Frank Costa's Costa Group has been a rare success: a successful ASX listing involving private equity.
The fruit and vegetable company, which Costa and Paine Schwartz Partners floated in July 2015, has been trading close to its April record high and its success has given Financial Review Rich List member Costa's wealth a substantial boost.
But Costa says the genesis of the company's recent success goes back to an alarming dinner he had a decade ago with the now Coles managing director John Durkan and his predecessor Ian McLeod.
The British duo had recently arrived in Australia to help turn around Coles, recently bought by Wesfarmers, and sat down with Costa - a big supplier to Coles and its rival Woolworths - to find out more about the Australian food industry.
"We had a lovely chat and a lovely meal, and I was feeling quite cosy," Costa recalls. "And about three-quarters of the way through the meal, Ian McLeod – he looked me straight in the eye and he said, 'listen, Frank, I've got to tell you something. You Australians do not know the meaning of the word "competition". You've got no idea. You're pussycats. But you're going to find out.'
"So that's when I got shivers, this bloke is fair dinkum. He's going to fight Woolworths, and they're going to fight them on price. There's only one way they can do that. They've got to push prices out to suppliers."
Costa knew he had a challenge on his hands, but gathered his executives and told them: "We're going to change. We have to become more innovative. Be the first to do it, but do it well."
The group picked seven products it felt had the best value year round - mushrooms, tomatoes, berries, bananas, citrus, grapes and avocados - and boosted its research and technology spending, before getting a further boost when Paine Schwartz first bought a stake in 2011.
Costa, who with brother Adrian founded Costa Group at their parents' Geelong grocery in 1959, tells The Australian Financial Review, he overcame his scepticism about private equity because Paine Schwartz mostly had food investments.
"I had probably four or five meetings with these guys before I started to feel all right. But they answered every concern I had. They wouldn't interfere with management; they would support us with IT, which we're not that strong with, and finance in particular. If we saw the opportunity to expand or make an acquisition, they would supply the funds, which they did. And they then decided we would go on a five-year program before we would float."
Costa Group floated at $2.25 per share, and is now trading at $4.52 and has market capitalisation of more than $1.4 billion. Costa, 79, remains as a non-executive director and a major shareholder.
When asked what the next trend in food will be, he says the avocado boom should continue for some time. "The consumption of it has risen enormously over the last five years, but it has got a long way to go. We are still a long way behind America for per capita consumption of it, for example.
"When I started off in the industry no one knew what an avocado was. They didn't have any idea, and only the very wealthy people bought avocados. Now everybody knows what an avocado is, and they love them."
Costa also has extensive property interests, with Costa Property Group owning commercial buildings in and around Geelong and residential subdivisions in Victoria and the Northern Territory.
He says his move into property was due to his mother's uncle telling him at 12 to invest in the sector. "He told me, 'its not making good money that counts, it's what you do with that money. If you invest in property you will be a winner'. That stuck in my mind.
"So I did that, so I started buying a property every year from when I was 21 until I was 31. Then I started buying properties for the business. And later when I decided I was not going to be able to keep this a family business, I thought my daughters could run a property business so I will build that up for them, and that's what I've done. I've got good management in there, and it's running very well. It's very profitable."
Watch next: A seat at the table with Frank Costa, in partnership with BMW.
This content was created in partnership with BMW.
The Financial Review Rich List is published on May 26, in The Australian Financial Review Magazine and online at afr.com. For more than three decades, the BRW Rich List has been the definitive ranking of Australia's top wealth creators. After moving to the AFR Magazine three years ago, it now will appear as the Financial Review Rich List.
