Phoenix OrganicValuing Sustainability While Desiring Growth1Eva Collins and Steve BowdenWaikato School of Management, New ZealandKate KearinsAuckland University of Technology, New ZealandI believe that there are some significant issues related to sustainabilityfor businesses that get beyond a certain point.Chris Morrison, Managing DirectorFor business school students wanting to do business differently, Phoenix Organicshould be an inspiration. Start by collecting empty beer bottles after a night at thepub(s), wash off the labels and cigarette butts, and refill them with potent home brew.Sell them at a profit to a cult market and, 17 years later in 2004, lean back and enjoy thefruits of a $NZ6.5 million business. You don't even have to finish your degree.All of the above is correct but it wasn't that simple. The reality was that the foundersof Auckland-based Phoenix Organic made a series of strategic decisions that, coupledwith some good luck and more hard work, allowed them to claim a niche in NewZealand's beverage industry. And they did it while maintaining their vision to create abusiness that was good for the planet and good for the health of its people.1 Copyright 2005 by the Authors. All rights reserved.oikos5.qxd 29/8/07 15:23 Page 52Copyright 2007. Routledge.All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law.EBSCO Publishing : eBook Academic Collection (EBSCOhost) - printed on 5/5/2022 2:17 PM via SENECA COLLEGEAN: 774525 ; Jost Hamschmidt.; Case Studies in Sustainability Management and Strategy : The Oikos CollectionAccount: s5037957.main.ehost Case 2 phoenix organic 53How It All Started"It was all very subsistence. We literally just were hanging in there and I worked nightsdoing dishes in a restaurant, and we were definitely hand-to-mouth," rememberedRoger Harris, Director of Sales and Marketing and also one of Phoenix's founders.Phoenix relied on government business development money and personal scrimping toget the company going in those early days.Harris met Managing Director, Chris Morrison, and partner Deborah Cairns in1987all part of a circle of people involved in organic urban gardening. Morrison andCairns had started a small business making naturally fermented ginger fizz in theirAuckland flat. "We used to go around the pubs and pick up the old Steinlager bottlesand take them home and soak them in our bath to get the cigarette butts out and allthat filthy stuff," Morrison remembered. A friendly restaurant owner let them sterilisethe bottles, which they then took back and refilled with ginger fizz using a jug and fun-nel. "All very primitive," Morrison admitted, but a product whose natural propertiesthey all felt attuned to.Morrison and Cairns made ginger fizz for about a year. The business started to grow,taking over more of the couple's time. Cairns dropped out of the course she was takingand the couple had the first of four children. All was well, if hectic and slightly chaotic,when Morrison met Harris. "He had a similar vision to usto make a healthy alterna-tive to the drinks out there, one with a premium edge," Morrison said. Harris tells itslightly differently. "I think they saw me as the big mouth that wouldn't shut up . . . thatcould be quite useful out there in the trade, selling," he said.Harris had his work cut out for him. Ginger fizz was developing a strong following,but was a challenge to market and sell to cafs. "I was out there growing distribution,but the product was not ideal. One of the problems was that it really needed to betreated as a very volatile, fresh product, but the perception was that it was just anothersoft drink." He had to explain to puzzled caf owners that the ginger fizz had to be han-dled gently and refrigeratedor it would blow up! The ginger fizz had a kick that couldbe downright dangerous. In hot weather it could explode and ricochet around the oldvan that Harris used for deliveries. Once a crate took off like a rocket and smashedagainst the roof of the van. Harris decided the business needed to upgrade. "I thought,there's got to be a better way, we can't keep doing this, it's going to kill me," Harris said.From a Flat to a FirmPhoenix began as a part-time partnershipalmost a hobby for the three founders. "Wehad lived it quite fluid and loose and I think that was a good idea because you just don'tknow what is going to happen," Harris said. But moving to a professional businessrequired the trio to make some very strategic decisions about what they wanted toachieve.Harris believed there was one key decision that saw Phoenix grow from a little-known bathtub brew to an internationally recognised brand: pasteurisation. "That wasoikos5.qxd 29/8/07 15:23 Page 53EBSCOhost - printed on 5/5/2022 2:17 PM via SENECA COLLEGE. All use subject to https://www.ebsco.com/terms-of-use a significant quantum leap for us, the day we learnt finally how to pasteurise," he said.With that technological leap, a whole range of new opportunities opened up, includingthe chance to modify its only product, its flagship ginger fizz. The three realised thatthere were a number of negatives with the brandnot the least of which was its ten-dency to explode."I could see at that point that we needed to re-brand and we needed to exit from gin-ger fizz for a number of reasons. It was a real enthusiast product and it had a lot of cultaround it, but it needed to change, it needed to reflect what we now knew about themarket and where we wanted to head. So we made that change," Harris said.Morrison agreed that the technological advance of pasteurisation changed the com-pany dramatically. "It expanded our range," he said, which meant moving into newpremises and hiring more staff. Since its bathtub beginnings, the company had movedthree times, most recently to a two-acre property with custom-built premises andplenty of room for expansion.Making a Range of DrinksThe process for making drinks was pretty simple. First, ingredients were inspected andtested to ensure they were of the required standard before being blended each eveningfor the following day's production. Usually two drinks in the same bottle format werepreparedtwo organic juices, or two sparkling waters, for example. More qualityassurance tests were carried out prior to bottling. Phoenix had two fillersone for juiceproducts and one for carbonated products, each operating at around 100 bottles perminute. Once filled, bottles were sealed with aluminium caps applied in a three-headroll-on capper, and passed through a spray tunnel pasteuriser to ensure the drinks werefree of micro-organisms. Bottles were then labeled and boxed before being sent to theonsite warehouse awaiting delivery to point of sale. With a shelf-life of twelve months,drinks were produced to order and distributed within three weeks. Waste and recallswere minimal.The product range had expanded from the early ginger fizz. First to be added waslemonade and cola in 1990, both with honey as the sweetener. Then came a range ofsparkling fruit-flavoured waters, including the unusual feijoaseldom found outsideNew Zealand. Later came sparkling mineral water, vegetable juice and Chai tea (seeExhibit 2.1 for a complete list of Phoenix products). In 2004, the company was consid-ering adding a liquid chocolate that cafs could use to make hot chocolate. Phoenixproduced five to six million bottles of drinks each year. Ginger beer (without the explo-sive fizz) was still one of its leading products, at around 7% of sales. Very close behindwere orange mango, apple and feijoa juice. Organic juices were increasing in popular-ity, 30-50% annually. Sparkling feijoa water was also popular.54 case studies in sustainability management and strategy: the oikos collectionoikos5.qxd 29/8/07 15:23 Page 54EBSCOhost - printed on 5/5/2022 2:17 PM via SENECA COLLEGE. All use subject to https://www.ebsco.com/terms-of-use Case 2 phoenix organic 55Exhibit 2.1 Phoenix Organic Productsoikos5.qxd 29/8/07 15:23 Page 55EBSCOhost - printed on 5/5/2022 2:17 PM via SENECA COLLEGE. All use subject to https://www.ebsco.com/terms-of-use Filling the NicheThe company's founders wanted Phoenix to be something new, something different."We knew at the beginning that we wanted to break the monotony, the sameness andthe oligopoly of the brand in those days. Seventeen years ago it was Coke and Frucorand if you wanted anything else, you were looking at the wrong country," Harris said.Phoenix intentionally targeted the developing caf culture. Coca-Cola had domi-nated for years. But Harris argued that while Coca-Cola made plenty of money, it alsoleft a gap in the market. "There was a whole trade that was emerging called the caftrade and it needed products that were packaged, that had the point of difference, thatreflected the premium, that could command those margins, that could carry the retailvalue," he said. Phoenix tried to tap into that new market by developing what cafsneeded and wanted.Early on, Phoenix spotted that cafs needed to distinguish themselves in ways thatwould justify charging $NZ3-$NZ4 for a drink. Harris said that Coca-Cola's approachhad been to go in and offer caf owners the standard "big red box" (the fridge that dis-tributors supply with their products) and the usual beverage suspects. But the Coca-Cola brand, which was so powerful in many ways, was a handicap here. "Coke wasgoing to, just by the presence of their branding alone, to say something to the audienceabout what the product was. It says, 'lunchbar, lunchbar, lunchbar'. And that turns offbig chunks of their audience."According to Harris, caf owners knew that they did not have many realistic choices.Phoenix, small and smart enough to be flexible and innovative, attempted to fill thatniche. Its success was demonstrated by its presence in some 2,000 cafs in NewZealand, a market penetration of close to 70%.Harris would go to cafs and say, "I know you have needs over and above what I canmeet. So what I'll get you is a fridge where we'll design the product layout, and we'llput Coke in there. We'll put water in there; we'll put fresh orange juice in there. All wewant is an agreement with you that gives us enough of the fridge to get the volume weneed to pay for the fridge and make this a profitable business." In return, Phoenix gotto occupy prime fridge real estate. "We own eye level, we own down to your navel, andthey can have the rest," Harris commented.The Ties That BindAsk Chris Morrison why he thinks Phoenix has been so successful and he will cite therelationships Phoenix had built up with suppliers and customers. "We've built uprespect and trust with our market and those things don't happen overnight. We're nota flash in the pan, we've done the hard yards, and we've built it up with no money. Ithink that's why we've been successful and why we're in quite a strong position nowbecause we've paid our dues, and really been fairly modest about it. And made sure thatwe have good relationships with people, not only customers, but our suppliers, and thewhole spectrum of people we deal with in the company."56 case studies in sustainability management and strategy: the oikos collectionoikos5.qxd 29/8/07 15:23 Page 56EBSCOhost - printed on 5/5/2022 2:17 PM via SENECA COLLEGE. All use subject to https://www.ebsco.com/terms-of-use Even though it had grown into a multi-million-dollar company, Phoenix still had astrong "family business" flavour to it. Morrison preferred to deal with small companiesthat could buy into "the Phoenix way of doing things." And, in return, he said, "Wereally cement the relationship, people feel like they are being looked after by us, it'svery much a personal approach."The emphasis on strong relationships extended to the company's 25 staff (See Exhibit2.2 for Phoenix's organisation chart). The company prides itself on upskilling staff, lis-tening to their needs and being responsive. Having staff that were relatively happy attheir work meant that productivity went up and turnover went down. "That's a hugebenefit to the company, and so I think it's very important to put a lot of energy in thatarea", Morrison said. "We are very fortunate to have great staff at Phoenix and we tryvery hard to look after everyone."Morrison also realised that some jobs were repetitive and of limited scope by theirvery nature. "It's damn hard for people to come to work every day and work on a pro-duction line and load bottles eight hours a day . . . that can be pretty tough," he said.So, social activities outside work were seen as important too. At the end of each sum-mer (the company's busy period) staff went away for an all-expenses-paid long week-end within New Zealand. In 2003 they went to Great Barrier Island. In the winter theywent skiing in Queenstown for four days, with the company paying 50% of the costs.Morrison said these events had been a great success.Riding the Organic WaveHarris saw Phoenix benefiting from a growing global public awareness of food safetyissues such as mad cow disease. "The owners of the supermarkets in New Zealand sud-denly lit up one day and said, 'hey, what are organics?' " Harris said. Suddenly, super-market buyers were being told to start taking organics seriously. "It was just unprece-dented," Harris recalled.Case 2 phoenix organic 57Exhibit 2.2 Phoenix Organic Management and Board StructureThe Board comprised founders Chris Morrison, Deborah Cairns and Roger Harristogether with Independent Directors Rachel Brown and John Heapoikos5.qxd 29/8/07 15:23 Page 57EBSCOhost - printed on 5/5/2022 2:17 PM via SENECA COLLEGE. All use subject to https://www.ebsco.com/terms-of-use For business school students wanting to do business differently, Phoenix Organic should be aninspiration. Start by collecting empty beer bottles after a night at the pub(s), wash off the labelsand cigarette butts, and refill them with potent home brew. Sell them at a profit to a cult marketand, 17 years later in 2004, lean back and enjoy the fruits of a $NZ6.5 million business. Youdon't even have to finish your degree. All of the above is correct but it wasn't that simple. Thereality was that the founders of Auckland-based Phoenix Organic made a series of strategicdecisions that, coupled with some good luck and more hard work, allowed them to claim a nichein New Zealand's beverage industry. And they did it while maintaining their vision to create abusiness that was good for the planet and good for the health of its people.Case Study PDF Available for download in the Assignment section under Case Study #1Questions1. What is the most appropriate image of change for this leader? (10 marks) [250 words max]2. What kind of change was the leader embarking on? (10 marks) [250 words max]3. In the years since the case study, do the goals and needs of the company need to change inorder to fit the modern environment? If so, how? If not, why not? [250 words max]