Frank Costa bows out

The success of Australia’s biggest fresh fruit and vegetable supplier rests on an inspiring tale of family, courage, gangsters and supermarket giants -- and soon the business will be up for sale.

Australia’s largest grower and distributor of fruit and vegetables, the $1 billion Costa Group, will be sold in two-and-a-half years’ time to the highest bidder.

Why? Well, it has a lot to do with the fact that the chairman and patriarch, Frank Costa, has eight daughters. No kidding … he and Shirley had eight girls! They all gathered last night in a restaurant that one of them owns in Melbourne for a belated Mother’s Day tribute to Shirley Costa. But none of the daughters is in the family business or interested in taking it on. So it’s going to be sold.

How do we know the sale will definitely happen in 2017? Because in 2012 the Costas sold 50 per cent of the company to US private equity firm Paine & Partners on the understanding that they would all exit in five years, and that is still the plan.

Frank Costa, now 76, shares the family’s 50 per cent equally with his brothers Robert and Anthony, although the shareholders’ agreement gives him control. One of Paine’s partners, Angelos Dassios, sits on the board.

The sale of this business will be a huge event for the Australian food industry. It’s the largest private grower, marketer and exporter of fresh fruit and vegetables, farming 4000 hectares and employing 7000 people. It’s the biggest fresh food supplier to both Coles and Woolworths -- which is quite a feat in itself since they usually don’t like sharing suppliers -- as well as exporting 20 per cent of its produce.

Frank Costa is a tough guy. He was president of Geelong Football Club for 12 years, taking it to two premierships in 2007 and 2009, with a third coming a year after he stepped down in 2010.

He took on Melbourne’s underworld in the 1970s and cleaned up the wholesale markets, in particular the corrupt supply of fruit and vegetables to Coles and Woolworths.

But the first person he took on was his father, Tony, at the age of 17.

The family business dates back to 1888 in Geelong, when Frank’s great uncle on his mother’s side, George Virgona, emigrated from Salina and opened the Covent Garden food store in Moorabool Street, Geelong. Frank’s mother, Mary Piccone, was born in Stawell.

Tony Costa was born in Italy in 1909 during a visit back to Italy by his father, Francesco, who had already emigrated to Australia and started a green grocer in Geelong, the Eastern Star, just a block away from George Virgona’s store, which is how Tony met Mary.

They were married in 1937 and had Frank in 1938. Tony had run a small greengrocer in Warrnambool for a while but had returned to Geelong and bought the Eastern Star, sold it and then finally bought the Covent Garden from George Virgona, his new wife’s uncle, with his brother Joe.

Five months later, the business was going downhill. Frank tells a wonderful, seminal, story about Mary going down to the shop one day to see Tony and couldn’t find him. He wasn’t out the back either, where the family had a separate wholesale operation. Finally she ventured into the kitchen, where she found Tony sitting at the table, shrouded in smoke, playing poker with Joe and a group of seven other Italian fruiterers from around Geelong, piles of cash in front of them.

Oh dear. Tony was in Big Trouble. She abused him roundly on the spot and told him she’d see him tonight. When he got home she was waiting for him with an ultimatum: tomorrow you’re going tell Joe he can choose the retail shop or the wholesale business and we are going separate ways. And by the way we are selling our house to pay the bills.

Joe chose the wholesale business and Tony and Mary got the shop. They moved in above it and Tony knuckled down, rebuilding it and running it well. The business prospered.

Young Frank took after his mother. In 1955, the Myer Emporium decided to open a big new store in Geelong and wanted fresh fruit and vegetables in it. They looked for the best greengrocer in Geelong, the one with the best looking produce, and settled on the Covent Garden store. They invited Tony Costa to be their key supplier in Geelong.

Frank, then 17, was excited, but Tony turned Myer down -- he didn’t want to expand that quickly. Frank couldn’t believe it, so he and his younger brother Adrian gave Tony another ultimatum: either you sell the business to us when Frank is 21 or we’ll both be gone.

They settled on a compromise: 50 per cent when Frank turned 21 and then the other half when Adrian turned 21 two years later. And that’s what happened.

That was 1959. Tony put the price of the business at £20,000 (it was before decimal currency) plus full price for the stock. Frank, would you believe, had saved £10,000 cash for his share but Adrian had to borrow it from his dad.

By 1961 the two boys owned the store, with Frank in charge, and they really went for it -- so much so that a couple of years later Tony got a delegation from the rest of Geelong’s greengrocers demanding that he make Frank and Adrian stop discounting: “They’re killing us Tony, make them stop.” So Tony duly demanded that his sons take it easy: stop stealing everyone else’s business.

Once again Frank stood up to his dad: “You can all go to buggery”, was his pithy reply.

Then in 1964 Frank and Adrian Costa had their second chance to supply a big retailer with fruit and vegetables -- well, two actually. Coles and Woolworths both decided to expand into supermarkets at the same time, including fresh produce, and both came to Geelong around the same time in the mid ‘60s.

The two men, boys really, jumped at the chance to supply them and did it well, learning as they went. So as the rest of the town’s small fruit shops were devastated by the arrival of the big supermarkets, closing one by one, the Costas were able to grow on the coattails of Coles and Woolworths as they expanded through Western Victoria.

In 1972 Adrian and his wife were killed in a car accident so Frank invited his three other brothers, Anthony, Kevin and Robert, into the business as equal partners. Two of them got Adrian’s half and the third got half of Frank’s share.

At that point the business was turning over $3m but it grew rapidly in the ‘70s as Coles and Woolworths both rolled out national chains of supermarkets.

In May 1987, Paul Simon was made managing director of Woolworths and realised that he had to clean up the company’s fruit and vegetables business. The buyers had been corrupted by the gangsters who ran the wholesale markets and Simon knew he had to get control of it.

Paul Simon, now a retailing legend, called in Frank Costa and asked him and his brothers to take over the buying, which they did. At one stage Frank says he had a contract taken out on him, but he stayed alive and ended up cleaning up the supply chain and removing the corrupt buyers.

Word got to Coles’ chairman Solomon Lew about what Frank had done with Woolworths so he drove down to Geelong to see him and the Costa Group took over the buying for Coles as well. Once again there was a visit from someone from wholesale markets: you can either have $1m a year for life, or a bullet to the head. What’ll it be? Not for the first time, the answer was “Bugger off”.

Somehow Frank Costa and his brothers managed to escape the assassin’s bullet (we‘ll probably never know everything that happened during those times), but whatever happened, Paul Simon and Solomon Lew were delighted with Frank’s efforts and the cancer of corruption in the fresh produce supply chain was removed.

The Costa Group was entrenched as a key supplier to Australia’s dominant supermarkets, as well as the independent grocers and just about anyone else (hospitals etc) who needed a lot of fruit and vegetables.

It is one of Australia’s greatest family business success stories and is halfway through a sale process that will value the business at close to $1bn. There won’t be a next generation of his family in the business, although Anthony’s sons, Stuart and Andrew, are working in the business.

Frank Costa’s legacy to his eight daughters will be a lot of cash plus a pretty decent property development business he created on the side (when he was 21, George Virgona gave him some advice: “Put all your money into property, son.” So he bought a property every year with cash the business didn’t need; now he buys huge tracts of land and subdivides it for houses).

Frank expects Costa Foods to be sold to foreign buyers, but I reckon it would be good if Australia’s investment bankers could come up with a local buyer.

You’ve got two-and-a-half years, everybody -- get on it!

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