Expanding Markets: Quality Drives Rapid Growth of The Arctic Group

Packaged ice distributors typically run more trucks in summer, their peak season, than any other time of year. From May to September, they stay busy. The rest of the year, they concentrate on day-to-day sales and equipment maintenance.

Having just completed its peak season operating more than 350 delivery trucks, The Arctic Group Inc, one of the largest packaged ice distributors in North America, won't use as many trucks this winter. However, the company will continue its intense focus on providing quality service in greatly expanded markets.

"We run far more trucks in summer, when demand is highest," says Bob Nagy, president of The Arctic Group, based in Winnipeg, Manitoba, Canada. "Sixty percent of our business is done during the summer months. But we really stay busy all year."

In Canada alone, the company runs 350 refrigerated trucks from May to September, compared to 200 reefers the rest of the year. Most company trucks in Canada are Kenworth T300s, leased or rented from PacLease, including the additional 150 short-term rental trucks used in summer. The Arctic Group also has delivery fleets in 10 midwestern states in the United States. Many of the trucks run at these locations are existing fleet vehicles acquired by The Arctic Group.

The Arctic Group's tremendous growth over the past three years has been driven by dozens of acquisitions. Sales for 2000 are projected to be $85 million, compared to only $5 million in 1997. Three years ago, The Arctic Group operated from three production plants in western Canada. Today, it operates in all four western provinces, plus Ontario and Quebec, and in the US.

Incorporated in 1996, The Arctic Group became a publicly traded company on the Alberta Stock Exchange the following year. Since then, the company has acquired 36 ice companies and increased the number of production plants from three to 16. In addition to these plants, it has 34 distribution centers for a total of 50 locations.

In December 1999, The Arctic Group was listed on the Toronto Stock Exchange, Canada's senior equities market. "The Arctic Group has established itself in the marketplace as a leader in the industry," Nagy says. "We serve every major chain of convenience stores and grocery stores in our distribution area, as well as gasoline stations, cruise ships, restaurants, and bars."

Focus on Quality Nagy believes the company's strategy of rapid expansion through acquisitions will prove a good move. "We find more demand for packaged ice, and we believe we can drive sales through branding a quality product as opposed to being a low-price supplier," he says.

"The bottled water industry has grown to 10 times the size it was 15 years ago. Our product is manufactured using various types of water purification throughout the freezing process. If you melt down our ice, it will be equal to, if not better than, most bottled water on the market."

To ensure a quality product, The Arctic Group has invested in new water purification systems. Nearly all company production is done by plate-maker ice harvesting systems that use drying belts to ensure that ice stays dry throughout distribution. This new system contrasts to older wet ice systems. "The most consistent complaint in customer surveys about packaged ice is the problem of ice sticking together or clumping," Nagy says. "Arctic is committed to eliminating this problem by improving production methodologies."

Companywide, The Arctic Group can produce 2,800 tons of crushed, cubed, and blocked ice per day, he says. Package size ranges from five to 50 pounds.

"We've invested a significant amount of money into a frozen food-type packaging system that does not use metal closures for our ice packaging," Nagy says. The new packaging is part of The Arctic Group's program to be compliant with Hazard Analysis Critical Control Point (HACCP) standards. The Arctic Group supplies many bakeries and poultry processors who use ice in production and have HACCP programs.

Ice merchandisers - retail sales cases - are another important component of The Arctic Group's quality-control system, he adds. The Arctic Group owns and maintains about 35,000 ice merchandisers installed at grocery retail locations served by the company. "We own most of the ice-holding units used by our retail customers," he says.

Temperature Control Temperature control is critical to providing quality packaged ice, Nagy says. The Arctic Group holds product temperatures well below freezing after the water is filtered, purified, and frozen. After packaging, the ice is loaded in delivery trucks with refrigeration units set at 20øF.

"On average, our drivers serve 30 accounts a day," Nagy says. "That's a lot of door openings, but since ice freezes at 32øF, even with multiple door openings, it will stay below freezing with the unit set at 20øF. Besides, we instruct our drivers not to leave the cargo doors open at delivery stops. We use roll-up rear doors because our trucks typically back into docks in small parking lots. Swing doors are more awkward to deal with, take up more room, and are more likely to cause damage to other vehicles."

The Arctic Group straight trucks based in Canada are Kenworth T300s, supplied by PacLease under a full-service lease. They have bodies ranging in length from 20 to 26 feet. Bodies are supplied by Intercontinental Truck Body, a Canadian truck body and trailer manufacturer with plants in Winnipeg; Surrey, British Columbia; and Coaldale, Alberta. Trucks are equipped mainly with Thermo King KD-II 50 SR units. Some, based in Montreal, have Thermo King RD-II SR units.

Full-Service Lease "We maintain cab, van, reefer, lights, and practically everything else on the trucks," says Kerry Davies, PacLease manager in Winnipeg. "We track mileage and do daily repairs, as required, as well as regular preventive maintenance. We provide tires, truck wash, road service, vehicle replacement, and extra trucks when needed."

Leasing trucks, instead of owning them, allows The Arctic Group to focus on improving product quality and service. "We want to focus on the ice business, not the truck business," Nagy says. "We rely on PacLease to keep the trucks in good running order."

The Arctic Group chose the Kenworth T300, Nagy adds, because it can handle heavy payloads easily. "We demand a lot from our equipment," he says. "Both the trucks and the reefers get quite a workout."

PacLease works closely with The Arctic Group on truck specifications, Davies says. About half of the new Kenworth T300s are single-axle trucks rated at 32,000 to 35,000 gvw. The others are tandem-drive vehicles rated at 49,500 gvw. The trucks are powered by Cummins ISC engines rated at 260 to 300 hp. They have Eaton Fuller RTX117-10B 10-speed transmissions. To smooth the ride and cushion the cargo, all trucks are equipped with Hendrickson air-ride suspensions.

Truck Body Specs The aluminum truck bodies are insulated with three inches of foam in the sidewalls and four inches in the front wall, ceiling, and under the floor. Interior wall lining is fiberglass reinforced plastic sheet. Floors are non-slip checkplate. A 12-inch aluminum scuffplate extends up from the floor to prevent wall damage from material handling equipment.

Rear doors are Whiting ColdSaver roll-ups with 2 11/48-inch-thick insulation. Some trucks have side doors installed 48 inches back from the front wall on the truck's curbside and 96 inches on the roadside.

Drivers like the trucks, Nagy says. They are equipped with steering gear with up to 50-degree wheel cut, providing good maneuverability. The cabs have air-cushioned driver's seats with extra wide cushions and lumbar support. Controls are mounted on the side within easy reach. All cabs are air-conditioned and have tilt-steering columns.

"We want to keep our drivers happy because they are key employees," Nagy says. "They relate directly with customers and serve as the eyes and ears for our customers."

Drivers carry handheld delivery computers from LXE Inc, Norcross, Georgia. They track customer inventory and are used with portable printers to generate invoices. At the end of the day, drivers turn in their handheld units to the distribution manager who downloads data from the units into a host computer. This information provides a database used to make distribution more efficient, Nagy says.

Management Structure Distribution is directed by Nagy, the company's chief operating officer, vice-president of operations, and vice-president of distribution centers, working with eight regional managers. The regional managers keep track of the 34 distribution center managers.

PacLease trucks are domiciled at centers in Quebec City, Montreal, Ottawa, Oshawa, Toronto, Barrie, Hamilton, Chatham, Winnipeg, Regina, Calgary, Edmonton, and Vancouver. Production facilities are in Montreal, Toronto, Chatham, Winnipeg, Regina, Calgary, Edmonton, and Vancouver.

In the US, The Arctic Group has production plants in Minneapolis-St Paul (two plants) and Marshall, Minnesota; Dubuque and Ames, Iowa; Omaha, Nebraska; Wichita, Kansas; and Lubbock, Texas.

"Our distribution is across Canada and through the center of the US," Nagy says. "Our plan is to make acquisitions in areas contiguous to those we already serve. We seek synergistic acquisitions. You can't create synergy unless you make the operation more efficient in existing markets. And that's what we're doing.

"We sell a product, but we also sell service. When people need ice, they need it now. Tomorrow is no good. That's where the trucks come in."