Gelb says orange juice companies’ messages are credible to consumers

Published on April 22, 2007

Paper: Houston Chronicle
Date: Sun 04/22/2007
Section: Business
Title: Companies such as MINUTE MAID are rolling out new beverage varieties and juicing up marketing efforts to keep their products appealing despite escalating prices caused by smaller harvests / OJ makers battle supply squeeze

By ANASTASIA USTINOVA
Staff

MANY consumers shopping for orange juice have noticed two changes this year – sharply higher prices and an array of new products.

Both represent responses of juice marketers to one of the biggest challenges the industry has faced in many years: holding down costs at a time when the domestic supply of oranges is at its lowest.

“I have been with Minute Maid for 24 years, and the only thing it compares to is a series of back-to-back freezes we had in the 1980s,” said Michael Saint John, Minute Maid’s general manager in Houston.

In the last year, OJ prices in stores have risen about 25 percent, which has contributed to a drop in sales, according to the Florida Department of Citrus.

This adds to the difficulty of marketing a product that Americans are no longer buying the way they used to. Even before the recent run-up in prices, consumption had been declining, according to the department.

Houston-based Minute Maid and rival Tropicana are relying on many new offerings for health-conscious consumers to overcome the downward trend in consumption.

Minute Maid recently launched vitamin-enhanced juices, adding to its array of more than 200 beverage products. The company has drinks for those who worry about acid reflux, heart disease or follow a low-carb diet, just to name a few.

“We are asking consumers to pay more for the juice, but they are getting a lot more for it,” Saint John said.

Dionne Wilson, a probation officer from Houston who was shopping at the Kroger on West Gray, said she always buys cheaper store-brand OJ for her 10-year-old son.

“The prices are pretty steep,” Wilson said as she picked up a jug of Kroger brand juice for $4.19. “If it goes past $5, I will have to introduce him to something else.”

Matthew Reilly, analyst with Chicago-based Morningstar who follows Minute Maid’s parent company, Coca-Cola Co., noted that hurricane seasons and disease have affected orange crops in Florida. That state provides roughly one-third of the oranges Minute Maid uses. Earlier this year, another freeze in California damaged orange crops, which also boosted costs.

Sales of orange juice have dropped more than 12 percent to 51.7 million gallons in the four weeks that ended March 17 compared to the same period a year ago, according to Florida’s citrus department. The average retail price of a gallon of juice rose from $4.71 last year to $5.91, the department said.

“When you go to the grocery store, the prices take your breath away,” said Thomas Hartmann, an analyst at Altavest Worldwide Trading. “Consumer demand has been declining – orange juice is not necessarily an elastic commodity. If its price gets too high, consumers may turn to other beverages.”

Ready to fight

Juice makers are not about to accept any loss without a fight.

Tropicana has updated its package design and boosted spending on advertising to “meet the challenges Mother Nature has handed us,” Tropicana spokesman Pete Brace said.

Earlier this year, the company also launched orange juice with Omega-3, which the company says helps promote a healthy heart.

“Given the lowest Florida orange crop in 17 years, significant orange supply and cost challenges remain,” Brace said. “We’ve worked extremely hard the last 2 1/2 years to minimize the cost impact to consumers.”

These companies are operated by savvy marketers – Coca-Cola owns Minute Maid and Pepsi owns Tropicana.

The wellness and health message pushed by both companies are credible for many consumers, said Betsy Gelb, professor of marketing and entrepreneurship at the University of Houston’s Bauer College of Business.

“If you can imagine the amount of ongoing publicity about obesity, they are able to comfortably fit in their whole emphasis on health because orange juice already has a health halo around it,” Gelb said.

A familiar foe

Freezing weather and poor crops are always a challenge for the industry. That’s why in the 1960s, after freezes destroyed one-third of the crop in Florida, Minute Maid and Coca-Cola turned to Brazilian orange growers to secure a steady and cheap supply of juice outside the U.S.

John Freivalds, a former commodities trader who covers Brazilian agriculture for an online magazine, noted that the country has become one of the dominant suppliers for a number of commodities, producing 53 percent of the world’s orange juice.

But the U.S. has imposed import tariffs on Brazilian juice, which make it more expensive for consumers here, Freivalds said.

“I can get the supply, but I can’t get the relief on price,” said Saint John, who started with Minute Maid in 1983 as a sales manager.

Losing market share

Minute Maid has been losing market share for its signature brand Minute Maid Premium, which in 2006 fell more than 8 percent to $364 million in sales in supermarkets, drugstores and other mass outlets excluding Wal-Mart, according to Information Resources, marketing research company.

But its Simply Orange brand, packaged in a clear carafe, has become one of the biggest successes. Last year, the sales of Simply Orange grew more than 26 percent, according to Information Resources.

” We created a brand out of nothing, and to have it as one of the fastest-growing brands – it’s a pretty strong accomplishment,” Saint John said.

About the University of Houston

The University of Houston, Texas’ premier metropolitan research and teaching institution, is home to more than 40 research centers and institutes and sponsors more than 300 partnerships with corporate, civic and governmental entities. UH, the most diverse research university in the country, stands at the forefront of education, research and service with more than 35,000 students.

About the Bauer College of Business

The C.T. Bauer College of Business has been in operation for more than 60 years at the University of Houston main campus. Through its five academic departments, the college offers a full-range of undergraduate, masters and doctoral degrees in business. The Bauer College is fully accredited by the AACSB International – the Association to Advance Collegiate Schools of Business. In August 2000, Houston business leader and philanthropist Charles T. (Ted) Bauer endowed the College of Business with a $40 million gift. In recognition of his generosity, the college was renamed the C.T. Bauer College of Business.