Editorial
A revitalized Ocean Spray in 2002; but are the means ethical or legal?
4/16/00 Ocean Spray is on the fast track. If we believe their promises, the new management team will turn the company around in two years. Can you live with their methods?
A Streamlined Company
The board of directors has been downsized. The competition is on the ropes, having been battered by targeted aggressive price slashing. In some parts of the country 64 oz. bottles of cranberry juice cocktail are retailing at 99 cents, with an additional rebate offer. How can anybody compete with that? Northland stock has taken a nose dive.
Ocean Spray, by their own statements, never had a surplus. All they had was enough berries to flood the market and clobber the competition the old fashioned way - not with a better product or more astute advertising - but by predatory underpricing.
Ocean Spray is streamlining operations, not just by closing or selling a facility here and there, but by eliminating many small farmers, including some of its most unruly, outspoken dissenters. The fact that these growers complained about the very problems of mismanagement that are now being admitted to is irrelevant. A radical cannot be tolerated in the corporate culture of Ocean Spray where the rule has been to get along, you go along. Even if this wasn't the case, the way they seem to see it, it's simply unwieldy and inefficient to have approximately three quarters of their farmers grow only twenty-five percent of their crop. They are paying them far less than it costs to grow a crop and driving them out of business.
They eliminate an unwanted element and streamline decision making. From a corporate predatory perspective, can you blame them? Is a corporate predatory perspective appropriate for an agricultural cooperative?
Some bogs will go fallow, others will be bought up by the larger growers. Ocean Spray will be a leaner company with half the number of grower/owners. It will also be a meaner company, but in the corporate world, aggressive (think Bill Gates) is good if it makes money for the anointed ones. (1) It will be run essentially by the rich and for the rich. Whether this was planned several years ago, or was an idea hatched on the fly is known only to insiders, who won't talk unless forced to by their consciences or our courts.
The Gentle Giant
Ocean Spray was the gentle giant when it was an unchallenged monopoly. It graciously indulged the independents room on their coattails as long as they didn't take too much market share. Ocean Spray probably intends to be the gentle giant again. It's a nice image and it's comfortable to be a protected monopoly. Once the competition is vanquished, by whatever means, the company can come back to home and hearth... Mom in the kitchen, warm apple pie fresh from the oven, and the kind blue wave.
To achieve this, we do not think it is ethical to destroy the livelihoods of hundreds of growers who made Ocean Spray a household name. We do not think it is it ethical to hide behind every nook and cranny of protection offered by Capper Volstead (2) and indulge in business practices that would be most likely be questioned by the SEC were it a public corporation.
A Man with a Mission
Robert Hawthorne is a man with a mission. He has brought much more candor to Ocean Spray than his two predecessors. He obviously hopes to turn Ocean Spray around and make it profitable again. He comes from a corporate culture where success was measured in market share won from the competition. Unfortunately, we have seen little indication he has discovered how different the deeper culture of cranberry growers is despite the Ocean Spray uber al mentality of most of the board and many Ocean Spray growers. It takes a real mensch (3) to see beyond the razzle dazzle from the Blue Wave cheerleaders.
We have all seen what happened when cranberry growers bought into the White House (4) myth that farmers just weren't all that bright when it came to business. We ended up with a board whose members tried to impress each other and management with their business acumen and forgot the plain old common sense that made them good farmers. They left the "show me" attitude of skepticism, the B.S. detector if you will, on the bog instead of bringing it into the boardroom where it would have served them and their fellow Ocean Spray growers well.
Unfortunately, we have seen no sign that Hawthorne understands any of this, or that he has any scruples about leaving a third or more Ocean Spray growers and some ancillary business people bankrupt, or nearly so, in the process of remaking Ocean Spray.
Hawthorne's success is not a foregone conclusion. Tropicana and Minute Maid, owned by Pepsi and Coke respectively, will be moving into the cranberry juice business in a big way in the next year or two. The Ocean Spray label and reputation is valuable. But it is only valuable as long as the public perceives the company as friendly.
Devaluing the Label and the Image
How valuable is a label if customers see it constantly being discounted by its owner? How valuable is a label that has less percent cranberry juice than the WalMart house brand? How valuable is a "premium" label that sells for less than Sunny Delight? How long do you think Heinekens would be seen as a premium beer if it went on sale for less than the cheapest beer in the cooler? In successful marketing, perception is everything. Ocean Spray has already devalued the brand image. For example, months ago there was a large wooden bin at the entrance to the Carver, Mass. Shaw's Supermarket filled to overflowing like so many heads of lettuce with Ocean Spray Cranberry Juice Cocktail at two for one. Was that the beginning of the end?
If Ocean Spray is seen as a company where larger farmers cannibalize smaller farmers, that image may be lost. This is one of those human interest stories the media covers with relish. The public loves to root for the underdog. All it would take would be one protest tractor parade of small disenfranchised Ocean Spray growers from, say, Carver to Ocean Spray headquarters in Lakeville along the shoulder of route 44 to garner extensive national media coverage. The Ocean Spray image, earned over decades, would be history.
Neither Coke nor Pepsi need to own the Ocean Spray label to become the predominant players in the cranberry industry. They will do just fine with Minute Maid and Tropicana, who have the means to grow the international market in a way Ocean Spray can only dream of. (5)
Ocean Spray may end up as an also ran, and a textbook case of bad management. But if Hawthorne succeeds, to many of those left, he will be hailed as a hero. Will the end justify the means? That's up to you and your moral compass to decide.
Is it legal?
This is another matter. Selling a product for less than it costs to produce for the sole purpose of hurting the competition is, under some circumstances, illegal.
Cranberry Stressline believes there is room in the cranberry industry for competition. We believe that fair competition is good for the industry and good for the cranberry grower. We believe that Ocean Spray management has not been forthright with the board and the growers in the past, and there is every reason to believe they are being less than forthright now. For example, several growers have reported that the payment schedule was posted on the password protected ExtraNet by Grower Relations for several hours Thursday afternoon, only to be removed without explanation later in the day. Every day that revenue information is withheld is vital to growers. This information potentially helps the board members who have advance knowledge if they use it to their benefit.
Voicing your opinion on the Cranberry Stressline Forum has only limited impact, even though bankers, brokers, journalists and government officials read it. Many of you are writing to Secretary Glickman expressing you opinions, pro and con, about the marketing order. This is a democracy, but individuals are rarely heard unless they have the wherewithal to initiate a lawsuit. But when you and your friends and neighbors write individually, you are listened to.
If you don't believe that a lean and mean Ocean Spray is good for the industry, and whether you're an Ocean Spray grower or an independent, you believe in doing right, playing by the rules, and in simple American justice, you can do something. If you question the way Ocean Spray is using the surplus to try to price the competition out of business, you can write to the director of the Bureau of Competition at the Federal Trade Commission at the following address:
Richard G. Parker, Director
Bureau of Competition
Federal Trade Commission
Room 374
600 Pennsylvania Avenue, N.W.
Washington, D.C. 25080
Trust, but verify
Cranberry Stressline does not know that Ocean Spray broke the law in the past, or is currently engaging in illegal practices. We haven't found a smoking gun, but we do smell cordite in the air. We want to be proud of the entire cranberry industry. We want to trust that Ocean Spray, from the CEO to the sales force in the field, hold themselves to the highest ethical standards. Ronald Reagan's maxim about the Russians and the nuclear test ban treaty, "trust, but verify", should be applied to how Ocean Spray conducts business and can only be accomplished by a a scrupulously honest CEO who will welcome outside investigators, a skeptical board, a cadre of informed grower/owners, and an inquiry by a governmental agency like the Federal Trade Commission.
Read addendum which was posted on the Forum: "Is there a light at the end of the tunnel?"
(1) Not so good, however, when the Justice Department gets involved. back
(2) To further understand Capper-Volstead, the act of congress which gave agriculture cooperatives exemptions from anti-trust litigation, Click Here, and scroll down to CIR 35. This is a publication of the USDA, Rural Development, Rural Business - Cooperative Service. You will see that agriculture cooperatives are liable for prosecution under Capper-Volstead if they:
- engage in predatory practices
- engage in price discrimination
- restrict members' agriculture output
- coerce competitors or customers
- collude with third parties to fix prices
- combine with other firms to substantially lessen competition
- engage in boycotts
According to the publication, "the Capper-Volstead Act is continually under review and subject to administrative and court interpretation. Farmer cooperatives that engage in marketing activities should make every effort to act responsibly in conforming with the letter and the spirit of the law." (emphasis added) back
(3) Mensch, Yiddish for a sensible, mature, responsible person; but generally used to refer to someone with the courage of their convictions and the ability to face adversity head on. back
(4) For those not familiar with Ocean Spray, the "White House" refers to the palatial world headquarters of Ocean Spray in Lakeville, Mass. back
(5) Tropicana plans to move aggressively into India, and here's a press
release from Minute Maid about their plans in Europe:
Minute Maid to invest $50 million to expand juice production in Europe - Signes, France,
July 9, 1999 - The Minute Maid Company announced today that it would invest $50 million to
redesign and re-equip an existing
"The
Signes plant will be a tremendous asset to us as we expand our juice business in
Europe," said Ralph Cooper, President of The Minute Maid Company. "It represents
an important strategic step in the growth of that business, and reinforces The
Cooper said Signes offers access to good sea and truck transportation important in
receiving ingredients and shipping Minute Maid products to market. "But most
importantly," he noted, "Signes has a skilled, motivated workforce which will
remain in the
Minute Maid, an operating group of The
The Signes facility began producing concentrates for the carbonated soft drink products
of The
"Signes associates will be critical to the transition of the plant," said Plant Manager Michel Blanchard. "They have made this one of the most productive plants in the world, and I'm certain they will continue that tradition with Minute Maid."
The conversion to juice is expected to take about a year, and the Signes plant will
continue to produce
As an operating group of The
I was asked on the Cranberry Stressline Forum whether I saw any light at the end of the tunnel and here is my answer:
Since you asked directly whether I see any light at the end of the tunnel, yes I do. Two lights in fact, held by the strongest beverage companies in the world. One light (call it Minute Maid) is held by Mr. Coca-Cola, and the other light, is held by Mr. Pepsico (call it Tropicana). These lights, as I write, are now visible at the end of the tunnel. Trust me on this one. I know it, and Ocean Spray knows it, which is why many of their actions are rather puzzling. I can't imagine that they think they are making themselves a more attractive acquisition for one of these companies two years down the road.
The course that Ocean Spray is now on will probably achieve the goal of resurrecting the company, although whether the government allows it to remain an agriculture cooperative remains to be seen. It will be a company with about 200 growers producing about 80% of its fruit, and 50 smaller growers producing the rest. It will possibly lose some of its biggest growers in the process of its transformation. Minute Maid and Tropicana, as I have written in Stressline, have designs on the global fruit juice market. It goes without saying that they intend to battle it out domestically too.
They know how great cranberries are. Here is a fruit juice that tastes great alone, and gives pizzazz or is an added cachet (depending on how it's advertised) to numerous other fruit juice blends. "Cranberry on the label means juice on the table," and that's a freebie for the generic marketing folks. And that very fact will save the cranberry industry for those who can hang on.
Most of the survivors will watch their fruit migrate around the world under the auspices of Coke or Pepsi. Neither company has a reason to buy Ocean Spray. They don't need the label, and as disaffected growers leave and sign on with Pepsi or Coke or their affiliates, they won't need Blue Wave berries.
Ocean Spray will be make inroads into a few countries overseas, but will remain primarily a domestic company. Depending on the outcome of any legal action or farmer protests which cause bad publicity, it's once squeaky clean image may be tarnished.
The name in cranberries, the once true cooperative that took cranberries from a seasonal relish to a year round product that in its heyday always had a solid ten feet on the juice aisle, will be written up in business courses as the little beverage company that almost could, but didn't. The average small grower will not be able to tool around his thousand acres in a brand new Porsche, and then come home to a ten bedroom mansion to sip margaritas in the Jacuzzi with his wealthy pals; but he or she will be able to lead a comfortable farming life close to nature and far from the bill collector.