Ocean Spray rejects Pepsi offer
cean Spray members in
June voted down an offer
to form a venture with
PepsiCo, under which
Pepsi would have bought
the co-op’s beverage business. PepsiCo
had offered the co-op $100 million and
said it would assume some of the coop’s
debt in exchange for the nation’s
leading cranberry juice brand. Instead,
the 925 members opted to continue
the 75-year tradition of operating the
company as an independent, farmerowned
cooperative.
The vote was 52 to 48 percent
against pursuing the Pepsi venture,
under which the co-op would have continued
to run the agricultural business,
but the value-added beverage operation
would have gone to Pepsi. In essence,
the co-op would have reverted to being
a raw-product supplier to Pepsi.
Ocean Spray is the top-selling brand
in the non-refrigerated juice aisle of
the nation’s supermarkets, with sales of
about $540 million last year. But cranberry
prices have been depressed in
recent years, due primarily to crop
surpluses. However, the market
has been coming into
better balance, and fruit
prices have again been on
the rise. In 2002, co-op members
averaged $35 a barrel.
Growing cranberries and producing
quality beverages and sauces is not the
issue for Ocean Spray. The main problem
is product distribution in an industry
that has become concentrated in
the hands of a few giants. Proponents
of the deal said that because PepsiCo
and Coca-Cola Co. control 75 percent
of the nation’s distribution of noncarbonated
drinks, it is too difficult for a
small (by comparison) company to gain
entry to crucial marketing outlets, such
as the single-serve beverage business in
convenience stores.
Opponents contended that the deal
would have clamped a too-low price lid
on future grower earnings at a time
when fruit prices are rising. Further,
they say other marketing deals are
possible that would not
force the co-op to give up
its value-added arm.
Some have even suggested
that Ocean Spray
explore a joint marketing venture
with other co-op juice producers, such
as Tree Top, Welch’s and Florida’s
Natural.
The verdict on the Pepsi deal means
the co-op’s board will cease all talks
with PepsiCo and other potential equity
investors, focusing all efforts instead on
working with management to build the
Ocean Spray business for the future.
The decision by Ocean Spray growerowners
in Massachusetts, Wisconsin,
New Jersey, Florida, Oregon,
Washington, British Columbia and
other parts of Canada will bring to an
end a lengthy process undertaken by
the board more than a year ago.
