Ocean Spray Cranberries, Inc

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Ocean Spray Cranberries, Inc.

One Ocean Spray Drive
Lakeville-Middleboro, Massachusetts 02347-1339
U.S.A.
Telephone: (508) 946-1000
Toll Free: (800) 662-3263
Fax: (508) 946-7704
Web site: http://www.oceanspray.com

Cooperative
Incorporated: 1930 as Cranberry Canners, Inc.
Employees: 2,000
Sales: $1.4 billion (2005 est.)
NAIC: 311421 Fruit and Vegetable Canning; 311423 Dried and Dehydrated Food Manufacturing; 311411 Frozen Fruit, Juice, and Vegetable Manufacturing

Ocean Spray Cranberries, Inc., is a marketing cooperative owned by more than 750 cranberry and grapefruit growers in the United States and Canada. A leader in the marketing of shelf-stable juice drinks, Ocean Spray is responsible for two-thirds of the cranberries sold worldwide. Since its beginning, Ocean Spray has functioned as a grower-owned agricultural cooperative; however, its strong emphasis on new product introduction, advertising, and packaging places it in direct competition with many publicly owned companies. Once known only as a seasonal cranberry sauce business, Ocean Spray now markets blended juice drinks, bottled juices, juice concentrate, fresh fruits, sweetened dried cranberry snacks and trail mixes under the Craisins brand, and several other items to both retail and foodservice outlets year-round. The cooperative also provides the food industry and commercial clients with cranberry ingredients such as frozen cranberries, sweetened dried cranberries, and concentrate. While cranberries still account for the bulk of Ocean Spray's operations, grapefruit growers were added to the cooperative in 1976, providing the basis for a broader product line and fortifying its presence in the consumer market. Preserving a strong brand image, perfecting production forecasting techniques, and promoting operational efficiency have all led the cooperative to its position as the leading producer of canned and bottled juices and juice drinks in North America. Ocean Spray's stock is held by more than 100 grapefruit growers in Florida and more than 650 cranberry growers in Massachusetts, Wisconsin, New Jersey, Oregon, Washington, and Canada.

EARLY HISTORY

The history of Ocean Spray is naturally tied to the history and lore of the cranberry, an unusual Native American wetland fruit. Small, reddish, and distinguished by a strong, bitter flavor, the cranberry was first used by various Native American tribes in the New England area to make dyes as well as a high-energy food called pemmican: a concentrated mixture of dried venison, fat, and cranberries shaped into cakes. Cranberries were believed to have been present at the first Thanksgiving feast in 1621. The first cranberry juice recipe dates back to 1683. Throughout colonial times, cranberries also became widely used in tarts, preserves, and sauces.

Exports to Europe also began during this era. Commercial cultivation of cranberries, however, did not commence until the early 19th century, when Captain Henry Hall began experimenting with cranberry vines in East Dennis, Massachusetts. As many already knew, the Cape Cod marshland, with its high concentration of peat, was particularly conducive to cranberry growing. Hall, however, made the singularly important observation that when sand from the nearby dunes blew into the marshes, or bogs, the cranberries thrived. He began applying sand manually and found he could grow cranberries that were larger and juicier than those found elsewhere. Growers from another state in which the cranberry was native, New Jersey, soon followed Hall's lead. Among such pioneers were Benjamin Thomas and John Webb.

During the 1850s, cranberry cultivation spread to Wisconsin; three decades later, farmers in both Washington and Oregon began establishing cranberry bogs of their own. By the mid-20th century, mechanical pickers were invented to replace manual procedures, and soon wet-harvesting techniques were developed to take advantage of the cranberry's natural buoyancy.

The Ocean Spray name was conceived by a Boston lawyer named Marcus L. Urann, who gained a reputation as the "Cranberry King" for a cranberry sauce he packaged in tins and marketed under the brand as early as 1912, as well as for his later promotions. Urann headed the Ocean Spray Preserving Co. of South Hanson, Massachusetts, and was one of the principal proponents behind a merger of similar companies to form a large, powerful cooperative. Urann reasoned that a merger would erase the stiff competition he faced from the Makepeace Preserving Co. of Wareham, Massachusetts, and The Enoch F. Bills Co. of New Egypt, New Jersey. The merger would also allow for greater marketing clout. John C. Makepeace and Elizabeth F. Lee, the other two owners involved in Urann's proposed merger, joined Urann in signing a certificate of incorporation in June 1930. A delay by Urann in transferring the Ocean Spray trademark jeopardized the merger for a short time; by August, however, Cranberry Canners, Inc. had been formed and Ocean Spray's survival was thus ensured.

Urann, as president and general manager, assumed responsibility for advancing the cooperative by meeting with and encouraging growers and by enlarging the demand for cranberries. Among the products introduced by Cranberry Canners during the 1930s were Cranberry Juice Cocktail (1931) and Ocean Spray Cran (1937), both tart-tasting forerunners of later, sweetened juice and juice concentrate products. With the 1940s and the addition of Wisconsin, Oregon, and Washington growers to the cooperative, the product line expanded to include dehydrated cranberries (for U.S. troops) and cranberry-orange marmalade. By 1943 the co-op controlled 15 facilities for production, storage, and distribution. Because of the rising prominence of the cranberry and the Ocean Spray label, the cooperative renamed itself the National Cranberry Association (NCA) in 1946. During that same year, the co-op also began marketing fresh cranberries, in cellophane packaging, for the first time.

FACING A SERIOUS CRISIS

The NCA, with a membership nearly double that of its modern-day variant, continued to sustain itself throughout the 1950s principally as a seasonal business that revolved around the Thanksgiving and Christmas holidays. Highlights of this decade were numerous, and included the incorporation, and then formal assimilation, of Canadian growers; the first Ocean Spray television commercials; the retirements of Urann in 1955, and Makepeace (who had served as secretary-treasurer) in 1957; the introduction of frozen cranberry-orange relish and frozen cranberries; and the final renaming of the cooperative in 1959 to reflect the central importance of the Ocean Spray brand.

On November 9, 1959, the newly named Ocean Spray Cranberries, Inc. was faced with its first major crisis. On that day, the Secretary of the Department of Health, Education and Welfare announced that residue from the potentially cancer-causing weed killer aminotriazole had been found in cranberries produced in Washington and Oregon. Because of the ill-timed announcement, just prior to Thanksgiving, Ocean Spray's entire cranberry business was in jeopardy. Cranberries quickly became known as "cancer berries" and hopes for any profits from that year's holiday sales were dashed.

COMPANY PERSPECTIVES

From the creation of the Cooperative by three enterprising cranberry growers, to the steady wave of new products designed to delight consumers today, Ocean Spray has a history of quality, great taste and innovative thinking. It's a spirit of discovery and determination that begins in the cranberry bogs and grapefruit groves of North America, and pours forth from every bottle of Ocean Spray, the fruits of labor of a dedicated team of grower-owners and employees.

Although the co-op's new president, George C. P. Olsson, rightly asserted that the purported danger was nonexistent, it was too late to avert the widespread fear that had arisen. Grocers were forced to take all suspect products off their shelves. Ironically, "The History of Ocean Spray Cranberries" records that a membership newsletter dated December 1957 had actually alerted growers to the dangers of aminotriazole, then an unapproved weed killer, which, if used, could "cause needless expense to your cooperative and result in the condemnation of your crop." The Department of Agriculture had actually approved the compound in 1958 for use after harvests, but the linkage to cancer and the tests for detecting residues were not established until the following year.

THE DEBUT OF JUICE DRINKS

For a time, the co-op was in danger of folding, but a partial comeback in sales for 1960, as well as a government subsidy for unsold cranberries found to be free of residue, kept the business going. Ocean Spray's earlier successes, however, had created the problem of overproduction. New marketing avenues needed to be explored if the high demand for cranberries were to be revived. Edward Gelsthorpe, an executive with experience at both Colgate-Palmolive and Bristol-Myers, was brought in to develop a new, long-term marketing plan for the cooperative.

Gelsthorpe's answer, unpopular at the time, was to emphasize juice drinks under the Ocean Spray brand. Between 1963 and 1968 the co-op committed itself to the consumer drinks market with Cranberry Juice Cocktail, Cranapple, and Grapeberry (later changed to Crangrape). The guiding philosophy was to compete against both the large soft drink and orange juice markets not through product imitation but through product diversity. As consumers became more health conscious during the 1960s and 1970s, the Ocean Spray formula for success struck a responsive chord. By the mid-1970s the cooperative was on the fast track to achieving Fortune 500 status and appeared all the more healthy after its bold expansion into grapefruit growing in 1976. A minor setback occurred in 1979 when the Federal Trade Commission, as part of an investigation of all agricultural cooperatives, threatened an antitrust action against Ocean Spray. No suit was launched, however, and so the cooperative began the 1980s with its $235 million in annual revenues intact.

KEY DATES

1930:: Marcus L. Urann merges his Ocean Spray Preserving Co. of South Hanson, Massachusetts, with the Makepeace Preserving Co. of Wareham, Massachusetts, and The Enoch F. Bills Co. of New Egypt, New Jersey, to form a cooperative called Cranberry Canners, Inc.
1931:: Co-op introduces Cranberry Juice Cocktail.
1946:: The addition of growers in Wisconsin, Oregon, and Washington during the 1940s prompts the cooperative to change its name to the National Cranberry Association.
1959:: Co-op changes its name to Ocean Spray Cranberries, Inc.
1963:: Ocean Spray begins producing juice blends for the consumer drinks market.
1976:: Cooperative opens its membership to grapefruit growers.
1981:: Ocean Spray introduces the beverage industry's first juice boxes.
1991:: Ruby Red Grapefruit Juice Drink is introduced.
1992:: PepsiCo, Inc. enters into agreement to distribute individual cans and bottles of Ocean Spray juices and drinks.
1995:: Craisins sweetened dried cranberries have their national launch.
2001:: Ocean Spray launches line of White Cranberry juice drinks.
2006:: Ocean Spray and PepsiCo enter into a new marketing, bottling, and distribution alliance centering on single-serve beverages.

In 1981 the cooperative made packaging history with its introduction of the "juice box," a block-shaped juice container with attached drinking straw. The innovation captured a new segment of the juice-drinking public, children, and has since become a staple of the Ocean Spray product line. That same year Ocean Spray achieved its ranking as the largest domestic seller of canned and bottled juice drinks. The co-op fought vigorously to retain the title during the decade, as new competitors entered the fray, with a growing number of product introductions, including Mauna-La'i, a guava-lemon drink; Firehouse Jubilee, a tomato drink; Ocean Spray Liquid Concentrates; and Cranberry Fruit Sauces. By the mid-1980s, Ocean Spray had reached annual revenues in excess of $500 million. The cooperative also improved its distribution system, expanded its marketing to foodservices, and capitalized on the Cape Cod tourist industry by attracting millions of visitors each year to its headquarters and museum near Plymouth Rock.

ACQUISITION OF MILNE FRUIT
PRODUCTS: 1985

One of the most important developments for Ocean Spray came in 1985 with its acquisition of Milne Fruit Products, Inc. of Prosser, Washington. A manufacturer of fruit concentrates and purees, Milne was once primarily a grape business but grew under Ocean Spray to process cherries, blueberries, blackberries, plums, raspberries, strawberries, and cranberries. Milne's largest customer was Ocean Spray, but the subsidiary also served such major food companies as Kraft General Foods, Gerber Products, Nestlé, Sunkist, Welch's, and Baskin-Robbins. Most importantly for its parent company, Milne tripled in size from the acquisition through the early 1990s and became a significant generator of non-patronage revenue, which was reinvested in the cooperative for future expansion.

The only blight on the cooperative during the eventful 1980s occurred in 1988, when it was charged under the Clean Water Act with illegally dumping insufficiently treated effluent from its Middleboro plant into the town's sewer system. Ultimately, Ocean Spray was fined $400,000; the co-op also donated $100,000 in water-treatment equipment to the town of Middleboro. Since that event, Ocean Spray became an industry leader in promoting environmentally sound operations, and spent more than $26 million upgrading waste-treatment facilities.

While the cooperative reformed itself environmentally, it was also in the process of analyzing all of its internal operations. A program called Right Turn Only (RTO), dedicated to quality improvement, problem-solving, and teamwork, was adopted to aid Ocean Spray in remaining competitive while fostering an open working environment. In the area of market research, crucial in a brand-driven industry, Ocean Spray decided to take advantage of new database technologies by entering into a joint venture with Information Resources of Chicago. The result was a state-of-the-art software program called CoverStory that offered market information from universal product code (UPC) figures and trends. Other innovations included techniques to boost crop yields and forecast harvest results.

BILLION-DOLLAR COOPERATIVE

Under John S. Llewellyn, Jr. (who took over as president and CEO in 1987 from Harold Thorkilsen), Ocean Spray became a billion-dollar cooperative by 1992 and continued to build on its strong brand image. A very important development in 1992 involved a joint arrangement with PepsiCo, Inc. to distribute individual cans and bottles of Ocean Spray juices and drinks. This agreement offered Ocean Spray a relatively inexpensive opportunity to increase its individual serving segment, which at the time of the agreement accounted for roughly $100 million in sales, through vending machine, convenience store, and related outlets. According to reporter Jon Berry, "The logic behind the New Age partnership is forceful. During the past decade, Ocean Spray has burst from obscurity to become one of the acknowledged innovators in the beverage industry. But its strength has been notable only in supermarket aisles. To become an equal power in single-serve sales, Ocean Spray would have to spend millions building a distribution system."

Throughout the 1990s Ocean Spray rolled out a steady stream of new products. In 1991, Refreshers Fruit Juice Drinks and Ruby Red Grapefruit Juice Drink came on line; the latter became the co-op's most successful new product introduction yet. The following year Cran-Cherry Juice Drink joined the lineup, while Ruby Red & Tangerine Grapefruit Juice Drink was added in 1993. Craisins sweetened dried cranberries, a direct competitor to raisins in the dried fruit category, had their national launch in 1995, with Cran-Currant Black Currant Cranberry Juice Drink made available for purchase in 1997. In the meantime, the entire cranberry industry received a boost in 1994 when a Harvard Medical School research study published in the New England Journal of Medicine found that cranberry juice could help ward off urinary tract infections.

Ocean Spray also increasingly sought out joint ventures to extend its product line. The co-op joined with Nabisco in 1993 to market a cookie called Cranberry Newtons. Ocean Spray and Warner-Lambert joined forces to debut Fruit Waves hard candy in 1994. With PepsiCo, Ocean Spray that same year launched Breakers, a soft drink with 2 percent juice and available in three flavors. The following year saw the introduction of Cranberry English Muffins, a venture with Thomas' English Muffins. In addition, Craisins were included in the 1996-introduced Post Cranberry Almond Crunch Cereal.

Ocean Spray also placed a high premium on effective advertising, signing Sarah Ferguson, the Duchess of York, in 1996 for the "It's Your Zing!" campaign. In March 1998 the co-op announced that it had signed tennis star Martina Hingis to a three-year spokesperson contract. Hingis' first promotion for Ocean Spray involved the 1998 debut of Ruby Red & Tango Grapefruit Juice Drink, the third member of the Ruby Red line.

Meanwhile, Ocean Spray continued to upgrade its manufacturing facilities, combining just-in-time inventory systems and computer integrated manufacturing in a 1995-opened facility in Henderson, Nevada, that increased output without increasing costs. In January 1997 Llewellyn retired as president and CEO of the co-op and was replaced by Thomas E. Bullock after a 16-month transition period. Bullock had to contend with the after effects of poor cranberry harvests in two of the previous three seasons, which forced Ocean Spray to delay some product introductions. He also soon faced the end of Ocean Spray's five-year relationship with PepsiCo after the soft drink giant announced that it planned to abandon the distribution agreement in May 1998. By the end of the 1997 fiscal year, the Ocean Spray–PepsiCo arrangement had helped Ocean Spray achieve $225 million in sales for its single-serving products (out of total revenue of $1.44 billion, or almost 16 percent). It had grown from number six to number two among makers of single-serve juices and drinks.

Surprisingly, Ocean Spray and PepsiCo announced in March 1998 that a three-year extension had been reached on the distribution agreement. In August of that same year, however, the partnership once again appeared threatened when Ocean Spray filed a lawsuit attempting to block PepsiCo's proposed $3.3 billion acquisition of juice maker Tropicana Products, Inc. from the Seagram Company Ltd. The co-op believed that the purchase violated its agreement with PepsiCo as it appeared that the latter planned to distribute single-serving packages of Tropicana juices and drinks, which would directly compete with Ocean Spray products. Ocean Spray failed, however, to win a preliminary injunction to bar the takeover, and the deal was completed that same month. The co-op's lawsuit nevertheless continued, with Ocean Spray seeking unspecified damages from PepsiCo for violating the agreement.

In December 1997 Ocean Spray acquired a major interest in Nantucket Allserve Inc., a juice drink company based in Cambridge, Massachusetts, and famous for its offbeat "Nantucket Nectars" line of single-serve drinks, including Orange Mango and Protein Smoothie flavors. Nantucket, whose younger clientele complemented the typical consumers of Ocean Spray products, continued to operate independently. In July 1998 Ocean Spray acquired Sydney, Australia-based Processing Technologies International, a leading food technology research company and holder of the patents to the technologies used to create Craisins. The co-op, which renamed the acquired company Food Ingredients Technologies (Australia), planned to take the process used to create Craisins and apply it to numerous other fruits and vegetables, mainly to create ingredients for sale to other food companies. The potential for success of this venture appeared large as Craisins had proved to be a smash hit, becoming the fastest-growing product and the number three brand in the dried fruit market.

AN ERA OF VOLATILITY

In the late 1990s Ocean Spray contended with a cranberry glut that hurt the entire industry. Cranberry growers who had been receiving $60 per barrel for their crop in the mid-1990s had to settle for less than $20 per barrel by late 1999. A key reason for this turn of events was that Ocean Spray had lost its dominating control of the cranberry market. In 1993 Northland Cranberries, Inc., based in Wisconsin Rapids, Wisconsin, left the cooperative, frustrated with returns. Three years later, Northland introduced a 100 percent juice version of Ocean Spray's flagship Cranberry Juice Cocktail. The upstart's marketing campaigns emphasized that the Ocean Spray product contained only 27 percent juice. The Northland brand soon garnered a 10 percent share of the cranberry juice market. Ocean Spray, slow to react, introduced its own pure-juice line in 1998 under the Wellfleet Farms label, but sales were disappointing. The Wellfleet line was relaunched in the fall of 1999 as Ocean Spray Premium, backed by a $75 million advertising campaign. Sales were much improved.

In mid-1999, as this new rivalry continued to evolve, Bullock announced plans to step down as CEO sometime in 2000. Around this same time, Ocean Spray began exploring a possible sale of the co-op, but in November the board of directors voted against pursuing a merger, disappointing a good portion of the member farmers. The board agreed, however, to revamp itself, shifting from a 25-member board consisting solely of growers to one including three outside directors and just 11 growers. Revenues for 1999, meanwhile, dropped 8 percent, to $1.36 billion, while net earnings fell by more than 50 percent, from $280.4 million to $134.9 million.

In January 2000 Robert Hawthorne was brought onboard as the new CEO. Hawthorne, a former executive at both General Mills, Inc. and the Pillsbury Company, quickly dropped the lawsuit against PepsiCo to enable Ocean Spray to devote its full attention to building up its brand. The Ocean Spray–PepsiCo distribution agreement expired at the end of 2000. As a result, over the next several years, Ocean Spray garnered only about $100 million annually from the sale of single-serve juices and juice drinks.

Late in 2000 several large cranberry growers filed a lawsuit against Ocean Spray, pushing for a sale of the co-op. When the matter came up for a vote in January 2001, more than two-thirds of the co-op's growers voted against the idea of a sale. Later that year Ocean Spray relaunched its entire product lineup in an overhaul that featured the first substantial redesign of the products' labels since the 1970s. Two new flavors of Craisins, cherry and orange, hit the market that year, and Ocean Spray also launched a new line, White Cranberry juice drinks. These beverages were made from so-called white cranberries, simply a berry harvested two or three weeks earlier than usual, and one that produced a juice sweeter, less tart, and milder than standard cranberry juice. Popular in particular with families with young children, this new line quickly grew into a $100 million a year business. In 2002 the cooperative changed the packaging for its 64-ounce juices, switching to a new rectangular bottle designed to be easier to hold and pour and to better fit into refrigerator doors. Ocean Spray also narrowed its focus that year by selling Nantucket Nectars to Cadbury Schweppes PLC.

In November 2002 Hawthorne resigned unexpectedly, leaving Barbara S. Thomas to take over leadership on an interim basis. A member of the Ocean Spray board, Thomas had previously served as president of the consumer healthcare division of Warner-Lambert Company. Also in November, Northland Cranberries filed an antitrust lawsuit against Ocean Spray alleging anticompetitive tactics. Northland was joined in the suit by Clermont Inc., a firm based in Duxbury, Massachusetts, that had been the number two cranberry processor in the United States before leaving the business in 1999. In early 2003 Northland made a bid to buy the cooperative's juice business and the Ocean Spray brand for $800 million in cash and stock. The Ocean Spray board rejected the offer, but a majority of the coop's members, disgruntled with the low berry prices and their lack of input into the decision to reject the buyout offer, voted to replace the 15-member board with a new 12-person slate.

2003 AND BEYOND: PUSHING
NEW PRODUCTS AND SEEKING
PARTNERSHIPS AS INDEPENDENT
ENTITY

In June 2003 Randy Papadellis was appointed CEO. Papadellis had joined Ocean Spray in mid-2000, having previously spent six years as chief marketing officer at Welch Foods, Inc., another cooperative. In the spring of 2004 the new leader attempted to settle the long-simmering debate among members about whether to sell out or remain independent. The growers were presented with an offer by PepsiCo to buy half of Ocean Spray's branded juice business for approximately $100 million. In a June vote, the members narrowly rejected the deal by 52 percent to 48 percent. Having confirmed its intention to remain independent, Ocean Spray in September 2004 reached a settlement with Northland Cranberries on the antitrust lawsuit. As part of the agreement, Ocean Spray paid Northland $28 million for the latter's processing operations, including its 172,000-square-foot plant in Wisconsin Springs, and its inventory of unprocessed, frozen cranberries. The co-op also agreed to a ten-year deal to process cranberries from Northland's bogs, but Ocean Spray did not acquire the Northland brand or its retail juice business. In October 2004, in its latest move to further focus on its core cranberry operations, Ocean Spray sold Milne Fruit Products to Wyckoff Farms, Inc. for an undisclosed sum.

Under Papadellis, the cooperative rolled out a slew of new products. In 2004 Ocean Spray introduced the Juice & Tea line, comprised of beverages blending juice and iced tea. The following year the Craisins line was extended into trail mixes combining Craisins with nuts, semisweet chocolate, and other dried fruit. Early in 2006 Diet Ocean Spray made its debut. Sweetened with Splenda and containing only five calories per serving, the diet line debuted strongly. Meanwhile, on the marketing front, the cooperative replaced its decade-old "Ride the Wave" campaign with a new one featuring the tag line "Straight from the Bog" and testimonials from cranberry growers. Papadellis also began putting together a network of partnerships to expand the marketing and distribution of Ocean Spray products. Likely the most important of these was a 25-year strategic alliance that brought the cooperative back into partnership with PepsiCo. Through the July 2006 deal, PepsiCo agreed to market, bottle, and distribute single-serve cranberry juice products in the United States and Canada under the Ocean Spray name. The two companies also agreed to jointly develop new juice-based products. Ocean Spray single-serve products were slated to be integrated into the PepsiCo system beginning in 2007. Also pointing to a brighter future for Ocean Spray was the improving condition of the cranberry industry. The cooperative penciled in a price of around $40 per barrel for the fall 2006 harvest, a level likely to satisfy Ocean Spray's member growers.

Jay P. Pederson

Updated, David E. Salamie