In our piece entitled, Pundit’s Mailbag — China, COOL And International Opportunities, we addressed a letter sent to the Pundit by Professor Thomas Reardon of Michigan State University. The letter, among other things, dealt with the prospects for U.S. growers in China and led us to these thoughts:
“…when Sunkist appointed a new CEO, we greeted his appointment with one overwhelming question: Will Tim Lindgren Go To China? Sunkist, as a co-op and particularly as a federated co-op — meaning that it is really controlled by the packing house owners more than the growers — finally bent and decided to open counter-seasonal operations in the Southern Hemisphere.
China is Northern Hemisphere fruit and thus directly competitive with Sunkist’s California and Arizona growers, and THE QUESTION for the future of Sunkist is if it will build packing houses in China or joint venture there, knowing that it will be directly competitive.
If Sunkist refuses, it will surely see big drops in market share in Asia. Major markets such as Japan and Hong Kong will shrivel.
Yet Chinese production could be the perfect tool for Sunkist to reenter European markets it once held but lost to less expensive citrus from other countries.”
This brought us a letter from a person knowledgeable about Sunkist:
Sunkist is in no position to get into the Chinese (or European) market as suggested in your recent article. Simply put, Sunkist no longer has the horses to do this type of business activity. The recent freeze in January of this year forced Sunkist to slash about 1/3 of its sales, marketing and licensing staff. Inclusive of these cuts was the folding of the Licensing Department into Marketing.
While certainly related, the ability to negotiate the type of business dealing, licensing Sunkist trademark for use by Chinese shippers is not the forte of Marketing. And while much of the executive team that negotiated the various southern hemisphere deals in the past is still at Sunkist, in some type of capacity, the only southern hemisphere deal that has proven to have any legs has been with South African producers.
I think parts of your argument though are off. While Sunkist will surely see loss of market share in Japan from competitive Chinese fruit, I think the China market will offset that to a large degree. Burgeoning Chinese middle-class housewives will clamor for Sunkist Navels, where the brand still has tremendous equity.
The bourgeois will have their day, Mao be damned. It’s been widely known for some time that the reason the Hong Kong market was so big was the shipping of fruit into southern China. But that may only be a temporary stop-gap for a longer term problem. And before China becomes the major force it can become in the Asian citrus business, it needs to vastly improve its infrastructure to get product to market efficiently. Arguably this has happened at much greater speed than was believed 5-10 years ago.
Sunkist is in retrenchment mode. Period. Both Paramount and Bee Sweet Citrus have left the co-op within the past year, taking much needed assessment volume. The company is in the midst of a major re-org, sort of. Much of what they are doing is years in the making. Since 1998 to 2007, the number of Sunkist sales offices has gone from 32 to 16. More are expected (rumored) to go this summer — maybe. All of which should have been done in the wake of the ’98 freeze, or sooner, but weren’t for a myriad of reasons that included a lack of vision level and the lack of will to pull the trigger on tough decisions at both the board and management levels.
That being said, Sunkist has done some things right in recent years, most noticeably its “Texas” programs, which have given Sunkist much needed volume from Texas grapefruit and Mexican limes.
The big issues at Sunkist right now are when its corporate headquarters building will be sold and where HQ will move to. And then what the new org chart will look like. Will Sunkist finally be a proactive marketing organization or will Sunkist continue to be great at taking sales orders pushing volume up the marketing channel, providing a price umbrella for independent citrus shippers?
Once that happens Sunkist will then be in a position to take a long look at what it is and what it wants to be. Does Sunkist want to be a leading “trade brand” making efforts to push product up the retail channel? Or does Sunkist want to be a “consumer brand” focused on delivering value to its end consumers and partners within the various marketing channels?
Once Sunkist starts to answer those questions, it can then look at China and Europe as growth opportunities. But past experience indicates that will not happen anytime soon.
— Delos Walton
(Editor’s note: Delos was an analyst at Sunkist whose work touched on all major departments and involved working with most of the senior staff.)
We thank Delos for the thoughtful, responsive and informative letter. We have few substantive disagreements with anything Delos says, although we think the implications of the letter are evidence of missed opportunities.
It is probably true, at least in the medium term, that as Delos states, “While Sunkist will surely see loss of market share in Japan from competitive Chinese fruit, I think the China market will offset that to a large degree. Burgeoning Chinese middle-class house-wives will clamor for Sunkist Navels, where the brand still has tremendous equity.”However what kind of business placidly accepts a loss of market share just because some other market will get better?
Why shouldn’t Sunkist both gain sales in China and keep its markets in Japan? If the market in Japan will predictably shift to Chinese citrus, why shouldn’t Sunkist sell that Chinese citrus?
Delos gives us an answer in terms of practicality: Sunkist is in no position to get into the Chinese (or European) market as suggested in your recent article. Simply put, Sunkist no longer has the horses to do this type of business activity.
This is somewhat of a chicken-and-the-egg situation. Few companies maintain the idle capacity to do things they have no plans to do. If Sunkist decided this was the route to take, it could staff up a bit, hire consultants, etc.
In fact the reason Rick Eastes’ old operation was set up as an LLC was so that Sunkist could do partnerships and joint ventures. If Sunkist doesn’t have the horsepower, it can use the LLC to partner with someone who does.
As far as the speed with which China will solve its logistical problems, well, as Delos acknowledges: “Arguably this has happened at much greater speed than was believed 5-10 years ago.”All countries, including the U.S., have logistical issues, but if the profit opportunity is there — and it is — it would be a mistake to see this as a long term barrier to entry.
As far as regional sales offices go, in an age of e-mail and video conferencing and, more to the point, centralized corporate procurement, regional sales offices seem of little value. We can see value in a regional merchandising staff out visiting stores and trying to improve merchandising. We can see value in pre-positioning product regionally so Sunkist can provide quicker service to clients. But how does having regional salespeople help Sunkist sell Costco or Wal-Mart? Even if a buyer is local, how often does a busy chain buyer want to see the Sunkist sales rep? The whole system is a relic of an earlier day.
Unfortunately, as Delos says, internally, Sunkist management probably thinks this is true: “The big issues at Sunkist right now are when its corporate headquarters building will be sold and where HQ will move to. And then what the new org chart will look like.
The reality is that companies that obsess over where their headquarters are and how their organizational chart is arranged are in deep trouble.
Yes, selling the headquarters will probably raise a lot of money. But nothing Sunkist needs to do requires any grower money. Sunkist has one of the most valuable brands in the world. Private equity, a public offering, joint ventures… there are multiple ways that funds can be accessed to implement a growth strategy.
Delos, of course, raises many pertinent and important questions:
“Will Sunkist finally be a proactive marketing organization or will Sunkist continue to be great at taking sales orders pushing volume up the marketing channel, providing a price umbrella for independent citrus shippers?
Once that happens Sunkist will then be in a position to take a long look at what it is and what it wants to be. Does Sunkist want to be a leading “trade brand” making efforts to push product up the retail channel? Or does Sunkist want to be a “consumer brand” focused on delivering value to its end consumers and partners within the various marketing channels?”
Yet, we would say that the key question for Sunkist is ownership and, more specifically, governance. When Jeff Garguilo was there, when Paramount was a powerful player, when superstars such as Steve Barnard and Roberta Cook were on its board, Sunkist had as clear a shot as possible to seize many opportunities.
It is clear that lots of folks resented Jeff. He has a great mind and enormous strategic vision, but he is not the type to have a lot of patience to baby sit a co-op. We think he was interested in coming in, doing a “big deal” to let the growers monetize their ownership in the Sunkist brand and making Sunkist a major player free of the parochial interests of both packers and growers.
In the end, Sunkist was stopped because its governance structure created perverse incentives. All co-ops have challenges because the ownership is so focused on helping sell the commodity that it often loses site of the value of the brand.
Sunkist, however, is unusual because of its structure as a federated co-op, placing packers in positions of influence. Even if each grower’s shares would be worth a fortune on Wall Street, very powerful forces on the Board have other interests. By all accounts, for example, Mark Gillette of Gillette Citrus Company in Dinuba, California, is a powerful influence on the board, yet he is a relatively small grower, and his financial benefit from Sunkist leans heavily toward the income he derives from packing fruit.
It is easy to imagine a scenario in which growers might benefit by privatizing the co-op and doing a public offering, thus getting stock the growers could sell on the New York Stock Exchange any day of the week. Yet individual board members might lose out because growers might elect to have their fruit packed elsewhere.
This is also the key issue when we talk about China. A grower who owns shares in the co-op can benefit financially if Sunkist sales of fruit grown in China are successful, but a packer gets nothing out of it.
If this governance problem is not resolved, Sunkist will have great difficulties seizing the available opportunities.
One place we agree fully with Delos: “Once Sunkist starts to answer those questions, it can then look at China and Europe as growth opportunities. But past experience indicates that will not happen anytime soon.”
Sunkist has been losing market share in Europe for, oh, probably a half-century. The company has watched it happen because there is no solution that will help California and Arizona citrus packers. This is what must change.
We have been writing about Sunkist for a long time. Delos mentions the 1998 freeze. Well, we wrote a piece in 1991, right after a freeze calling for dramatic changes at Sunkist. The piece ran in Pundit sister publication, PRODUCE BUSINESS, and was entitled, Diversify Sunkist?
But our coverage on Sunkist here at the Pundit started with Sunkist Wake-up Call? — which asked what the message was in the loss of Paramount Citrus as a Sunkist shipper. An interesting piece we named, International Positions Of Two Citrus Companies, suggested that the grower/owners of Sunkist should think about where Seald Sweet would be if it hadn’t gone international in a big way.
We than ran Pundit’s Mailbag — Sunkist Responds to Article with a lengthy letter from Rick A. Eastes, then director of global sourcing for Sunkist Global LLC, explaining Sunkist’s international efforts, and the Pundit responded by praising the effort but also by pointing out that these were the easy, noncompetitive decisions to make. The growers/owners of Sunkist still had to deal with competitive regions in the northern hemisphere such as China.
We extended our congratulations to the newly appointed president and CEO of Sunkist, Timothy J. Lindgren, but asked Will Tim Lindgren Go To China? The question was both literal: Would Tim Lindgren establish an effective strategy for Sunkist with regard to Chinese citrus? And figurative: Would Sunkist’s new President and CEO use his grower-friendly credentials to take the co-op public or otherwise lead it in a direction that had previously been resisted?
Pundit’s Mailbag — In Defense of Sunkist’s New CEO came from a reader who had worked with Tim Lindgren and gave the writer’s take on the situation.
Bee Sweet Departure Adds To Sunkist Woes pointed out how quickly the relationship had soured between Sunkist and Bee Sweet.
Sunkist And Pure Gold pointed out how consumer impressions of the Sunkist label would drop precipitously, which could lead to a weakening of the Sunkist brand.
Pundit’s Mailbag — Sunkist And The Australian Citrus Deal brought a letter from Jeff Gaston of Sunkist discussing Rick Eastes and the development of Sunkist’s southern hemisphere programs.
Pundit’s Mailbag — Univeg, Ready Pac, Sunkist and The Lord Mayor of Dublin dealt with many subjects, including Sunkist’s decision to sell freeze-damaged fruit under another label and its challenge as a vendor of primarily one category grown in one place.
What all this together shows is that the board can only get the quality of management it wants. Tim Lindgren is quite popular internally at Sunkist and with the board. He has not articulated a strategic vision for the company that will lead it to success in this century.
We don’t, however, want to be too hard on Tim. There is no evidence that the board is pushing for such a strategy. That is why, as our correspondent explains, we are not expecting any strategic vision to be articulated anytime soon.
Many thanks to Delos for the thoughtful contribution.
