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Ocean Spray's Creative Juices


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Randy C. Papadellis has a corporate mandate that would make many CEOs blanch. Unlike his competitors, who head units of publicly traded multinationals such as Coca-Cola Co. (KO) and PepsiCo Inc. (PEP), the chief executive officer of juice giant Ocean Spray Cranberries Inc. leads a cooperative that's owned by about 800 cranberry and grapefruit farmers. Papadellis has to buy all the fruit his farmers produce -- about two-thirds of the world's cranberry crop -- and buy it at the highest possible price. "Imagine if Pepsi had to maximize the aluminum it used, and at the highest price it could afford!" he says.

It's a dilemma that has sparked frenetic cranberry-fueled creativity. After spurring supermarkets to add juice aisles in the 1960s, Ocean Spray followed with hits including the first juice boxes, low-calorie cranberry drinks, and white cranberry juice. Now Craisins, the dried-fruit snack made from husks that used to be thrown away but are now reinfused with juice, have exploded in popularity. Ocean Spray is spinning out variations -- chocolate-covered Craisins, anyone? -- as fast as it can. The company's food product segment has doubled during the past two years, and total sales have grown 12%, to $1.1 billion. Meanwhile, Ocean Spray remains No. 1 in juices, according to Chicago market tracking firm Information Resources Inc.

Of course, past success isn't any guarantee of future results, and the 48-year-old Papadellis, who joined the company as chief operating officer in 2000, knows that all too well. The cooperative is supposed to pay farmers the commodity price for fruit plus a dividend reflecting the profits of the Ocean Spray brand. But in 2000 overproduction sent the price of raw cranberries crashing from over $60 a barrel to under $20. Facing lean times with juice sales falling, the company cut back on advertising and marketing. Instead of beating the $18-a-barrel market price, it wound up paying out $12 a barrel. Relations between management and farmers deteriorated, and the company went through four CEOs in four years, ending with Papadellis' appointment in June, 2003.

Papadellis quickly realized that the farmers needed to decide whether or not the cooperative still made sense. The CEO was well versed in the mysterious ways of co-ops, having spent six years as chief marketing officer at Welch Foods Inc., another cooperative, where he helped double market share. "The beauty of being a co-op is not being judged by quarterly results, but by generations passing on to the next generation," says Papadellis. "Most CEOs of public companies don't get asked about 20 to 30 years down the road." Many Ocean Spray farmers are third- and fourth-generation owners; one is seventh-generation.

CROWD PLEASER

After weeks of arguing the pros and cons, and with a buyout offer on the table from Pepsi, the farmers opted for Papadellis' vision of a more focused Ocean Spray that would stay independent. The strategy was to keep the best parts of the old Ocean Spray, such as the juice making and innovative new-product efforts, while letting partners handle logistics operations.

The plan not only improved the bottom line but also won back the trust of the farmers. In contrast to some prior managers, Papadellis actively sought input from farmers. He still travels from Wisconsin to Oregon to Canada seeking their counsel, fielding questions from crowds of jeans-and-plaid-shirt-wearing co-op members. "We've had our ups and downs with Ocean Spray," says Peter Beaton, a fourth-generation grower in Wareham, Mass. "He's a breath of fresh air. It's like talking to your best next-door neighbor." And Papadellis isn't just talk: Ocean Spray estimates that it will pay out over $40 a barrel for the fall 2005 crop, vs. the commodity price of $34.

One of Papadellis' main challenges: "We have to introduce the cranberry to a whole new generation of consumers." That probably accounts for the cranberry Cosmotini and cranberry bruschetta recipes on the company's Web site. Concern about carbohydrates and worry among parents about their kids' bloated waistlines also created thorny marketing issues. "Juice used to be good, then it was bad," says Marcia Mogelonsky, senior research analyst at Mintel International Group Ltd. "Ocean Spray got lumped together with all the other juice beverages."

Ironically, cranberries naturally contain almost no sugar, so Ocean Spray can tinker with sweeteners without watering down flavor. To reach out to dieters, it developed a five-calorie drink that contains only 7% cranberry juice. Introduced in March, Diet Cranberry Spray and Diet Orange Citrus Spray are flying off the shelves.

As Craisin products show up in trail mix, salsa, and who knows what else, the company announced on Apr. 27 that it would expand plants to quadruple production of the snack, as well as sweetened dried cranberries (SDCs), which are similar but flavored with other fruit juices. The "blueberries" and "strawberries" in many mass-produced muffins and cereals are really SDCs, which hold up better than actual fruits and are in over 1,000 products worldwide.

Can the cranberry craze continue? The lineup stands to benefit from research showing cranberries can help ward off infections, something Ocean Spray tries to highlight in offbeat new TV ads. They play off the science with two goofy farmers knee-deep in a cranberry bog, joined by a nervous doctor. After the doc outlines the health benefits, one farmer deadpans: "Not bad for a veterinarian."

By Aaron Pressman


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