globeandmail.com

When life hands you apples, make juice

Wednesday, October 26, 2005

It started as a B.C. growers' co-operative 50 years ago, but the fruit juice and snack maker is developing new products and making inroads across the country, STEVE MacNAULL writes

STEVE MacNAULL

KELOWNA, B.C. -- Smushing up apples has never been so profitable.

Sun-Rype Products Ltd. should know. The Kelowna, B.C., fruit juice and snack maker posted record financial results last year, with $5.9-million profit on $115.2-million in sales.

"Sun-Rype is doing a good job," says chief executive officer Eric Sorensen with a hint of understatement. "Shareholders always expect more, no matter what the company, but we are on track with our brand and business strategies."

In Western Canada, the Sun-Rype brand is already No. 1 in the 100-per-cent apple juice category with a 55-per-cent market share, led by its Blue Label line.

The company's heritage is closely tied to the Okanagan Valley's history as a fruit-growing powerhouse. Kelowna, the largest and most central city in the region, became the natural place for the B.C. Fruit Growers Association to set up a grower-owned co-operative in 1946 to process apples from the area's orchards.

One of Kelowna's biggest employers, with 400 workers, Sun-Rype's only production plant is among the most sophisticated juice facilities in North America. The large, low-lying windowless building on Ethel Street in the city's industrial north end is right next door to the B.C. Fruit Packers' facility, where fruit is dropped off by the truckload during fall harvest to be sorted and kept in cold storage for distribution. Process-grade apples are shuttled from the packinghouse to Sun-Rype year-round.

Outside, you can smell the fresh apples; inside, the aroma is concentrated and there's a constant racket of production lines whipping by and product being boxed, stacked and moved. Apples tumble down a huge chute to be washed in a massive stainless steel tub then divided among five highly automated juice packaging lines and two fruit snack production lines.

Times and processes have changed over the past 59 years, but the bottom line is apples are juiced and chopped and pureed and value is added to fruit that isn't considered appealing enough to eat.

Along the way, Sun-Rype added more juices, including orange and grapefruit, by importing concentrates, as well as other products, such as its so-called fruit leather products, Fruit to Go, and fruit bars, Energy to Go, and Fruit & Veggie juices.

But it hasn't all been sweetness and juice for the former growers' co-op. The mid- to late 1990s saw serious upheavals:

A hostile takeover bid by Vancouver-based beverage company Clearly Canadian in 1996 was unsuccessful, but it shook the co-operative and caused rifts within the company, the apple growing community and investors. For five decades, the apple growers had been issued shares in Sun-Rype in return for providing the company with process-grade fruit, but there was no process to cash them in. Clearly Canadian was buying up as many shares as it could, while Sun-Rype was urging shareholders to hang on to their stock.

The conflict prompted Sun-Rype to go public, listing on the Toronto Stock Exchange and giving liquidity to those who wanted it. In 1996, the co-op became a publicly traded company, with shares opening at $2.75.

In 1997, a failed joint venture to open a juice plant in China led to a $4.4-million writeoff and Sun-Rype's most dismal results: a loss of $5.8-million on sales of $79-million. Stock plunged to $1.66, leading to the retirement of then-CEO Robert Holt and the promotion of long-time executive Lawrence Bates.

Sun-Rype strayed from its apple-and-fruit-based strengths and tried coffee-flavoured snack bars and granola-type bars in the mid-1990s. They had a short run because the products were outside of Sun-Rype's realm of expertise.

"We're now focused on our core competencies of fruit-based juices and snacks," stressed marketing vice-president Cameron Johnston. While, diversifying from juices to fruit-based snacks was a wise fiscal and consumer move, over-diversifying to coffee and grain snacks was a mistake.

With a tight grip on the Western Canadian market, Sun-Rype set its 21st-century sights on Central and Eastern Canada, starting with fruit-leather products, Fruit to Go, and fruit bars, Energy to Go. The cross-country strategy has paid off, with the two snacks combining for a national market share of 31 per cent.

Sun-Rype is pushing its national presence with its largest advertising campaign ever and an emphasis on kids' nutrition and the need for healthy snacks.

"Our target consumer is the principal household shopper, mostly moms with kids," points out Sun-Rype communications manager Barbara Grant. "We're going big with ads in hit TV shows that women like such as Desperate Housewives, Lost and Survivor."

There are also ads running on specialty TV channels, before the movie at Famous Players theatres and in women-focused magazines. And there's emphasis in Ontario because of the potential of its large population.

"Part of our strategy is geographical expansion beyond our traditional foothold in the West," Mr. Sorensen says. "Juice is heavy and expensive to ship all the way to Central and Eastern Canada, so we've concentrated on launching Sun-Rype products there that are unique to the market," such as Fruit to Go bars, Fruit & Veggie juices and five-packs of 200 ml pure fruit juice boxes.

Changing hands currently in the $12 range, Sun-Rype shares are classified as a 'hold' stock by investment house Raymond James Ltd. in Vancouver.

"Our view of Sun-Rype is very positive," says associate equity analyst Ron Ho. "It's well known and respected in Western Canada and the expansion to Ontario is going well. But at $12, and certainly at the $13 high it was at a few months ago, we feel the stock may be a bit ahead of itself."

Vancouver billionaire Jimmy Pattison owns 26 per cent of Sun-Rype's 10.8 million shares and his grocery chains give Sun-Rype products premium shelf positioning. His large position has attracted other investors. And the company is putting its effort into keeping shareholders happy with regular dividends.

Sun-Rype always has one new juice item and one new snack item under development. Last year, for example, it introduced VitaBurst juices, which are fortified with 11 essential vitamins.

"Having been with Sun-Rype for the past 29 years, I have always been proud to work for a company with such a great reputation," says preparation department lead hand Kevin Davies. "Change and growth are positive and it's an exciting time to be here and be part of it."

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