Sunsweet Cooperative AAEA Conference Graduate Student Study Competition Kansas State University Brady Brewer, Melissa Lynes, Rebecca Manes

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1 Sunsweet Cooperative 2012 AAEA Conference Graduate Student Study Competition Kansas State University Brady Brewer, Melissa Lynes, Rebecca Manes

2 Company Overview Grower-owned cooperative Largest dried fruit processor in world High quality prunes Diverse product line Brand recognition Monopolistically competitive firm

3 SWOT Analysis Strengths Current market share Quality of product Brand recognition Pricing power Superior technology Opportunities Supply Production alliance with Chile Sourcing prunes from noncooperative members Demand Advertising Marketing promotion Weaknesses High production costs Low quality of Chile independent contractors Threats Supply Overproduction and increasing acreage from Chile and Argentina Weather s impact on supply Cheap foreign competitors Demand No free trade agreement with EU Decreasing demand High substitutability

4 Industry Analysis

5 Porter s 5 Macro Forces Buyer Power Supplier Power Degree of Rivalry Threat of Substitutes Barriers to Entry

6 World Prune Orchard (In Hectares) Change Argentina 13,500 15, % Australia 3,300 3,060-7% California (USA) 29,540 24,038-19% Chile 12,500 16, % France 13,200 13,816 +5% Italy % South Africa % WORLD 72,700 73, % Source: International Prune Association

7 Objectives

8 Blue Ocean Strategy Canvas

9 Objectives Sourcing (Supply) Should supply issues be solved by production alliance or sourcing from noncooperative members? Advertising (Demand) Has advertising been effective? What is optimal level of advertising?

10 Sourcing

11 Cooperative Goals Member owner control Focus on member owner needs Profits shared with member-owners Source: Martin & Stiefelmeyer,

12 Sourcing Issues Crop failure in California Low quality Capital constraints

13 Sourcing Options Non-Cooperative Members Pros No contracts or obligations Reduce costs since they pay premium that they pay to members Cons Quality issues No way to control for over supply from Chile Production Alliance Pros More control over supply Control over quality of plums Taxed as a Chilean product Opportunity to reestablish EU contracts Mutually beneficial Cons Higher investment

14 Production Alliance with Chilean Plum Producers Strategic Production Alliance Start a cooperative with a select few Chilean farmers Grower benefits Learn how to produce better quality prunes Gain access to Sunsweet proprietary technology Sunsweet benefits Ensure product is available to safeguard against crop failure in California Regain EU market share Help regulate Chilean production quantities

15 Advertising

16 Advertising Effect and Elasticities Benefit/Cost Ratio: Own Price Linear (-1.74) Constant (-1.81) Advertising (Long Run) Linear (0.211) Constant (0.056) Source: Boland, et. al., 2012

17 Optimal Advertising Dorfman-Steiner Condition: Advertising Elasticity Own Price Elasticity Advertising Expenditures Sales Revenue Sunsweet Advertising Ratio: 12% of Sales

18 Effect of Brand Specific Advertising on Demand P D 1 D 2 D 0 Q Source: Zheng & Kinnucan, 2004 Less elastic demand elasticity Higher revenues Increased market share

19 Marketing and Promotions Demand Pull Patronage Alliances Demand Push T.V. Magazine Celebrity Industrial ingredients Shared cost Shelf placement Checkout aisle Store ads

20 Summary

21 Summary Production Alliance Quality of prunes Control production Mutually beneficial Advertising Positive returns to advertising Increase advertising New marketing outlets

22 Blue Ocean Strategy Canvas Before After

23 Questions?

24 Source: Stoneman, 2012 Type of Market

25 Effect of Generic Advertising on Demand Source: Boland et. al, 2012

26 Financial Comparison Debt to Asset Company Sunsweet Sunkist Dole Land O Lakes Blue Diamond

27 Debt to Asset Debt to Asset Ratio Year

28 Debt to Capitalization

29 Current Ratio Current Ratio Year

30 Debt to Equity Debt to Equity Ratio Year

31 Source: International Prune Association Prune Exporting Nations

32 Source: International Prune Association Prune Importing Nations

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