Solution
A guacamole processor worked with Stable to protect themselves against price volatility in avocados - a high-value, but extremely seasonal ingredient for their flagship brand.
Avocado is the key ingredient for the guacamole produced by the member.
As a major spend, it’s always been on their Treasury’s radar, but before they joined the Club there was no easy way to manage exposure to avocado price volatility other than locking in long-term contracts with suppliers, which incurred credit risk - if it was possible at all.
Avocado prices are highly seasonal and extremely volatile. Last June, for example, prices rose from $27 per carton to $64.25 per carton in less than three weeks!
The member needed a way to manage this risk simply and effectively.
Pork trim is a key ingredient for many of the menu items sold by Stable’s quick service restaurant (QSR) client. But pork trim price volatility was 64% over the past year, making it difficult to forecast prices and complicated to set budgets and plan for the future.
Stable’s Club technology platform gave the member the ability to view prices for a number of avocado varieties and origins. They selected the benchmark that matched their exposures and then stress tested their budgets and forecasts against this benchmark - in this case an avocado price published by USDA. They used the Club’s specialized, easy-to-use tools for scenario analysis and selected the protection levels to safeguard their budgets. The Club then calculated the premium required to protect the risk.
To manage the protection in line with their purchasing patterns, they were able to fund their Club account on an automated, monthly basis, rather than having to pay the premium up-front.
Premiums paid into the Club account earned interest while in the account. At the end of the contract, the avocado price had increased and the settlement amount was calculated and sent automatically to the client, without the need for a lengthy claims process.
Stable’s solution gave the client a tax efficient buffer against volatility in the cost of avocados, giving them peace of mind so they could focus on their business.
Stable’s Club helped another member manage exposure to volatile avocado prices with an innovative and targeted solution that zeroed in on their precise exposure.
Stable’s sophisticated data-science platform allowed the client to identify, track and assess their risks.
Stable’s protection contract was linked to a third party, independently published benchmark price selected by the client.
The member was able to choose protection levels which made sense for their business.
When avocado prices rose, the settlement was calculated automatically and paid quickly. If the avocado price had fallen, the member would have been able to keep all of the premium they paid into the Club, less Club fees.
Premium may be expensed if you simply add it to the cost of your inventory.
Premiums were held in a segregated account for peace of mind.
Club fees were 100% transparent, and the Club was fully aligned with the member’s success.
