Tree Top, Inc.

Tree Top, Inc.

220 East 2nd Avenue
Selah, Washington 98942
U.S.A.
Telephone: (509) 697-7251
Fax: (509) 697-0421
Web site: http://www.treetop.com

Cooperative
Incorporated: 1960
Employees: 900
Sales: $295.7 million (2004)
NAIC: 311423 Dried and Dehydrated Food Manufacturing; 311421 Fruit and Vegetable Canning

One of the largest apple cooperatives in the United States, Tree Top, Inc., processes more than 500,000 tons of fruit every year to make apple juice and cider, as well as apple sauce and other fruit-based products and concentrates. Owned by 1,460 growers in Washington, Oregon, and Idaho, its customers include distributors and retailers throughout the nation, as well as manufacturers in the food industry worldwide. Tree Top's corporate headquarters are located in Selah, Washington. Five of its processing facilities are in the state of Washington, with another one located in Oregon. The company also has a bottling facility in Rialto, California. While apple juice and cider remain the backbone of Tree Top's retail sales, it also markets other consumer packaged goods, such as blended fruit juices and fruit bars, and produces and sells a wide variety of dried and frozen fruit products used as ingredients in the food industry. Tree Top's juice-testing laboratories are considered world class and it has the only "trained taste profile panel" in the apple juice industry.

1940s Roots

Tree Top's roots can be traced back to the late 1940s, when entrepreneur Bill Charbonneau and his family moved from southern California to central Washington's Yakima Valley. Charbonneau bought a small apple processing plant on "Produce Row" in Selah, Washington. Charbonneau's mission was to develop a high-quality brand of apple juice. His original product line would include apple juice and apple cider, each available to consumers in three sizes.

The name Tree Top came about from the winning entry in a brand-naming contest Charbonneau held among his employees. The name was not only catchy but meaningful in that at the time the popular belief was that the best fruit grew at the top of the trees.

Charbonneau kept his office in the plant facility so that he could closely oversee production. He personally tried a sample of freshly produced juice each time a batch of apples was pressed. If he did not approve of what he tasted, Charbonneau ordered the plant's entire 5,000-gallon holding tank of apple juice to be poured down the drain.

During this time, apples were overly abundant in the state of Washington; so much so that in 1950, Life magazine featured a double-page spread of 5,000 railway cars of fruit being dumped into the Columbia River because there was a lack of processors to handle it all.

By 1960 orchard owners in the state of Washington were selling their fruit for $5 a ton, and those were the lucky ones. The rest were paying to have their fruit dumped or buried in canyons and rivers. Not knowing what to do with their inferior apples and tired of wasting their fruit—not to mention paying to have it hauled away—a few Washington growers banded together to save money by forming a cooperative that would handle and process the excess apples. This group of growers approached and purchased Tree Top from Charbonneau.

New Structure and Pioneering Processes in the 1960s

After the cooperative's inception in May 1960, the number of orchardists to join it increased until it reached its 1980s peak of more than 3,700 grower-owners, who were based not only in Washington, but Oregon and Idaho as well.

Recognizing that freezing juice was an economically prudent way to ship, Tree Top pioneered frozen apple juice concentrate in 1963. The next challenge was to convince consumers on the idea of frozen apple juice; they managed to accomplish their mission. Then, eight years after the becoming a cooperative, Tree Top decided not to limit itself to juicing the apples and began to slice them as well.

By the late 1960s, Tree Top had two plants specializing in dried apple products, and they would eventually become the largest supplier of dried apple products in the world. In 1970, with the consumer demand for organic foods on the rise, Tree Top introduced an unfiltered apple juice. It also began marketing frozen concentrated cider that same year.

In 1975, Tree Top succeeded in marketing juice blends. It introduced a pear-apple and other pear-based fruit blends to provide its members with an outlet for processing pears.

The first 20 years was a high time for growth and development for Tree Top. During this time, the cooperative returned more than $85 million to its membership—on what was once a waste product dumped by the ton into rivers and canyons.

The 1980s

By 1985 the rationale for apple growers to band together had changed. To compete with much larger companies that dominated the food market (such conglomerates as Procter & Gamble, Unilever, Cadbury Schweppes, and Nestle) Tree Top decided to move away from being a traditional co-op and adopt the business practices of a corporation. Recognizing that it had become less of an apple handler/processor and more of an apple marketer, Tree Top executives changed its equity structure. The company paid its now 3,500 members based on the current market price, rather than the old method of basing payments on the number of tons processed. The change gave the company more capital for marketing new products such as dried apples and apple fiber, and it guaranteed that growers would get the fair market value for their fruit every year. Tree Top began to purchase additional presses and plant facilities. In 1988 Tree Top was the largest apple juice producer for the retail market in the world. It had become a global company, selling to Japan and buying from Europe and South America.

In February 1989, the Natural Resources Defense Council (NRDC), an environmentalist and consumer watchdog group, issued a report that said children who eat a lot of apples run a higher risk of cancer due to the use of Alar, a chemical sprayed on apples to make them redder and crisper. Yet because Tree Top didn't sell fresh apples and thus didn't care about the chemically-enhanced appearance of fresh fruit, it had always rejected apples from growers who used Alar and had urged the U.S. Environmental Protection Agency to the prohibit use of the chemical.

Their anti-Alar stance didn't help Tree Top in the end. The NRDC report led to a led to a nationwide fear of apple consumption. Despite the fact that the U.S. Food and Drug Administration (FDA) challenged that the Alar present in apples was far below safe levels for humans, the NRDC mounted a strategic media campaign against Alar use, which included celebrity backing and a television feature on CBS's 60 Minutes television program.

Tree Top expanded its ban, refusing apples from growers who used Alar on any apple trees. The company also fought back with its own $1 million advertising blitz and media campaign. By May, however, the matter led Tree Top president Dennis Colleran to resign due to a related dispute with the board.

The 1989 Alar controversy and Mother Nature's drop in apple crop yield resulted in a record decline from 1988's return of $30.4 million. To reduce costs, Tree Top chopped is management staff by 10 percent, abandoned its plans to open a facility in the southeastern part of the country, and sold its recently acquired Sunnyside division to the National Grape Cooperative Association, which did business as Welch's.

New Challenges in the 1990s

By the early 1990s, things were getting back on track. In 1990 the Schweppes U.S.A. division of Cadbury Beverage of North America struck a 15-year deal with Tree Top for the exclusive franchise rights to its juice line in 11 western states, as well as Alaska and Hawaii. Mott's was already dominating the eastern states for Cadbury Schweppes.

By now Tree Top was now making more money than it ever had, despite the fact that it was processing fewer apples. The company was capitalizing on its name as a quality apple juice producer, still the nation's largest seller of juice with 8 percent of the market and selling to 21 countries. The company's industrial operations, which provided dehydrated apple products to the food industry for use in hot and cold cereals and fruit-filled cookies, for example, were now making up 25 percent of its industrial sales. Its Wenatchee plant was slicing, dicing, drying, and freezing apples to transform into 400 different types of dehydrated and frozen products that were sold to major food companies, such as Campbell's Soup, Kellogg, Nabisco, Pillsbury, Sara Lee, and Ralston Purina. The company could even take low-moisture apples and turn them into other fruits, like blueberries, raspberries and strawberries by using flavors and colors.

Creating more juice blends and targeting products to adults as well as kids would be marketing milestones of the 1990s. The company also met market demands by switching from glass to plastic bottles and selling products in vending machines.

Yet Tree Top recognized the fact that it would continue to face challenges, including fluctuating crop volumes, too much competition, the relative easiness of entering the juice business, and shipping a heavy product. Economic reasons such as these kept Tree Top from expanding to the eastern part of the country.

Company Perspectives:

Tree Top will be the premier marketer and supplier of processed apples and other fruit products by:

1: Supplying consumers and customers with high quality products and exceptional service. 2: Increasing the value of membership to our grower/owners. 3: Making a positive contribution to the quality of life in our communities. 4: Providing employees a challenging and rewarding work environment, which fosters innovation and success.

Tree Top restructured in 1996 as a response to the growth of its ingredient business. It separated into two divisions: one for consumer packaged goods and one for ingredients. The restructure did not lead to layoffs, though the number of employees continued to shrink as the company invested in equipment.

At the same time, China, with its vast orchards, became a bigger threat to the industry. Between 1995 and 1998 Chinese apple juice imports grew by more than 1,200 percent, while the average price for apple juice fell by 53 percent. In 1999 Tree Top and five other U.S. juice concentrate businesses petitioned the U.S. Department of Commerce to investigate several Chinese companies they claimed were selling concentrate into the United States market for less than cost of production. The following year, in a response to aid U.S. juice makers, the Department of Commerce began to charge a duty of nearly 52 percent on apple juice imports.

A New Century

Yet in 2001 a worldwide apple surplus drove down prices paid to growers, with juice market values falling from $112 a ton in 2000 to almost $43. This latest slump felled Tree Top's membership, although the overall acreage represented remained steady.

Stagnant prices and strong competition out of China further compelled Tree Top to experiment with non-juice products. In 2003 it test marketed a new line of snack products called Flat Fruit. The company was also forced to lay off employees and reduce production down to one processing plant.

In addition to fierce global competition in not only the juice industry, but the entire beverage industry, Tree Top also occasionally experienced a shortage of apples to process, being second in line for the crops produced by growers, who grew primarily for the more lucrative fresh fruit market and not the processing market. If the quality of a given year's crop was particularly high, the majority of the crop would be sold to the fresh market, leaving less for processing—the exact opposite of what led growers to form the co-op in 1960.

In the 21st century, Tree Top executives were fully aware that diversification would be key to survival. Despite continued challenges, Tree Top remained optimistic. Diversification would not be the only tactic to keep the former apple co-op on top. Its use of state-of-the-art technology at its processing plants, an experienced work force, and strong brand-recognition would also play major roles to the company's success, because Tree Top insisted that apple juice would remain the core of its business.

Principal Divisions

Ingredients; Consumer Packaged Goods.

Principal Competitors

Dole Food Company, Inc.; Mott's Inc.; Tropicana Products, Inc.

Key Dates:

1940s:

Bill Charbonneau founds Tree Top Inc.

1960:

Group of Washington orchardists buy Tree Top to form a co-op.

1963:

Tree Top pioneers frozen juice concentrate.

1975:

Company markets juice blends.

1988:

Tree Top is the world's largest apple producer for the retail market.

1989:

Industry-wide ban on chemical Alar affects the company's profits.

1996:

Company restructures into two divisions: ingredients and consumer packaged goods.

Further Reading

Broberg, Brad, "Market Forces are Testing Tree Top's Fruit Growers," Puget Sound Business Journal, June 25, 2004.

Dickson, Barbara, "A Leaner Tree Top Regroups After the 1989 Panic Over Alar," Puget Sound Business Journal, July 2, 1990.

Freeman, Paul, "Tree Top Juices Up for the Future," Puget Sound Business Journal, June 26, 1998. p. 44.

Hieger, Jennifer, "Juice Industry Targets Grown-Ups," Yakima Herald-Republic, May 25, 1997. p. F1.

"How Do You Like Them Apples?," Food Research & Development, January 1995, p. 14.

Jalonen, Wendy. "Tree Top Alters Equity Plan to Keep Its Juice on Top." Puget Sound Business Journal. September 9, 1985.

"Market Forces are Testing Tree Top's Fruit Growers." Puget Sound Business Journal. June 25, 2004.

Meyer, Ann, "Watching Out for the Watchdogs-Consumer Groups and the Food Industry," Prepared Foods, August 1989.

Sudermann, Hannelore, "U.S. Imposes Apple-Dumping Penalty," Spokesman Review, April 8, 2000. p. A8.

"Tree Top Rolling Out Flat Fruit as Juice Profits Sag," Puget Sound Business Journal, November 7, 2003.

Virgin, Bill, "Fruit Cooperative Posts Profitable Year," Seattle Post-Intelligencer, October 21, 2001, p. D6.

――――, "Tree Top Presses Ahead with Expansion Plans Despite Overabundance of Apples, Competitors Bearing Fruit," Seattle Post-Intelligencer, October 2, 1995, p. B3.

Wilhelm, Steve, Tree Top Inc. "Finding that Less Can Really Be More," Puget Sound Business Journal, June 18, 1993.