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Harvest of Discontent; Low Cranberry Prices Shake Farmers' Faith in Ocean Spray

By CONSTANCE L. HAYS


Sept. 22, 1999 New York Times

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MIDDLEBORO, Mass. -- Cranberries have been good to Betty Brown's family for generations. Her grandfather staked out cranberry bogs here on the sandy shoulder of Cape Cod in the 1930's, and now Mrs. Brown and three of her cousins farm the land they are in the process of buying from their parents.

And the family has been good to Ocean Spray, the 69-year-old company that dominates the cranberry business and sold about $1.4 billion of cranberry drinks and other products last year. Mrs. Brown even had her photograph featured in last year's Ocean Spray annual report.

But lately the relationship has soured, and Mrs. Brown has become one of the company's most vocal critics.

''One of the hardest things we had to do was look the two dads in the eye and say, we can't pay you this year,'' she said.

They cannot pay because Ocean Spray, besieged by crises ranging from an oversupply of cranberries to increased competition to some costly marketing mistakes, has sharply cut the price it pays farmers for the fruit. The situation has become so dire that management has commissioned a total review of its operations, hiring Bain & Company and Merrill Lynch & Company as its consultants.

The review could lead to big changes that might include a sale of Ocean Spray to a consumer-products company like Unilever or Pepsico. ''At this point, every possible solution is being evaluated,'' said Paul Jonjak, a board member.

Being under someone else's wing would be a radical departure for Ocean Spray, a cooperative based in Lakeville, Mass., that is owned by 920 cranberry farmers and citrus growers, most of them in the United States. The company has historically prided itself on coming up with its own answers to its problems, though not always in the most methodical manner.

''Their culture can be summed up as ready, fire, aim,'' said one analyst who follows the business.

Indeed, part of the problem may be the cooperative structure itself. Ocean Spray has a board composed exclusively of growers who are also the owners and suppliers of key raw materials and who may not be the most objective critics of the rest of the business.

''This company was a trend-setter,'' said Michael Bellas, chief executive of Beverage Marketing, a trade group. ''What happened was they didn't keep evolving.''

What also happened was that Ocean Spray lost control of the cranberry supply, something it had carefully managed over the years, and with it went prices. The company now confronts bulging inventory and growing overproduction with no quick fix in sight.

''Some people say it will be 10 years,'' said David N. Farrimond, who oversees cranberry marketing for the Agriculture Department.

Mrs. Brown blames a series of mistakes by management. Tom Bullock, the 53-year-old departing chief executive, announced his retirement in June after less than three years at the helm, but he plans on staying around for at least a year.

''There have been oversupplies and all kinds of problems in the past,'' Mrs. Brown said, perched on the edge of a bog recently and nibbling tart raw cranberries, something she said was an acquired taste. ''We've been able to overcome them with good marketing and management. But our marketing and management have let us down. They have dropped the ball completely.''

For the last few months, a Web site run by Mrs. Brown's husband, Hal, a clinical social worker who helps out on the bogs as well, has provided a forum for comments from farmers, not all of whom are disgruntled. ''Ocean Spray is so poor in communicating,'' he said. ''They treat growers as if they aren't really the owners of the company.''

Activity on the Web site (www.cranberrystressline.com) escalated in February, after Ocean Spray announced, at the co-op's annual meeting in Florida, that prices for a 100-pound barrel would fall to a range of $42 to $48 from $55 the year before. Mr. Brown posted a picture of the Titanic with an article about the company's problems, and the comments flowed in. Ocean Spray dismisses the Web site as divisive, but others say it has been helpful.

''He's made it impossible for the growers within the organization to ignore the outside world,'' said Tom Gelsthorpe, a grower based in Sandwich, Mass., whose father is a former executive at Ocean Spray. ''The disadvantage of a private company is, if the company's not well run, there's no dispassionate analyst to shed a different light on things. Secrecy has turned out to be our worst enemy.''

Analysts describe an organization divided against itself. ''It does appear that the whole board-management interaction the last few years has been somewhat dysfunctional,'' said Rex Green, a managing director at Advest in Boston.

At the root of all this is the sudden price collapse. For most of the last decade, farmers who belonged to the Ocean Spray cooperative received about $60 a barrel. Last year, the price fell to $55, and in June, only a few months after the February announcement, the company said it would pay just $32 to $38.

''Part of it is the surplus, and part of it is the competitive activity,'' Mr. Bullock said. ''People are unhappy,'' he said of the growers. ''These are good, solid, hard-working farmers, and this is their paycheck. They'll remain unhappy until this turns around. We're doing a lot of things, but it's going to take a while.''

Mr. Bullock announced his retirement only a day after an advisory committee of growers expressed no confidence in management, although the company said that was not a factor in Mr. Bullock's decision. He remains in charge of day-to-day operations, including the job of choosing his successor, and says he has an agreement to stay on for a year to insure a smooth transition.

''I think it's time for a change,'' he said, explaining his retirement, ''and that's what they'll have -- a change.''

Others note that as strained as relations may have become between growers and management, the farmers might not like the alternative any better.

''Someone like Kraft or Coke or Triarc is going to come along and seduce them, and then someone they can't control will be controlling them,'' one industry analyst said. ''The Ocean Spray brand would become just another brand in some company's big-brand portfolio.''

Ocean Spray created the cranberry-juice market in the 1960's when company executives were casting about for ways to expand beyond the fruit's once-or-twice-a-year appearance on holiday tables. The cranberry, believed to have been served in stew form at the first Thanksgiving, had long had patriotic associations.

Ocean Spray pushed the health aspect of drinking cranberry juice, citing its high vitamin C content and other attributes -- a tactic that helped the company grow from $300 million in sales in 1969 to more than $1 billion by 1991.

Yet the health aspects of Ocean Spray drinks have come back to haunt the company lately. In 1996, Northland Cranberries, founded by a renegade Ocean Spray member, came out with a 100 percent juice version of Ocean Spray's top-selling Cranberry Juice Cocktail. The marketing took dead aim at the ingredients in Ocean Spray, noting that it was only 27 percent juice.

At the same time, a new Federal labeling law required companies to display the sugar, sodium and other ingredients prominently on packages. Since then, Northland has carved out about 10 percent of the cranberry juice market at Ocean Spray's expense.

''The labeling law was going into effect, and I asked what we were going to do,'' said John Swendrowski, Northland's founder, recalling his decision to break away from Ocean Spray in 1993. ''They said it was no big deal.''

Ocean Spray, countering with a study of its own that tried to convince consumers that sugar was sugar, whether it came from fruit juice or corn syrup, thought the appeal of Northland's 100 percent juice would only be fleeting, Mr. Bullock said. ''It's been around for years,'' he said of such products, ''and when Northland came into the market, we thought it was more of the same.''

Ocean Spray finally struck back a year ago with a 100-percent-juice product called Wellfleet Farms, proudly proclaiming the move as the ''most successful new product launch'' in company history.

Wellfleet Farms, however, sold badly, hindered by what Mr. Bullock called ''a little trouble communicating'' with consumers.

Wellfleet Farms is slowly vanishing from store shelves, and the company plans to reintroduce the product next month as Ocean Spray Premium, belatedly taking the advise of critics who said the company made a mistake not capitalizing on its well-known name.

With Northland outside the fold, Ocean Spray also lost control of its careful balance between cranberry supply and demand. ''Northland is what people now point to and say, that was the beginning of the Bataan Death March,'' a consultant who knows the business well said. ''People are saying now, under no circumstances should they have let the Northland growers leave the co-op.''

Elsewhere, the company's efforts to upgrade its computer systems wreaked havoc. A big $30 million investment in a system from SAP that is intended to manage the business from farm to grocery shelf went on line in February.

''During the summer, we had difficulty with people learning to run the system,'' Mr. Bullock said, calling the change a difficult transition. Deliveries were snarled, and options were limited with the new system when it came to correcting them, others in the company said.

The company plans to introduce several products this fall, including a new variation on its grapefruit drink to be called Ruby Red Strawberry. And it will soon introduce a vitamin- and calcium-enhanced cranberry drink aimed at health-conscious consumers.

''We want to reassert our cranberry leadership with the customer,'' said Nancy MacDermott, the company's senior vice president for sales and marketing.

Several growers, meanwhile, are working together in search of alternatives to the way Ocean Spray is run. One of them is the A. D. Makepeace Company, a founder of Ocean Spray, and the co-op's largest single grower.

''At this time we would like to encourage debate, discussion and information-sharing among the growers to build understanding of the strategic merger alternative,'' said Robert L. Rosbe Jr., Makepeace's vice president for finance. ''We've defined that as merging the juice company and consumer packaged goods with a major global giant,'' while keeping the co-op intact.

A report from Ocean Spray's consultants is expected by the end of the year.

''People are trying to figure out the best way to handle the change in the industry,'' said Mary Brazeau Brown, who has 330 acres planted with cranberries in Cranmoor, Wis., and is not related to Betty Brown. ''It's not an easy solution for anybody.''

 

 

 



 

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