Delivering value to members
Welch’s CEO says National Grape members reap benefits
from efforts to expand markets, develop new products
By Dan Dillon, CEO, Welch’s
Editor’s Note: This article is based on the keynote address Dillon
delivered to the Eastern Member Relations Conference in Buffalo,
N.Y., in May.
t Welch’s, and as a cooperative, our mission
is different in several very important respects than if we were a publicly held company.
Providing a secure market and increasing demand for
our members’ quality grapes and other non-financial
measures are central elements to our mission. Adding
value to our co-op, delivering value to our members, is
quite different from that of a public company because
our mission is different. Our owners have different goals.
What they expect from their ownership is different from
what, for example, a General Mills’ stockholder expects. The
question then is, what do they want? What adds value for them?
In the late 1990s, we surveyed our National
Grape directors and delegates and asked them to
rank 15 possible actions we could take to add value
to our members’ ownership. What were the
most important, most relevant measures of performance?
The study results were very instructive. Not
surprising, topping the list were:
But what was particularly enlightening in the
survey and in follow-up discussions was the high value National
Grape members put on other, more subjective measures:
- total patron proceeds,
- earnings per ton and
- growing the enterprise.
Based on this research and discussions, we have over time
refined our mission.
- Providing a secure market when the industry is in surplus.
- Growing the demand for their grapes.
- Providing an opportunity for them to expand production
to plant more grapes.
- Having the receiving and containment capacity to handle
even large crops in a timely manner.
- And, most important, having confidence in the marketing
capability of the co-op to sell their entire crop even
a bumper harvest.
The mission of our company, as a cooperative, is to:
Our mission, in addition to the obvious objective of more
proceeds in the present, includes increasing demand and providing
a secure market for all our members’ grapes over the
- maximize long-term grower value and
- provide a reliable market for members’ grapes through:
- excellence in product quality,
- customer service,
- market responsiveness,
- and consumer satisfaction.
It is important to understand that there is a price for these
additional elements of the mission. They add value, but there
is a tradeoff in that they reduce proceeds in the short term.
If our mission were only to maximize
proceeds or maximize proceeds per ton,
then the actions we should take would be
different. Our investments would be
focused differently from what they are currently
We literally take thousands of actions
every year that reduce proceeds per ton for
the current year. But these actions are
essential to achieving the other dictates of
Let’s look at some real examples driven
by this mission.
- Maximize long-term grower value.
- Provide a secure market.
- Increase demand for all the members’
In the early 1980s, Welch’s was receiving
192,000 tons of grapes per year, but
only selling 168,000 tons demand was 10
percent less than supply. Every year,
inventories were building as deliveries
continued to exceed sales. We were headed
for a disaster.
Welch’s recognized this dilemma and
made the very difficult decision to invest in growing demand
even though it depressed earnings $75 to $100 a ton in those
investment years. We were sacrificing short-term proceeds
per ton for other important longer-term objectives.
The alternative, and one we not only considered but one
often used by other co-ops and companies faced with a similar
situation, was to allocate the number of tons our members
But, we didn’t do that. In 57 years, we have never done
that. We took all the grapes and invested heavily in marketing,
in new products and advertising to increase demand over
time even though it seriously depressed the proceeds per
ton we were able to pay in the short term.
But the investment in receiving and marketing all our members’
grapes not only increased demand to absorb the greater
supply, but it also increased demand so that by the mid 1990s we
were offering our members opportunities to plant more grapes.
In an average year in the 1980s, we sold 192,000 tons and
paid $197 per ton. But by the 1990s,
Welch’s had increased demand to
274,000 tons a year. The increased
demand allowed us to earn an average of
$252 per ton—28 percent more per ton
on 43 percent more tons sold per year
almost doubling (up 83 percent) total
proceeds per year back to the members.
But creating and maintaining this
demand also has a price. Today, for
example, Welch’s invests more than $80
per ton every year in advertising alone.
There are some who would suggest
that we should sacrifice that advertising
investment or other marketing investments
in some years in order to increase
In 1999, for example, we had
increased demand so quickly in the
mid-1990s that the cash market for
Concord grapes shot up and was actually
higher than the earnings we paid our
members. A seemingly simple solution
would have been for us to reduce or
eliminate the advertising or new product
investment or other investments to
increase our earnings $100 per ton.
We could have materially beaten
what others were paying if we did, and
we could have easily moved all the tons
we were receiving without advertising
in that year. But our mission demands
that we maintain a consistent investment
in growing demand in order to
maximize long-term owner value.
The logic of that commitment really
manifests itself in a year of big crop
surpluses (as 2002 appeared to be prior
to some devastating freezes in late April and May). Concord
inventories have been running at record-high levels
because of the increased supply and low prices for California
grapes. Demand for Concord is flat to declining for
everyone else, but not for Welch’s. And if that were not bad
enough, other processors are already warning that there
may be a significant reduction in the price they pay for
Concords in 2002. But for Welch’s members, the consistent
investment made in growing demand has not only added
value through the opportunity to plant more grapes we
just concluded the biggest planting program in our 57-year
history but we will also materially increase our earnings in
fiscal 2002 vs. 2001.
We are adding value by consistently investing in increasing
the demand for Welch’s products increasing the demand for
Concord and Niagara grapes through advertising, new
products, marketing programs in new channels of distribution,
such as club stores and single-serve channels, through
health and nutrition research and public relations programs.
At the same time that we had been investing in increasing
demand by more than 80,000 more tons per year, we recognized
that tens of millions of dollars in capital investment
would be required to receive and contain those grapes.
As a co-op, our mission includes providing a secure market
particularly in times of surplus another way we add
value. Welch’s has established a policy for receiving and containment
aimed at minimizing the risk that our quality
grapes will not be harvested, received or contained.
This is an investment well beyond what a public or nonco-
op company would make because it reduces profit. It is an
added value that we provide to our members. But it’s not
free. We have calculated that our receiving and containment
strategy costs our members about $30 a ton every year.
Perhaps this can be viewed as insurance. Our members
sacrifice $30 a ton in proceeds most years in order to ensure
they get all their grapes delivered in exceptional years as in
2002 or 1992 or 1996.
The original 2002 forecast was for a record crop of
342,500 tons, or 53 percent (118,000 tons) more than in
2001. Welch’s was fully prepared for this, because we had
made the investments to receive, contain and sell that entire
bumper crop. But spring freezes in Michigan and in the tristates
region (New York, Pennsylvania and Ohio) reduced the
projected crop to one that is now expected to be only 6,800
tons, or 4 percent, larger than last year.
If our mission were to maximize the proceeds per ton on
the tons we receive a logical objective if we were a public or
non-co-op company then we probably would not accept all
the grapes originally forecast or even the current, more modest
The point is, the cost of having a secure market in a year
such as 2002 was originally projected to be, is reflected in an
earnings-per-ton reduction. The value of maintaining
demand, growing demand, having the resources ready to
receive and contain exceptional crops, the value of having the
marketing flexibility to sell 50,000 or 100,000 more tons in
an exceptional year, is why National Grape members choose
There is also a serious trend to consider the substituting of
California grapes and foreign grape juice for Concord. For 133
years, Welch’s has defined grape juice with the unique, distinctive,
special taste of Concord. Only in North America is the
Concord taste the taste of grape juice and grape jelly. In the rest
of the world, when a consumer thinks of grape juice, the taste
expectation is entirely different from the U.S. consumer.
This expectation is critical to our growers. The substitution
of California grape juice for Concord may still produce a
nice-tasting juice, but it is not the unique taste of Concord.
Much of our product formulation work, our marketing,
advertising and health and nutrition efforts are focused on
the unique taste and health attributes of the Concord grape.
It is imperative that Welch’s continue to drive these efforts.
While other juice manufacturers are substituting California
and foreign grape juice for Concord, National Grape
growers can rest assured that they have a secure market at a
higher, more stable price because they own Welch’s.
Our mission is not to maximize earnings per ton or to maximize
profits or return on members’ equity. Rather, our mission
is focused on creating long-term value for our members.
We believe the success of Welch’s strategies to build value for
our members has indeed been fulfilling that mission.
Obviously, the spotlight will always remain focused on the
proceeds per ton we pay. But there is recognition of the value
This is value over and above the proceeds per ton we pay.
It is real. Is it worth $50 a ton? $100 a ton? In many years, as
in 2002, it might be priceless.
- increasing demand creating opportunities to expand,
- providing a secure market even when the industry is in
surplus, or the quality is compromised,
- having the receiving and containment capacity to handle
even exceptionally large harvests in a timely manner,
and, most important,
- the confidence in Welch’s marketing capabilities to maintain
the relevance of the unique Concord and Niagara
taste and to sell the entire crop even a bumper crop.