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Ocean Spray Cranberries (US)

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Think cranberries, and you can only be thinking of Ocean Spray, which accounts for an estimated 60% of the world supply of cranberry-derived foods and beverages. It produces a wide variety of beverages, sauces, dried 'craisins' and other cranberry products, which it exports to more than 50 countries around the world. Its only significant competitor in cranberry juice is the much smaller Northland brand with whom it has had a long and often fractious rivalry. Ocean Spray distributes most of its products in North America itself. Internationally, its products are for the most part marketed by local partners, including PepsiCo in some countries and Coca-Cola in others.

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Competitors

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Brands & Activities

Ocean Spray is the dominant manufacturer and marketer of cranberry products, with an estimated 60% share of global supply. The organisation has an admirable track record in innovation, with an impressive ability to come up with any number of new ways to repackage its core product. It is limited partly by its reliance upon cranberries (although it does also market grapefruit products), but mainly by its cooperative structure and its opinionated, sometimes rebellious membership of independent growers.

Ocean Spray markets a wide variety of shelf-stable and chilled cranberry juice drinks. It is the clear leader in the US shelf-stable segment with more than 48% market share (SymphonyIRI ye Jan 2012 ex Walmart). In addition to its core line of 100% juice it produces an extensive selection of blended juices, combining cranberry with apple, cherry, mango, strawberry, even tea. In 2003 Ocean Spray introduced a completely new line, white cranberry juice, produced from pre-ripened berries, harvested in the summer before they turn red. A cranberry-based energy drink, Cranergy, was launched in 2008, followed by canned sparkling beverages in 2011. Ocean Spray's first chilled juice products were launched in 2013 through an alliance with PepsiCo's Tropicana. PACt, launched in 2014, is a functional health drink containing cranberry extract which claims to help purify the body.

The company claims to be North America's leading producer overall of canned and bottled (as opposed to carton) juices and juice drinks, and cranberry is the overall best-selling shelf-stable juice flavour in the US by value, ahead of apple and grape. The group also produces sauces and other cranberry products, including Craisins, a chewy snack made from sweetened dried cranberries. These were originally a waste product, the husks left over after the juice was extracted, but were reinvented in the 1990s as a baking ingredient as an all-year alternative to fresh berries, and then relaunched in the 2000s as a snack. Ocean Spray instant oatmeal breakfast cereal was introduced in 2009.

Although cranberries are by far Ocean Spray's biggest business, the company also markets a range of even sharper grapefruit juice beverages, and also sells its cranberry juice premixed with a wide variety of other fruit juices. Ocean Spray also has a substantial presence in the foodservice industry, marketing cranberries as an ingredient in other products ranging from Jell-O gelatin to bread, cereals, vodka and candy.

Ocean Spray distributes most of its products in North America itself. However since 2006 it has entrusted distribution of single-serve cranberry juices in the US and Canada to PepsiCo. That arrangement was extended in 2009 to cover other flavours as well, and there is a strategic alliance with the larger company's Tropicana brand. The group also has a marketing partnership with Walt Disney Resorts to promote its products at Disneyworld and Disneyland.

Ocean Spray also exports to more than 50 countries around the world, where its products are for the most part marketed by local partners. PepsiCo has rights in Latin America. Sales and distribution rights for the UK - Ocean Spray's second biggest market after the US - and France were awarded to Coca-Cola Enterprises from 2010. Following disappointing performance, ready-to-serve drinks were transferred in early 2014 to what is now Refresco Gerber. Coke still has rights in France.

In fact Ocean Spray is not really a company at all, but an agricultural cooperative owned by more than 800 cranberry growers located in Massachusetts, Wisconsin, New Jersey and the Pacific Northwest and 40 grapefruit growers in Florida. From a peak of $1.5bn in 1998, Ocean Spray's sales fell steadily during the 2000s to a low of just over $1bn in 2003. Since then though they have more than recovered, reaching a best-ever $1.67bn net for fiscal 2013 (or $2.2bn gross), with net proceeds of $380m.

Background

Ocean Spray was first founded in 1930 by three cranberry growers from Massachusetts, under the guidance of Marcus Urann, who had perfected a system for making shelf-stable cranberry sauce. America's first cranberry juice drink was introduced that year, and the first cranberry and apple combination juice arrived in 1963. The organisation decided to diversify in the 1970s, extending membership to grapefruit farmers for the first time. Later it forged partnerships with other food manufacturers, including a distribution agreement with PepsiCo.

However the late 1990s proved a difficult time for the industry as a whole. Huge berry surpluses between 1997 and 1999 drove down prices significantly. In the space of just three years, the price of a barrel of cranberries dropped from over $60 to under $13, less even than it cost growers to produce the fruit. Adding to the group's problems, PepsiCo agreed to acquire rival juice maker Tropicana, and announced plans to gradually withdraw from its distribution contracts with Ocean Spray. The last of these agreements came to an end in 2002. Amid growing unhappiness over the direction of the business, a majority of the cooperative's members that year voted for the dismissal of virtually the entire Ocean Spray management board.

The turmoil led to an unsolicited $800m offer for the Ocean Spray brandname by smaller (but non-cooperative) Northland Industries. When this was refused, the smaller company launched an antitrust lawsuit against its rival. Meanwhile PepsiCo offered to acquire a 50% stake in Ocean Spray and renew its distribution partnership. That deal could have greatly boosted Ocean Spray's US distribution and also substantially reduced costs. However the coop's increasingly divided membership voted against the plan by a narrow margin, preferring to remain independent. Those growers who had supported a Pepsi deal were dismayed by the result and many left or announced their intention to leave the co-operative.

In the mean time, the company gradually got back on track between 2003 and 2006 under CEO Randy Papadellis. A key development was the settlement of its lawsuit with Northland, whereby Ocean Spray agreed to acquire the latter's cranberry processing facilities, as well as a large area of growing territory. Northland continues to market its own cranberry juice, but made mostly from processed concentrate purchased from Ocean Spray. More significantly, berry prices rose again as the six-year glut came to an end. Also in 2006, a deal was finally agreed with PepsiCo for distribution of single-serve juices in the US.

Last full revision 23rd September 2015


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