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HBR CASE STUDY

The Mission Versus
The Bottom Line
Should an organic lettuce farm close a distribution
center that is reaching customers but losing
money? by William A. Sahlman and Alison Berkley
Wagonfeld

For the exclusive use of J. Li, 2022.

This document is authorized for use only by Jia ye Li in ENT 489 Spring 2022 taught by Amrita Lahiri, Washington State University from Jan 2022 to Jun 2022.

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EXPERIENCE

Pottsville, Pennsylvania, is not known for its lovely winters,” Wayne Mo-riarty said as he pulled his car into
a space in the lot outside the East Coast
distribution center of Baldwin Farms.

Gretchen Cussler, the company’s COO,
looked up at the massive snowbank next
to the car.

“So what exactly is it known for?” she
teased.

She knew that Wayne had moved up
from North Carolina to manage the facility.
Pottsville wasn’t a bad place to live, but it
wasn’t home for either of them. She’d ar-
rived in Pittsburgh that morning on a flight
from Sacramento, where Baldwin Farms
had its headquarters. Now she was wrapped
in a parka she used only for skiing trips.
Even so, she shivered as she and Wayne
walked to the warehouse’s front door.

Inside, workers were readying pallets
of organic bagged lettuce for delivery. She
was happy to see the place looking so busy.
The East Coast distribution center, or ECDC,
had been weighing on her mind lately. Troy
and Shawn, the brothers who had started
Baldwin Farms in 1993 and now served

as co-CEOs, wanted to further penetrate
the East Coast organics market and, with
Gretchen’s guidance, had opened the
facility two years ago. One of their primary
goals was to help regional customers
avoid stock-outs of the company’s most
successful product: organic prewashed
lettuce. Typically, after East Coast retailers
placed an order, it took 10 to 15 days for the
lettuce to make its way from California to
their stores. The time lag made accurate
forecasting tricky for customers. Most
wouldn’t realize they needed to restock
until about five days before they ran out of
product. But they ended up leaving their
shelves empty because they wanted to
avoid overordering and having to throw
lettuce out.

Baldwin stored enough lettuce at the
ECDC that customers could place small
orders and keep their shelves full while
waiting for large orders to arrive from
California. For a premium, the customers
could even get next-day delivery from the
ECDC, instead of sending their own trucks
to pick up the lettuce, as they typically did
with their West Coast orders.

the Mission
Versus the
Bottom Line

Should an organic lettuce farm close a
distribution center that is reaching customers
but losing money? by William A. Sahlman and
Alison Berkley Wagonfeld

HBr’s fictional case studies present
dilemmas faced by real leaders and

offer solutions from experts. this one is
based on the HBs Case study “earthbound
Farm” (case no. 807061), by William a.
sahlman and alison Berkley Wagonfeld.
It is available at hbr.org.

Case Study

2 Harvard Business review October 2011

For the exclusive use of J. Li, 2022.

This document is authorized for use only by Jia ye Li in ENT 489 Spring 2022 taught by Amrita Lahiri, Washington State University from Jan 2022 to Jun 2022.

But the ECDC was not meeting its
original performance targets. In fact, it was
losing money. The previous year it had
operated at a loss of $1.7 million. Gretchen’s
team had predicted that the operating costs
would be offset by increased sales volume,
but it seemed that customers weren’t
ordering more. Instead they were reducing
their orders from the West Coast by the
amount they ordered from the ECDC. And
because the ECDC orders tended to be
small, Baldwin Farms’ trucks were often
going out from Pottsville half empty.

Wayne walked Gretchen around,
showing her some of the updates to the
refrigeration system.

“Are the brothers still talking about
closing us down?” he asked, trying to seem
nonchalant. Still, Gretchen could see that
he was nervous. He had agreed to work for
the Baldwin brothers because he believed
in the organic label and knew how big the
opportunity was on the East Coast. But
his reputation in the small world of food
distributors was on the line. He didn’t want
to be linked to a failed venture any more
than she did.

“It’s been discussed, but I don’t think
either of them is there yet,” she said.

“We just need more time. Two years
is not long enough to change customers’
buying behavior. You know that.”

Gretchen nodded.
“And we’re still working out the kinks

operationally,” he said. Transportation was
a particular sore spot; between half-full
trucks and the dedicated trips they had to
make to more-remote customers, the fuel
costs were killing the ECDC.

“Shawn and Troy should come out, do
some deliveries, talk with some of our
customers,” Wayne suggested. “They’ll see
what’s not reflected on the balance sheet—
that we’re building strong relationships.”

“They’re already spending way too
much time on this. Shawn especially,” she
said. This was what bothered Gretchen
most. The ECDC represented less than 5%
of the company’s $600 million in sales the
previous year. She understood that it was
an investment that needed tending, but

it was distracting the brothers from more
important things.

“You should at least talk with Kurt at
Better Food. He’s caught wind that we’re
having trouble,” Wayne said.

“I’ve been playing phone tag with him
all week,” Gretchen said. Better Food was
one of their largest East Coast customers.
Kurt Conway, the grocery chain’s produce
buyer, had been a main proponent of the
ECDC and lobbied the brothers heavily
on the benefits it would bring both the
customers and Baldwin Farms.

“If we don’t figure out how to help our
East Coast customers, they’re going to
turn to our competitors, whether they’re
organic or not,” Wayne said. He had a point.
Although Baldwin Farms’ market share
was larger than 50% in the organic lettuce
category, the company couldn’t afford to
cede any shelf space. Once a retailer like
Better Food turned to another, more avail-
able brand, it would be nearly impossible

to get the business back. And because
Baldwin Farms wanted to introduce new
organic products, such as sliced apples,
to its East Coast customers, it needed to
maintain a strong reputation for helping
stores keep their shelves stocked.

“I’ll give Kurt a call from the airport,”
Gretchen promised.

A New Direction
Back in California, Gretchen looked out
on the fields. It had been a good growing
season, the first in a while. The company
was hoping to make $750 million in sales
this year, a target that seemed doable.
But it needed to get costs under control.
Gretchen watched the field workers and
thought about how many people relied
on Baldwin Farms. If she allowed profit
margins to slip, a lot of people could lose
their jobs.

Shawn Baldwin knocked lightly on the
door. “What are you daydreaming about?”
he asked.

Gretchen turned around. She hadn’t
seen Shawn since she’d left for Pennsylva-
nia. He asked how Wayne was doing.

“OK. He’s nervous we’re going to pull
the plug. He wants more time to prove the
ECDC’s worth.”

“We know it’s valuable. It’s just not mak-
ing money,” Shawn said. “I was thinking
over the weekend that we may need to
take it in a new direction. Even with Wayne
at the helm, we’re struggling with the logis-
tics. We should look into partnering with
someone who’s better at that stuff.”

“That’s not a new direction,” Gretchen
said. The first iteration of the ECDC had
involved a partnership with a wholesaler
in Connecticut. The company had let
Baldwin Farms piggyback on its refriger-
ated space, tracking systems, and truck-
ing network. But the two companies

had mismatched inventory systems and
approaches to customer service.

“But we’d do it differently this time.
What happened to the conversations with
WholeCo?” Shawn asked. WholeCo was a
large grocery packager and distributor in
New Jersey that was known for its massive
truck fleet and logistics expertise.

“I’m still in touch with them, but you
know they run a very different company
than we do,” Gretchen said.

Shawn and Troy had started Baldwin
Farms 18 years ago by growing their own
lettuce and selling it out of their pickup
truck. Organic food was a niche market
back then, but it did well in the San Fran-
cisco area and soon started catching on else-
where. Now it was a huge growth market.

“But that’s OK,” Shawn said. “We know
lettuce and growing. They know transpor-
tation and logistics.”

“If we don’t figure out how to help our east
Coast customers, they’re going to turn to our
competitors, whether they’re organic or not.”

October 2011 Harvard Business review 3

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This document is authorized for use only by Jia ye Li in ENT 489 Spring 2022 taught by Amrita Lahiri, Washington State University from Jan 2022 to Jun 2022.

“But a partnership raises our risks of
contamination and spoilage. That’s one of
the reasons we opened the ECDC: control.
We wanted fewer hands on our product,”
Gretchen reminded him.

“We could handle those risks. Besides,
we’ve learned from our mistakes. Whole Co
could work,” Shawn said.

“You know your brother will disagree,”
Gretchen countered.

“He always does,” Shawn replied.

Shut It Down
Gretchen sat down on the leather couch in
Shawn and Troy’s office. The brothers had
shared a workspace since the beginning.
In the early years, it was because they had
to—back then, the entire headquarters was
not even 300 square feet. But now it was
more out of habit.

“Shawn already told me about the
Whole Co idea,” Troy said, cutting to the
chase. He was less patient than his brother,
although both often acted in haste. “I
think it’s time to cut our losses. The ECDC
just didn’t catch on like we thought it
would.”

“Gretchen’s done the analysis,” Shawn
said, jumping in. “We’ll recoup only 25%
of our initial investment if we close it now.
That’s assuming we can get out of the five-
year lease we signed.”

Gretchen nodded. “Plus we’ll annoy all
of our customers who are using the ECDC,”
she said. “I talked to Kurt Conway on my
trip back. He made a good case for keeping
it open. He says Better Food is still figuring
out their forecasting and that growth is
making it hard to predict demand, which is
why they’re placing only small orders now.

But that will change—not the least because
we have our sales guys out there telling
them how to make the most of the ECDC.
And when demand picks up, we need to
still be there. Wayne says he’s heard the
same from other customers.”

Troy shook his head. “But can Kurt or
Wayne or anyone else tell us when that’s
going to happen? How long are we going to
devote so much energy to a facility that’s
hemorrhaging money?”

Shawn laughed at his brother’s propen-
sity to exaggerate. “We got into this busi-
ness to bring organic to as many people as
possible. As long as we can break even, the
investment is worth it.”

Gretchen knew this was a point on
which they all agreed. Although a profit-
able distribution center would be ideal, the
brothers just wanted to keep their custom-
ers happy and get more organic product
out there. Still, the ECDC wasn’t close to
breaking even.

“I’m just not sure this model is working,”
Troy said.

Both brothers turned to Gretchen. She
was used to playing referee and typically
enjoyed it.

“What do you say?” Troy asked. “Do you
have an answer for us?”

“Not right now,” Gretchen said.
“So when can you give us one?” they

asked, nearly in unison.
She knew the reply they wanted: “I’ll

have a proposal to you by tomorrow
morning.”

The Baldwins liked to move quickly,
even on big decisions.

Time to Decide
On her way home that evening, Gretchen
replayed the meeting in her head. She
was used to helping Shawn and Troy sort

“How long are we going
to devote so much
energy to a facility
that’s hemorrhaging
money?”

EXPERIENCE

Harvard
Business
Review

Famous
First
Words

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Q
should Baldwin
Farms close the
Pottsville facility
or reinvent it?

William A. Sahlman is a professor of
business administration and the senior

associate dean for external relations at Harvard
Business school. Alison Berkley Wagonfeld is
the executive director of the Harvard Business
school California research Center.

out their differences, but this time she
was stuck. In Pottsville, Wayne had been
persuasive. He explained that the ECDC
was putting them in close contact with
customers and that could only be good in
the long run. Kurt had driven that point
home. Still, logistics were not the com-
pany’s strength.

As she turned onto Route 88, she won-
dered if the company had moved too fast
with the ECDC. She loved the entrepre-
neurial pace the brothers set at Baldwin
Farms—it was one of the reasons she’d
taken her job—but sometimes it resulted in
rash decisions. Between low gross margins,
overhead, and fuel expenses, the center
was unlikely to be profitable anytime soon.

Gretchen drove by a sign for another
new organic farm, which had opened in
the past month, and was reminded of an
idea that had come up in her discussions
with Wayne. They’d talked about making
the center a hub for other organic growers
in California. By helping them reach the
big East Coast retailers too, the company
could fill its trucks and get more organic
food to more people. But developing a hub
like that could take years. She wasn’t sure
Shawn and Troy could be patient enough.

After putting her kids to bed that night,
Gretchen turned on her computer and
started a new e-mail. She addressed it to
Shawn and Troy and wrote “ECDC” in
the subject line. If she knew the Baldwin
brothers at all, they’d be checking for her
answer tonight.

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Business
Not As
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