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From Corporation to Cooperative
One mans dream becomes Welchs legacy
Donna F. Abernathy
DLF Communications Services
Editor's note: Abernathy, a freelance writer based in Murfreesboro, Tenn., has broad experience working for and with cooperatives.
It was a time of crisis. In 1933, the country's devastating economics hit with full force the once-thriving Concord grape growing and processing industries. Demand for premium quality grape juice gave way to the necessity for basic food staples. Vineyards were abandoned. Weeds were growing where grapes should have been. Plants and equipment fell into disrepair. Poor yields and even poorer processor prices were reflected in the faces of dispirited growers.
From this bleak period emerged the future of the Welch Grape Juice Company (now Welch Foods Inc.) and its ultimate cooperative ties. It came in the unlikely form of successful New York businessman, Jack M. Kaplan, who, by his own admission, started out just looking for a way to make some money. But what history records is his influence on Concord grape growers and how he inspired one of the most significant events in the annals of the fruit juice industry.
Kaplan, an astute
businessman, viewed the grape juice industry's woes as an opportunity. In 1933, he
purchased a small, financially strapped grape processing plant in Brocton, N.Y, and
organized it into the National Grape Corporation. Though he had no knowledge of the grape
juice business, Kaplan had all the ingredients of success: the capital needed to
revitalize the local grape-growing industry, business experience to compete with
established competitors and a solid management team.
Grapes for his operation were supplied by the five small growers' cooperatives, from which he had purchased the plant, and also by North East Fruit Growers. He knew from his experience in the molasses business that success hinged on developing a close relationship with the growers.
By buying exclusively from these six groups, Kaplan saw an opportunity to upgrade the financial status of the growers. He insisted on, and got, a five-year contract guaranteeing grape deliveries of 5,000 tons a year, 2,000 more than the cooperative had produced in any previous year. The agreement gave growers the incentive they needed to revitalize their industry
The businessmans ideas worked. In seven years, the Brocton facility had doubled in size and the growers were receiving increased prices for their grapes.
Then came World War II and commodity price ceilings. Private processors like National Grape were forced to compete with cooperatives that were exempted from the price controls. When growers began forming or joining small cooperatives, Kaplan quickly voiced his opinion that they were "crazy to form all these little co-operatives." To make his point, he made a most unusual offer. If the growers would form one big cooperative, he would sell the very profitable Brocton plant to the newly created farm organization.
The National Grape Co-operative Association was soon in business, but buying the processing plant from Kaplan took a little longer than planned. Only two months after signing the agreement to purchase National Grape in 1945, a circumstance occurred which held even greater promise for the growers.
In the early 1900s, the Welch Grape Juice Co. funded aggressive
promotional campaigns that established it as a household name.
Photo and artwork courtesy Welch Foods Inc.
A cooperative destiny
The Welch Grape Juice Company was for sale. And Jack Kaplan wanted it.
He knew the new owner of the company would have "the only nationally advertised name" in grape juice. As Kaplan explained: "What Ivory was to soap, Welch was to grape juice." In addition to the well-publicized brand, the deal would deliver an established market along with production and distribution facilities in five states.
Once again, Kaplan saw opportunity and he encouraged the new co-op members to support him. It meant the co-op would forego the purchase of the Brocton plant and instead concentrate on eventually buying Welch from Kaplan. It would take more than a decade for the deal to be finalized, but Kaplan remained unwavering in his conviction that "in the end the only viable form of ownership of this business was ownership by the farmers through the cooperative."
Kaplan bought controlling interest in the Welch Grape Juice Company and quickly reversed negative trends in the sluggish business. By 1949, he was ready to sell to the growers, but three years would pass before an acceptable plan was presented. The five-year plan called for Welch to accept the growers grapes, process them, manufacture and market the products, and give the farmers the full net proceeds that would accrue towards the $15 million purchase price for the company's land, buildings and equipment.
The plan was a generous one by many accounts. Still, there was fierce opposition from some growers. One argument that emerged was the belief that farmers should stick with growing grapes and leave the processing, manufacturing and selling to private industry. Bigotry also emerged as a theme since some distrusted Kaplan because of his Jewish heritage. Despite these arguments, the growers approved the plan by the end of 1952.
In three years, the growers amassed their $15 million and made a deal with Kaplan to finance the additional $13.5 million needed to buy Welch's current assets and good will. On September 1, 1956, at 11:31 a.m., with a vote of the directors, National Grape Cooperative Association, Inc. became the sole owner of Welch Grape Juice Company Inc.
To govern the new business relationship, a two-board system was established by the cooperative. National's board of directors would concern themselves with delivering grapes, while Welch's board concentrated on converting the fruit into marketable products and selling them. Today, this unique arrangement continues and serves as a model for other cooperative ventures.
A dream fulfilled
In selling Welch, Kaplan
realized his initial goal of personal profit, netting about $13 million. But turning Welch
into a materially successful company and transforming it into a cooperative gave him an
even greater personal satisfaction, Kaplan told William Chazanof (author of a history of
Welch's) in a series of interviews about his experiences in the grape juice industry.
During his years as a businessman, Kaplan became deeply concerned about how people were exploiting one another. "We have never been able to get together to have a system by which we are all cooperating for the common good," he said. Also, his years of friendship with the growers gave him the ability to understand the unequal position of the individual farmer in dealing with processors. As Chazanof noted: "To Jack, the sale of Welch to National was both a personal and philosophic triumph. In a sense, it was Jack Kaplan's enduring monument toward achieving his articulated goal: 'I have a long interest in the betterment of humanity."'
Kaplan's long-cherished dream became a reality and the uniquely organized cooperative would go on to achieve great things. Today, the National/Welch organization is the world's leading marketer of Concord- and Niagara-based grape products. The National Grape Cooperative Association's 1,497 patrons supply its principal raw products from more than 44,000 acres of vineyards in Michigan, New York, Ohio, Pennsylvania, Washington and Ontario, Canada.
In its 1998 annual report, Welch reported net sales for 1998 were a record $599.7 million and patron net proceeds were a record $72.4 million. Over the past four years, at a time when the food store industry and the total fruit juice industry have grown less than three percent, Welch's sales have increased 41 percent, or at a growth rate 14 times faster than the industry in which it competes. Patron proceeds have increased an astonishing 46 percent. Since 1995, Welch's has more than doubled its share of market in the juice category.
Some information for this article taken from: "Welch's Grape Juice: From Corporation to Co-operative" by William Chazanof (1977).
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