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AwardBest: How big? How fast?

Posted by James Plamondon on December 30, 2015 . 0 Comments

(This is the third in a series of three posts on AwardBest’s pricing, profitability, and potential for growth, respectively.)

On December 5th, the Phnom Penh Post (Cambodia's premier English language daily newspaper) published a piece on AwardBest's "ultra-premium" rice export strategy. Written by the Post's Business Editor, Cam McGrath, the piece — titled Going Against the Grain — raised two questions:

  1. Would anyone pay $10/pound ($22/kg) for gourmet rice?
  2. Given the high costs of freezing, frozen transportation, and frozen storage, can selling quick-frozen rice be commercially viable?

Two previous blog posts answer the price question and the profitability question, respectively.

This post answers a third question: How big can AwardBest’s sales become, and how fast can AwardBest sales grow?

How fast could AwardBest’s sales grow?

The short answer is: No one knows.

The long answer is a bit more complicated.

Consider quinoa (pronounced “KEEN-wah,”), the South American grain. Its US sales grew slowly at first (5-10% per year in the 1980s), then more rapidly as the health food industry embraced it (30-40% per year in the 1990s), then sales started doubling annually (100% per year in the 2010s). The slow initial growth is no surprise, given that consumers in the USA did not know what quinoa was, or even how to pronounce it, let alone how to prepare it.

AwardBest has much easier marketing challenge. Thailand has already taught US consumers (a) that jasmine rice is “fragrant long grain rice,” and (b) that its extra flavor and fragrance are worth paying extra for. All AwardBest needs to do is establish that its jasmine rice is the BEST jasmine rice, and that it is worth paying a LOT extra for. This simpler challenge could enable AwardBest to skip quinoa’s “what is quinn-OH-wah?” stage (5-10% sales growth) and cut straight to the 30-40% annual sales growth stage.

Indeed, AwardBest’s sales could start doubling annually right from the outset. Due to the improvement in communication, new technologies are being adopted faster and faster with each passing year. Socially-mediated advertising (facebook ads, viral videos, etc.) enable such innovations to spread faster than ever before. Celebrity chefs, restaurateurs, home gourmets, and gourmands all compete to locate and associate themselves with the next food trend.

Therefore, sales of AwardBest’s ultra-premium jasmine rice can reasonably be expected to grow “very quickly” -- probably at least 30% per year, and possibly 100% per year.

How big could AwardBest’s sales get?

Again, the short answer is: no one knows.

Watch industry

Consider watches. According to StatisticBrain, total number of watches sold globally each year is approximately 1.2 billion. Of these, a billion are cheap “commodity watches” made in China and Hong Kong, retailing for around $3 each.

Then, there are “specialty watches,” such as the luxury watches made by Rolex. Rolex’s unit sales — which are a closely guarded trade secret — are estimated to be between half a million and a million. Therefore, Rolex’s unit sales are somewhere between 0.04% and 0.08% of the global watch industry’s total unit sales.

From this tiny percentage of unit sales, Rolex earns more gross revenue (and almost certainly more profit) than the entire “commodity” watch industry. A billion commodity watches, at $3 each, earns $3 billion in gross revenue. However, because the average cost of  Rolex’s watches cost approximately $7,500,  Rolex’s sales revenues are estimated to be somewhere between $4.75 billion and $7.7 billion.

Ultimately, the goal of Rolex is not to “sell more watches.” It is to “make more profit.” It does this by selling relatively few watches at relatively high prices. That is AwardBest’s approach, too.

If a guy has been in Asia’s “commodity watch business” his whole life, struggling to make a profit selling $3 watches, he could be forgiven for thinking that “no one could afford a $7,500 watch,” because none of his customers could. After all, a $7,500 Rolex is 2,500 times more expensive than a $3 commodity watch! His whole career has been focused on lowering costs and margins. Raising them, in the cut-throat commodity market, would be economic suicide. It would be literally unimaginable to him.

The same is true of Cambodia’s commodity rice vendors: they literally cannot imagine anyone paying $22/kg for rice. Yet Americans are paying that much for specialty rice on Amazon today. It is, after all, “merely” 7 times the price of “commodity” jasmine rice, and 10 times the price of commodity “plain white rice,” on Amazon.  That’s much less than the 2,500:1 price multiple that Rolex gets! It’s even less than the 17:1 price multiple of specialty chocolate vs commodity chocolate.

Size Target: Cambodia’s 2014 rice export industry

Here’s one way to think about AwardBest’s potential growth: How much rice would AwardBest need to sell in order to earn the gross revenues of Cambodia’s entire rice export industry, as it stands today, and how fast could it reach that target?

According to Cambodia’s Ministry of Commerce, Cambodia’s rice industry exported 370,000 tons of rice in 2014. Figuring 20 tons of bagged rice per non-refrigerated 20’ container, that’s 18,500 containers. Again according to the Ministry, 2014’s exports yielded US$247 million in gross revenue, which is just $13,351 per container.

As discussed here, AwardBest’s export model produces a gross revenue of $359,100 per container — nearly 27 times more gross revenue per container.

AwardBest could produce as much gross revenue as Cambodia’s entire 2014 rice exports by selling just 688 18-ton refrigerated containers full of rice.

Furthermore, each of AwardBest’s containers produces $75,000 in net profit, whereas Cambodia’s 2014 containers produced, on average, a negative net profit (i.e., a loss) after debt service. Hence, AwardBest would be infinitely more profitable than Cambodia’s current rice export industry.

This volume — 688 containers — is less than 4% of Cambodia’s current exports, so it could be accommodated without straining Cambodia’s infrastructure. Hence, there are no obvious supply-side problems (as there have been with quinoa).

How about the demand side? Is it reasonable to expect that US demand for AwardBest’s ultra-premium “world’s best, harvest fresh” jasmine rice could ever reach 688 containers per year?

In 2013/2014, the USA consumed about 4 million metric tons of rice. About 25% of that was imported, according to the US Department of Agriculture (“USDA;” see Table 2 here, stating that 19.6 “million cwt” were imported in 2013/2014; that’s about 1 million metric tons). In the same report (Page 2, “Domestic Outlook”), the USDA further states that these imports were “almost exclusively aromatic or other specialty rice.”

AwardBest’s 688 containers (at 18 tons per refrigerated container) would hold a combined weight of 12,381 tons. Out of the 4 million tons of rice consumed in the US in 2013/14, that’s just 0.31%. Of the 1 million tons of fragrant rice imported to the USA, AwardBest’s 12,381 tons would make up just 1.2% of the entire “specialty rice” category — again, not unreasonably high, for a patent-protected ultra-premium product.

If AwardBest’s sales double every year, starting with a single container in the first year, then its sales would exceed 688 containers within 10 years (because doubling from 1, ten times, gives annual container sales of 1, 2, 4, 8, 16, 32, 64, 128, 256, 512, and then 1024 — and 1024 is bigger than 688). AwardBest’s price structure includes spending 25% of the retail sales price on advertising, so this growth rate is not beyond the bounds of reason. Alternatively put, by 2023, AwardBest could be earning more revenue — and infinitely more profit — than the entire Cambodian rice export industry earned in 2013. It would not displace Cambodia’s other exporters; it would augment them, doubling the revenues of Cambodia’s rice export industry (and infinitely increasing its profits).

And...that’s just the USA market. Currently, Cambodia ships very little rice to the USA. Most of its rice goes to “Rest Of World.” So, there is ample opportunity to grow AwardBest’s model far beyond the USA-targeted 688 containers discussed above.

However, this is all rampant speculation. The only way to know is to ship some consumer-ready, quick-frozen, ultra-premium jasmine rice to the USA, promote the heck out of it, and see how well it sells.


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