For many in Asia oranges are a symbol of courage, health and happiness. In China for example oranges are associated with longevity, whilst in Malaysia and Vietnam they are often given as gifts in the lunar new year.
However these are challenging times for fruit businesses and promoting oranges in particular.
The spot price of orange juice is up 42% this year alone. It now trades at over $360/contract (6.4 metric tons). Back in January 2000 it was just over $100/contract.
The USD’s strength is adding fuel to the fire. Bulk frozen orange juice is priced in USD. Many currencies in Asia Pacific have weakened significantly including the Yen, the Won and Malaysia’s ringgit.
Much of the world’s supply of orange juice comes from Brazil. This year’s crop is forecast to diminish slightly due to citrus greening disease. Other significant suppliers include Mexico and to a lesser extent Israel and Italy.
Turning on new supply sources of orange groves does not happen overnight. It takes more than six years for a young tree to become productive.
Here in Japan there were several news reports this week that Mega-Milk the distributor of Dole juices and Morinaga, Sunkist’s distributor have pulled large size OJ packs from their portfolio entirely. Neither Mega Milk nor Morinaga are minnows; they are giants with extensive dairy and juice offerings, not to mention a very powerful sales and RTM network.
This week I took some video in two Japanese supermarkets and it’s fair to say that orange juice per se is pretty hard to find.
So what can brand teams do?
Reformulate
This means looking at using different supply sources and blends of orange, including concentrates. Brands may be forced to drop a 100% claim instead add other fruits or even vitamins. The list goes on…
Play with mix and visuals
OJ is a regular shopper purchase and we know many people shop on auto pilot especially for daily necessities. Kagome have a very interesting tomato looking juice here in Japan. From a distance it looks like tomato but actually it contains many other vegetables too. I am sure these “other” vegetables are significantly cheaper.
In the video there was also a carrot juice that looked like orange. Could you spot it?
Find new production sources
Meito, another Japanese chilled foods producer and distributor has re-launched a dormant mikan mixed juice brand, Nokyo Kajitsu (it roughly translates as “Farmers Fruits”).
Here in Japan many citrus fruits including oranges are grown in Wakayama, Shizuoka and other prefectures. Mikans are not the same as oranges but they are in the same family. Clever processing and pasteurisation may hide many taste differences.
Swallow the pain
Brands can go premium or they’re big enough they might choose to do nothing, treating the orange juice offer as a loss leader, perhaps to block competitors’ shelf space, So far this appears to be the strategy of Kirin who distribute the Tropicana brand.
Hedging
How strong are your financial partners at commodity price risk management? What do they recommend? Whilst I am not at all an expert in this area, it is an important role for businesses where commodities are a significant part of COGs.
Note of caution. A very long time ago when I worked for a big UK chocolate firm, the company’s annual profit was wiped by I’ll placed bets on cocoa futures.
Of course cocoa is another hot commodity now, and to a lesser extent so too is coffee.