Ritthaler may claim that he's not competing directly with Terra chips, noting that yuca chips make up only a small proportion of the colorful vegetable chips in the Terra bag. (The others are made from taro, parsnip, sweet potato, batata, and ruby taro, which is taro that has been dyed red with beet juice.) And it could be that Terra's success with regal retail price tags--the chips sell for as high as $4.79--will make it easier for Tropic's. Terra has done the groundbreaking work of establishing the premium-chip category. Generally priced at a dollar or two below the competition, Tropic's chips could look like a bargain.
But Tropic's will most certainly come face-to-face with Frito-Lay in vending, where space is just as tight as on supermarket shelves. Although vending operators are always looking for new products to enliven their displays and entice customers, they're more interested in counting profits. Margins and turns are what they're after. Frito-Lay's nationally branded products deliver for them, and rebate and incentive programs make them think twice about replacing a Frito-Lay bag with something else. A gourmet, premium-priced yuca chip probably won't be a slam dunk in vending, where research shows that the typical customer generally tries to buy the most product for the smallest number of coins.
Through the fall of 1998, as Ritz awaited its first major yuca crop to mature and be processed, the company kept its marketing efforts fairly low-profile. There'd been no point-of-purchase advertising--no mention of the health benefits, no pushing the taste advantage. Marketing director Robert Anderson and a second employee handled trade-show appearances, took out ads in magazines like The Gourmet Retailer, sent out sample shipments, and made preliminary sales calls. Anderson is an energetic 63-year-old. Ritthaler hired him because of his experience marketing a wide range of small, start-up products--everything from fresh pasta and a high-end frozen fruit bar to cocktail-table coin-operated video games. But with his yuca crops finally maturing in the fields, Ritthaler confides that he's about to add three more employees to the marketing force--the better to follow up on preliminary contacts with restaurants, food-service vendors, and a major airline.
The numbers
Ritthaler has run through more than $5 million since he bought that first acreage. While he does have some outside financing, he has ponied up the lion's share in both debt and equity financing. He projects first-year sales of $10 million, about a quarter of that destined for markets outside the United States. According to Anderson, the company made shipments to Puerto Rico, Brazil, and Aruba last year, and there's interest from customers in Japan and Russia. Ritthaler projects that he'll have a marketing budget of about 20% of 1999's sales, which he expects to finance out of profits and a second insurance check from the fire. If necessary, he says, he'll seek bank loans in the United States.
Even though Anderson includes supermarket leads and restaurant contacts in his plan of action, 1999 projections pin 85% of U.S. revenues on sales to gourmet shops and natural-foods stores. Both would seem good markets for a more healthful, premium product, with a suggested retail price of $2.98 for a 7-ounce bag. Though that's about twice the price of standard potato chips, it's considerably less than that of some gourmet chips: some brands cost more than $4, or even $5, a bag. In the beginning, Ritthaler considered a retail target of $3.79 a bag, "just below the best premium bag out there." Then he reconsidered. "I think you limit yourself at that price. Over the $3 limit you hit a bit of a barrier with consumers. I'd rather sell six bags at $2.98 than two at $3.79."
While Ritthaler has yet to draw a salary for himself, he does hope to start paying down the company's debt, most of which he's personally financed. The plan early on is to plow earnings back into the company to grow the business. "We were never expecting a quick return," says Bill McKee, who reported to Ritthaler at Gulf & Western and has worked with him ever since, a total of 20 years. McKee is a nonactive investment partner in the yuca business but a very active co-owner with Ritthaler in his other businesses. "He's not afraid of taking risks, but they're not stupid risks," says McKee. "The margins are there, and the apparatus is set up after a long and difficult time."
After years of stirring the yuca pot while concentrating on his other businesses, Ritthaler is now devoting about 90% of his time to Tropic's. His exit strategy is neither near-term nor clear, beyond the idea that by age 75 or so he imagines he'll step back from day-to-day involvement and shift to chairman-of-the-board status. He's already got the acreage, he says, to grow sales to $100 million. And while he'd certainly entertain buyout offers, Ritthaler says it's more likely that he'd consider acquiring some small companies in the United States that fit with Ritz's product.
As for that initial sales projection of $10 million, Ritthaler chuckles and admits he's pretty much translating harvest into production into sales. "I'm kind of like that movie where they build a baseball diamond in the cornfield. If you build it, they'll come," he offers. One way or another, Ritthaler says, he'll sell what he grows.
To make good on that promise, some of the yuca might even find its way into a second product currently under development, a thin, crisp bread called casabe. Popular in South America, casabe would offer a healthful option for those with wheat allergies and might, as a unique product, help open the door for Tropic's yuca chips in natural-foods stores. Ritz might even branch into bird feed, as yet another way to tap more deeply into yuca: looking for a way to salvage a batch of substandard-quality chips (which was attempted with an El NiÑo-damaged crop), Anderson suggested crumbling them. The birds loved the seedless feed.
Despite the hurdles--past, present, and future --investing partner McKee remains a believer. "When Jerry gets involved in something he makes it work, no matter what," says McKee, adding that he believes Ritthaler's run at yuca is at least partly about "adventure and challenge."
