Can Ocean Spray CEO Randy Papadellis Save the Cranberry Business?
The genius of Papadellis’s approach was in its simplicity: He pitched Craisins as a healthier alternative to chips and candy bars that was better suited for the snack aisle than the baking aisle. A combination of savvy marketing timed with the rising trend toward healthy snacking rocketed Craisins to cultural and commercial prominence. “It grew from a tiny little $20 million business,” Papadellis says, “to a $400 million business.”
In 2003 Ocean Spray turned roughly 20 million pounds of cranberries into Craisins. Today, that number has risen to 250 million pounds a year. All told, there are more than 100 branded Craisins products on the market. They come in 5-ounce packets and 2-pound bags in all types of flavors: blueberry, cherry, and pomegranate. Some are coated in chocolate; others are nestled within clusters of shaved almonds. “If I told you we expected Craisins to become as big as they have become,” Papadellis admits, “I’d be lying.”
Ocean Spray wasn’t the only company that reaped the rewards of the Craisin craze. Competitors jumped on the bandwagon and began pumping out their own versions of sweet and dried cranberries. Farmers were flush with cash, and by 2008—when Papadellis addressed growers at Disney World—the dark days of the early aughts seemed like ancient history.
As great as Craisins were, Papadellis knew he had created a monster. To keep pace with demand, Ocean Spray’s competitors paid highly inflated prices for fruit. The allure of a $70-a-barrel payday was too great for some Ocean Spray farmers, who ditched the cooperative for the open market. All the while, cranberry-juice concentrate kept accumulating, and farmers continued expanding their operations. As the glut continued to build, it looked like the late 1990s all over again.
With too much concentrate on hand and unrelenting demand for Craisins, Ocean Spray took what some consider the most disruptive step the cranberry industry had seen since Marcus Urann formed the cooperative. Starting in 2009, it began running public online auctions to sell off its surplus of cranberry concentrate. Ocean Spray’s bidding process was atypical because each new auction opened at 85 percent of the closing price—so if the first auction closed at $10 per gallon, the starting price of the second auction would be $8.50. To those on the outside, it looked like Ocean Spray was trying to bottom out the market.
Up until that point, processors made money selling concentrate to juice makers and relied on the ability to negotiate the price. When Ocean Spray introduced its auction and made its new low prices known to everyone, the company essentially set a price for the entire industry. The online auctions instantly roiled Ocean Spray’s competitors. Imagine if Prego started holding fire-sale auctions for excess tomato paste and selling it to sauce and condiment makers of every stripe. Ragú and other tomato processors would have no choice but to match Prego’s pricing.
A year before the auctions started, cranberry concentrate sold for about $53 a gallon. After the first auction, concentrate dropped to $33 per gallon. Such a precipitous decline sent shock waves across the industry and hit farmers in the wallet. “It is price fixing,” says an independent grower from Massachusetts who asked to remain anonymous.
Today, with the exception of a few hundred coveted Ocean Spray members, cranberry farmers in the U.S. are hemorrhaging cash and going bust. “In our darkest day, we say we work on the last plantation,” says Linda Rinta, an Ocean Spray farmer who has been in the cooperative with her husband for more than 40 years. In 2014 it cost approximately $34 to grow and harvest a barrel of berries. Yet independent farmers were lucky if they could sell that barrel for $12. As the losses pile up year after year, farmers are running out of options. Take, for example, Steve Ward, who has spent decades tending to dozens of acres of bogs in Middleborough and Carver. This past fall he harvested 20,000 barrels of berries, marking his second-biggest crop ever. For doing so, he’ll incur a net loss of roughly $60,000. Ward is holding out hope that a revenue-based insurance policy will kick in and buy him some time. “If that doesn’t pay, I’m bankrupt,” he says. “I don’t know what I’ll do.”
Ward is far from the only one in trouble. “[It’s] desperation mode for these independent growers who literally don’t have the money to hang on anymore,” says Brian Wick, executive director of the Cape Cod Cranberry Growers’ Association. In recent months, Wick has found himself talking to more and more farmers who are considering closing up shop permanently. Sadly, there’s not much he can offer in terms of advice or hope. “There’s no quick fix,” Wick says.
Some growers, though, refuse to go down without a fight. Four years ago, a band of cranberry farmers from Oregon to Massachusetts filed a nearly $2 billion class-action lawsuit alleging that Ocean Spray’s concentrate auctions are tantamount to price fixing, and that the cooperative has run afoul of antitrust laws by splitting its farmers into different groups. The case has survived a barrage of motions for dismissal and is heading toward a potential jury trial. “[The auction] has only one purpose,” says Norman Jackman, the Cambridge-based attorney who’s leading the class-action suit, “and that’s to destroy the market price in the industry.”
For all the risks and costs the lawsuit poses, Papadellis is surprisingly dismissive of it. From his vantage point, it’s a Hail Mary lobbed by “emotionally disappointed” growers who have long had an ax to grind. “They feel somehow that they’re entitled to the profits that the Ocean Spray brand has earned,” he says. “I find it almost illogical that we could lose.”
Rather than fight cranberry farmers, Papadellis is focused on leading the 86-year-old farming cooperative into battle against global conglomerates such as Tropicana (owned by PepsiCo), Minute Maid (owned by Coca-Cola), and Mott’s (owned by Dr. Pepper Snapple Group). “It’s less about beating up the other cranberry guys,” he insists. “I worry much more about some of these big multinational food companies than I do about other cranberry handlers.”
This past fall Papadellis sat in a boardroom on the second floor of Ocean Spray’s Lakeville headquarters, the same place where he had his Craisins epiphany. The walls, lined with dozens of Ocean Spray products, hung as a visual reminder of how the tiny cooperative birthed at the dawn of the Dust Bowl has grown into a global juggernaut. Looking around at all the packages stamped with the iconic cresting-wave logo, Papadellis channeled his inner Eeyore and likened his company to a busted barstool. “We’re in search of the third leg of the stool,” he said. “We have the juice business, we have the Craisins business, but we need to find that third leg.”
On the table in front of him sat a few bottles of Ocean Spray’s newest product, flavored water called PACt. Unlike so many of Ocean Spray’s products, the focal point of PACt isn’t the cranberry itself but rather organic compounds contained in the fruit called proanthocyanidins, which are thought to give cranberry juice its legendary ability to clear up urinary tract infections. Papadellis proudly boasts that one bottle of PACt delivers all the health benefits you’d get from stuffing 50 fresh cranberries into your mouth.
For all of the history behind cranberries and all of Ocean Spray’s marketing successes, the fruit has never had its moment as an “it” superfood—think açaí berries, chia seeds, and pomegranate. Papadellis is hoping that the multisyllabic mystique of proanthocyanidins elevates the fruit just as Craisins and cranberry cocktail have in decades past. In addition to the flavored water, Ocean Spray has pumped proanthocyanidins into a new line of low-sugar, low-calorie juices aimed at millennial moms. Meanwhile, it’s investing heavily in clinical research to verify and quantify the medicinal properties of cranberries.
While Papadellis and Ocean Spray have no shortage of detractors, few are brave enough to root against them. Everyone in cranberry country knows that Ocean Spray is the tide that lifts all boats. Should proanthocyanidins catch on in the way that Papadellis hopes, it’s only a matter of time before profits soar again and generic knockoffs start pecking away at market share. “I’ve always tried to figure out what’s the worst-case scenario,” Papadellis says with a smile. “And if I can live with that worst-case scenario, everything is upside from there.”