 1931, to August, 1931 Population, 1930 flats 269 547 94 172,161 788 522 9 104 785 9,940 391 241 207 390 720 109 717 1,358 785 561 1,475 232 207 114 15,992 2,400 664 1,177 3,607 140 101 12 934 6,118 272 561 2,929 2,922 57 205 244 15 days 4 7.0 1.0 0.0 8.5 0.0 2.0 7.0 6.5 3.0 10 4 5 10 1.0 8.0 8.5 10 6.0 12 5 4 5 2.0 21.0 6.0 0.0 22.0 2.0 1.0 0.5 8.0 * 0.0 4 10.0 1.0 2.0 9 13 581 50 84 5 43 29 298 53 20 22 35 14 5 34 147 109 68 64 19 95 11 704 216 41 35 227 26 5 8 15 125 5 46 32 70 9 58 76 10 thousands of persons 2,646 436 1,854 5,677 1,036 1,607 Delaware Florida 238 1,468 Georgia 2,908 Illinois 7,631 Indiana 3,238 2,471 1,881 Kentucky 2,614 2,101 797 Maryland 1,632 4,250 4,842 2,564 3,629 1,378 4,041 3,170 12,588 Ohio 6,647 2,396 954 9,631 Rhode Island 687 1,739 693 Tennessee 2,616 5,825 Utah 508 Virginia 2,422 Washington 1,563 Washington, D. C 487 West Virginia 1,729 Wisconsin 2,939 9,658 3,608 * A sales office of the Calavo Growers is located in this area and no distinction is made between the time spent by representatives in dealer-service work and selling. Source of data: Compiled from the records of the Calavo Growers of California, and U. S. Dept. Com. Bur. of the Census. 1930. 34 University of California — Experiment Station that in the states outside the Pacific Slope 32 there is some relation between the two, yet the relation is not marked, particularly in those states in which the volume of sales was less than 1,000 flats, Dealer-Service Work. — This type of advertising consists of a num- ber of activities which are closely related to selling efforts. In fact, in those cities in which offices of the Calavo Growers are located it is im- possible to separate the two (see also pages 16 to 17). Representatives of the Exchange call on jobbers and retailers to interest them in carrying the product, instruct them in proper handling to avoid losses, and assist them in making displays and sales. (See figure 5, which illustrates one type of dealer-service work.) Some of the dealer-service representatives interview particular classes of dealers and consumers or purchasers. For example, one calls on cooks and chefs and another deals with the purchasing agents of chain-store systems. Fig. 5. — A retail store display arranged by a dealer-service representative of the Calavo Growers. This is one type of activity conducted by these representatives. The officials and employees of the Calavo Growers consider the dealer-service work one of their most effective types of advertising ; the sales records of the Exchange give evidence that such is the case. In table 8 and figure 6 the relation between the amount of effort spent in dealer-service work and the volume of sales in 1930-31 is shown. Figure 6 shows that in states outside the Pacific Slope 33 the relation between 32 The Pacific Slope states and those in which the sales offices of the Calavo Growers are located were excluded from this analysis because the avocado is better known in these areas and because other types of sales efforts had been extensively conducted. 33 See footnote 32. Bul. 539] Sales Methods of the Calavo Growers 35 the two is marked. In fact, it was found that during the 1930-31 season the volume of sales in the various cities and states was more closely related to the dealer-service effort on the part of the Exchange than to Volume of Sales of Calavo Growers in States Outside the Pacific Slope and Number, of Days of Dealer-Service Work in Those States, 1930-31 4,000 to £ 3,000 to Id -J 3 2,000 UJ D ^ 1,000 > 2 4 6 8 IO 12 14 16 18 20 NUMBER OF DAYS OF DEALER -SERVICE WORK 22 Fig. 6. — There is a marked relation between the volume of sales and the number of days of dealer-service work in the states outside the Pacific Slope. (Data from table 8.) any other factor. There was, as would be expected, some relation between the volume of sales and population, but the relation was not marked. There was also some relation between the volume of sales and indicators of purchasing power, such as the volume of bank deposits, the number of income tax returns, the number of retail outlets, and the number of passenger automobiles, but here again the relation was not outstanding. These factors were given consideration in planning where dealer-service effort would be undertaken and should be considered in planning where future effort will be expended. 34 The influence of dealer-service work on the volume of sales was tested during the period of this study by recording the sales volume prior to and after the work of dealer-service agents in restricted areas. 34 Of the various, indicators of purchasing 1 power the number of retail outlets was more closely related to the volume of sales than any other indicator. 36 University of California — Experiment Station Table 9 shows remarkable increases in sales in several cities after dealer- service representatives had canvassed the cities. The sales manager in the New York district compiled records of sales in a similar manner for the period October 1, 1931 to January 1, 1932. His records are sum- marized in the following statement : " In the eight large cities which our special representatives have covered we have sold just twice the amount of fruit that we did last season. On the other hand, in all of the other cities our sales have been only 70 per cent of last year's." TABLE 9 Volume of Sales in Designated Areas Prior to and After the Work of Dealer- Service Agents of the Calavo Growers Volume of sales Amount of dealer- service work Area 30-day period prior to dealer- service work 30-day period in which dealer- service work was completed* Increase in volume of sales Baltimore, Maryland flats 30 12 43 11 10 16 2 39 20 20 42 22 147 28 30 31 70 11 44 35 25 28 178 47 8 27 15 26 6 22 flats 125 45 223 35 47 29 11 47 54 21 234 73 225 65 45 35 240 • 20 58 85 45 339 195 87 45 145 20 48 6 25 days 11 3 14 1 4 1 2 5 3 6 6 6 11 3 2 5 11 1 2 5 2 13 7 4 4 17 1 5 1 2 flats 95 33 180 24 37 13 9 8 34 1 192 51 78 37 15 4 170 9 14 50 20 311 17 40 37 118 5 22 3 per cent 317 Beaumont, Texas 275 Buffalo, New York 419 Columbus, Ohio 218 Charlotte, North Carolina 370 Corpus Christi, Texas 81 Davenport, Ohio 450 Des Moines, Iowa 21 Galveston, Texas 170 Hartford, Connecticut 5 Houston, Texas 457 Indianapolis, Indiana 232 Kansas City, Missouri 53 Louisville, Kentucky 132 Norfolk, Virginia 50 Omaha, Nebraska 13 Pittsburgh, Pennsylvania 243 Portland, Maine 82 Reno, Nevada 32 Richmond, Virginia 143 Rochester, New York 80 1,111 10 85 463 437 33 Toledo, Ohio 85 Youngstown, Ohio 14 * In some areas dealer-service representatives worked only 1 day, while in other areas as long as 14 days. Tne period given includes the days of work of the representatives and the remainder of the 30-day period. Source of data: Records of the Calavo Growers of California. Bul. 539] Sales Methods of the Calavo Growers 37 During the period the data in table 9 were obtained there were sev- eral factors which tended to influence the volume of sales of avocados from California, such as variation in the volume of avocados being marketed from Florida and Cuba, the prices and volume of competing products, and some variation in the price of avocados. The influence of these factors on the volume of sales in the areas shown in table 9 could not be measured. However, it is significant that in all but one area the volume of sales increased after dealer-service representatives had worked in those areas. In view of the marked relation between the volume of sales and the amount of effort spent in dealer-service work, it appears that the Calavo Growers would be justified in expending a larger portion of their advertising budget in this type of advertising. Dietetic Research in Relation to Advertising. — In recognition of the fact that the health appeal is one of the strongest in food advertising, the Calavo Growers maintain a research department which has as one of its major functions the stimulation of research on the dietetic quali- ties of the avocado. Investigators in public institutions whose field is in dietetic research are urged to experiment with the avocado. It is the policy of the Calavo Growers to use the findings of these investigators as the basis for any advertising they may employ which refers to the healthful qualities of the fruit. This policy is to be commended because it will promote the confidence of consumers in the health appeals used. GRADING POLICIES One of the first policies adopted by the Calavo Growers was that the products they handled would be sorted and classified according to qual- ity. The experience of other California cooperatives which marketed perishable or semiperishable commodities had been that classification into grades, which would reflect differences in quality, was profitable not only as a basis for selling but also as a basis for making returns to members. This experience was responsible for the adoption of the foregoing policy. The complexity of the problem of establishing grades will be apparent when it is realized that there are some 400 named varieties of avocados and also numerous unnamed varieties or seedlings. Each variety exhibits variations in appearance, flavor, texture, and handling quali- ties. Some are distinctly inferior and some decidedly superior in one or more of these characteristics. The principle followed in the adoption of grades was that the prod- ucts would be sorted for those characteristics which the ultimate con- 38 University of California — Experiment Station sumer would be likely to recognize. The result is that relatively few grades have been established. Fortunately, one of the characteristics of the avocado which indi- cates its maturity and palatability is its oil content. Accordingly, the Exchange has adopted a minimum oil content as one of the requirements for first-grade fruit (see page 39). At the beginning of each season the several varieties are tested from time to time for maturity. Fruit which is not fully mature is excluded from the first grade. A distinction between maturity and ripeness is made in the case of avocados. Imma- ture fruit has a low oil content and will never become palatable. The California standardization law provides that avocados with an oil content of less than 8 per cent may not be offered for sale. Mature fruit, however, is not immediately edible. It must soften or ripen before it is ready for consumption. However, other factors which influence the desirability of the fruit, such as flavor, and handling and keeping qualities have been deter- mined only by constant testing and experimentation. From time to time various individuals sample new varieties of fruit and pass upon their flavor. Only those which are of superior flavor are classed as first grade. Some varieties exhibit internal discoloration when they become ripe ; others do not carry well in transit. In addition, some fruit from some areas has been found to be affected with a disease which is not readily distinguishable until the fruit has softened. Such fruit is excluded from the first grade. The grades which have been established and the percentages of the total volume handled by the Calavo Growers during 1930-31 which were classified in the several grades are shown in table 10. The first- grade fruit — Calavo — comprised nearly 60 per cent of the total volume. TABLE 10 Grades Employed by the Calavo Growers and Percentage of Total Volume so Classified, 1930-31 Grades Per cent of total volume Calavo 59.8 13.9 Fino 13.1 8.2 El Dorado 0.5 Unpacked 1.5 3.0 Source of data: Records of the Calavo Growers of California. Bul. 539] Sales Methods of the Calavo Growers 39 The percentages of the total volume so classified vary from year to year and from time to time during the year. At times during the year varieties which are distinctly inferior are marketed in large volume, while at other times varieties which are decidedly superior are sold. There was a range of from 12 per cent of the total volume of the Calavo grade in September, 1930 to 83 per cent in February, 1931. During some years the quality of the crop, as influenced by environmental con- ditions, is higher than in other years. This is indicated by the fact that during 1927-28 approximately 54 per cent were of the Calavo grade, while in 1928-29 nearly 68 per cent were of that grade. The requirements for first-grade fruit were mentioned above. The policy originally adopted was that all fruit which had not been found decidedly inferior would be classified and trade-marked as first grade. During 1926-27 this policy was reversed and only the varieties which had proved to be superior in flavor, texture, and keeping qualities were put into the first grade. It was found that in certain areas those varieties which were inferior put the first-grade fruit in bad repute and it was extremely difficult to make later sales in these areas even though superior fruits were marketed there. Those varieties which were found (up to 1930-31) to have superior qualities and which were classified and trade-marked as Calavos, if reasonably free from defects and of proper maturity, are shown in table 11. Here it will be noted that only 24 of some 400 named varieties TABLE 11 Varieties of Avocados Which Meet the Calavo Standards of Quality, and Minimum Oil Content Eequired for. Each, 1930-31 Variety Minimum oil content for Calavo standard Variety Minimum oil content for Calavo standard Benik -per cent 12-15* 12 12 12 12 plus* 10-12* 10-12* 12 plus* 12 12 12 12 per cent 12-15* Bradbury 12 Challenge 12 Coban Nabal 12 Colorado 12 Dicky A 12-15* Dickinson! 12 plus* Fuerte 12 Ishim 12-15* Kashlan Taft 12-15* Kanola 12 Linda Thin SkinJ . 12 plus* * The oil content for this variety varies slightly during the season. t Fancy fruit only. % Extra fancy fruit only. Source of data: Records of the Calavo Growers of California. 40 University of California — Experiment Station were listed as having the desirable characteristics of first-grade fruit. This first-grade fruit — Calavo — designates, therefore, more than first grade usually designates in the grading of fruits and vegetables. For example, in the grading of apples some varieties which are decidedly inferior in flavor and keeping qualities, but free from serious defects, are classified as first grade. This policy of adopting a standard for first-grade fruit which signi- fies more than freedom from serious defects, is unique in the history of fruit and vegetable marketing. Interviews with growers and dealers showed marked differences in opinion concerning it. Those who were opposed to the policy were primarily nonmembers of the Exchange, growers whose production was largely of inferior varieties, and dealers who were not handling the products of the Exchange. Their opposition is understandable when it is realized that fruit with the trade-mark Calavo sells for a premium of from 25 to 75 cents a flat as compared with fruit which to all outward appearances is of the same quality. Members of the Exchange, growers who produced the superior varieties, and dealers who handled the products of the Calavo Growers exclusively were generally in accord with the policy. The foregoing grading policies have several advantages: (1) It is not necessary to educate the consumer concerning the characteristics of the numerous varieties in order to identify those which are superior and to judge the maturity of the fruit. (2) These policies tend to discourage the planting of inferior varieties. 35 (3) The results of advertising efforts are more likely to be reflected to members of the Exchange when the trade-mark is the same as the name of the first-grade fruit than if the trade-mark were merely a brand of avocados. PACKING POLICIES In packing as in grading the experiences of other California coop- eratives were responsible for the adoption of the policy of packing, ac- cording to size in standard packages. After considerable experimentation a package which contains ap- proximately 13.5 pounds of fruit, now known as the Calavo flat, was adopted as the standard container. Several factors were taken into con- sideration in the selection of this particular package. The factor of first importance was that of selecting a package which would eliminate bruis- 35 The records of the production department of the Calavo Growers show that in numerous cases trees of inferior varieties have been topworked with superior varie- ties. Members of the Exchange have adopted this practice to a greater extent than nonmembers. Bul. 539] Sales Methods of the Calavo Growers 41 ing of the fruit while in transit. The second was the degree of adapta- bility to the various sizes of fruit which are produced. A third factor was the convenience of the package in handling and storing ; a fourth, the quantity of fruit which the majority of retail outlets would be likely to purchase at one time ; and a fifth factor, the adaptability of the con- tainer for display purposes in retail outlets. The policy of packing according to size in standard containers has been advantageous to the Exchange and its members. Large-sized fruit sells for a higher price than small-sized fruit in some markets, while in other markets the situation is the reverse. Packing according to size enables the Exchange to place the various sizes on the markets that ex- hibit a preference for them. Another advantage has been that sales are facilitated because margins can be calculated quickly by dealers. FACTORS AFFECTING PRICES It was noted above (page 6) that one of the objectives of the Calavo Growers is to increase the demand for avocados. The discussion on ad- vertising (pages 29-37) has described the methods employed to ac- complish this objective. A determination of whether or not the sales methods and policies of the Exchange have resulted in an increase in demand is dependent upon an analysis of the factors affecting prices and upon an appraisal of the quantitative and qualitative information presented in the preceding sections of this bulletin. Section A of figure 7 shows the relation between the quantities of avocados sold per month by the Calavo Growers and the net prices re- ceived for the period January, 1925, to September, 1931. Each dot in section A shows the weighted average price at which a given quantity was sold during a particular month. For example, the dot at the extreme righ in section A shows that during a particular month (March, 1930) approximately 33,000 flats sold for a net price at Los Angeles of $2.60 a flat. The curve represents the average relation between the quantities sold per month and the prices received. Section B of figure 7 shows the extent to which the individual dots in section A were above or below the curve in section A. Here the dots are shown in chronological order by months for the period January, 1925, to September, 1931. The zero line in section B represents the curve in section A. It will be noted that in the earlier part of the period the dots in section B fall below the zero line, while in the later part of the period (except 1930-31), the dots are above the zero line. The curve in section 42 University of California — Experiment Station B indicates the trend in the position of the dots in relation to the curve in section A. This curve shows that there has been an increase in de- mand. It shows that in the later part of the period the same quantity sold at a higher price than during the earlier part of the period. It will Factors Affecting the Prices Eeceived by the Calavo Growers, January, 1925 to October, 1931 8 10 12 14 16 18 20 22 24 26 28 30 32 THOUSANDS OF FLATS SOLD PER MONTH < ft Sir £^ fa t - seen MB • /• - * ** • - % • •• • [TV «w V*. ■ # » • • » • 'i • • • 1 • • > « «. • • • • , • • I +3 ID goc o SECT IONC - • • ' „ • • • rm Ml - • • •• • ."' \' o< " < • • • Q u -3 o cc a. _ 4 - ' • 1 , _l ,1 — .._!_ . 1. Fig. 7. — The monthly prices received by the Calavo Growers were found to be in- fluenced by the volume sold (sec. A), the trend in demand (sec. B) , and the quality of the fruit (sec. C). The general level of wholesale prices also affected the prices received by the Calavo Growers as is indicated by the relation of the 1930-31 prices to the trend in demand (sec. B). (Data from the sales records of the Calavo Growers of California.) be noted, however, that during 1 the 1930-31 season the dots in section B fall below the trend. The probable reason is that the general level of wholesale prices fell from an index of 141 for the 1924-25 to 1929-30 seasons to 108 in the 1930-31 season. It is reasonable to expect avocado prices to fall somewhat when prices in general are declining. Section C of figure 7 shows the extent to which the individual dots in section B were above or below the curve in section B. Here the dots are Bul. 539] Sales Methods op the Calavo Growers 43 shown in relation to quality. The zero line in section C represents the curve in section B. The measure of quality used was the percentage of the total volume of fruit handled by the Calavo Growers which was of the Calavo grade. It will be noted that there is a tendency toward a direct relation ; that is, in those months when a high percentage of the Monthly Demand Schedule for Avocados, 1924-25 Season, Compared with 1930-31 - -\ - - - - \ - - — 1924-9* - - - 1 J 1 1 - L .,. 1 ._-.!_ l__ 1 10 12 14 16 18 20 22 THOUSANDS OF FLATS PER MONTH 24 26 28 30 32 Fig. 8. — The extent to which the demand for avocados has increased since 1924- 25 is indicated by the position of the 1924-25 and 1930-31 demand schedules. (Based on data in figure 7.) fruit was of the Calavo quality average prices were higher than in those months in which a, small percentage was of the Calavo quality. 36 . The deviations from the curve in section C are explained by several factors, such as the distribution of supplies in the several market areas (pages 23 to 29), the volume of fruit moving to market from Florida and Cuba, the volume of fruit marketed by nonmembers of the Ex- change, the volume and prices of competing products, and the degree of ripeness of the fruit. It was impossible, however, to illustrate graphic- ally the influence of these factors because they occurred with little regu- larity. 36 The relation between the deviations from the curve in section B and quality is more marked if an adjustment is made for the decline in the general price level in 1930-31. 44 University of California — Experiment Station The four factors, the volume sold by the Calavo Growers, the trend of demand, the general level of prices, and the quality of the product, have an important influence on the prices received by the Exchange. The upward trend in demand shown in figure 7 is of significance. On the basis of the data in this figure demand schedules were constructed for the 1924-25 season and the 1930-31 season as shown in figure 8. The position of the two curves in figure 8 indicates the extent to which de- mand has increased. Here it will be seen that in spite of the sharp decline in the general price level, given quantities of avocados sold for higher prices in 1930-31 than in 1924-25. How much the advertising and selling activities of the Calavo Grow- ers were responsible for the increase in demand is difficult to determine. It is probable that some increase in demand would have taken place without advertising effort merety because the product was on the mar- kets and more people tried it and cultivated a taste for it. However, the marked relation found (page 36) between sales and advertising activi- ties indicates that the activities of the Exchange were largely responsible for the increase in demand. 37 SUMMARY AND CONCLUSIONS The cooperative marketing of avocados was sponsored by the Cali- fornia Avocado Association. Under its leadership the California Avo- cado Growers Exchange was organized on February 8, 1924. The name of the latter organization was changed to the Calavo Growers of Cali- fornia on May 20, 1927, one year after the name Calavo was adopted for first-grade fruit. The principal motive for organizing a marketing agency was to in- crease the demand for avocados. Production was increasing rapidly and the product was not well known in the United States. It was felt that prices would soon become unremunerative to growers unless markets outside California were developed and an organized effort made to ac- quaint the consumer with the fruit. The handling of a marked increase in volume has been one of the major sales problems of the Calavo Growers. That it is likely to continue to be a major problem is indicated by the fact that while the Exchange marketed 3,000,000 pounds of fruit in 1930-31 it will probably handle 13,000,000 pounds in 1934-35 and 24,000,000 pounds in 1939-40. 37 Hobson and Chaney report a similar increase in demand from the advertising and sales activities of the American Cranberry Exchange in the case of cranberries. See : Hobson, Asher, and J. Burton Chaney. Sales methods and policies of a growers ' national marketing agency. U. S. Dept. Agr. Bui. 1109:14r-17. 1923. Bul. 539] Sales Methods of the Calavo Growers 45 One of the general policies of the Calavo Growers has been to develop markets ontside California. The extent to which this policy has been made effective is indicated by the fact that during the 1930-31 season the volume of sales in the eastern sales district alone was more than double the total volume of sales in all sales districts in 1924-25. A second general policy of the Calavo Growers is that the activities of the organization will be conducted primarily for members. This policy is of major importance to the Exchange because it is in a position to influence prices in various market areas by marketing varying quan- tities in these areas. The Exchange might elect to place most of its supplies in markets outside California, which action would decrease supplies in California markets to such an extent that returns from sales in California would be higher than returns from sales outside California with the result that nonmembers of the Exchange, who sell the bulk of their crop locally, would receive higher returns than members. The net effect would be that members would pay the expenses of developing out- of-state markets but would receive a lower return than nonmembers. More specifically, the policy of developing markets outside California is secondary to distributing supplies in the various market areas in such a manner that if any advantage is to be gained from sales in outside mar- kets it will accrue to members. This policy was not clearly stated or definitely employed until the third year of operation (1926-27) . Prior to this, returns from sales out- side Los Angeles were frequently lower than returns from sales in Los Angeles. Since then returns from sales outside Los Angeles have usually been the higher. It is significant that the only year there was a decrease in the mem- bership of the Calavo Growers was at the end of 1926-27, the year in which returns from sales outside Los Angeles were consistently lower than returns from sales in Los Angeles. The policy of conducting activities primarily for the benefit of mem- bers is to be commended. The actions of cooperative associations fre- quently affect nonmembers as well as members. If such actions benefit nonmembers it should be of secondary importance to the members' in- terest. This policy warrants constant attention and emphasis by the Calavo Growers because with the probable future increase in production there will be a constant urge to develop new markets. Also this will cause the Exchange to assume industry responsibility. A third general policy of the Calavo Growers is one of modifying or changing specific methods or policies in accordance with changing cir- 46 University of California — Experiment Station cumstances. This policy is of particular importance in the case of the Calavo Growers because of the marked increase in volume the organiza- tion has handled. The factors considered in the selection of the trade channels which are employed by the Calavo Growers were (1) the volume which is likely to be moved, (2) the expense involved, (3) the gross price received, and (4) the degree to which uniform prices in the jobbing market are maintained. In giving weight to these several factors, the policy of the Exchange is that, all other factors being equal, those trade channels will be employed which will result in the largest volume of sales in a given area. Altogether, the operation of these factors has tended to favor the policy of establishing branch sales offices in the larger markets. The factors considered in establishing trade relations have been simi- lar to those taken into account in the selection of trade channels. Here again, the policy is that, all other factors being equal, those trade rela- tions are established which will result in the largest volume of sales in a given area. In applying the foregoing policy other factors are, however, seldom equal and the factor of the largest volume of sales must be bal- anced against these factors. Consequently, in certain areas trade rela- tions are sometimes established which aim to increase the volume of sales even when all other factors are not equal. The policy of employing those trade channels and adopting those trade relations which will move the greatest volume is in harmony with the general policy of developing markets. In view of the probable in- crease in production and the fact that the handling of larger quantities is likely to be the major sales problem of the Exchange, this policy war- rants emphasis. The principles upon which the price and distribution policies of the Calavo Growers are founded is that, at a given time in a given market area, the quantity consumers will purchase depends upon the price they must pay. With a given quantity of fruit to market at a. given time, it is the policy of the Exchange to name the highest asking price, which, in its opinion, will move this quantity into consumption before the product deteriorates. The factors considered in making asking prices are (1) the prices at which consumers have purchased specific quantities in the past, (2) the probable effect of the prices of competing products on consumers' de- mand for avocados, (3) the season of the year as it may affect demand, (4) the probable effect of the general business situation, (5) the quality of the product, and (6) the long-time trend in demand. Bul. 539] Sales Methods of the Calavo Growers 47 The asking-price system, together with the trade relations which the Calavo Growers have established, tends to maintain a fairly uniform jobbing price throughout the United States. This system is also used in making returns from the various pools to members. The number of fruit of a given variety, size, and grade which a grower had in a particular pool multiplied by the percentage of asking price received from sales is the basis of settlement with members. Such a pooling system spreads the marketing risks over the entire volume and thus is a fairer method of making returns to members than if the returns from sales for each grade, variety, and size were calculated separately. A price policy of particular importance to the Exchange is one of inducing retailers to handle avocados on a margin not exceeding 30 to 35 per cent. In some areas the sales representatives of the Calavo Growers have been markedly successful in this effort. The planning of the distribution of the products handled by the Calavo Growers begins with the planning of the harvesting of the crop. Members are assigned weekly picking quotas after such factors are con- sidered as the total quantity to be marketed during the year, the time of maturity of each variety in each of the principal districts served by the Exchange, the volume of fruit to be marketed by nonmembers and from Florida and Cuba and the probable time this volume will move to mar- ket, and the seasonal trend in demand. The picking quota system tends to prevent excessive marketing in periods of weak demand and to encourage heavier marketing in periods of strong demand. The limits of flexibility are defined by the volume of fruit which must be moved because of its maturity. After the quantity that will be harvested and marketed during a given period of time is determined, the problem of placing this quantity in various market areas confronts the sales department. Data are pre- sented in pages 23 to 29, which indicate the market capacity of four of the principal market areas in which the Exchange 's sales are made. It was found from these data that placing supplies in the several market areas in such a manner that the net price at Los Angeles is the same, yields the highest total returns. Since most of the fruit marketed by non- members is sold in the Los Angeles market area, a policy of marketing a larger proportion of the total volume in this area is advisable, whenever there is uncertainty in regard to the placing of supplies. Such a policy will result in a higher average return to members than to nonmembers. The Exchange is in a position to make this policy effective within certain limits because it is the only selling agency which handles a large enough volume to send carloads to eastern markets by freight at a rate of 37 48 University of California — Experiment Station cents a flat, while the express rate which nonmembers must pay is from 72 to 96 cents a flat according to the destination. The advertising methods employed by the Exchange include (1) publicity concerning the avocado industry, the dietetic and nutritive values of the fruit, the ways and means of preparation for consumption ; (2) the printing and distribution of recipe folders and booklets among customers, posters and display material to retailers and jobbers, and menu riders to hotels, clubs, restaurants, and dining car systems; (3) demonstrations and lectures at public gatherings, in retail stores, and to special groups on uses of the product and ways of preparation; (4) space advertising in newspapers and magazines; and (5) personal con- tact, called dealer-service work, with jobbers and retailers to interest them in handling the product, to educate them in methods of handling it to avoid losses, and to assist them in making sales and displays. With a given amount of money available for advertising, the policy of the Calavo Growers is to employ those advertising methods which will increase demand most rapidly. During the early years of operation when the advertising budget was small, publicity alone was utilized; later posters and display material were employed ; while finally, when the advertising budget increased, other types of advertising were con- ducted. The type of advertising found to be most closely related to sales was the dealer-service work. The relation is so outstanding that it is recom- mended that a larger proportion of the advertising budget be spent in this type of advertising. An advertising policy of the Exchange which is of significance is that of withholding statements concerning the health- ful qualities of the fruit until trained investigators have conducted experiments with it. The principle followed in the adoption of grades was that the prod- ucts would be sorted for those characteristics which the ultimate con- sumer would be likely to recognize. The result is that relatively few grades have been established. A policy has also been adopted to desig- nate as first grade — Calavo — only those varieties which are of superior quality. Thus far (1930-31) only 24 varieties of some 400 named varie- ties and numerous unnamed varieties have met the requirements of first-grade fruit. The grading policy of adopting a standard for first-grade fruit which signifies more than freedom from serious defects is unique in the history of fruit and vegetable marketing. The advantages of the policy are (1) it is not necessary to educate the consumer concerning the characteris- tics of the numerous varieties in order to identify those which are supe- Bul. 539] Sales Methods of the Calavo Growers 49 rior and to judge the maturity of the fruit; (2) it tends to discourage the planting of inferior varieties. Another grading policy is that the first-grade fruit is stamped with the trade-mark of the Exchange and the trade-mark — Calavo — is the same as the name of the first-grade fruit. This policy is advantageous because the results of advertising efforts are more likely to be reflected to members of the Exchange when the trade-mark is the same as the name of the first-grade fruit than if the trade-mark were merely a brand of avocados. The policy of packing according to size in standard containers is ad- vantageous because it enables the Exchange to place the various sizes of fruit on the markets that exhibit a preference for them. It also facili- tates sales because margins can be calculated quickly by dealers. The principal factors found to affect the monthly average prices re- ceived by the Calavo Growers were (1) the volume sold by the Exchange, (2) the trend of demand, (3) the general level of wholesale prices, and (4) the quality of the product, Other factors such as the distribution of supplies in the several market areas, the volume of fruit moving to mar- ket from Florida and Cuba, the volume of fruit being marketed by non- members of the Exchange, the volume and prices of competing products, and the degree of ripeness of the fruit also influenced prices. Of the several factors affecting prices the upward trend in demand is perhaps of most significance to the Exchange. How much the advertis- ing and selling activities of the Calavo Growers were responsible for the increase in demand is difficult to determine. That their activities were largely responsible is indicated by the marked relation found between advertising activities and sales. ACKNOWLEDGMENTS The author wishes to express his appreciation to Mr. George B. Hodg- kin, General Manager; Mr. Edwin Humason, Sales and Advertising Manager ; Mr. Paul 0. Helin, Assistant Sales Manager ; Mr. B. C. Ste- phens, Production Manager ; Mr. C. H. Young, Comptroller; Mrs. Adel- tha Peterson, Director of Nutrition; Mr. E. C. Dutton, Manager of the Growers' Relations and Traffic Department, and Mr. A. Barbera, Man- ager of the San Francisco office, all of the Calavo Growers of California for their patience and courtesy in explaining the details of operations and accounts and for valuable suggestions and criticisms during the course of this study and in the preparation of the manuscript. 50 University of California — Experiment Station Several persons supplied information of a historical nature which aided in interpreting the data obtained. Among them were Mr. J. G. France, Farm Advisor of San Diego County ; Mr. M. B. Kounds, Farm Advisor of Los Angeles County; Mr. Vincent Blanchard, Farm Ad- visor of Ventura County, and Mr. H. E. Wahlberg, Farm Advisor of Orange County. Mr. W. L. Jackson of the Federal-State Market News Service in Los Angeles made available records of receipts and prices of avocados at Los Angeles. In addition, he made important contacts for the author. Mr. Leigh Crosby and Mr. II . T. Mann of the Lord and Thomas and Logan Advertising Company of Los Angeles furnished important data on ad- vertising methods and sales quotas. Miss Edna Fisher, Statistical Assistant, and Mr. H. J. Emery, Re- search Assistant, assisted in the analysis of statistical data. Mr. H. E. Tilden prepared the charts. Miss Ellen Hawley, Editorial Assistant, corrected the manuscript and suggested important changes in the organization of the material. The author also wishes to express his appreciation to Director H. R. Tolley, Dr. H. E. Erdman, Dr. M. R. Benedict, and Dr. H. R. Wellman, all from the Giannini Foundation of Agricultural Economics of the University of California, for valuable suggestions during the course of this study and in the preparation of the manuscript. Bfl. 539] Sales Methods op the Calavo Growers 51 APPENDIX COSTS OF OPERATION OF THE CALAVO GROWERS Although it is not among the purposes of this study to make a de- tailed analysis of the costs of operation of the Calavo Growers, the fol- lowing data taken from the records of the Exchange will be of interest. Table 12 shows the costs of operation from 1926-27 to 1930-31. It will be noted that total per unit costs have decreased with an increase in the volume handled, except in 1926-27 when grading and packing opera- tions were first conducted extensively and numerous equipment costs were incurred which were charged to the 1926-27 operations. TABLE 12 Volume of Sales and Costs of Operations of the Calavo Growers, 1926-27 to 1930-31 Crop year,* October to September Volume handled Sales and general costs Advertising costs Field and research costs Packing costs Total costs 1927-28. . flatst 35,453 43,633 53,082 124,687 229,432 dollars per flat 0.556 0.610 0.307 0.276 0.171 dollars per flat 303 0.135 0.760 0.418 0.260 dollars per flat 086 0.265 0.081 0.088 0.120 dollars per flat 0.661 0.486 0.567 0.418 317 dollars per flat 1 606 1929-30... 1 498 1926-27.. 1 715 1928-29. 1 200 1930-31 868 * Years are not in chronological order because it is desired to show the influence of volume on costs. t The number of flats shown in this table does not coincide with the number of flats shown in table 2 because the latter shows the number sold during the year, while this table shows the number packed during the year. Sales are made from one week to one month after the fruit is packed. In addition, the data in this table are all on the basis of 13.5-pound flats, while some of the data in table 2 are in 10-pound flats. Source of data: Records of the Calavo Growers of California. The unit packing costs have decreased markedly as volume increased. These costs are likely to continue to decline with an increase in volume. Preliminary data for 1931-32 indicate a reduction of from 30 to 50 per cent in labor costs. Similarly, the unit sales and general costs have decreased with an increase in volume. These also will continue to decline as the Exchange obtains additional tonnage. The advertising costs vary in accordance with the amount considered necessary by the officials of the Calavo Growers to move each season's crop into consumption at maximum prices. This item is likely to vary from year to year with the size of the crop, the proportion of the total 52 University of California — Experiment Station crop marketed by the Exchange, and the probable sales resistance which is likely to be encountered. Similarly, the unit costs of field and research work vary with the amount considered necessary to conduct such activities properly during a particular season. As new problems arise it is likely that additional expenditures will be incurred in field and research work. However, it is probable that the unit costs of these activities will decrease with an in- crease in volume. The fact that the costs of operation of the Calavo Growers has tended to decrease with an increase in volume is significant to members. In the early years of operation of nearly every business and particularly one which handles the products of a new industry the organization does not at first operate at full capacity. This is the case because a complete busi- ness unit must be organized. It is not possible to start with a fourth or a half of a business unit any more than it is possible to farm with one- fourth or one-half of a tractor. As the business grows, however, its effi- ciency increases and unit costs of operation become less. 14m-10,'32