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Selling the
cooperative or merging: a response to business person by Nabiel Shawa
A business person, known to Stressline
but who wishes to remain anonymous writes on the Forum: A Call To
Action! - The Future
11/20/00 Emotions are running high. Grower/Owners continue to feel
they are in the dark about the facts required to make an intelligent
decision for the future of their company. It certainly appears that
change is not coming as quickly as many feel it should. In light of
all that, I would like to comment on Mr. Shawa's call to action and to
provide something for Grower/Owners to think about.
I feel some of the most intelligent postings have been placed by
Nabiel Shawa during the past few months. I do not agree with his
solution of selling the cooperative, but that is just a difference of
opinion. He may be right, or I may be right that a merger with other
fruit cooperatives is a better strategy than selling all or part of
OSC, only time will tell. (If you missed my previous comments please
review the forum's history.)
The sad fact is that Ocean Spray has lost its monopoly position in
cranberry. This monopoly position allowed OS to make mistakes over the
years and continue to grow the business successfully. I firmly believe
that the high price of independent fruit in the mid-1990's is a large
factor in the surplus that is creating these problems. I also believe
that Ocean Spray tried to keep prices in line during this period
knowing that company's would reformulate their products and demand
would drop over time. No beverage company is going to push a low
margin beverage that uses large quantities of an $85.00 (or higher)
per gallon concentrate. The independent growers received a windfall
during those years and OSC growers did not. My guess is that they can
weather this storm more easily than the grower/owners of the
cooperative.
My opinion is this.
1) Ocean Spray has mis-managed the
business because management does not know how to function in a
competitive environment. Management came up through the ranks when
building the brand under monopoly control was easier. They did a
very good job in that environment.
2) The SAP implementation was started
too late to be successful. The sad part is that many members of the
team are/where valuable OSC employees and could not make it work
despite their best efforts. (I think it is important to remember the
people who continue to do their best for the grower/owners in a very
difficult environment. Management is responsible, don't let your
anger discourage all employees.)
3) The Board is too large. Find a way
to reduce the Board size to 12 or 15. At that point the only Board
decision should be "Keep management, or replace
management".
4) Cranberries have entered a normal,
yet severe, (for most other crops) agricultural cycle. Sadly, some
small, less efficient farms will not make it. This is the nature of
agriculture (at least agriculture not subsidized by the Government),
and is a necessary aspect of a free market economy.
5) Management has become too
bureaucratic and political over the past decade. The Senior Managers
are intelligent people placed in roles not well-suited for their
skill sets. Interesting how the senior people in Manufacturing,
Grower Relations, Information Services, and Marketing all came from
Finance. Cross-training is great, but pull too many out of their
comfort zone and their area of expertise, and mistakes will be made.
These managers are intelligent people, yet I disagree with their
much of their management style. Politics became the rule, hard work
and free thinking became secondary. (Just an opinion)
6) Henderson was ... an interesting
idea.
7) Ocean Spray is a marketing
company, not a manufacturing company. Think about how to get back to
basics. Some companies are excellent at manufacturing ... let them
do it. Co-pack to cut costs. You have good business people to manage
co-packing. Sell and close more plants. The union shops are not
worth the hassle. Let somebody else, better suited for it, manage
the lines.
8) Get through whatever changes the
grower/owners feel is right. Don't delay to a point where you lose
all the bright, hard-working employees within your company. (and for
those not familiar with my postings. I am not a current employee of
OSC or a competitor).
The Ocean Spray brand is a valuable asset. Take Mr. Shawa's call to
action seriously and make the changes necessary to end the turmoil
within the cooperative. I don't know what the Bain report says, but
you should. If mis-management was the major factor, find new people
to bring the cooperative back to where it should be. If outside
factors caused this crisis, let management (some new and some old)
find a solution.
I continue to wish the grower/owners and employees of OSC the best.
These are difficult times. It seems it is time for "A Call To
Action!"
Business Person
Selling the
cooperative or merging: a response to business person
by Nabiel Shawa
11/21/99 - I would agree that Business
Person’s comments are reasonable and insightful. We seem to agree on
many points however I respectfully disagree on seeking Welchs and Tree
Top as the best merger candidates. Assuming you are a fellow
Grower/Owner, what is your most dire need and that of our company? In
one word, I believe the answer is Capital (followed closely by
competence and stability). Washington State is renown for its apple
industry. This year many farmers didn’t even harvest their crop. Tree
Top has its own crisis to deal with. Welchs seems to be doing fine but I
seriously doubt they have any desire to infuse huge amounts of capital
into our company. What would be the return to their owners? I have heard
vague claims of greater juice aisle dominance and combined efficiencies
(on the assumption that Welchs and Tree Top have excess production
capacities), but these are armchair economic analyses. Claims of savings
through combined efficiencies is possible but someone has to run the
numbers (which requires access to information), determine the levels of
excess capacity, logistics, transportation costs, etc. And still, where
is the Capital we need? As Business Person correctly points out, the
independents enjoyed a few years of wind fall profits that enables them
to better weather these turbulent times, not to mention they’re still
being paid increasingly more (in percentage terms) than we. Apparently
the new plan calls for the Capital for corporate’s needs to come from
the hides of us Grower/Owners.
Instead I see a much brighter future in merging/selling to a powerful
international corporation. A corporation with ample capital that can be
infused into both the Grower/Owners’ portfolio and into the label and
juice processing assets they have acquired. There are great potential
efficiencies in this arrangement such as manufacturing, distribution,
marketing, and competent management. But we also need long term
stability. And finally, I for one am not advocating a sales/merger at
any price or any terms.
That is why it is so important to explore the sales/merger option. We
need to determine the true market value for our juice segment (brand
name and tangible assets). Once we have acquired the best offer we can
then more accurately determine which path (major restructuring vs
sales/merger) is more likely to yield the greatest long term benefits.
This information and analysis must be openly shared and communicated.
Finally it needs to come to a vote. I firmly believe the majority
stockholders must have the final say on this critical decision.
As for the control issue, Thomas Gelsthorpe eloquently bashed any
nonsense that anyone in OS is in control. To paraphrase him; if this is
control what does out-of-control look like; if this is control when did
we elect to receive a supposed $20 something a barrel? Further we cannot
control the expansion of cranberry planting domestically nor
internationally. The Doomsday Prophecies of massive international
acreage w/ cheap labor may occur (at some indeterminable point in the
future) or it may not. Who can tell what the future demand will be (see
Dr. James Tillotson’s article) on what technological breakthroughs
will occur that will effect us? If at some future point a massive supply
of cheap foreign cranberries emerges, large enough to fuel a major
product line in a global corporation like Coke Cola and we maintain the
status quo how will we then compete? What value, if any, will remain for
the "unlocking." Again I agree with Business Person that the
free market will ruthlessly determine the outcome, as it should.
Now, if you’re a Grower/Owner please step out of the gloomy shadow of
despair cast upon us by our Directors. Help shape our destiny through an
open, democratic process. Step into the light and onto the playing
field!
Business Person responds:
I would like to clarify a few
points in my previous postings. My belief that Tree Top and Welch's are
obvious merger candidates stems from a theory that a large fruit
cooperative will be able to compete with the beverage giants over the
long-term. I would agree that neither of these companies are probably
interested in a merger given the state of Ocean Spray, and, even if they
were, OSC is not in the best negotiating position. I would favor a
merger with a Northland or other independent group of growers. I simply
feel that many coop members would prefer to retain the cooperative way
of life if possible.
I believe strongly that you are correct in your effort to bring the
grower/owners "on to the playing field" and let the group
decide the future for your company. If the grower/owners believe it is
time to cash in with a sale to someone like Pepsico, then that is an
owner's right. I feel compelled to comment because I believe the growers
should be prepared for the cycles that I suspect will follow a
sale/merger as you describe it.
I applaud your efforts to fully explore the sale/merger option with all
grower/owners. I don't pretend to have all the answers, simply some
opinions based on experience in the industry and a time with your
company.
Business Person
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