Low cost at small scale

2016-06-26 2 min read

    The Wall Street Journal had a great piece on why produce is so cheap in Chinatown. The conclusion:

    Her discovery: Chinatown’s 80-plus produce markets are cheap because they are connected to a web of small farms and wholesalers that operate independently of the network supplying most mainstream supermarkets.

    Most of the city’s fruits and vegetables come from wholesalers at the Hunts Point Produce Market, the South Bronx distribution hub boasting all the color and accessibility of La Guardia Airport. Chinatown’s green grocers, in contrast, buy their stock from a handful of small wholesalers operating from tiny warehouses right in the neighborhood.

    Because the wholesalers are in Chinatown, they can deliver fresh produce several times a day, eliminating the need for retailers to maintain storage space or refrigeration, said Ms. Imbruce.

    I love this. It runs counter to the common belief that cheaper prices can also be achieved through massive scale. Yet in what I suspect is one of the hardest industries, food distribution in NYC, small scale seems to be doing the better job. Produce has an extremely short shelf life and combined with the cost of real estate in NYC it must require some incredible management to be able to sell it for the half the price of produce found at the supermarket. And everyone involved ends up winning - consumers get cheap prices and a great selection, the stands are able to turn around a ton of inventory due to the low prices, and the farms benefit from the variety of crops they’re able to grow.

    This is a perfect example of being able to build a successful business by focusing on activities that complement each other (à la Michael Porter): they have their own local wholesalers that get constant replenishment that can then be priced incredibly cheaply which encourages high turnover and feeds back into the need for quick replenishment. This also allows them to focus on produce that doesn’t need to be kept on the shelf as long and is expected to be sold and eaten within a short amount of time. They embraced the idea of “making it up in volume” by setting up every activity to drive that goal.