Expansion, possible IPO are options Ocean Spray will consider Cranberry cooperative looks at the long haul Randy C. Papadellis joined Ocean Spray Cranberries Inc. as chief operating officer and president in 2000, the middle of a cranberry crisis. The week he arrived, the price for a barrel of cranberries dropped to , the lowest ever in modern history. Growers were up in arms, and a series of leadership shake-ups followed at the Lakeville cooperative. Today, Papadellis is a survivor, serving at the helm of the revitalized cranberry giant. The 50-year-old chief executive recently spoke to Globe reporter Jenn Abelson. Ocean Spray's board recently voted to spend million to have John Hancock Agriculture plant new bogs for the company. Why is this necessary? The industry is short on fruit. And it is becoming more and more difficult to expand growing, particularly in traditional growing areas because of land costs, land availability, and environmental permitting issues. So we're planting acreage to help supplement growers. So we're doing this with John Hancock Agriculture, a large manager of farms throughout the world. They are also our fourth-largest shareholder. Where is it easier to grow cranberries, and how much are you looking to expand? We're looking at a couple of different growing areas in Wisconsin and Canadian Maritimes. We're looking to produce 1 million barrels of fruit on about 5,000 acres. Right now we have 5 million barrels of fruit, so it would be about a 20 percent increase. Eventually, we could spin off the agricultural investment as a separate company and provide shares. Is it difficult to retain growers when other companies are willing to pay more per barrel? It's challenging. There's always the pressure with the return being higher on the outside and the temptation to leave. I spend a lot of my time explaining the long-term agricultural cycle and how inevitably, prices will fall. Our board recently voted to create a separate operating business from the cooperative. Both entities will be wholly owned by growers, but this move allows us more flexibility to do a joint venture or bring in an outside investor. Now, growers see the economic value just in the price per barrel. But we have close to a billion brand and there's no way to tap into that without an outright sale. Hypothetically, with the new structure, we could look at an IPO and unlock more value for growers. But it's still early on. What is so appealing about cranberries? Cranberries really are in the sweet spot of what consumers want right now with taste, health, and refreshment. So why has the juice market faced so many challenges in recent years? The Achilles heel of the juice market has been high calorie content and sugar. One of the reasons we've been able to buck the downward trend is because a lot of our innovation has come in lower-calorie healthy alternatives. A year ago we introduced a line of diet drinks that have only five calories per serving. We sweeten it with Splenda as opposed to sugar. We also just rolled out Cranergy. There are a number of energy drinks out there, but most are targeted to bar-hopping young males looking to stay up and drink all night. Cranergy is targeted more toward soccer moms, and it's an opportunity to replace the afternoon cup of coffee in the car with something different. Cranergy is a natural alternative and uses a combination of cranberry juice, green tea extract, and vitamin B12 to provide the energy. Has the cranberry been overshadowed by other superfruits like pomegranates? The popularity of pomegranates really hasn't hurt us as all. We're introducing a number of cranberry pomegranate blends over next six months. Next year at Ocean Spray - as far as cranberry blends are concerned - will be the year of the pomegranate. We already have a 100 percent cranpomegrante, but we're looking at adding those types of flavor to our cocktail line which is lighter and more refreshing in taste. What about the new craze over acai, a small purple berry native to the Amazon rainforest and loaded with antioxidants? It's not as widely available as pomegranate. But we're taking a good look at it as something to blend with our juices. We're very anxious to provide healthy alternatives. How has the rising cost of fuel impacted Ocean Spray? It costs more to transport our products around the country. Also in the plastic - resin is a petroleum byproduct - as cost of oil goes up, cost of plastic goes up. In the last year alone, it impacted our business by over million. For a relatively small company, that's a lot of money. What are you doing to reduce these expenses? We just completed an initiative that took over 10 percent of resin in our plastic packaging out. Using less resin means less cost. Overseas, we're using a lot more juice boxes, but that packaging hasn't caught on in the US. We've had to increase prices. In January, we increased our beverage prices about 6 percent. Next month, we're increasing the price of craisins by 10 percent. It's an option of last resort, but with commodity costs increasing the way they are, we have no choice. What exactly are craisins? Ten years ago, craisins were basically what we were giving away to pig farmers as feed. Now they've become the fastest growing and most profitable part of the business. Craisins are the cranberry hull - after we've extracted all the juices. We reinfuse a little juice back in, combine it with a little bit of natural sugar cane, and call it sweet and dried cranberries, or a craisin. How did it become such a big business? For most of its existence, it was a baking ingredient sold along chocolate morsels in the baking aisle. A couple of years ago we made the marketing decision to reposition it as a healthy snack, kind of what raisins have been doing it for years. So we moved it from the baking aisle to dried fruit aisle and the produce section. Over the last few years, we've gone from producing 20 million pounds of sweet and dried cranberries to 115 millions pounds by the end of September. Source: boston.com

Publication date: 8/19/2008