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CHAPTER 6 Business Ownership and Operations
Reading Skills: Ocean Spray's Secrets of Co-op Success
DIRECTIONS: The following article is an interview with Randy Papadellis, CEO of Ocean Spray. Read the article and answer the questions that follow.
Despite the rough economy, Ocean Spray just had its most successful year ever, with more than $2 billion in revenue, 30% of it outside the U.S. Everyone knows the brand, but few people know that it is 80 years old, has been the most successful bottled juice brand for 30 years--and that Ocean Spray is not a public corporation but a cooperative.
Can you tell me about the co-op model and how you manage it?
We're very similar to most other major consumer packaged goods companies--we create, we innovate, we advertise--but we are very different in that our owners are 750 farmers. That's roughly 700 cranberry growers and 50 grapefruit growers. They are the only shareholders in the company, and they are the farmers who deliver the fruit that go into the majority of our products. At times it can be like dealing with 750 limited partners.
How do the economics of being a cooperative work?
What makes us unique vs. the more traditional business model is that we seek to maximize the cost of our largest raw material. Can you imagine the CEO at PepsiCo or Coke seeking to maximize what they pay for aluminum cans? Cranberries are our largest raw material purchase, and we actually seek to pay as much for those cranberries as we can, to compensate our grower-owners. The independent market price right now is in the $20 per barrel range. But we are on target to pay our grower-owners $64 a barrel for last year's crop.
Tell me about innovation at Ocean Spray.
Almost every major piece of innovation that has occurred in the shelf-stable juice category originated here at Ocean Spray. The juice box was pioneered by Ocean Spray. We were the first company to blend juices, i.e., Cran-Apple, and today over 80% of the juices on the shelf are blends. Innovation is a combination of art and science. Ideas usually emerge intuitively, but then we validate them with market research and consumer insight. And usually just one of 25 ideas really hits.
How about the Craisins concept and its success?
In the mid '90s, we'd extract juice from the cranberry and then leave behind what we call the hulls. And we paid people to come and haul away the hulls. Our first breakthrough was realizing that by reinfusing a little bit of cranberry juice back into that cranberry hull, we could create something that we now call a sweet and dried cranberry, and we've branded it as Craisins.
Our second breakthrough was in positioning. Craisins was first introduced in the late '90s as a baking ingredient, shelved in grocery stores alongside chocolate morsels and baking powder. When I joined Ocean Spray, we were sitting in a meeting looking at this particular product as a business opportunity to grow, and I noticed that everybody was popping these things into their mouths, as if they were potato chips. And with the whole idea of healthy snacking really coming to the forefront around that time, we came up with the idea of repositioning Craisins as a healthy snack alternative. We knew that roughly 38% of American consumers ate cranberries or drank cranberries in some fashion. We also knew that about 60% of American consumers liked dried fruit. So when you did the Venn diagram intersecting those who liked dried fruit with those who loved cranberries, it was a huge population. And of course, everyone loves Craisins, and now it's the highest margin, fastest growing product in our portfolio, with over 100 products.
What's next for Ocean Spray?
Blueberries. There are only three fruits indigenous to America: the cranberry, the Concord grape and the blueberry. Our next step is to do with blueberries what we've done with cranberries.
1. What makes Ocean Spray a cooperative?
2. What can you say about how Ocean Spray manages the cost of their raw materials like cranberries and grapefruit?
3. What is the market price right now of a barrel of cranberries? What is ocean Spray trying to pay their grower-owners per barrel? Why does Ocean Spray “overpay” for their raw material?
4. What are 3 innovations claimed by Ocean Spray?
5. What’s next for Ocean Spray?
Source: www.Forbes.com