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Ocean Spray Cranberries at the Crossroads
 
Ocean Spray Cranberries in 2003 In late February, 2003 Northland Cranberries, Inc. (NCI) made an $800 million offer to acquire Ocean Spray Cranberries (OSC), the market leader in the cranberry industry. Furthermore, a group of OSC grower-members won a lawsuit that enabled them to propose a new slate of directors that would be voted on at the March 8, 2003 annual meeting. The need to communicate a strategy for addressing the industry’s profitability problem had become increasingly necessary in the last few years because of declining cranberry prices to levels not seen in the industry’s recent history and a mounting disaffection among OSC’s grower-members. Despite OSC’s desire to enhance its marketing efforts and balance fruit supply and demand, prices were still dismal as the winter of 2003 came to an end and the disaffection among grower-members seemed to be increasing. Ocean Spray Cranberries was in a unique position of “working for its grower-members” in deciding to take steps to address the company’s marketing difficulties and simultaneously ease the price pressure confronting its grower-members. The main issues revolved around the pricing of cranberries and the structure of the industry. As supply increased in the late 1990s, demand tapered off. Cranberry prices were well below the average cost of production which was $35 per barrel. Historically, Ocean Spray Cranberries had dominated this industry and it operated on a cooperative basis. In recent years, there had been a growing number of producers that had invested in more in land so as to have greater production. In general, many cranberry producers were second or third generation producers with smaller tracts of land. The governance of Ocean Spray Cranberries had also changed in recent years.
The Cranberry Industry There are two components to assessing the cranberry industry: The Cranberry Marketing Committee (CMC) and the industry stakeholders’ component, comprising producers, processors and retailers as well as the products that are marketed by the industry. The Cranberry Marketing Committee (CMC) was established in 1962 under Chapter IX, Title 7, and Code of Federal Regulations, also referred to as the Federal Cranberry Marketing Order, which is part of the Agricultural Marketing Agreement Act of 1937. It is responsible for regulating cranberry production to ensure stability in the industry. The CMC is charged with regulating production in the 10 states in which cranberries are produced. However, its focus has been on the five states with commercial production: Massachusetts, New Jersey, Oregon, Washington, and Wisconsin.1 Although it has the power to allot production quotas to the approximately 1,200 producers who sell to about 18 handlers and/or processors each year to manage supply and demand, it has exercised this power only twice in its 35 years of existence. The Marketing Order was amended under Section 929.45 of the Act in 1992 to allow the CMC to promote the sale and use of cranberries and cranberry products. The CMC, as a result of this change, is currently undertaking generic promotion of cranberry products in Germany and Japan with the view of enhancing the industry’s export market penetration.
The CMC was governed by a board of eight directors appointed by the 18 or so U.S. cranberry handlers. The regulations established by the CMC required that one director (or an alternate) be a public representative while the others (and their alternates) are growers or employees, agents, or duly authorized representatives of growers selected to facilitate representation of the four cranberry districts. Ocean Spray Cranberries has four of the seven industry seats on the CMC. So while it does not have a majority, it does hold significant influence that reflects its position in the cranberry

industry. For example, even though a vote on a decision to extend the 2001 supply controls in 2002 was deadlocked at 4-4, it was defeated because six votes are needed for such decisions to pass. There is concern that the structure of the CMC will prevent the implementation of some of the necessary policies to control supply to address the current glut and control price pressure difficulties. The stakeholders can be discussed from the perspective of the demand chain, i.e., from consumer products and consumer market conditions, through retail and distribution structure and conduct to processors and producers. Although the cranberry industry is unique at the production level, its products compete in the marketplace with many other products, from beverages to confectionary ingredients. There are two broad categories of cranberry products: fresh and processed products. Processed products are by far the commanding category, accounting for an average of 95 percent of total production between 1993 and 2000 (Exhibit 1). Juice dominates the processed products category, but is confronted with significant competition in the fruit juice marketplace. In general, while per capita consumption of citrus fruit juice has been increasing, non-citrus fruit juice consumption has been relatively flat between 1990 and 2000. However, these challenges are no different from those confronting other processed products such as sauces and jellies. These competitive pressures emerge because of the lack of any uniquely advantageous characteristics over theirfruit juices or fruit sauces and jellies except during the holiday season when cranberry sauce becomes a favorite. Thus, after about seven decades of active promotion and advertising, cranberry sauce and jelly are still not “household” daily food items. They are still in the same psychographic space of the consumer as horse radish, spiced apples and mint jelly (e.g., holiday items). As noted in a Harvard Business School fruit positioning study, these products are “tradition-bound, almost synonymous with Thanksgiving and turkey” (Modig and DeBruicker, 1975). In recent years, however, there has been research suggesting some nutraceutical benefits from consuming especially cranberry juice, and the 4 information is being passed on to consumers with the view of establishing some points of differentiation from other fruit juices.

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