A wholesaler such as M Palazola Produce in Memphis, Tennessee, stands on four pillars: quality, service, pricing, and varied inventory. Without the support of those four factors, the business cannot succeed. The level of success for a distributor focused on foodservice is determined by the weight borne by each of those supports.
“I used to think that service was the key factor to our success,” says Mike Palazola, president and founder of the 28-year-old company. “Recently, however, I have come to believe that quality has to be the major support a business stands on. Customers are demanding, but they will forgive a lot. They will deal with high prices, and they will accept periodic lapses of inventory. Customers will even forgive the occasional late delivery. The one thing they never forgive is poor quality. Trying to pass off low quality produce is a sure bet that results in lost customers.”
If quality is right, service, price, and inventory will take care of themselves, Palazola says. Service has to remain a priority to keep the customers' attention. Pricing is not a big issue, because if prices get too far out of line, customers will look for another supplier. Inventory is almost self-explanatory, he says. Without the proper inventory, no produce business can count on continuing sales.
The business started in 1974, but the Palazola family has roots in produce distribution that reach farther back. Palazola says that his father and grandfather were both peddlers, buying produce at the Memphis terminal market and reselling it to restaurants and independent grocers around the city. The business was mobile, he says. They would buy inventory every morning and sell from the back of their trucks through the day.
Following that family tradition, Palazola started with a single truck in 1974 and added a second vehicle by 1976. “By then, I thought having a fruit stand would be a great idea,” he says. “We set up a retail store, but didn't give up our wholesale operation. That ran out of a back room at the store. As things turned out, a retail fruit stand wasn't the best idea I ever had. We closed the store after five months, but we kept the wholesale business. About the same time, our biggest wholesale competitor closed up with the result that our business almost tripled overnight.”
That wholesale business is still running and will generate about $15 million in 2002. The company operates with 85 employees from a 60,000-sq-ft distribution warehouse. A produce-only distributor, it serves metropolitan Memphis and surrounding communities within a 50-mile radius. In the produce business, it is a direct competitor to large broad line distributors such as Sysco and US Foodservice, serving restaurants, caterers, schools, hospitals, and state institutions (prisons). A fairly new group of customers are the casinos along the river. Palazola also provides fill-in service to small independent retail grocers.
Palazola has a fleet of 22 straight trucks and one tractor-trailer combination. The trucks serve general food service accounts, often on two routes a day. The tractor and trailer serve large customers that need delivery less frequently. For nine months of the year, Monday is school day for the tractor and trailer. Tuesdays and Fridays are reserved for casino delivery, while Wednesdays and Thursdays are jail days.
Converted cross-dock terminal
Palazola bought its facility in 1994 and moved in within a year. The delay was necessary to allow modifications to a building that belonged to Sears. In its original form, it was a cross-dock terminal where Sears broke down incoming loads for distribution to retail stores in surrounding rural areas of Tennessee, Mississippi, and Arkansas. The facility has a rail siding that is still used to receive bulk goods such as potatoes and apples. A conveyor in the floor routed goods from inbound trailers to outbound trucks. “At first, we wanted to use that conveyor, but our coolers covered parts of it so that it has never been practical,” Palazola says.
Modifications include construction of four large coolers with different temperature and humidity zones. The largest of the four houses wet and dry produce in connected rooms at the same temperature. All four coolers are connected so that warehouse traffic can be routed through them one way. In addition, the warehouse has four large rooms and one smaller room used for ripening bananas, tomatoes, and avocados. The company also processes produce. One small area is dedicated to sorting and grading tomatoes by color, size, and quality. A large chilled room with a dedicated staff provides custom cutting of onions, carrots, broccoli, cabbage, romaine, and lettuce. All processing is cut to order on the day of delivery.
Palazola Produce runs 15 routes every morning, six days a week, says Ric Gaia, sales manager. Usually, at lease 12 of those same trucks run a second route in the afternoon. These standing routes do not include the big deliveries to schools and prisons.
With two routes a day, Palazola provides service on an extremely short cycle. Many customers do not place orders until after the restaurant kitchen closes for the night, Gaia says. Most orders in the warehouse by 3 am are delivered before noon the same day. Orders received by noon are processed and delivered by 6 to 7 pm.
Early morning truck loading
The warehouse is nearly always open. A small crew arrives at 10 each evening to begin taking orders off the telephone recorder that operates for the few hours that the phones are unattended. The regular night crew comes on duty between midnight and 1 am, and loading begins around 3 am. Orders are pulled from coolers and staged on the open-air dock prior to loading. Palazola keeps delicate greens in the cooler until immediately before loading. Ideally, nothing should be on the dock for more than 30 minutes before loading in a refrigerated truck.
In general, afternoon routes serve a separate group of customers from the morning routes. If the same customer orders twice on the same day, it is usually the result of forgetting to order something for the morning delivery. Saturday is the only day restaurants intentionally order twice. “Some of our customers don't have a lot of cooler space,” Gaia says. “To make up for that lack of storage, they will order a big stop for Saturday morning. Then they order again for delivery after lunch on Saturday to make sure they have what they need to hold them through Sunday.”
Multiple deliveries to the same customer are expensive, so Palazola works hard to head them off. “We check orders carefully and call customers if we think something has been left out of an order,” Gaia says. “We also explain that the cost of extra deliveries has to be built into our pricing.”
Most deliveries are fairly small, because Palazola sells only produce. The company tries to hold to a $50 minimum order. While large orders, particularly to other wholesalers or the casinos, are fairly common, the average sale hovers around $150 per stop.
Short duration routes
Both morning and afternoon routes are relatively short, lasting four to five hours. The first morning routes hit the street by 5:45, and everything is rolling by 7 am. Afternoon trucks leave as orders are processed and generally finish the route between 6 and 7 pm. Trucks carry an average of 10 stops on repetitive routes that are named for the area of town they serve. “We put our most experienced drivers on the downtown routes, because they know where to park and how to keep from getting trapped in the narrow alleys behind the buildings,” Gaia says.
Palazola operates seven days a week. Sunday deliveries usually go to retail grocery stores. “Our retail delivery during the week normally goes to wholesale grocery warehouses,” Gaia says. “But on Sundays, we deliver directly to the stores, because small operators find it more difficult to get their primary supplier to make special Sunday stops.”
To maintain an inventory for such a fast-paced operation, Palazola Produce takes in 10 to 12 inbound loads a week. “We get it in, but it doesn't stay long,” says John Palazola, general manager, primary buyer, and brother of the founder. “Our green products turn at least twice a week. Except for hardy products like potatoes, onions, or apples, the longest we let anything stay in stock is five days. For instance, we buy mushrooms three times a week. We fly in raspberries three to four times a week unless we have a load of strawberries coming in during raspberry season. If we have a truckload of strawberries coming, we will add 20 boxes of raspberries and 200 boxes of blackberries to the order. Buying that much and that often keeps the inventory readily available. If we don't have what the customers want, it probably is not available anywhere in Memphis.”
Palazola Produce wants to control inbound transportation as carefully as it controls warehousing and distribution. More than 90% of inbound from California moves on Lee Transportation, a truckload carrier that dedicates a significant amount of its capacity to Palazola. Lee moves mostly full loads. Product from other growing regions, Texas or Florida in particular, is sourced from brokers, because Palazola rarely buys a full load from those areas.
Keeping the inventory balanced is a full-time task, John Palazola says. For instance, the failure of the lettuce crop early in 2002 resulted in an extremely pressure-packed two months. “During that time, we were paying high premiums for lettuce when we could find it,” he says. “At the same time, we were buying product that we really didn't need — broccoli, cauliflower, oranges, for instance — to fill inbound trucks and help hold down transportation costs for the lettuce. Even with the best freight rates we could negotiate, we were still unable to sell lettuce at our normal markup during that shortage.”
Inbound goods are not sold until Palazola produce has a firm arrival time for the inbound truck. “We don't pre-sell our inbound product,” John Palazola says. “We have a good history of making the correct buying decisions, and we only buy product that we know we can sell. After all, we serve more than 1,000 restaurants. But we don't start selling produce that is still sitting on a dock in Salinas. When we sell something, we want to be able to pull it from the cooler and deliver it right then.”
Expanding truck fleet
The delivery task falls to the fleet of 22 refrigerated trucks under the care of Bobby Lawson, facilities manager. At present, the fleet is a group of Mack Mid-Liner conventional cab trucks with ages ranging back as far as the 1991 model year. These trucks soon will be joined by three new Mack Freedom Series COEs and three conventional cab Freightliner FL70s. The order for new truck bodies is split between Morgan Corporation and Hercules Manufacturing. The new trucks will use Thermo King MD-II SR units for refrigeration. All but one truck in the fleet have roll-rear doors, because they suffer less damage than hinged doors at delivery stops, Lawson says.
The relatively small trade area served by Palazola Produce results in remarkably low annual miles for trucks. Vehicles average less than 20,000 miles a year, Lawson says. Vehicle age and stop-and-go driving demands a careful maintenance program. The fleet is served by an independent contractor who takes care of inspections and oil changes every four months, regardless of mileage. The mechanic is on call 24 hours a day, seven days a week.
In addition to inspections and oil changes by the company's mechanic, trucks are sent to Tri-State Thermo King in Memphis twice a year, March and October, for a complete refrigeration check and service. In addition, units get a thorough inspection in July as the hot weather sets in.
Units run with a 35°F thermostat set point to try to maintain a temperature compatible with all the products Palazola Produce sells. The one exception to this rule is bananas, which need a temperature of 56° to 58°F for best storage and delivery. The solution at Palazola is to stretch wrap banana boxes before loading to prevent cool air from circulating through the fruit. When the weather is especially cold, bananas are loaded in the truck cab to take advantage of the truck heater for proper temperature control. Although Palazola handles a lot of bananas, they do not sell in large quantities to most foodservice customers. “Five boxes of bananas in a whole load is a lot for an average foodservice route,” says John Nemnich, Palazola's banana and tomato buyer.