Northland Cranberries, Inc.

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Northland Cranberries, Inc.

800 First Avenue South
Wisconsin Rapids, Wisconsin 54495
U.S.A.
Telephone: (715) 424-4444
Fax: (715) 422-6800
Web site: http://www.northlandcran.com

Public Company
Incorporated: 1987
Employees: 950
Sales: $236.8 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: CBRYA
NAIC: 111334 Berry (Except Strawberry) Farming; 311421 Fruit and Vegetable Canning; 311411 Frozen Fruit, Juice, and Vegetable Manufacturing

Northland Cranberries, Inc. is the world’s largest cranberry grower and a major cranberry processor and marketer. It owns 25 cranberry marshes, principally in its home state of Wisconsin. It also owns cranberry growing properties in Massachusetts and in Canada. It markets cranberries and cranberry juice products under the Northland brand name, and also supplies cranberries to private label cranberry juice manufacturers. It also sells juice under the Seneca brand, as well as the TreeSweet, Awake, and Orange Plus brands. The company owns extensive cranberry processing plants in Wisconsin, and operates juice bottling and packing facilities in New York, North Carolina, and Wyoming.

From Limited Partnerships to Public Company

Northland Cranberries, Inc. began as a small group of limited partnerships of Wisconsin cranberry growers. The partnerships were engineered by John Swendrowski, who became the president and chief executive officer of the company. Before the mid-1980s, however, Swendrowski knew little about cranberries. He was a loan officer for a Wisconsin bank, and before that he had been an English teacher and football coach at a Catholic high school. Swendrowski played football briefly for the University of Wisconsin, and went on to teaching and coaching in Wisconsin Rapids, Wisconsin. He eventually found the pay too low and, when he was in his 30s, began looking for ways to supplement his income. Swendrowski’s first entrepreneurial venture was a truck-leasing business. A bank offered to buy up the truck-leasing enterprise after a few years, and Swendrowski ended up taking a job at the bank. He became a loan officer for the Wood County Bank, where he was soon put in charge of loans to cranberry growers. In the 1980s, many Wisconsin cranberry growers were older farmers with only small parcels of land devoted to the crop. If younger family members were not interested in taking on the cranberry land, it was hard to sell it. Most farmers only grew cranberries as a sideline, and the crop was restricted by complex government regulations controlling wetlands. Swendrowski learned that cranberries could be a valuable crop, and growers could benefit by getting together on a larger scale. Hence he decided to put together limited partnerships to buy up cranberry marshes. These partnerships raised capital to improve the berry stock as well as install and maintain the hydraulics in the fields. By 1987, Swendrowski had formed five limited partnerships. That year he decided to embark on a new business strategy. Leaving the bank, he consolidated the five partnerships as a publicly traded company, incorporated as Northland Cranberries, Inc. Swendrowski became president and CEO, and he owned close to 40 percent of the total stock.

The company was on track for growth. It began buying up more cranberry marshes so it could increase its production. All the company’s crop went to one buyer for its first several years, Ocean Spray Cranberries, Inc. Ocean Spray was a Massachusetts cooperative made up of over 700 cranberry growers. It sold its juices and cranberry products under the Ocean Spray brand name, which was by far the biggest name in the market. Northland worked under contract to Ocean Spray, so that it had a guaranteed buyer and expected relatively stable income. By 1988, Northland had become the single largest cranberry grower in Wisconsin. Its sales rose from around $4.6 million in 1987 to more than $11 million four years later. The company put profits back into the ground, buying up more marshland whenever possible. By 1990 the young company had already increased its acreage by over 30 percent. In 1991 it ventured out of Wisconsin for the first time, leasing cranberry bogs on Nantucket Island, Massachusetts.

Expectations for the cranberry industry were high because of favorable reports in the 1980s and 1990s about the health benefits of the fruit. Studies in the 1980s seemed to show that the high acid content of cranberry juice was good for kidney function, and the juice was also high in vitamin C. Ocean Spray was a powerful marketer, and cranberries began to transform from a seasonal crop used mostly in sauce for holiday turkeys to more of an everyday healthy juice or food. Northland quickly became profitable, with pretax earnings increasing from $185,000 in its first year to $1.5 million by 1991. The company was the only publicly traded entity in the cranberry market, since Ocean Spray was a cooperative. One other grower, A.D. Makepeace, was a public company, but its stock was almost entirely in the hands of family members. Northland’s stock did well, perhaps because any investor wanting access to the cranberry market had only one place to go.

Parting Ways with Ocean Spray

In mid-1992, Northland Cranberries announced that it was ending its exclusive relationship with Ocean Spray. The giant cooperative had bought all the company’s previous crop, providing stability to the growing young company. But Northland had come to be a bigger player in the market. Its crop had increased by 240 percent since the company’s inception, and Northland felt it could negotiate a better deal for its berries by leaving the Ocean Spray cooperative. Ocean Spray offered less money per barrel than Northland found it could get elsewhere, and Ocean Spray delayed payment on a crop for as long as 15 months. Northland therefore agreed to sell its 1993 crop to two independent fruit processors, at a price hike of almost 20 percent per barrel over what Ocean Spray was offering. It divided its crop equally between Cliffstar Corp., of Dunkirk, New York, and Clement Pappas & Co., based in Seabrook, New Jersey.

The company continued to do well as an independent grower. In 1994, Northland invested $5 million into the construction of a new facility for receiving, processing, storing, and packaging its berries. Northland for the first time put its fresh berries on the market under the Northland name. This was the company’s first push into marketing. It managed to get its bagged cranberries into supermarkets across the country. The next year Northland introduced its Northland brand cranberry juice blends. It began marketing the juice in its home state of Wisconsin, offering five flavors of mixed juices, including Cranberry Raspberry and Cranberry Cherry. Northland’s products were made from 100 percent juice, something that set its line apart from Ocean Spray’s. Cranberry juice alone is too sour to be consumed straight, but Northland sweetened it by mixing it with lighter juices such as apple and grape. Ocean Spray, by contrast, featured juices mixed with sweeteners and diluted with water. This became the key marketing difference between the two brands.

Northland President John Swendrowski called the move to pushing its own juice a vertical integration strategy that went “from marsh to market,” in a June 1997 interview in Beverage Industry. All aspects of the company’s business grew in the mid-1990s. In 1994, Northland acquired another 286 acres of marshland in Wisconsin, and after several more acquisitions in Wisconsin and Massachusetts, the company ranked as the largest cranberry grower in the world. In 1996 Northland reached an agreement with a German drink company to sell its cranberry juice concentrate in Europe. The German concern, Rudolf Wild GmbH, worked to develop European markets for cranberry products, which were not well known there. Northland also began experimenting with growing the berries abroad. It developed test fields in Ireland, and looked at Poland as another possible area suitable for growing cranberries.

By 1997, Northland had 2,548 acres planted with cranberries, and it owned over 24,000 other acres of support land. It provided 12 percent of the North American cranberry supply, and it also had excellent facilities for processing the fruit. It had its own state-of-the-art processing plant in Wisconsin Rapids, and also held bottling contracts with two other juice companies, to help with nationwide distribution. Marketing was the third leg of its “marsh to market” strategy, and Northland began concentrating its energies there. It had begun pushing its Northland cranberry juice blends in supermarkets in Wisconsin, offering a single 64-ounce size. The brand did well, bringing in around $12 million in less than two years on the market. In 1997, one year sooner than planned, Northland began a national rollout of its juices. It backed the wider distribution with advertising on radio, television, and in print. Northland’s ads aimed to inform consumers that its products were 100 percent juice, whereas market leader Ocean Spray made juice drinks, a separate category, that contained only about 27 percent juice. Northland’s juices carried the National Cancer Institute’s 5-A-Day seal, meaning that a glass of the juice counted as one of the five fruits and vegetables the institute recommended for an optimum daily diet. The company also swung a deal with the Ladies Professional Golf Association, making Northland the “Official Juice of the LPGA” for three years. The company hoped to follow a five-year plan that would leave it a worldwide cranberry growing and marketing entity, close on the heels of Ocean Spray.

Company Perspectives:

Northland Cranberries, Inc. is an integrated grower, processor and marketer of cranberries, cranberry products and other fruit beverages and concentrates. Publicly-owned since 1987, Northland is recognized as the world’s largest cranberry grower and a major U.S. beverage company.

By 1998, Northland’s line of cranberry juice was available in 80 percent of supermarkets nationwide. Its market share climbed, matched by a fall in Ocean Spray’s. The company moved more aggressively into juice marketing by making significant acquisitions. In 1998 Northland spent over $30 million to buy up the juice division of Seneca Foods Corp. Northland had previously had a bottling contract with Seneca. The company acquired Seneca’s bottling and packaging plants in Dundee, New York; Mountain Home, North Carolina, and Jackson, Wyoming, as well as a warehouse facility in Eau Claire, Wisconsin, and a grape receiving station in Portland, New York. Northland got the exclusive rights to the Seneca brand name, and rights to three other brands: TreeSweet, Awake, and Orange Plus. Northland also acquired Minot Food Packers, Inc., in 1998. Minot packed juices for private labels, and Northland already had significant sales to private label manufacturers. The company hoped to build on its private label business, and it was also able to move into the manufacturing of cranberry sauce for the first time. Another new direction for Northland was the foodservice business, which it entered in 1998. Northland began offering its Northland line of cranberry juices to foodservice customers such as hospitals, schools, and restaurants, and marketed other juices to institutions under the brand name Meadow Valley.

Difficult Conditions in the Late 1990s and After

As a result of all its increased business, sales climbed markedly, more than doubling between 1997 and 1998. Profits too rose sharply, increasing from $2.9 million in 1997 to $5.6 million in 1998. Northland’s founder and CEO Swendrowski declared in 1999 that the company was meeting its financial targets, and that it would probably continue to grow, though there was an oversupply of cranberries. In fact record-breaking crops in 1997, 1998, and 1999 left the cranberry market in disarray as prices fell. Both Northland and Ocean Spray rethought their juice marketing positions. Ocean Spray came up with a 100 percent juice line, Wellfleet Farms, while Northland considered moving into the dilute juice-drink market. The 100 percent juice that Northland had championed was a faster growth category than the dilute line, but the cost of making it was also higher. The low price for cranberries made business conditions very difficult. Ocean Spray, already cutting employees to hold down costs, hired a consultant in 1999 to scope out possibilities of a merger. Faced with an Ocean Spray that might become part of a giant drink company such as PepsiCo or Coca-Cola, Northland also began considering a merger. The company hired a consultant in late 1999 to help it come up with strategies for maintaining profitability.

Early in 2000, Northland announced the sale of its private label juice business. This segment had been contributing about $43 million in sales, and the company let it go for around $28 million. The buyer was Cliffstar Corp., one of the two companies who had first bought Northland’s berry crop after its split from Ocean Spray. Northland hoped to concentrate on its Northland and Seneca brands after letting the private label business go. Later that year, Northland declared that it wanted to sell some of its juice brands in order to raise cash. Low cranberry prices continued to dismay the company. The bad news of a third quarter loss sent its stock to an all-time low. By the fourth quarter of 2000, the company’s board of directors had come up with some restructuring moves. Northland planned to close down or sell its bottling plant in Bridgeton, New Jersey. After it sold its private label business to Cliffstar, it had more bottling capacity than it could use, so the New Jersey plant was scheduled to shut down. Northland’s board also formulated a plan to hand over much of its sales and marketing support for its Seneca and Northland brand juices to an outside company, Crossmark. Crossmark was a large company with expert management knowhow. By outsourcing its marketing, Northland hoped to save $1 million annually. Northland reorganized its existing marketing team, and let go approximately 20 employees. Faced with a mounting credit crunch because of continuing poor prices for cranberries, Northland also acknowledged that sale of part or all of the company was possible.