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John Swendrowski's Letter to Northland Growers June 28, 1999 Dear Northland Grower, Obviously , the cranberry industry is in turmoil given the major issues being evaluated at Ocean Spray. It appears that the Ocean Spray Board has begun to take control on behalf of their grower-owners. Unfortunately, since we are in the middle of the growing season, it will be difficult for Board members to give their full attention to their situation and grow their crop at the same time. In my opinion, unless they immediately hire experienced advisors and investment bankers to quickly define their options and take action, we are all destined to another year of ridiculously low prices for our crop. Prices that will undoubtedly force some growers out of business. This is an obvious, serious situation that requires immediate, serious analysis and advice from experienced, high level advisors reporting directly to the Ocean Spray Board of Directors, not to the outgoing management. I am confident that in the long run, the Ocean Spray Board will act in the best interest of their growers. I am concerned with the speed at which they will act and the potential impact on the value of the fruit. Every day that goes by without action, in my opinion, reduces the earning for our crop, whether you are an independent grower or an Ocean Spray grower. For example, it appears that Ocean Spray's "retired" management has now set the stage for next years crop value by continuing their "Early Commitment Program". It has been reported that buyers of 50,000 or more barrels can secure pricing under $41/barrel under the program. Remember that the costs associated with receiving, cleaning, binning, transportation, freezing charges, selling, invoicing and collection must be deducted as a direct cost. Plus, some costs for grower relations, R & D, plant depreciation, interest expense, general admin and dividend payments to preferred shareholders must be deducted. I estimate these costs at about $10/barrel. Thus the grower will net approximately $31 from this wonderful program. It is important that you understand that since Ocean Spray controls nearly 70% of the fruit and is capable of filling virtually every order it receives, this program, in fact "sets" the price of fruit for next year. Any major potential buyer of fruit direct from a grower would be foolish to pay more for fruit and incur the costs of handling fruit versus purchasing under this program from Ocean Spray. Thus, the "retired" management has set the price for all growers for the 1999 crop. It just seems that an experienced advisor would have recommended delaying any price decisions on the 1999 crop until a new CEO is hired. Ocean Spray has no legal obligation to quote a price at this time and the buyers could have waited for the new management's decision. We have also been made aware of a marketing program to re-stage Wellfleet as an Ocean Spray Premium. In our opinion, the cost of this program is $40 to $50 million. Also, in our opinion, an extremely successful re-stage would use a total of no more than 400,000 barrels of fruit. We estimate that Wellfleet uses approximately 200,000 barrels today. Therefore, the entire marketing spend will generate approximately 200,000 additional barrels of additional fruit use by Ocean Spray. However, you must remember that only part of the sales will be new business. In our opinion, most of the sales will come from current Ocean Spray drinks customers, thus reducing the barrels used in those products today. In my opinion, the major purpose of the re-stage of Wellfleet is to attempt to attack Northland at all costs. I do not believe that a financial analysis of the risk reward potential would indicate that the proposed marketing plan is economically viable. It is only viable if its intent is to impact Northland's ability to grow its business. I have difficulty understanding how spending over $200/barrel for incremental sales of 200,000 barrels or less makes good business sense while the growers will receive less than $35/barrel. Theoretically, if they gave the 200,000 barrels away and paid the grower $35 per barrel for the fruit ($7 million), they would save $33 million, or about $8 a barrel on all the grower fruit. Thus, all the growers could receive $43/barrel instead of $35. While Northland's earning can obviously be impacted by their marketing plan, they just don't understand that we will not "go away." Northland has a strong financial position and beginning with the 1999 crop, between our brand and private label sales, we have a home for all of the fruit we grow and buy. If Ocean Spray spending reduces their grower prices to $10/barrel, Northland will still be there to compete. Our stock price may be impacted, but we will still exist. The question is, will the grower still exist? We are in the midst of preparing Northland's final fiscal 2000 plan. Given what is going on in the industry, we are assuming that the marketing plan designed by current Ocean Spray management will, in fact, be implemented and they will spend $40 to $50 million attacking Northland. They spent about $40 million on Wellfleet in 1999 and Northland still has grown its market share while they have now dropped below 50% total market share. We will not attempt to outspend them because that makes no business sense. We will implement a plan to defend our market share and generate a reasonable profit per barrel on the Northland brand 100% juice aisle. We have done significant taste testing and research on our current Northland line and plan the following changes. We are going to reformulate several of our blends to improve the taste of the final product. More important to you, the grower, we are going to increase the cranberry content of the entire line. We are increasing cranberry because consumer research indicates that the end buyer wants more cranberry. We will be fully prepared to respond to the $40 million attack on our brand. Unfortunately, instead of spending our marketing dollars to grow consumer demand for cranberries, we will be forced to defend Northland's taste and quality to retain market share. Based on the information we now have, we have decided to accelerate our plans for the Seneca Cranberry line. We have been presenting the line of Seneca Cranberry to the trade for approximately two weeks. To date we have received only one turndown. We have started shipping product product to the trade and it will start appearing on the grocery shelf shortly. We have shipped product to WalMart Super Centers, Kroger, Roundy's, A & P, Super Value, Flemming, Winn Dixie, Albertson's, Giant Foods, Hanneford, Star Markets, and Pathmark. We have a significant number of additional acceptances that are preparing their first order daily. We believe that Northland's potential share of the cranberry category can increase significantly despite a $40 to $50 million attack on the Northland line. We feel that we will by far gain more from the Seneca launch than we will potentially lose on the Northland line. Because our competition has apparently not yet learned how to do business without hurting their industry, we will continue to focus on selling the Northland crop. You must be aware that the actions of others will affect the value of your crop. I am confident that while your crop value may negatively be affected, there will be less of an impact on you than on those causing the problem. What I've given you is my opinion and, although there may be many possible outcomes, I believe it's important that we continue to communicate our thoughts to you during these critical times. Feel free to call. John Swendrowski,
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