National Grape Co-Operative Association, Inc.

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National Grape Co-Operative Association, Inc.

2 South Portage St.
Westfield,New York 14787
U.S.A.
(716) 326-3131
Fax: (716) 326-5494
Web site: http://www.welchs.com

Cooperative
Incorporated: 1897 as The Welch Grape Juice Company
Employees: 1,224
Sales: $550.8 million (1996)
SICs: 0172 Grapes; 2033 Canned Fruits, Vegetables etc.; 2037 Frozen Fruits, Fruit Juices, Vegetables; 6719 Holding Companies, Not Elsewhere Classified

Best known as the parent company of Welch Foods, Inc., National Grape Co-operative Association, Inc. is the world’s largest producer and marketer of products made from Concord and Niagara grapes. National Grape encompasses an agricultural cooperative of nearly 1,500 fruit growers in New York, Pennsylvania, Ohio, Michigan, Arkansas, Missouri, and Washington. As America’s first grape juice, Welch’s became virtually synonymous with the beverage. Prohibition helped push the drink into the national spotlight in the early 20th century. The company’s acquisition by National Grape mid-century effected vertical integration that stretched from the vineyard through to the finished bottle of juice. Welch’s product line includes the core Concord grape juice, blended juices, fruit spreads, frozen fruit juice bars, frozen juice concentrate, sparkling juice drinks, and aseptically packaged juice concentrates.

Initial 19th-century Launch Fails

National Grape’s origins can be traced back to the 1860s, when Thomas Bramwell Welch, a Vineland, New Jersey dentist, was called upon by his Wesleyan Methodist church to serve bread and wine during Communion services. Thinking it du-plicitous of the church to decry alcohol use yet serve wine, Welch took it upon himself to make an ’’unfermented wine.” Using home-grown grapes, he filtered fresh grape juice and bottled it, then boiled the bottles to kill the naturally-occurring yeast, thereby arresting the fermentation that would normally occur. Dubbing his product “Dr. Welch’s Unfermented Wine,” the dentist proudly took his product to local churchmen, certain that they would be happy to banish alcoholic wine from their sanctuaries in favor of his new product.

Welch was stunned to find that virtually all the pastors he approached turned him down flat. Anything other than wine would be heretical, they reasoned. After four unsuccessful years, Welch gave up on his unfermented wine in 1873. His disappointment over the whole project was so profound that he made no mention of it in his autobiography. Welch fell back on his former profession, inventing new dental alloys, selling dentistry tools, and later publishing one of America’s largest dental trade magazines.

Second Generation Revives Business in Late 19th Century

An 1895 outbreak of black rot in Vineland forced Welch to move his operation to Westfield, New York, on the shore of Lake Erie, home of the dark Concord grape that would become Welch’s signature juice. As the 20th century approached, advertising became a key factor in the product’s success. Welch broadened his advertising from newspapers and trade magazines to national publications, later adding calendars and contests to the publicity drive. Using a theme that author Michael Gershman called “a masterstroke of suggestiveness” in his book Getting It Right the Second Time, Welch artfully paired prohibitionism with sex via a drawing of an attractive woman and the words, “Lips that touch Welch’s are all that touch mine.” Welch’s annual advertising budget averaged half a million dollars, or nearly one-fourth of sales, from 1912 to 1926.

The company also got some free publicity from fellow prohibitionists William Jennings Bryan and Josephus Daniels in the 1910s. When Bryan, in his capacity as Secretary of State, substituted Welch’s for wine at state dinners the switch was dubbed “grape juice diplomacy” in the press. Another high-ranking government official, Daniels was ridiculed as the Secretary of the “Grape Juice Navy” for prohibiting alcohol from ships and naval yards. Both incidents generated a flurry of political cartoons that, whether negative or positive, boosted nationwide awareness of Welch’s signature product.

By 1909, Welch’s was making one million gallons of juice per year, and within four years, its sales exceeded $2 million. The company acquired a Pennsylvania competitor in 1911 and set up production in Michigan in 1918 and Arkansas in 1922. The advent of Prohibition in 1919 pushed Welch’s sales from $3 million to over $6 million in 1920. Charles Welch lived long enough to see two of his father’s dreams—nationwide promulgation of both Prohibition and Welch’s Grape Juice—to fruition before he died in 1926.

Third Generation Sells Business in Late 1920s

Three of Charles’s sons—John, Edgar, and Paul—shared management of Welch’s after their father’s death. Within two years, however, disagreements among the brothers regarding the uncertainty of grape production spurred them to sell the firm. American National Company, a Nashville, Tennessee investment firm, acquired Welch’s in 1928. The new owners hoped it would be a profitable short-term investment, but after achieving a net income of more than $500,000 in 1929, Welch’s suffered successive losses in 1931,1932, and 1933, as the Great Depression took its toll on the nation’s businesses.

The new parent company acquired grape processing operations in Ohio, Michigan, and New York and expanded exports to more than three dozen countries worldwide during this period. Sales growth averaged 13 percent annually from 1928 to 1945, as Welch’s added accounts with government agencies, the military, and international aid groups during World War II. By the war’s end, sales had mushroomed to over $10 million. But by many accounts, American National was less interested in building Welch’s than in squeezing profits from the grape juice company. According to the company history Welch’s Grape Juice: From Corporation to Co-operative, by William Chazanof, plant maintenance, product research and development, and grower relations all suffered during this period.

In the meantime, a competitor was gathering strength just seven miles from the Welch’s headquarters. The rival was led by Jacob “Jack” Kaplan, a Russian Jewish immigrant who had garnered invaluable experience and a multimillion-dollar fortune in commodities trading and retailing in the early 20th century. In 1933, Kaplan and his brother Maurice put a piece of the family fortune to work by purchasing the grape processing operations of the Chautauqua and Erie Grape Growers Cooperative (C&E) in Brocton, New York, just west of Welch’s Westfield headquarters. The repeal of Prohibition that same year allowed Kaplan to produce both wine and grape juice, but by 1939, when he changed the company name to National Grape Corporation, he elected to concentrate the company’s efforts on juice. The new business was unprofitable until 1935 and operated at a breakeven level until 1939, but by 1945, it was selling about $3 million in private label and C&E brand grape juice, jams, and jellies.

In order to circumvent wartime restrictions on corporate profits and price controls, Jack Kaplan spearheaded the creation of a large grape growers’ cooperative in 1945. The new organization would not only be immune from federal corporation taxes and pricing dictates, but would also guarantee his processing company a reliable supply of grapes. Promising that for ten years he would take a ten percent cut of the co-op’s profits in lieu of a salary, Kaplan and his team convinced 900 growers to join the newly formed National Grape Co-operative.

Welch’s Acquired by National Grape in Post-World War II Era

By the mid-1940s Welch’s parent company, American National, was ready to divest its grape juice interests. Jack Kaplan purchased a controlling interest in the company in 1945 with the intention of quickly selling it to National Grape. First, however, he invested more than $5 million in plant modernization and consolidation, improved distribution, and increased grape production. He launched processing plants in Canada and California in 1948. Kaplan’s strategies paid off well; Welch’s sales more than tripled from $10.1 million in 1945 to $35.6 in 1956, and net income increased from $138,000 to $3.5 million. Perhaps most importantly, Kaplan had forged vital ties between National Grape and Welch. By the mid-1950s, National Grape farmers—whose numbers had swollen to over 4,000 in the meantime—were supplying 90 percent of the grapes processed by Welch.

Company Perspectives:

To develop, produce and distribute products of the highest quality and provide prompt and efficient customer service. To provide a secure, expanding market to national Grape Co-operative members and return to them the best possible proceeds for their agricultural products. To hold in highest respect the dignity of its employees, and to help develop each to his or her maximum potential without regard to race, age, sex, color, creed, or national origin. To maintain the safest possible working conditions and encourage safe work attitudes and practices. To strive for continued growth through increased sales of current products; through the development of new products, and other business opportunities, all of which are consistent with the interests of its owners. To conduct all areas of the business on the basis of short- and long-term planning for maximum business efficiency and flexibility. To communicate effectively about the Company’s activities to all the audiences of its business environment. To discharge the obligations of corporate citizenship by effective participation in national, state and local government and community affairs.

Kaplan first offered to sell his stake in Welch to National Grape in 1949, but could not convince the rank and file to subscribe to the plan. In 1952, he devised a strategy whereby Welch’s own profits would be diverted into a fund that would enable the cooperative to acquire the processor. In exchange, co-op members would commit their entire harvest to Welch, thereby ensuring a steady supply of grapes to the juice company. The final purchase price was $28.5 million, about $13.5 million of which was borrowed by the cooperative. Though the two companies were merged in 1956, they continued to operate autonomously, having separate boards of directors and management.

During this period, Welch’s attached itself to two very popular children’s television programs: “The Howdy Doody Show” and ’The Mickey Mouse Club.” New product launches in the late 1950s and throughout the 1960s included juice cocktails, frozen juice concentrates, jams, jellies, preserves, and reduced calorie products. In recognition of its expanded product line, National Grape changed the name of its sole subsidiary to Welch Foods, Inc. in 1969. Boosted by the creation of a formal marketing department and a multi-million dollar advertising budget, the merged companies’ sales increased from $35.7 million in 1956 to $68 million in 1969.

Sales Flatten in Early 1980s, Are Rejuvenated Under New Management

By 1973, National Grape’s sales had crossed the $100 million threshold. But most observers agree that management had overextended the brand to the detriment of the core Concord grape products. Though grape juice sales overall continued to grow modestly, Welch’s sales plateaued from 1979 to 1982 as the brand’s market share was eroded by competing brands and private-label juices. In 1982, Welch Foods hired Everett Baldwin as president and CEO to reposition and revitalize the brand. Bringing with him food marketing experience at Pillsbury and Land O’Lakes, Baldwin quickly recognized the company’s and the brand’s weaknesses and moved to correct them. Though National Grape remained headquartered in Westfield, New York, he moved Welch’s corporate headquarters to Concord, Massachusetts. Recognizing that Welch needed to put its best efforts behind its most promising products—both new and old—he also launched a product development department, adopted convenient new packaging, and created a new logo.

Baldwin’s strategies put Welch’s back on the growth track, and by 1987 National Grape’s annual revenues had reached nearly $300 million. In the late 1980s and early 1990s, the company expanded its international distribution to more than 30 countries via licensing agreements and the establishment of its own overseas operations. By the mid-1990s, Asia was proving a very important growth center. Welch’s boosted domestic distribution by offering single-serve canned and bottled juices for vending machines.

Though grape juice ranked a distant third to orange and apple juices in popularity in the early 1990s, National Grape and Welch’s benefited from a general trend toward increased consumption of fruit juice during the decade. The company’s eagerness to adopt convenient new packaging designs ranked it among the first to adopt aseptic packaging for single-serve juices in drink boxes as well as aseptic canned concentrate. The advantage of aseptic packaging was that it did not require refrigeration until after opening, and could be shelved virtually indefinitely. The introduction of sparkling grape juices and ciders sold as alternatives to wine brought Welch’s back full-circle to the teetotaling days of “unfermented wine.”

By 1996, National Grape was selling 50 million cases of fruit products for over $550 million in annual revenues. That year, it processed a record-breaking 283,000 tons of grapes and distributed an all-time-high $63.9 million in net income to its grower-members. Management hoped to build sales to the $1 billion mark by the early 21st century by parlaying the company’s strengths in Concord and white grape products.