|
   2000 Annual Report
The decade of the 90s was a decade of challenges - a decade of conflict, competition, compromise and change. It was a decade that fundamentally changed the way Sunkist does business. As supermarkets continue to consolidate, more sellers compete for fewer customers. The marketing order is gone, and with it the mechanism for an orderly flow of product to market. Global competitors now fight for customers that traditionally have been served by Western citrus growers. Competition for shelf space is relentless and ruthless. Issues involving the availability of and the regulations pertaining to labor, water, chemical usage and the environment are increasing, and the agricultural work force is shrinking. The cost of production is going up, while the price the customer pays for that production all too often is not. Last year, these challenges coalesced, made a fist, and socked the Western citrus industry in the solar plexus. We may have lost our breath, but we certainly haven't lost the battle. We came away stronger - and a whole lot smarter - in 2001. Packaging is an indispensable selling tool which plays an ever-greater role in today's competitive marketplace. Some of Sunkist's 2000 packaging successes are showcased above. The year 2000 - facing hard times The total volume of fresh fruit marketed in 2000 was below normal. At just over 75 million cartons, the lower volume was due more to the lack of demand than to the lack of fruit. While California and Arizona citrus growers produced an average size crop last year, much of it was not what consumers wanted. The navels matured late and the crop that was finally harvested was less than stellar. Small in size and lacking its normal sweetness, it did not find a great deal of favor in the marketplace. The lackluster demand brought with it lower-than-normal prices. The valencia crop faced even more problems. The small sized fruit made it difficult to compete for the consumers' attention among the myriad varieties of produce on the shelves during the summer. Sales were also hampered by a navel crop that was as late in exiting the market as it was in entering it. More than 40 percent of the season's Valencias did not even reach the market, but were diverted to processed products or left on the tree, the cost of picking them being more than the price they would bring. The industry had more than just Mother Nature to contend with. Competition, which has been steadily increasing, grew even more. Spanish clementines stepped up their American invasion, flooding East Coast markets and then marching inextricably west, going head to head with Western navels. Valencias, which already have had to share more and more shelf space with summer deciduous fruit and melons in recent years, also faced increasing competition from incoming Australian navels. Revenues for the 1999-2000 season totaled just under $847 million, down 2 percent from the previous year. Payments to members dropped 3 percent to $682 million.
Some triumphs to build on The year's successes included the winter and summer lemon programs, which were quite rewarding - a testament to the job that Sunkist can do, especially when armed with a good quality product. In addition, the new Lane Late navel program generated substantial returns. Customers loved the colorful cartons and the end-of-season promotions. The summer bagged valencia program was an unqualified success. The fruit attracted consumer attention in bags bearing reproductions of vintage Sunkist crate labels. Retailers moved large volumes of summer oranges supported by best-food-day ads featuring special in-bag premiums - Sunkist beach balls and 5-minute, pre-paid telephone cards. Oranges were moved in new retail distribution channels, using special promotional tie-ins with fitness partners such as Bally's Total Fitness and purveyors of health care products such as Pharmor Pharmacies and a test program with some 7-Eleven stores on the East Coast. Sunkist will continue opening and expanding these new channels, providing more non-traditional outlets for Sunkist fruit.
Offers they could not
refuse In 2000, Sunkist's domestic advertising programs reached more than 36 million consumers in the United States and Canada. Its public relations spokespersons' campaigns reached about 24 million. Sunkist's new television spot, the classroom commercial starring the teacher with the Sunkist Smile, was a hit everywhere it aired. Its popularity gave birth to this year's Sunkist Smile campaign in Canada, which will launch both a contest and an outdoor billboard campaign. And its popularity translated into other countries as well, with Sunkist Smile campaigns planned for Japan, Hong Kong and Singapore in 2001.
Innovative packaging helps increase sales Many of the new packaging concepts under development for 2001 are built upon the successes of last year. Last summer's poly bag, printed with the vintage Sunkist crate label, proved so successful in marketing Valencias that this winter Sunkist developed two new holiday bags, featuring a Sunkist snowman and Santa Claus, to sell navels. The positive response to Sunkist's new dragon carton, designed to commemorate the ~~Year of the Dragon," was so great that not only has the carton been modified for 2001, it will also be supplemented with a new carton celebrating the ~~Year of the Snake." The popular Lane Late cartons will see extensive service again this year. And, already Sunkist is getting rave reviews about its new 5-lb. net-covered crate. Retailers especially love this customer-convenient box designed to motivate shoppers to buy not just a piece or two of fruit, but five pounds at a time.
Trade promotions help develop customer partnerships
The value of the Sunkist name The royalties earned from the Sunkist licensee program provide a source of capital that keeps the grower investment level among the lowest of any cooperative any-where. Last year, despite challenging market conditions in Asia and Europe, revenues from the trademark licensee program increased by $1.6 million. Sales of all Sunkist licensed products worldwide once again totaled more than $1 billion.
Processed Products rebounds post-freeze The decrease in processed products payments was due to both lower quantities sold and to generally lower prices achieved, primarily a result of weak demand and a worldwide glut of orange concentrate.
Expanding markets Sunkist was ready when the Chinese market opened to U.S. citrus in March, and the first shipment was on the water immediately. In five months, Sunkist marketed 150,000 cartons of fruit. This year, projections are that shipments to China will reach 50,000 cartons a week, with lemons and grapefruit being moved into that market as well. China is the world's largest consumer market and, after years in the economic doldrums, almost all of its leading financial indicators are on the rise. With its impending entry into the World Trade Organization, and the resulting lowering of tariffs, the possibilities for Sunkist sales are on the rise as well. The Korean market, which has had enormous potential for growth, finally blossomed this year as importers committed to Sunkist citrus. Consumer momentum vaulted orange shipments from under one half million cartons in 1998 to well over 1.5 million cartons in 2000. In Sunkist's long-time Asian markets - Japan, Hong Kong, Singapore and Malaysia - consumers continue to rely on Sunkist quality. But all of these markets, old and new, want the same things - the preferred sizes, the highest quality and the best possible price. While Sunkist's opportunities are excellent and its brand name valued, it does not own these markets. Citrus fruit from a great many global competitors is already there - and more is coming - as they try to secure a share of the markets that Sunkist has developed.
Tough decisions The Board also made a much more painful decision - to charge unallocated retained earnings with $9.2 million of products pool payments made in excess of the earnings actually realized. The alternative would have been to require the growers who benefited from the overpayments to return them to the company. The primary factor that contributed to these overpayments was the less-than-expected quality of the inventory of orange not-from-concentrate carried over from the freeze yean Due to marketability concerns, that inventory was converted to lower value concentrate. The end result was that the prior year's growers were paid more than the fruit they delivered was ultimately worth. Similarly, during the current year, the Board decided to pay growers $40 per ton for all products grade valencia fruit delivered during the year, despite the fact that the value of the fruit was expected to be worth considerably less. Such payment level was authorized to encourage growers and their packinghouses to deliver their fruit to Sunkist's processing plants, rather than add to the over-supply of fruit waiting to be marketed in fresh fruit channels. Even with these actions, Sunkist's balance sheet and overall financial health remains strong.
It's a brave new world Business is changing - customers are growing bigger and bigger as retailers consolidate to reduce costs. Much of agriculture is caught in the squeeze. Sunkist, too, must change. And it is changing. But, as it always has been, and always will be, the bottom line goal and responsibility of Sunkist remains the same - doing what it takes to maximize crop utilization and the resulting returns to its grower-members.
 |
 |
   |
||||||||
|
|||||||||||
