How Honeycrisp is Similar to American Pharoah

At FreshDirect, organic Red Delicious apples are about $2.50 a pound while Honeycrisps are $5.23. The price difference is all about a brand.

Where are we going? To the importance of brands and breeding.

The Honeycrisp Story

Described as “amazingly crunchy, incredibly juicy and sensationally sweet,” the Honeycrisp was developed at the University of Minnesota. David Bedford says creating a new apple took three decades of cross breeding. Imagine though when they took that first bite and knew they had a winner. The next step was to patent the seed and charge anyone who wanted to use it $1 a tree.

Until the Honeycrisp, most apples looked enticing and tasted mushy. Like potatoes or onions, all Red Delicious apples were the same as were Golden Delicious and Macintosh. With no way to distinguish what he produced and a market that determined price, the farmer’s sole incentive was to keep cost low. Ultimately, that meant less taste and diminished consumption.

When the Honeycrisp was patented in 1990, its taste and texture were different. Scientists said the reason was its unusually large cells. Now though, with the patent’s expiration, the Honeycrisp will attract more growers. As a result, price and quality could diminish.

However, like American Pharoah, Honeycrisp breeders realized there was money to be made from her offspring. The result was SweeTango, the child of Honeycrisp and Zestar. And this time, the owners of the patent have permitted only 45 growers to reproduce their progeny.

Our Bottom Line: Monopolistic Competition

Traditionally a product of perfect competition, the apple had many growers who created identical fruit. As a result, the market determined the price. Once the Honeycrisp gave growers some product differentiation, they moved to the right on the competitive market structure continuum towards monopolistic competition. Having created a brand, Honeycrisp growers gained some price control.

Moving to the right, firms increase their size and pricing power. Meanwhile market entry and exit become increasingly difficult.

So, whether looking at breeding or branding, maybe Honeycrisp and American Pharoah are similar.