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Pundit’s Mailbag — Naturipe And Sunkist

Jim Prevor’s Perishable Pundit, August 21, 2007

Our piece, Bruce Peterson Lands At Naturipe As Its New President/CEO, brought lots of fan mail for Bruce and a knowledgeable comment regarding a point we made in the article:

I would like to comment on the connection between Bruce Peterson joining Naturipe Farms and “Jeff Garguilo’s difficulty in moving another co-op, Sunkist, to realize its full potential”.

I led Sunkist’s juice business for four years under Jeff’s leadership at Sunkist and am very familiar with the strategic challenges of moving Sunkist in new directions. I am currently MBG’s CEO and a Director of the Naturipe Farms Board. I was a member of the team that brought Bruce on board at Naturipe Farms.

There are many differences between the Sunkist situation and Naturipe Farms (NF). First; Naturipe Farms is a partnership, not a cooperative. A key difference is the Board structure; Sunkist’s Board is composed of 27 members who represent packinghouses, NF’s 10 member Board represents four partners. The board dynamics are very different as a result.

The Sunkist packinghouse orientation drives fellow members to compete for “fresh market equity” within Sunkist. The NF partnership model drives the partners to maximize value across all berries in all growing regions. At NF, we are more strategically aligned with our partners than under the Sunkist model.

Your comment regarding cooperatives also needs a bit fuller understanding as well. The origins of Naturipe Farms began between a Chilean exporter and US cooperative that had the foresight to understand the value of countercyclical complementation rather than competition. The MBG Board has a broad perspective and understanding of how to successfully partner with investor-owned organizations. The key to our NF partnership is to have partners who are aligned with similar strategic disciplines:

  • Build markets with a view to the long-term

  • Drive value back to the producer/owne

  • Provide retailers and consumers with greater availability and choice by working togethe

  • Valuing the ability to create a footprint in the market place bigger than any one of us could do on our own

Obviously, we at the Board think Bruce is the right leader for the Naturipe Farms organization and we eagerly anticipate his insights about how we grow this business together as partners.

— Frank Bragg
CEO
MBG Marketing
“The Blueberry People™”

We appreciate Frank taking the time to write. He is, of course, correct that there are significant differences between the Sunkist situation and what Bruce will find at Naturipe.

We have written extensively about Sunkist and have made clear our critique of what is holding back Sunkist:

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.

Naturipe is a different situation in two important ways:

First, Bruce would not work for any co-op directly. Instead he will work for a Limited Liability Company (LLC), which is jointly owned by two U.S. co-ops and a Chilean company. At Sunkist, Jeff worked for one co-op.

Second, the co-ops in question have different governance structures than Sunkist, which gives them different incentives and, we would argue, makes them more likely to be assertive at realizing value for the growers.

We would also add a third point: Bruce is not Jeff.

We happen to really respect Jeff’s mind and to like him as well — but Jeff was used to being the boss. His father started the family business, and Jeff and his brother John diversified it and transformed it into Gargiulo, Inc., which was selling 10% of all the tomatoes sold in the United States when they sold it to Monsanto. Jeff worked only two years for Monsanto, presumably as part of a contract, before he left.

Jeff was an entrepreneur used to having his way; by the time he took the job at Sunkist he was quite wealthy, and one strongly suspects he didn’t have the patience to gently nudge along those co-op members who didn’t see his vision. His lifestyle, far removed from that of the typical Sunkist grower, was almost certain to arouse resentment. After all, how may Sunkist growers have their own winery? If Jeff couldn’t quickly get dramatic changes in capital structure and governance, he wasn’t going to sit around and wait. And he didn’t. When his contract was up, he left.

Now Bruce didn’t need to take this job financially — he has had a successful and reasonably lucrative career. He never has to work another day in his life if he doesn’t want to. But he wasn’t a partner in a giant produce company that was sold to a Fortune 100 firm. The Peterson winery is still in the future.

And, as we mentioned in the article announcing Bruce’s job at Naturipe, he was not the boss at Wal-Mart:

…Bruce is in many ways the perfect man for this job. The popular image of such a powerful Wal-Mart executive is someone always giving orders, but it is important to remember that produce, even the whole perishables category, were just a small piece of Wal-Mart. When Bruce started, they were almost nothing.

While Bruce had to lead his produce and perishables team, he actually spent an awful lot of his time convincing other people, in other departments at Wal-Mart, that they ought to do what Bruce thought they should do. If he had not been successful at building this kind of consensus and support, Wal-Mart’s produce and perishables operation would not have had even a fraction of the success they have enjoyed.

So Bruce, who once built bridges between produce and packaged goods, now will build them between Chileans and Americans, between co-ops and private companies.

By disposition and situation, Bruce is far more likely to succeed at Naturipe than Jeff was at Sunkist. And we should note that we think Jeff’s tenure was itself, in many ways, a great success for Sunkist — he was just stopped short of instituting the sort of fundamental change in capital structure and governance that would have been desirable.

This all being said — and fully recognizing the many differences between this situation and Sunkist and our agreeing with Frank and the Naturipe Farms board that Bruce has much to contribute and is the right man for the job — we still think there are challenges ahead.

John Shelford has always impressed us but over the years we have sensed that the board was in many ways running the company. John knows everything about berries. He was so involved in product development, operations and execution that he didn’t really have time to be the classic CEO.

Bruce’s interests are different, and we suspect that he will insist on running the company — that will mean a change from the way things have been.

We also think there is something of a cultural gap between the way business is done in Chile and the way it is done in the U.S. — and bridging that gap will be a long-term project for Bruce.

The diversified ownership, each with its own economic interests, creates a whole set of management challenges all its own. A publicly held company has the charge to increase shareholder value — it doesn’t know or care if doing so conflicts with other economic interests of its owners. A situation like this is more difficult to manage simply because maximizing corporate value is not the only value — the owners also want to maximize the return on their growing operations.

All this is not to say that success cannot be obtained. We think Naturipe has already obtained much success. Look, Bruce Peterson is one of the rock stars of the industry and he had many offers. The very fact that he would consider the position shows the success Naturipe has had since its founding.

To say that both challenges and opportunities lie ahead is not surprising. If the Naturipe board didn’t agree that there would be plenty of both in the years to come, they surely could have found someone a lot cheaper than Bruce.

We appreciate Frank’s letter and join with Frank and the board in agreeing that Bruce is the right leader for Naturipe Farms LLC. And we join with the whole industry in waiting to see the next step of growth for Naturipe Farms. Best of luck to all involved.

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