genuine - Welch`s

2014 ANNUAL REPORT
genuine
HEALTHY natural
goodness family farmers
REAL
AUTHENTIC
Strengthening our brand, building our future
NATIONAL GRAPE COOPERATIVE ASSOCIATION, INC. AND WELCH FOODS INC., A COOPERATIVE
evolution
QUALIT Y strength
endurance grow th
COMMIT TED stable
Staying Strong
to the Core
Welch’s endures because of the hard work of generations of grower-owners in the vineyards,
season after season, and the proven quality and ongoing popularity of our products. The
powerful, iconic Welch’s brand is the cumulative result of every harvest we’ve brought in, all of
the products we’ve launched, the business decisions we’ve made, and the evolving consumer
messages we’ve sent — since 1869. While staying true to our mission, we are agile and in tune
with the changing times, delivering products that delight today’s consumers and tomorrow’s.
That’s how Welch’s remains relevant today.
2014 was a year that tested our strengths, reinforced our resiliency, and moved us further down
the path to growth. We remain committed to our co-op model, which continues to grow more
powerful. We made progress during this challenging year because we’ve built a strong, stable
brand that’s here to stay — and ready for the future. That’s the power of Welch’s.
Who we are
Headquartered in historic Concord, Massachusetts, we are the leading
manufacturer and marketer of Concord and Niagara grape-based consumer
products — including a broad range of grape juices, fruit spreads, and
OUR MISSION: Build a brand the
consumer loves and maximize the value
for our family farmers and their grapes.
other fruit-based offerings. We are the processing and marketing subsidiary
of the National Grape Cooperative Association, which includes 978 familyfarmer owners. You’ll find our grapes growing in vineyards in Pennsylvania,
OUR VISION: Bring the goodness of
Welch’s to more people and places.
Michigan, New York, Ohio, Washington State and Ontario, Canada. And
you’ll find Welch’s products on store shelves across the U.S. and in more
than 30 countries around the world.
OUR VALUES: Passion, Authenticity,
Camaraderie.
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How Did We Achieve Our Mission in 2014?
In FY ’14, we moved ahead with many key initiatives that helped us achieve the two intertwined goals that comprise the Welch’s
Mission — building a brand the consumer loves and maximizing the value for our family farmers and their grapes. Good decisions,
cross-team collaboration, and hard work helped make FY ’14 a year of progress. Here are just some of the reasons why.
Build a Brand the Consumer Loves
Spreading the Health
and Nutrition Message
We highlighted the health and nutrition
facts behind Concord grapes and
Expanding Licensing
Licensing revenue grew by
6%
100% Juice by reaching out to a wide
range of health professionals and
nutritional experts.
in FY ‘14, putting Welch’s in more
retailers and building our brand.
(See feature story, page 10.)
Introducing
Farmer’s Pick
We launched our all natural 100% Juice
in three bold flavors to attract new consumers.
(See feature story, page 12.)
Growing Refrigerated
We expanded Refrigerated juices
successfully with new line extensions
and increased distribution,
delivering 8% growth.
B R I N G I N G N E W VA L U E . W E R E AC H E D VA LU E- CO N S C I O U S
C O N S U M E R S B Y C R E AT I N G P R O D U C T S A P P R O P R I AT E F O R VA L U E
C H A N N E L S TO R E S , I N C L U D I N G 9.5-oz. S P R E A D S A N D 32-oz. J U I C E S .
Reaching New Consumers
Keeping Soda Bubbling
We expanded our channels and
When a licensing deal expired, we
geographies via direct-store-delivery
moved quickly to co-manufacture soda
(DSD) to small, urban convenience stores,
to meet ongoing consumer demand.
making Welch’s 16-oz. single serve products
available to new consumers.
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Maximize the Value for Our Family Farmers and Their Grapes
U S I N G S T R AT E G I C PA R T N E R S H I P S .
B Y U S I N G C O - M A N U FA C T U R I N G I N C R I T I C A L
AREAS, WE HELPED RAISE EFFICIENCY AND
K E E P F O C U S E D O N O U R C O R E.
Growing the Core
We grew the core not only with 100% Juice,
but also with strong gains in Spreads,
up 7% for the year.
Expanding Ingredient Sales
We established a key partnership
with WILD Flavors to use Concord
Investing in Seasonal Operations
grape as a value-added ingredient in
We are adding a state-of-the-art evaporator to our
European products.
Lawton, Michigan processing operation, and also
investing in new grape receiving capabilities.
(See feature story, page 8.)
Reducing Costs
We continued our ongoing value chain
efficiency efforts in FY ’14. Highlights
include expected annual savings of
$3.5 million
in transportation costs,
Addressing Crop Variation
We expanded our innovative BlendFlex program to expand
our formulations, ensuring our ability to accommodate
varying crop sizes.
achieved by using
a third-party provider. Materials and
ingredients cost savings totaled
$1.8 million.
And we also made
aggressive indirect cost reductions.
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Commitment to
the Co-op Model
EXECUTIVE LETTER
2014 demonstrated our ability to work together to maximize the value
of the crop to the cooperative. It showed the value of Welch’s co-op
model and its powerful combination of the highest quality grapes
and a resilient, enduring brand name.
First, the results
In FY ’14, our volume grew 4%, with Bottled 100% Juice leading the way
at 11% growth. This growth rate is well ahead of the categories in which we
compete, and strong relative to competitive food and beverage companies.
We delivered $84 million in net proceeds, a significant increase versus last
year and the second highest in history. More tons sold and growth in the
branded business drove this result.
We also grew market share in our most important categories, including
100% Grape Juice, showing that we are winning versus the competition.
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“Overall, crop size increased 65% from the previous year,
and everyone demonstrated ingenuity and adaptability
to maximize its value.”
to increase use of patron grapes in our
as well as our investment in expanded
products. We also needed to win back
receiving capacity at Lawton. We know
volume that was lost in FY ‘13 when we
there is much more to do, and our FY ’15
cut price promotions due to the crop
plans reflect the latest market dynamics.
shortage. We increased investment in
our core Bottled 100% Juice and
launched Farmer’s Pick, a new 100%
A BIG CROP REQUIRES
BIG COMMITMENT
Juice line featuring unfiltered juice.
Our future success is all about the
commitment of our grower-owners and
the National and Welch’s colleagues —
to each other and to the Welch’s
co-operative. The past two years have
The volatility of our grape supply and
BOOSTING EFFICIENCY AND
RAMPING UP LICENSING
the resiliency of our co-op to handle it
Funding this growth investment required
successfully were both evident in 2014.
another year of aggressive cost savings
Our grower owners in the East were
and healthy profit contribution from our
blessed with one of the largest crops in
licensing business. We continued our
history — following one of the smallest
strong track record of reducing product
crops the previous year. Overall, crop
and overhead costs. Our licensing revenue
size increased about 65% from
increased 6% due to significant growth
the previous year, and everyone
from existing licenses like Welch’s Fruit
demonstrated ingenuity and adaptability
Snacks and the addition of new partners.
to maximize its value.
(See feature story, page 10). Expanded
The hard work started with outstanding
licensing also created many more
teamwork among grower-owners,
opportunities to introduce Welch’s to
JOSEPH C. FALCONE
National colleagues and plant colleagues,
new consumers.
Chairman of the Board
Welch Foods Inc., A Cooperative
OUR CO-OP REMAINS STRONG —
AND READY FOR THE FUTURE
President
National Grape Cooperative Association, Inc.
who worked together day and night to
process all the grapes. This team set
several new daily receiving records, and
our harvest performance set us apart
We continue to be confident about the
from other processors.
future — and the strength and resiliency
of Welch’s co-op model. We are ramping
MAXIMIZING VALUE WHILE
NAVIGATING A TOUGH MARKET
up innovation and developing our
With the grapes in the door, our task was
are also excited by the potential quality
to maximize their value in a challenging
improvements and cost reductions
market environment. The bulk market was
triggered by our new Niagara pay scale,
shown that when we work together to
maximize the value of the crop, good
things can happen. We look forward to
more good things in the years to come.
BRAD IRWIN
President and Chief Executive Officer
Welch Foods Inc., A Cooperative
value-added ingredients business. We
less attractive since grape competitors’
high inventories reduced prices. The
answer had to come from our packed
product business and the power of the
Welch’s brand.
The first step was to use our proprietary
Tom Dixon Joins as New Chief Marketing Officer
“TD” joined Welch’s in 2014 to lead our marketing efforts by taking
our current products to new heights and bringing the Concord grape
to more people and places with new offerings. TD comes to Welch’s
after successful stints at Schwan Foods and Kimberly Clark.
formulation expertise — Blendflex —
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relevant
AGILE collaboration
recognition vision
FLEXIBLE par tners
6
A Year of
Strength and
Resiliency
Welch’s stayed busy and agile in FY ’14, from launching
Farmer’s Pick to boosting licensing to investing in our
Lawton processing capabilities. These initiatives and
more strengthened our co-op and helped
build a bright future for us all.
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production
capacity upgrade
faster EFFICIENT SUCCESS
PROGRESS
8
“In all, the new Sparkling production line is
projected to reduce costs by about $2 million a year,
while enabling new capabilities.”
Investing in Lawton —
and the Future
FY ’14 Brings New Equipment, Expanded Capabilities, and Greater Efficiency
Upgrading our Sparkling line capacity and capabilities in Lawton, Michigan required months
of planning and close collaboration among the Lawton team, Engineering, R&D, Finance,
Marketing, and Supply Chain. But it paid off in FY ’14 with a brand new Sparkling production line
that’s ready to handle growth. It’s all part of a major investment in Lawton — and Welch’s future.
The new state-of-the-art production line doubles processing
part of more family moments beyond the traditional
speeds to a maximum of 270 bottles per minute. It reduces
holidays. Having more capacity creates new possibilities
material costs, shortens lead times, eliminates waste, and
for innovation and enables future growth.
paves the way for future growth. In all, the new Sparkling
production line is projected to reduce costs by about $2
million per year, while enabling new capabilities. For example,
a new, more efficient case configuration also allows more
(and better) displays at retail.
Other changes in Lawton during FY ’14 include our
investment in the new processing equipment (including
a new evaporator), which will enable more efficient
crop intake and a shorter harvest window starting with
the FY ’15 harvest. Faster throughput, more flexible
This improved efficiency will help support ongoing growth in
timing (and higher brix) — that’s good news at harvest
our popular Sparkling line as we continue to introduce new
time and beyond.
seasonal flavors — and consumers make Welch’s Sparkling
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Focusing on Licensing
Licensing Helps Us Reach More Consumers in More Places
Our Vision is to bring the goodness of Welch’s to more people and places. Licensing is
one of the most direct and powerful ways to achieve this vision. In FY ’14, we brought
new energy to our already successful licensing portfolio, signing with new partners and
developing a pipeline full of more deals.
Thanks to decades of hard work by our grower-owners
we pursue, evaluate, and finalize new opportunities
and colleagues, our iconic brand is known for quality,
with best-in-class partners. For example, in FY ’14
consistency, and great taste. And our incredible brand
we finalized a deal with SodaStream to produce and
recognition makes Welch’s a very attractive partner
distribute Welch’s Sparkling Juice drink mix for in-home
for wide-ranging licensing opportunities that grow our
carbonation systems. This agreement extends Welch’s
distribution and revenues — from fruit snacks to fresh
brand to new retailers and consumers, while generating
fruit and far beyond.
a new revenue stream.
Licensing increases our brand’s reach and provides royalty
We also finalized a deal with AriZona to create a new
income that we can reinvest in innovation and core growth.
line of larger-format (23.5-oz. cans) sparkling juice
Domestic licensing sales have grown approximately 47%
beverages using up to 10% real juice. Our Fruit Snacks
in the past three years, turning Welch’s into a $1 billion
partner, Promotion in Motion, launched a successful line
brand. And licensing is a form of brand advertising for
of PB&J snacks. Nature’s Touch, our Frozen Fruit partner,
all Welch’s products.
launched a new line of fruit and veggie smoothies.
The bottom line? Licensing revenue will continue to
grow as product extensions boost our base — and as
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And we continue to pursue additional categories.
“Licensing increases our brand’s reach and provides royalty
income that we can reinvest in innovation and core growth .”
exposure
EX TEND collaboration
oppor tunit y revenue
BR AND par tners
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TASTE
REAL
premium
unfilter
full-bodied innovatio
Attracting New Consumers
Farmer’s Pick Hits the Marketplace
Farmer’s Pick launched smoothly in FY ’14 thanks to close collaboration throughout
Welch’s. From the innovative bottle to the three flavors of great-tasting juice inside it
(Grape, Blackberry, and Mango), there are plenty of reasons why Farmer’s Pick is a
great addition to our 100% Juice family.
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“Farmer’s Pick is an innovative new product
family that keeps us relevant with consumers
and builds our brand.”
red
TRADITIONAL
on
Farmer’s Pick is an innovative new product family
We supported the launch with TV ads on top
that keeps us relevant with consumers and builds
networks, a new Farmer’s Pick website, social
our brand. It expands our traditional 100% Juice
media promotions, a popular contest to win
base by appealing to a more premium-focused,
a year’s supply of Farmer’s Pick, and sampling
health-conscious consumer. This full-bodied
events at farmers’ markets. The goal? To drive
juice is full of fresh-picked flavor — with nothing
trial and awareness. Because once consumers
artificial. And it uses patron juice in a new way.
try Farmer’s Pick, they love it — and then they
Each Farmer’s Pick variety uses unfiltered juice
that delivers more body and flavor to consumers.
spread the word with highly credible, unbiased
endorsements.
Thanks to careful work by R&D, Farmer’s Pick
delivers the right look and exceptional taste at
the consumer’s kitchen table. The innovative
46-ounce carafe-shaped bottle provides a strong
presence at retail and beyond. And the label
sends a strong message by featuring the phrase
Nothing Artificial prominently.
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