Can Ocean Spray CEO Randy Papadellis Save the Cranberry Business?
In March 2008, Ocean Spray CEO Randy Papadellis stood behind a lectern at Disney World warning a ballroom full of farmers that the cranberry market was about to collapse. To his surprise, however, no one seemed particularly bothered by the gloomy prediction. Thanks to rising profits during his first five years at the helm, growers from Massachusetts to Oregon had supreme confidence in Papadellis—a proven miracle worker who had rescued them from hard times before.
When Papadellis first arrived at Ocean Spray, prices had hit rock bottom because of a massive surplus of cranberries on the market. It was nearly impossible for a farmer to turn a profit, and hatchet men from Bain & Company and Merrill Lynch had advised company brass to trim the fat and dump the brand while it was still worth selling. Papadellis had a different vision. He set out to bring the juice giant back from the brink, and by 2005 had discovered a company-saving cash cow: Craisins, those addictive little treats that are a whole lot like raisins—sweet enough to soothe a tyrannical toddler’s afternoon tantrum yet packed with enough fiber to kick-start a senior citizen’s GI tract. With boundless consumer appeal, the shriveled hulls of cranberries reduced the industry-wide glut of fruit and blossomed nearly overnight into a bite-size blockbuster that resurrected the cranberry business. In the process, says longtime Ocean Spray farmer John Garretson, Papadellis emerged as “the Bill Belichick of the cranberry industry.”
In reality, though, Craisins were both a savior and a scourge: They hoisted profits, but the more Ocean Spray produced, the more cranberry-juice concentrate it was left holding. As a result, when Craisins sales skyrocketed, millions of gallons of viscous, bitter concentrate flooded Ocean Spray’s storage freezers. With bottled-cranberry-juice sales remaining stagnant, Papadellis worried that this excess of concentrate would soon drown the farmers, saturate the market, and send everyone back to the poorhouse. “This is what happened in the late ’90s,” he warned the crowd.
As it turned out, Papadellis’s ominous predictions were spot-on. Two harvests after his speech at Disney, the price for a 100-pound barrel of cranberries on the open market plunged from $70 to $18. Since then, the market has continued to flounder, and today much of the cranberry industry is still sputtering in a glut of concentrate while growers increasingly face bankruptcy. Families that have tended bogs in Carver and Plymouth for generations have weathered tough times before, but now the bitter economics may spell disaster for Massachusetts’ largest commercial crop. In response, Governor Charlie Baker has formed a cranberry task force, and in Washington, DC, the federal Cranberry Caucus—cofounded by former Senator John Kerry—is trying to boost the industry by urging USDA officials to ease up on those pesky sugar-labeling requirements on cranberry juice that can scare away health-conscious consumers. There is, of course, only so much that political jockeying can do: The one person who can truly save the day is Papadellis. After all, he’s done it before.
This time, though, Papadellis is up against far tougher obstacles than a mere surplus of fruit. Along with the industry’s crushing overabundance of concentrate, a federal antitrust lawsuit that Ocean Spray lawyers have called “enterprise threatening” looms over the company. As the industry gears up for another harvest this year, Massachusetts farmers who depend on Ocean Spray are waiting to see if Papadellis can pull off another miracle.
Papadellis likes to say that Massachusetts is the spiritual home of the cranberry. Native Americans were the first to harvest the fruit here, using it to make medicinal salves and our nation’s earliest energy bar—a mash of venison, cranberries, and fat. Pilgrims likewise turned to it for sustenance, and in 1683 European settlers concocted the first batch of cranberry juice. Whalers during the 1800s added cranberries to their diet to stave off scurvy, and by the early 1900s, families whose farms had the acidic soil, sand, and cold winters that the vines need to grow were prospering.
Today, the marble-size fruit is Massachusetts’ most valuable crop. More than 400 bogs peppered throughout the state account for 30 percent of the global cranberry acreage. Nearly seven thousand jobs here are tied to the local crop, which was valued last year at just under $100 million. Ocean Spray regularly does nearly $2 billion in sales, hawking berries from Boston to Beijing.
Unlike most $2 billion companies, however, Ocean Spray isn’t a traditional corporation, but rather an agricultural cooperative owned by more than 700 so-called grower-owners. While most CEOs negotiate the lowest price for their raw materials, Papadellis is expected to buy cranberries at the highest possible price. “He’s got 700 different bosses, if you will,” says Jeff LaFleur, an Ocean Spray farmer in Plympton. But “he respects the people who own the company, and that’s huge.”
Craisins were both a savior and a scourge: They hoisted profits, but the more Ocean Spray produced, the more cranberry-juice concentrate it was left holding.
The roots of Ocean Spray’s commercial success trace back to Marcus Urann, an attorney who at the turn of the 20th century traded his law offices for a cranberry bog in Hanson, not far from where the Pilgrims landed. In 1912 he started cooking and canning a cranberry sauce under the name Ocean Spray Preserving Company. It took a while for it to catch on, but by 1929 Urann finally had a hit on his hands, selling 200,000 cases of his gelatinous cranberry sauce to consumers. A cottage industry quickly emerged, and competitors began undercutting one another.
As the razor-thin margins eroded, Urann hatched what he considered a sure-shot solution to boost profits: convince his two largest competitors to forge an alliance and seize the market. When the Department of Justice got wind of the planned merger, however, it warned that the resulting company sounded like a monopoly and would surely run afoul of antitrust laws.
Urann didn’t want to hear it. He met with noted Boston attorney John Quarles and explained his desire to merge with his competitors. Quarles listened attentively and told Urann straight away that the plan was, of course, illegal. “All right,” Urann instructed Quarles. “Then figure out what we can do that will get the same results and not be illegal.”
Quarles got to work on what he considered a “hopeless assignment,” but eventually unearthed a 1922 law called the Capper-Volstead Act, which allows farmers to pool their resources and form agricultural cooperatives that are immune to many antitrust laws. When he floated the idea to the DOJ, the Antitrust Division chief admitted that he’d never heard of the act. After reviewing the deal, the DOJ and the Department of Agriculture gave their blessing in 1930, and Ocean Spray’s cooperative was born.
Urann devoted himself to hyping the cranberry with the fervor of a preacher at a tent revival, recruiting growers to join the cooperative and penning exuberant letters of encouragement. “Let us Cape Codders throw out our chest, take pride and every day boost and blow for Ocean Spray Brand Cranberry Sauce,” he wrote in 1930. “Ten million people will visit Cape Cod this year and they shall not pass without seeing, feeling, hearing, and tasting cranberries.”
The cooperative flourished, and by the 1940s it had added growers from Wisconsin, Oregon, and Washington. After World War II, Ocean Spray cranberry sauce started turning up in kitchens throughout suburbia. Ocean Spray executives bragged that they had sold enough cranberry sauce to outfit every home in the country with a can. Next up was to sell a can to every American. Then disaster struck, catapulting the company into its first white-knuckle crisis.
Just before Thanksgiving in 1959, the Secretary of Health, Education, and Welfare warned that two shipments of cranberries from the West Coast contained potentially dangerous levels of aminotriazole, a weed killer that had been linked to cancer in rats. Though the risk to humans was minimal—by one estimate a person would have to eat 15,000 pounds of tainted cranberries every day for several years to develop cancer—the damage was done. Wary consumers kept their distance; even first lady Mamie Eisenhower swapped out cranberry sauce for applesauce at the White House’s official Thanksgiving dinner.
While cans of cranberry sauce sat on grocery-store shelves collecting dust, the heads of Ocean Spray came to a game-changing realization: Their business couldn’t rely on a single seasonal side dish. Instead, the company needed to turn cranberries into an everyday, anytime staple. To do so, they looked for salvation in the juice aisle. In 1964 Ocean Spray introduced cranberry juice cocktail to the nation, followed by sweeter blends such as Cran-Apple and Cran-Grape. Around the same time, the Cape Codder—vodka with a splash of cran—hit the bar scene, causing business to boom. By the 1970s, the cooperative controlled more than 90 percent of the American cranberry crop.
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