In early 2013, just one month after launching his company, Paul Gill, founder of Naked Coconuts, was met with customer feedback that told him the organic food products he sold looked appetizing, but the plastic packaging they came in had to go.
THE CHALLENGE
Paul Gill, founder of Naked Coconuts products, listens to his customers -- even when it costs him thousands of dollars.
In early 2013, just one month after launching his company, Mr. Gill was met with customer feedback that told him the organic food products he sold looked appetizing, but the plastic packaging they came in had to go.
"We started out in plastic containers as they are cheaper to buy, easier to package, and less damaged in shipping," he explains. "But our customer demographic is totally against plastic, so we had to figure out an alternative."
Naked Coconuts was already in production mode. The plastic containers, their labels and the seals were ordered and ready to go. "We even had stock on the shelves," says Mr. Gill.
But the customers had spoken.
"It was a nightmare to make that change, but we had to do it," he says.
THE BACKGROUND
Years before the launch of his Naked Coconuts idea, Mr. Gill had almost completely stopped his visits to the grocery store.
"I stopped grocery shopping because I couldn't trust what I was buying," he says. "I have close family members with very severe food allergies and despite labels, even in the organic section, I felt I couldn't trust the product to contain only the ingredients listed."
So after graduating with a bachelor of commerce from the Sauder School of Business in 2011, Mr. Gill started to kick around business ideas and decided to tackle the natural food industry.
"One idea that really jumped out at me was soy-free soy sauce," he says. "I called the brainstorming session off right there and went to start my search."
The Naked Coconuts founder developed a soy-free seasoning made from fermented coconut sap (without a coconut taste). This product acted as a jumping off point, and eventually led to other Naked Coconuts products like its low-glycemic, low-fructose sweetener, called Coconut Nectar.
Mr. Gill spent most of 2012 developing his business model of honest, quality coconut products while learning the ins and outs of running his own business. By March 2013, Naked Coconuts was ready to launch–just in time for the Canadian Health Food Association conference in Vancouver.
It was at the conference that Mr. Gill received the feedback about his plastic packaging and decided that he had to make a quick change, even if it hurt his bottom line.
THE SOLUTION
And so Naked Coconuts switched to glass containers. The total cost of the switch neared $25,000, which gobbled up a huge portion of the company's start-up capital.
But it was deemed a necessary change and so Mr. Gill and his team set out to find new suppliers. "It was something that kept coming up and we took that to heart," he says. "And it was really well received on the front end, but on the back end it was the start of my nightmare."
It meant starting their packaging production from scratch. "We had to find the glass provider, find the lid, find the label, the seal, and then make sure we could fill it."
The next year was full of happier customers, but also higher costs and broken glass.
"The cost of glass adds about 25 to 40 per cent to our costs and our pricing wasn't set up for that, so it was tight, especially in the beginning," says Mr. Gill.
"We also had a lot more breakage, which attacks our bottom line. Not to mention the fact that the product is heavier now so our shipping costs have gone up, and this means our pricing for distributors has increased."
But the company was small and nimble enough to make the transition quick -- even if it wasn't painless -- and the new product hit shelves in August 2013.
THE RESULT
Looking at the laundry list of negative implications, it's hard to believe there could ever be an upside to making this shift, but Mr. Gill says that, despite the hardship Naked Coconuts has gone through in the last two years, it was all worth it.
"We consistently get distribution because we do the right thing by being in glass," he explains, adding that he knows that certain distributors wouldn't look twice at his product if he hadn't made the change.
He estimates that his company would experience a 30 to 50 per cent deduction in sales had Naked Coconuts stuck with plastic -- which works out to about $1-million a year -- "so it opens up doors to retailers that we wouldn't have had access to with the original product."
"As hard as it was, I was so happy that I was doing it," says Mr. Gill. "It really is the perfect example to show consumers and everyone that yes, our voices do matter, that yes, collectively we can force the changes we want to see."
Jeff Kroeker is a lecturer in the accounting division at the Sauder School of Business at the University of British Columbia.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Report on Small Business website.
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