As the Yakima, Washington, growing and packing company Allan Brothers, Inc., looks to the future, it plans to grow fruit that commands a premium, such as club apple varieties. “Our company is trying to be pretty aggressive with new varieties,” said Dave Allan, who is in charge of company orchards. “If you look at our business model, increasing revenues is where you get your income, and you don’t make increased income by reducing costs, in general.”
Allan said it might be possible, with effort and innovation, to reduce growing costs, which range from about $90 to $120, by $10 a bin. “Certainly, we want to do that if we can do it, but it still doesn’t increase income very much. It’s a lot easier to increase income by increasing revenue with new varieties.” Revenue can be increased by $50 to $100 a bin with some of the new varieties, he added. “The focus is on revenue if you’re going to make money in this business.” The Allans have contracted with ENZA to grow the New Zealand varieties Pacific Rose and Jazz. And they’re thinking of growing organic Pink Lady apples, in view of the variety’s good market acceptance.
But it takes an investment to grow club varieties. With the ENZA varieties, there’s an up-front payment of $2,000 per acre in lieu of tree royalties. The grower buys and owns the trees. Then there’s a production royalty of 11 percent of the gross selling price for Pacific Rose or 13 percent for Jazz, which covers marketing fees for David Oppenheimer Group, the exclusive marketer.
“That gets to be pretty pricey with higher prices,” Allan acknowledged. One of the appealing aspects about club varieties is that production is managed, Allan said. The concept is to develop supply in relation to the market. Production of Jazz will be limited to 1.5 million boxes in North America and a similar volume in France. Steve Weaver, ENZA’s representative in North America, said there are enough trees planted or on order in the United States to produce that volume. “We’re very close to our target,” he said.
Last season, Allan Brothers made more money on Fuji and Gala than with Pacific Rose, Allan said, but that doesn’t mean they’re discouraged with the club varieties. “We think there’s tremendous potential,” Allan said. With any variety, it’s important to grow top grade fruit in order to receive the highest returns, he emphasized, and horticultural practices need to be developed to enable growers to get apples to the market without defects.
In the case of club varieties, this must be done by the owners rather than the industry as a whole. Jazz, a characteristically small apple, seems to grow well at high elevations, where it colors well, Allan observed. Pacific Rose, on the other hand, should be grown in warmer areas so that it matures properly. Pacific Rose can have problems with fruit finish and flavor, Allan has found.
“It’s a fantastic apple when it’s good. We’re dealing with young trees, and young trees sometimes don’t produce beautiful fruit. As the trees become older, I think our packouts are going to be much better.”
With club varieties, it’s important to develop a totally integrated system from the grower all the way through to the retailer, he noted. Oppenheimer has arranged for growers of ENZA varieties to go to retail stores to talk to consumers about their product.
“You’re still going to be the producer, but you have to understand the needs of the retail customer,” he said. “If you just grow apples and say, ‘I want $300 a bin, and I’m going to grow tons,’ that’s the death sentence to these programs. That won’t work.” Barclay Crane, who runs the Crane and Crane, Inc., fruit growing and packing operation at Brewster, Washington, also grows ENZA club varieties.
He expects club varieties to become a larger component of the Washington apple mix, but does not think they’re for every grower because of the relatively high production costs and royalties. “At this point, I see it as a niche scenario,” he said. “The market is being established right now. If it’s not profitable, there’ll be adjustments both on the royalty side and the production side.”
Pink Lady is a brand name for the Cripps Pink apple, which was developed in Australia. The Pink Lady association was established after the variety was released. A royalty of $1 per tree is charged on all Cripps Pink trees. In the United States, growers selling on the domestic market can join Pink Lady America and use the Pink Lady brand name without paying an assessment.
Growers can also sell the fruit as Cripps Pink without paying the promotional assessment. If the fruit is labeled with the Pink Lady flowing heart logo or exported, the producer pays an assessment of $1.25 per packed box for promotional efforts, according to John Reeves, manager of Pink Lady America. More than 90 percent of Washington State’s production of 1.7 million boxes of Cripps Pink in 2004 were sold as Pink Lady, Reeves said, but very few producers used the flowing heart logo. Reeves said about 18 million boxes of Cripps Pink apples were produced worldwide this season.
In other regions, such as Europe, all fruit sold as Pink Lady must use the flowing heart logo and meet minimum specifications. A substantial volume of lower grade fruit is sold as Cripps Pink. Some leading U.K. retailers have opted to sell Cripps Pink or simply “pink apples” rather than the Pink Lady brand to avoid the fees, according to news reports. Reeves said he did not understand why they chose to do that, since Pink Lady apples have been selling strongly in Europe and retailers have benefited from the Pink Lady promotions funded by the assessment.
Lynnell Brandt, a board member of the International Pink Lady Alliance, noted that Pink Lady was one of the first club apples and the alliance had no templates to follow. “I think a lot of the newer models are a little more restrictive, trying to learn from the errors that were probably made with the Pink Lady model,” he said. But there is still no clear answer on the best way to market a variety, he added. There must be enough production to sustain the shelf space so that stores are willing to do what’s necessary to put it on the shelf.
“I think it’s still in a state of evolution. There are a lot of club varieties. Not all of them are going to be successful. I know there are quite a few coming down the pike, and I think the models will still continue to evolve as we get more experience as to what works and what’s acceptable and what isn’t. It certainly takes a lot of resources both in terms of time and financial input to make these clubs just have the opportunity to be successful.”
Weaver thinks new varieties are likely to be introduced through some kind of club system so that the developers are rewarded. Future ENZA varieties will be launched in a similar way to Jazz and Pacific Rose. “It takes a lot of money to get to the point where the variety is viable, and then it takes a lot of money to build the market up, too,” he said.
Open or closed
John McCliskie, an apple grower and packer in New Zealand, said although managed varieties are likely to command a premium longer than open clubs, the jury is still out as to whether the open club or closed club is the better option. In the end, the variety must have consumer recognition. “You can’t do that on a few hundred thousand boxes and make it a success,” he said.