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The Year in Review

In 2002 Sunkist, with only 69 million cartons of fruit to market, generated the highest FOBs in history for a non-freeze year. In navels and lemons, the FOBs were the highest by quite a margin. In all varieties, the same Mother Nature which handed the Sunkist sales team a smaller volume crop, also granted them nice-looking, good tasting, right-sized fruit with which to work. Accurate volume projections helped in setting marketing plans and consistent strong demand in excess of the short supply drove sales at home and abroad.

The year started with a short crop of excellent quality, very large-sized navels. The short crop and the absence of Spanish clementines helped ensure that the consistent movement with which the season began was continued throughout. In addition, good planning and hard work by the sales team kept FOBs up all season long, avoiding the usual mid-season price drop.

For lemon revenue generation, 2002 was Sunkist's best year on record. Short winter crops in Districts 3 and 1 not only helped drive winter revenues and significantly higher FOBs, but also allowed a smooth transition to Southern California summer fruit. During the summer period, both volume and revenue increased.

While Chilean lemons offered stiff competition in Japan, good information allowed Sunkist to manage this past summer season to generate maximum revenues. Knowing how much and when Chile was going to send into that market allowed Sunkist to control inventories early and to get normally high end-of-season FOBs at the start of the season. Sunkist growers were out of the market, with their money, before Chile came in.

In the lemon market also, times are changing as the global market becomes much more competitive. Last year, Spanish lemon imports into the U.S. hit a million cartons for the first time and Chilean shipments also hit record levels. The Mediterranean countries are all back into full production. With the disarray in the European market, these producers will ship anywhere they believe they can get some FOB valuation. And they believe they can get it from the U.S. market.

The 2002 Valencia crop was the exception. Domestic sales truly reflected the dynamics of the current marketplace. Valencias are fast becoming more of a foodservice and wholesale item with retailers seldom taking even truckload quantities. Valencias are also faced with increasing competition - from Australian and South African navels as well as soft summer fruits and melons. With a static market, price is not the factor it once was. Last year, the industry saw once again, that early discounting does not sell more fruit - it only drives down returns for all growers - a message that will be reinforced in 2003.

Despite the tough market, Valencia export sales went well through the end of June until the demand curve shifted, as it always does, to a larger piece of orange fruit. Unfortunately, the two million cartons of Southern California fruit that used to carry the back end of Sunkist's export program are no longer there - lost as acreage is pulled from production. The older trees that are left do not produce the larger size fruit export customers demand and the Central California fruit that is available suffers from regreening and texture problems. The world's southern hemisphere, however, continues to grow fruit that is big, and orange and cheap.

Consumption of grapefruit, no matter where the fruit is grown, continues to slide. Last year, another double-digit domestic decline saw Florida moving 15 percent less product than the year before. And as always, Florida's situation affected Sunkist's. When Florida's supply remains static, as it did last year, it provides Sunkist with a shorter opportunity in which to move product.

An important change in grapefruit movement is the growing separation between the super-red varieties and the traditional ruby grapefruit. All the super-red varieties, especially the Stars, are proving more popular than the regular rubies and are commanding significantly higher FOBs.

In export, the Japanese market built a huge backlog of Florida grapefruit and before it could be completely moved, South Africa delivered a million cartons to take its place. A bright light, however, is the resurgence of Sunkist's specialty grapefruit program as the sales team is rapidly building the business on Oroblancos, Melogolds and cocktail grapefruit. The 1998 freeze, which derailed the program, was followed by a poor tasting citrus crop, destroying consumer confidence. Through providing consistently good eating product, the program is being rebuilt, almost doubling in size each year since the freeze.

The embargo on Spanish Clementines helped contribute to record revenues for seasonal specialties as the Sunkist sales team took the opportunity to drive up sales and FOBs. Within two weeks of the embargo, the team had all the early winter varieties in produce displays everywhere, reinforcing the point that it is consumer and retailer preference, not lack of effort, which causes lack of movement in these varieties. More Minneolas were sold for more money than ever before and Pummelos saw a record volume year.

Another highlight of the year was the continued success of Sunkist's trademark licensing program. Last year more than 600 different Sunkist branded products were sold in 45 countries and licensees spent more than $100 million to advertise and promote the Sunkist brand. Fruit juices and carbonated beverages accounted for the bulk of the licensed business. Sunkist orange soda led the orange soda category at retail in the U.S. and Australia. Sunkist juices were re-launched in Eastern Canada supported by TV advertising that also showcased Sunkist fruit. In Malaysia the Sunkist juice franchise became the market leader, having grown tenfold in five years. In addition, Sunkist fruit snacks were launched in the U.S. in 2002, becoming an instant hit in the fruit snack category.

Around the world, licensed products help sell Sunkist fruit by keeping the Sunkist brand on retail shelves year-round, building consumer awareness and enhancing brand equity. In almost every country, the valuable Sunkist trademark cannot be maintained and protected without actual use of the brand for a specific food or beverage product. Promoting of the trademark via licensing helps assure consistent, uniform brand usage that enhances the Sunkist trademark stature and protects its value.

To compete in today's changing marketplace, Sunkist is continuing to restructure itself to earn and to keep market share, shifting from a supply-driven organization to a customer-driven organization. By focusing on the customer, Sunkist is finding new ways to compete.

To accomplish these goals, in 2002 Sunkist implemented some internal reforms, changing some of the ways in which it does business. Sunkist redesigned its marketing and sales organization to better fit today's marketplace, consolidating and restructuring its sales offices and Sunkist central sales. With this fresh fruit marketing reform, Sunkist is becoming more customer-focused and assuring itself a greater degree of success in the years to come.

Fresh Fruit Varietal Summary

Sunkist Growers, Inc. and Subsidiaries Five-Year Summary