TreeSweet Set to Branch Out, Diversify Line

When two Texas high rollers purchased TreeSweet last January, they paid $31.3 million for a company that many in the citrus industry considered a lemon.

Clinton E. Owens, 43, a former Coca-Cola Foods executive, and his silent partner cut a leveraged buy-out deal to take over TreeSweet. The Santa Ana-based citrus juice company had become a tired, marginally profitable enterprise for Di Giorgio Corp. of San Francisco, which had owned it for 27 of its 52 years. After two years of looking for a buyer, DiGiorgio was eager to sell TreeSweet, and took back a $30-million note to finance the purchase for Owens and his partner.

Eager to reinvigorate TreeSweet, Owens already is shaking the trees: Last week, he revealed a plan to buy two breakfast drink brands from General Foods Corp. for $20 million. The acquisition of Orange Plus and Awake, economy-priced orange juice substitutes, not only will give TreeSweet its first nationally distributed product lines, but will expand the company beyond producing and marketing frozen concentrate and full-strength orange and grapefruit juice.

And Owens promises there’s more to come. He said he intends numerous acquisitions to diversify TreeSweet and build it into a national food conglomerate. And, in pursuit of doubling TreeSweet’s revenues--now at about $100 million a year--within five years, he has added plans for product development, innovative packaging and an aggressive marketing campaign. He figures the addition of Orange Plus and Awake will put him a third of the way to his goal, by adding about $30 million a year to sales.

“We are not going to live or die on orange juice alone,” Owens said.

A Conglomerate Stronghold

By diversifying from orange juice, Owens will escape head-to-head competition with the food conglomerates that now dominate the orange juice market, a battle that Di Giorgio took on and, analysts said, eroded TreeSweet’s profits.

The company would not reveal earnings, but Bill Smart, Di Giorgio’s chief financial officer and vice president of corporate affairs, said TreeSweet’s profits had declined each of the past four years despite a boom in orange juice sales across the nation. “I likened the company to an ice cube melting in the sun,” said Smart.

Although Owens’ plans for the company are of national scale, TreeSweet’s juice products, the mainstay of its business, won’t be neglected. Owens hopes to strengthen sales of TreeSweet’s juices where they currently are distributed, or about 40% of the national market.

In its attempt to increase its share of an estimated $3-billion annual market for citrus juice, TreeSweet will have stiff competition: Coca-Cola’s Minute Maid, Tropicana, the orange juice entry from the Beatrice food conglomerate, and Citrus Hill, introduced on the national market in 1983 by Procter & Gamble. Also, all orange juice producers, including those that make juice sold under supermarket labels, have seen profit margins shrink in recent years as wholesale fruit prices rose faster than retail juice prices.

Owens is all too familiar with the problems and the competition in the orange juice business. Before he took on the roles of co-owner, chairman of the board and chief executive officer at TreeSweet, he was senior vice president of marketing at Coca-Cola Foods, where its Minute Maid brand generated $800 million of the subsidiary’s annual $1.3 billion in sales.

Owens and his partner, described as a financially well-connected businessman who prefers anonymity, have “a formidable job ahead,” said John D. Stacy, a beverage marketing consultant who follows the citrus industry. “It is like a 30 years’ war . . . Just getting TreeSweet moving is going to be a job.”

Small Market Share

Compared with Minute Maid, TreeSweet is a lightweight: In frozen orange juice, which accounts for 57% of all orange juice sold, it has only a 4% share of the market, compared with the Coca-Cola entry’s 20% to 25%.

TreeSweet doesn’t even participate in the 40% of the market that orange juice sold in chilled cartons represents. Tropicana holds the lead there, with a 23% market share, according to industry experts.

TreeSweet’s strongest hold is in canned orange and grapefruit juices, where it commands 60% of the sales in the areas where it now is distributed: in the West Coast, Southwest, Great Lakes, and New England regions, and in upstate New York.

But TreeSweet’s dominance of the canned-juice market, which it claims to have created with the first commercially successful juice-canning method--is a dubious honor, said consultant Stacy. National sales of canned juices, he said, have been declining steadily since the introduction of frozen juices in the 1940s. In recent years, the decline has been accelerated by consumers’ preference for the taste of less-processed frozen and chilled juices.

Canned juice accounts for only 3% of all orange juice sales, and 52% of the much smaller grapefruit juice market, said Stacy. She called canned citrus juice “an endangered species.”

TreeSweet has decided to follow the lead of other juice makers who have had successful ventures in paper-carton packaging, and is test-marketing its orange juice in paper-composite containers that look like cans. Owens said the process used in such packaging also reduces the “tinny” taste of canned juice.

Fast-Growing Categories

“I bought the business because, first and foremost, it is competing in categories that I think have very good long-term potential,” he said. “The modern-day consumer is much more health conscious . . . these categories are going to grow faster than the general economy and faster than the general supermarket industry.”

Owens would like to take sales away from “house brands,” unpromoted supermarket labels that account for almost two-thirds of all orange juice sold in the United States.

The Florida Department of Citrus said consumers bought almost 860 million gallons of orange juice in 1984, a 20% increase since 1975.

The sales growth, industry experts say, has been generated by increased interest in nutritional beverages. “The image of orange juice has shifted dramatically,” said George Dejager, market research director for the department. The department’s survey findings that Americans no longer drink orange juice “just for breakfast” have been touted in national advertising campaigns.

Costs Squeezing Profits

Owens readily concedes that TreeSweet cannot hope to match the financial resources of its major competitors, all of whom are coping with rising prices for wholesale oranges.

Processors say that although retail prices of orange juice have climbed in recent years, they have not kept pace with the rising cost of fruit--driven up by freezes in the Florida groves in four of the last five years.

“All of the competition because of the fight for market shares has kept the prices down,” said Bob Turner, vice president of marketing for Citrus World, which produces orange juice for supermarket labels and its own, regional, Donald Duck brand.

As TreeSweet diversifies into non-beverage food products, Owens said, it will make fuller use of its packing and processing plants in Ft. Pierce, Fla., the Coachella Valley and Santa Ana. Those plants currently are operating at less than 50% capacity because the Florida freezes have caused a shortage of oranges. TreeSweet is supplementing the Florida juice supply with juice concentrate from Brazil.

Citrus Hill Ad War

Challenging the national brands on a wide scale would mean entering the fierce advertising war that was sparked by Citrus Hill’s introduction. Procter & Gamble spent $120 million promoting Citrus Hill, while Di Giorgio’s advertising budget for TreeSweet that year was slightly more than $5 million, said Di Giorgio’s Smart. “We just couldn’t compete,” he said.

Owens conceded that TreeSweet cannot match the advertising and marketing clout of the industry giants, but said that this year, the company will wage an advertising campaign promoting a new TreeSweet image. He said the company’s logo, a cluster of pixie-faced oranges, will be updated.

Bill Parker, TreeSweet’s vice president of operations, started with the company 17 years ago, when orange groves surrounded the Santa Ana corporate headquarters. He said he is excited about Owens’ leadership.

An advantage of having a private owner like Owens in charge, Parker said, is that important business decisions can be made swiftly.

“It gives us a lot of opportunities to do things that some of us felt should have been done before,” Parker said. “There are some things we could have and should have done here in the last 7 to 10 years, and we didn’t . . . Sometimes you have paralysis by analysis.”