Sunkist Growers, Inc.

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Sunkist Growers, Inc.

14130 Riverside Drive
Sherman Oaks, California 91423
U.S.A.
(818) 986-4800
Fax: (818) 379-7405
Web site: http://www.sunkist.com

Member-Owned Cooperative
Incorporated: 1893 as the Southern California Fruit Growers Exchange
Employees: 950
Sales: $1.01 billion (1997) SICs: 0174 Citrus Fruits; 5148 Fresh Fruits & Vegetables; 5142 Packaged Frozen Foods; 2037 Frozen Fruits & Vegetables; 2033 Canned Fruits & Vegetables

One of the ten largest marketing cooperatives in the United States, Sunkist Growers, Inc. is a not-for-profit organization operated for the California and Arizona citrus growers who compose its membership. During the late 1990s when Sunkist’s membership comprised 6,500 citrus farmers, making it the largest marketing cooperative in the fruit and vegetable industry in the United States, it controlled nearly 60 percent of the domestic market for navel oranges. The cooperative markets oranges, lemons, grapefruit, and tangerines in the United States and abroad, using its “less-than-perfect” fruit to produce processed citrus products such as juices, peels, and oils for use in food products. Sunkist, through its members, boasts the two largest citrus processing plants in the western United States. Owned and controlled by its member-growers, the only individuals eligible to sit on its board of directors, Sunkist markets the world-recognized Sunkist brand name and coordinates the timing of the harvest and release of its members’ fruit to achieve superior prices. The majority of the member-growers farm 40 acres or less.

19th-century Origins

Sunkist’s formation in the late 19th century was a function of the burgeoning growth recorded by California’s citrus industry during the period. The larger the young industry became, the greater the need for a cooperative of Sunkist’s ilk. Commercial citrus production began in the region roughly a half-century before the birth of Sunkist, when the first commercial orchard took root in 1840. From this starting point, a series of events fanned the fires of growth, transforming that single orchard situated in what would later become downtown Los Angeles into a thriving industry and an integral component of the state’s economy. The forces that promoted the growth of the citrus industry provided the reason for Sunkist’s creation. The first significant event occurred in 1848, when the beginning of California’s Gold Rush lured prodigious waves of fortune seekers into the region. As the state’s population increased exponentially, its ability to meet the food demands of its new residents was stretched beyond capacity. Vitamin-rich fruits and vegetables were in short supply, causing many of the new Californians to develop scurvy. Citrus production was increased as a response, but an even greater boon to the fledgling citrus industry occurred 20 years later when the transcontinental railroad was completed in 1870. Within ten years of the first rail shipment, the volume of California citrus moving east had grown to more than 2,000 rail cars annually. In another five years the volume had doubled. California citrus had become big business.

At roughly the same time the eastward and westward rail lines reached their meeting point in Promontory, Utah, the first seedless, navel oranges arrived in California. Two parent trees were shipped from Brazil to southern California by American missionaries and planted in Riverside in 1873, marking the introduction of what would prove to be a highly prized variety of orange into an already rapidly expanding market. Finally, the opening of the Atchison, Topeka, and Santa Fe rail lines in 1885, which connected Los Angeles to the rest of the country, provided the last significant factor propelling the growth of the citrus industry before Sunkist’s debut as a cooperative. As the 1880s gave way to the 1890s, “a veritable boom in orange planting” was underway, according to an early Sunkist historian. The industry was growing by leaps and bounds, measured in part by the dramatic increase in citrus planting activity. Between 1880 and 1893 California’s citrus acreage increased from 3,000 to more than 40,000, underscoring the heightened demand for oranges and lemons. As the revenue generated from citrus production escalated, however, there was one sector of the industry excluded from sharing in the riches. Alarmingly, the growers were watching others get rich from the citrus they grew, and as the 1890s began, they found what little power they had quickly slipping away. Collective action was the response, and Sunkist emerged as the lasting answer.

The orange growers began to watch their share of the citrus revenue dwindle when production exceeded the local market demand. With local markets glutted, the orange growers realized their survival depended on shipping their fruit to distant markets, but this realization was far easier to apprehend than it was to put into action. Amid the packinghouse owners, distributors, agents, and speculators—the “middlemen” of the citrus trade—the growers ranked a distant last in terms of exercising any control over the industry. They were independent, smallscale farmers presiding over modest five-, ten-, or 15-acre groves without the organization and training to distribute their produce effectively. The growers’ weak bargaining position worsened in 1891 when agents decided they would no longer buy fruit F.O.B., or freight-on-board, a purchase term meaning the buyer pays the transportation charges and assumes all risk of damage and delay in transit not caused by the shipper. Instead, the agents declared they would handle the citrus only on consignment, a decision that shifted the risk from distributor to the scattered ranks of independent citrus growers. Forced either to accept the offers of local speculators or consign their fruit to commission agents in the East, the California citrus growers were cornered into an untenable position. Successive years of widespread financial losses—the “Red Ink” years—followed during the early 1890s, forcing the growers to marshal their forces and organize against a system they believed was unjust.

A number of attempts to band growers together occurred before the commission houses refused to purchase fruit F.O.B., with the first attempt taking place in 1885 when The Orange Growers Protective Union of Southern California was formed. Other attempts at collective action followed during the ensuing years, but all failed for one reason or another. Their brief existences, however, did lay the foundation for the one cooperative organization that would endure, the Southern California Fruit Growers Exchange, Sunkist’s predecessor. Formed in 1893, the Exchange was organized as a federated structure, member-owned and -operated, comprising regional marketing cooperatives, known as district exchanges. During its first season, the Exchange represented 80 percent of the orange growers of southern California and shipped 6,000 carloads of the 7,000 shipped by all of the state’s growers. By regulating shipments and directing the fruit where demand was the highest, the Exchange made an immediate impact on the financial wellbeing of its member-growers, quickly erasing the painful memory of the Red Ink years. By the end of the first season growers realized an average net price of roughly $1 per box of oranges, a return that far eclipsed what many would have earned without the Exchange’s existence. It was the common belief that without the Exchange, growers would have fallen short of earning $.25 per box, the realization of which prompted many nonmembers to seriously consider joining the Exchange’s ranks. By the end of the century the cooperative was firmly established as the indispensable ally of the formerly powerless orange growers in southern California. There were 1,700 members from 75 local packing associations and 12 district exchanges working together, bringing in $3.7 million in sales.

As the Exchange prospered and expanded in southern California, others noted the superior return member-growers were earning from their groves, namely, those growers working the land to the north. In California’s San Joaquin Valley citrus growers were suffering from many of the same problems that had plagued their counterparts in the south. By 1905, after more than a decade of watching the southern growers prosper under the beneficent control of the Exchange, the northern growers clamored to join the Exchange. In response, the Exchange extended its purview to encompass the entire state. With the addition of member-growers in the north, the Exchange changed its name to reflect its broader geographic base, adopting the California Fruit Growers Exchange as its new corporate title, and stood solidly positioned as one of the most promising cooperative organizations in North America. Although the Exchange on paper owned very little (the furniture in its Los Angeles office representing its only asset), there was a powerful force operating behind what appeared to be a barren corporate shell. The cooperative owned no citrus groves or property, it held no financial interest in packinghouses, district exchanges, or other local property, yet it represented 45 percent of California’s citrus industry through its 5,000 grower-members. In all, the cooperative governed more than 14,000 carloads of citrus when it adopted its new name, with sales returns eclipsing $7 million.

Birth of the Sunkist Name and the Great Depression

Geographic expansion was followed by diversification, something the cooperative would do with vigor following World War II. Its first meaningful step in this direction occurred in 1907, when the Exchange formed its own timber supply company. Unable to secure a steady supply of reasonably priced wood for packing crates, the cooperative created the Fruit Growers Supply Company, which set the precedent for the Exchange’s synergistic approach to the business of agriculture in later years. The inaugural year of the Fruit Growers Supply Company also marked the Exchange’s first foray into advertising. In 1907 the cooperative launched a major advertising campaign—reportedly the first time a perishable food product was advertised—that, for the first time, included the use of the Sunkist brand name. The Sunkist trademark, registered in 1909, became one of the most effective marketing tools for the cooperative from this point forward, on its way toward becoming one of the most recognizable trademarks in the world.

Company Perspectives:

The history of Sunkist is as rich as the history of California and Arizona. Growers united to form Sunkist in order to develop and maintain stable markets for their members’ fruit; to gain the best possible return for their produce; and to supply consumers around the world with top-quality, fresh citrus and processed citrus products at reasonable prices.

Over the course of the next two decades the Exchange grew into a formidable force, its highlight achievements punctuating the progress of a cooperative with far-reaching capabilities. In 1914 the cooperative’s product division was founded with a small marmalade factory, followed by entries into the production of citrus byproducts and the production of orange juice. Advertising became more sophisticated as the years passed, emphasizing the health and nutrition advantages inherent in citrus consumption, and the cooperative bolstered its membership rolls, becoming the unrivaled representative of growers throughout California. By the end of the 1920s the Exchange comprised more than 13,000 citrus fruit growers who produced more than 75 percent of the California citrus crop. Geographic expansion had carried the Exchange’s membership ranks into neighboring Arizona, where the cooperative could look forward to providing its marketing and distributing services to untapped citrus-growing regions. In California, the cooperative had won over a considerable majority of the state’s citrus producers. In 1932, amid the torturous economic environment of the Great Depression, three out of every four citrus growers in California were members of the Exchange.

The economic collapse of the 1930s sent Shockwaves throughout the United States, creating a maelstrom of economic turmoil. Citrus growers were not excluded from the pervasive financial panic sweeping the nation. By 1933 citrus prices had dropped to or below the cost of production, making profit an impossibility, but instead of retreating and slowing its shipments the Exchange continued to offer normal volumes throughout the Great Depression. The cooperative extended additional credit, reasoning that there was nothing to be gained by curtailing its activities. “It seemed better to take the risk,” explained a Sunkist official at the time,“than permit the fruit to remain, and probably waste, in California, for sales lost with a perishable commodity are never regained.” Careful management carried the cooperative through the difficult 1930s, and by its 50th anniversary in 1943, the frenetic activity of world war had vanquished any remnants of economic ruin. Midway through World War II, Sunkist was as robust an organization as it ever had been. Within the cooperative there were 200 local packinghouses feeding into 25 local district exchanges, packing more than 37 million boxes of oranges, lemons, and grapefruit. During the economic boom period of the 1950s and 1960s, growth, diversification, integration, and the modernizing and streamlining of operations became the key words describing a corporate world fast on the move. Sunkist, from 1945 forward, began to take on new shape, broadening and expanding to compete effectively in the new world surrounding it.

Post-World War II Progress

One of the most important developments during the postwar period was increasing the awareness and regard for the Sunkist brand name in the minds of consumers. Toward this end, the cooperative registered a marketing triumph, effectively removing the cooperative from the business of commodity selling, in which the winners and losers were determined by whoever priced their products the lowest. As recognition and respect for the Sunkist brand increased through sophisticated advertising efforts, consumers demonstrated their willingness to pay more for a Sunkist orange than for the non-Sunkist variety. The cooperative had stamped successfully the Sunkist trademark on fresh oranges first in 1926 and in 1951 began branding its trademark on frozen concentrates and other canned citrus juices. In 1952 the cooperative made the ultimate acknowledgement of the importance of the Sunkist name by changing its own name from the California Fruit Growers Exchange to Sunkist Growers, forever allying the cooperative and its member-growers with the ubiquitous brand.

Another decisive postwar move was the cooperative’s penetration of foreign markets, particularly its foray into Japan. At first, however, the cooperative’s biggest foreign market was in Europe, where nearly eight million cartons were shipped annually during the early 1960s. By the late 1960s Sunkist was shipping more than 12 million cartons abroad annually, while at home the company controlled roughly 80 percent of the citrus crop in the Far West. The energy crisis of the early and mid-1970s severely hobbled Sunkist’s burgeoning export business, as the costs of shipping fruit overseas tripled, but overall the 1970s were years of robust growth. In 1974 the cooperative licensed its name to the Ben Myerson Candy Co., Inc., which began producing fruit jellied pectin made from Sunkist’s citrus byproducts. Three years later an agreement was reached with General Cinema Corporation to market citrus-flavored carbonated drinks bearing the Sunkist trademark, as the cooperative sought to realize the full financial benefits of its esteemed brand. Because of these and other efforts, sales swelled 50 percent between 1973 and 1979, eclipsing the $500,000 mark in 1977. By this point there were 6,500 ranches signed on as Sunkist members in California and Arizona, with the groves ranging in size from five acres to as much as 10,000 acres. Expansion overseas had led to the establishment of three foreign subsidiaries, and the company’s domestic efforts were supported by 37 fresh fruit sales offices scattered throughout the country.

Sales reached their next milestone of $1 billion in 1990, following a decade that saw the number of member-growers decrease while the average size of member farms increased. The decline in membership had begun during the 1960s, when there were nearly 15,000 member-growers, but the decline had become more precipitous as the cooperative entered the 1980s. By 1983 membership was down to 5,000 and its share of the Far West citrus crop had fallen from nearly 80 percent to 56 percent, as the encroachment of commercial firms into the Western citrus industry altered the face of citrus farming. Sunkist officials realized that the cooperative’s survival depended on maintaining a large volume base and that any further erosion of the cooperative’s membership rolls would cause decided injury to the 90-year-old organization. To gain new members, membership requirements were eased during the decade, overhead costs were reduced, and in 1988 the cooperative formed a new subsidiary, Sunkist Real Estate, Inc. Through Sunkist Real Estate, members received real estate, financial, and investment services, as well as short-term financing. Gradually, the cooperative’s membership rose.

Although the 1990s began with the longest, coldest freeze in California’s history, the decade was a positive one for the cooperative. After three decades of investment, export business accounted for roughly a third of the cooperative’s sales volume during the decade, which represented a considerable amount of overseas business considering that annual revenue eclipsed $1 billion during the 1990s. By the end of the decade, as the cooperative settled into its second century of operation, there were 6,500 citrus farmers in California and Arizona who counted themselves as Sunkist growers. As the company prepared for the 21st century, its decades of leadership in the U.S. citrus industry pointed to a similarly influential role in the decades ahead. Perhaps the cooperative’s greatest strength was its name, however, a brand imprinted on the minds of consumers that promises to endure.