Calavo Growers, Inc.

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Calavo Growers, Inc.

2520 Red Hill Avenue
Santa Ana, California 92705
U.S.A.
Telephone: (949) 223-1111
Toll Free: (800) 4-Calavo; (800) 422-7286
Fax: (949) 223-1112
Web site: http://www.calavo.com

Public Company
Incorporated: 2001
Employees: 200
Sales: $217.7 million (2001)
Stock Exchanges: OTC
Ticker Symbol: CVGW
NAIC: 311400 Fruit and Vegetable Preserving and Specialty Food Manufacturing

Calavo Growers, Inc. is the for-profit corporation that in 2001 supplanted Calavo Growers of California, a cooperative association formed in 1924 to market avocados. Today, Calavo not only sells the avocados of some 1,600 growers, it also manufactures and markets ready-made guacamole for food service sales and 100 private labels through its processed products division, Calavo Foods. The company’s Mexican facility also exports avocados to Canada, Europe, and Japan. To ensure that its production facilities and produce customers have year-round access to avocados during California’s off-season, Calavo imports from Mexico, Chile, and New Zealand. In addition to avocados, Calavo also markets several varieties of papayas and mangoes.

Introduction of Avocados to the United States: 19th Century

According to a 1927 issue of the Calavo News, a house production of the cooperative, the avocado was introduced to California by travelers and sailors who had become familiar with the fruit in the tropics. They brought samples to friends in Santa Barbara and Los Angeles Counties “who were so pleased with their gift that they planted the seeds and grew trees which bore more delicious fruits.” According to other sources, the avocado was likely introduced into the United States when Mexican trees were sent to Florida during the 1830s. Judge R.B. Ord of Santa Barbara supposedly brought Mexican avocado trees to California in 1871. Perhaps the man most responsible for the California avocado industry was Carl Schmidt, who in 1911, at the age of 21, was sent to Mexico by the West Indian Nursery of Alatadena, California, in order to discover the best avocados for sale in the local markets, then secure budwood from the trees of origin. He returned with a large number of prospects, which he subsequently planted. Of the avocados that adapted to California conditions, the one he numbered “15” survived a major frost in 1913, earning it the name of “fuerte,” Spanish for vigorous and strong. The Fuerte variety of avocado would prove instrumental in the commercialization of the fruit in the United States.

Schmidt’s interest in avocados was shared by a number of California growers and hobbyists, who were continually on the lookout for new fruits or varieties. Many of them were also involved in citrus fruits, the success of which paved the way for the California avocado industry. The gold rush of the 1840s had brought a large number of prospectors to California as well as the scourge of scurvy. Because citrus fruits prevented the disease, coupled with the mild southern California climate, it was natural for lemons and oranges to be introduced to the region. When the railroad made nationwide distribution possible, the California citrus industry took shape, but growers became increasingly frustrated by an ad hoc system that put them at the mercy of middlemen. To coordinate their marketing and maximize profits, groups of southern California growers formed associations. In 1893, the local associations were united into one organization, the Southern California Fruit Exchange, which set the standard for all cooperatives to follow. To stimulate the sales of citrus fruit, the Exchange began advertising in the early 1900s, and in 1908 its ad agency coined the name “Sunkist,” which would soon become the brand name printed on stickers placed on the highest grade of lemons and oranges marketed by the organization. Decades later the Exchange would become known by its present-day name, Sunkist Growers.

A number of members of the California Fruit Growers Exchange were also pioneers in the avocado industry. The fruit may have been little known, but by 1915 there was enough interest that the idea of forming an association was in the air. While it came as no surprise when avocado enthusiasts received a mailing that called for a meeting to organize an avocado association, the two men who signed the letter were completely unknown. Some 80 people gathered at the Alexandria Hotel in Los Angeles on May 15, 1915, and heard from one of the signers, who was writing a book on avocado culture. His co-signer of the call was a friend who, if the necessary funds became available, was willing to serve as the official lecturer of the avocado association. Their aspirations were quickly set aside, however, and they were presumably never heard from again, while the growers seized the opportunity to form the California Avocado Association. Although the early years of the association were devoted to cultivation issues, from the start it was also very much interested in the marketing of the fruit, passing a bylaw that called for the cooperative marketing and distribution of the avocado crop when “the development of the industry makes it desirable.” The total crop at the time could have fit in a bushel basket, yet the Association continually addressed marketing issues at its regular meetings. As avocado acreage increased, the Association also made efforts to introduce the fruit to area consumers. In October 1921, at a ten-day flower show held at Exposition Park in Los Angeles, the first major public display of avocados reportedly drew more attention than any other exhibit on the grounds.

Birth of the California Avocado Exchange: 1924

By 1923, as the large number of avocado trees that had been planted in earlier years were now reaching maturity and capable of producing a crop large enough to be formally introduced into the local economy, the Association realized that it now faced a serious marketing problem. It decided to form a new organization, the California Avocado Growers’ Exchange. Meetings were held throughout the growing districts to allow everyone an ample opportunity to weigh in on how the new cooperative should be structured and run. The incorporators also studied the most successful cooperatives, in particular the California Fruit Growers Exchange, adopting the features that best suited avocados. In addition, they took advantage of a California law passed in 1923 that made it easier to form a stronger marketing association than had been possible under the previous statute. On January 21, 1924, the California Avocado Growers Exchange was incorporated in California and commenced operations a month later.

Relying at first on the American Fruit Growers of Los Angeles as brokers, the Exchange got off to a rough start. Avocado growers had become accustomed to a high price for their specialty fruit, receiving as much as $1.50 per pound. The wholesale price was 50 cents per pound when the Exchange commenced operations, and the price quickly plummeted to as little as 15 cents. The Exchange elected to establish its own packing plant near the Terminal Market of Los Angeles, which allowed wholesalers easier access to the produce and resulted in a higher price. Moreover, the Association established a retail store where avocados could be displayed and samples given out to passers-by. Recipe leaflets, signs, and posters were also printed and distributed to fruit stands. A number of valuable lessons were learned by the Association from this early experience: lower prices did not mean greater consumption of avocados; growers selling their fruit on consignment only hurt themselves as well as the Association; and promotion was paramount.

Even as the Exchange was incorporating, the California Avocado Association was engaged in a major promotional initiative. On January 11, 1924, it announced a contest to coin a trade name to be used in advertising California avocados, just as Sunkist had done with citrus fruit. Some 3,300 replies came in and over the next two years the Association and the Exchange attempted to settle on one of the suggested names. A few were adopted for a brief period of time only to be discarded because they were either previously trademarked by another industry or member growers simply did not like them. Finally, on January 8, 1926, the two organizations settled on “Calavo,” formed by joining “California” and “avocado,” a name submitted by no less than 16 people, all of whom received a prize of a year-long supply of avocados. In addition, a slogan was created, “The Famous Butterfruit of California,” and the words “Calavo” and “butterfruit” were copyrighted and became the property of the Exchange. As had been the case with Sunkist, Calavo became the brand name of the highest grade of approved avocado varieties sold by the Exchange. Each piece was hand stamped with the trademark in yellow letters.

The importance of “Calavo” went beyond the coining of a clever name. The Exchange wanted to create a specific market for Calavos. Mere avocados from Florida, Cuba, and Mexico could be purchased for much less, but Calavos were to be seen as an entirely different commodity. Not only could the Exchange charge a premium price for its product, the Calavo strategy was in many ways a matter of necessity. It was clear that the major markets were in the East. With higher production and shipping costs, the Exchange would be at a significant disadvantage to Florida and Cuban avocados if the issue was merely one of price. In essence, the Exchange had no choice but to sell “Calavos” instead of avocados. As part of this marketing approach, the Exchange decided in May 1927 to change its name to Calavo Growers of California.

Company Perspectives:

The Calavo brand is the only nationally recognized avocado brand. Behind that brand is a program of service, value, and innovation geared to lead the industry in packaging, automation, technology application, shipping, handling, and sales support.

In the spring of 1926, a representative of the Exchange traveled to Chicago to establish contacts with eastern brokers. To stimulate consumer interest in avocados and promote the Calavo brand, an advertising campaign was initiated in the fall of 1926. The early efforts focused on the upscale metropolitan market, reached by advertising in such magazines as the New Yorker and Vogue. A copy of The New Calavo Hostess Book, which included numerous recipes, was sent free to anyone returning an enclosed coupon. Calavo advertising also appeared in restaurant trade publications appealing to chefs, with coupons redeemable for booklets containing special restaurant recipes. The belief was that chefs would be more likely to try something new, as would restaurant customers, and that eventually avocado restaurant dishes would make their way to the home. Calavo also capitalized on the rising medium of radio, creating a yearly theme song around which an advertising campaign was formed. Moreover, it took advantage of its proximity to Hollywood to generate numerous newspaper photographs of aspiring starlets posing with a bunch of plump, ripe avocados. The organization, however successful in promoting avocados, never succeeded in making “Calavo” synonymous with the fruit in the mind of consumers. Unable to convince outside avocado growers to share in the expenses of promoting the industry, Calavo held back its marketing efforts. By the early 1960s, consumer advertising for the entire avocado industry was turned over to the California Avocado Advisory Board. Calavo lobbied the state to engage in generic advertising for California avocados and, as a result, in 1977 the Board became the California Avocado Commission.

In the early days of Calavo, there were almost 50 varieties of avocados that its growers produced. The best were stamped with the Calavo name while the rest were sold unmarked and limited to local markets. The emphasis at first was on how well a variety shipped rather than on its eating quality. The hardy Fuerte avocado, therefore, served as the backbone of the industry for many years. In 1935, Robert Haas patented the Haas variety, a pebbly-skinned dark avocado. For decades the Haas would be neglected until it caught on and replaced the Fuerte as the most popular variety. Today Haas is the most profitable variety and accounts for 80 percent of all avocado sales.

Guacamole dip was a major reason for the widespread popularity of avocados, assisted in large measure by the emergence of the Super Bowl as a food holiday. It was estimated that on Super Bowl Sunday of 2002, approximately 26 million avocados were consumed, virtually all of which were used in guacamole recipes. Calavo became involved in producing guacamole when it began selling “Avocado Dip” in one pound refrigerated cans in 1965, the organization’s first successful processed consumer product. Sales supported Calavo’s Processed Products Division until a frozen avocado pulp product was created in the mid-1970s, resulting in the establishment of a major processing plant in Santa Paula, California. After several years of struggle, Calavo’s Processed Products Division found its stride by devoting 2 percent of sales to advertising in trade publications that served the restaurant market. The unit ultimately became Calavo Foods in 1988. By 2002, the plant produced 20 million pounds of guacamole and other avocado-based products per year, for both the food industry and under private labels for retailers.

Aside from processed foods, over the years Calavo became involved in fruits and by products other than avocados. As early as 1931, the organization expanded into limes, followed by coconuts, mangos, kiwi fruit, and persimmons. A Calavo label for papaya, Calavo Gold, was introduced in 1949. It was not until 1997, however, that Calavo would make a deep commitment to other fruits. In that year it established papaya and mango programs, forging relationships with Mexican and South American growers to allow for the year-round importation and distribution of mangoes. Calavo also began looking for new sources of papayas to augment already affiliated Hawaiian growers.

The amount of land devoted to avocados in California peaked in 1987–88, totaling 76,307 acres. Urbanization, root rot, the cost of water, and the elimination of marginal groves resulted in a loss of acreage, and California by the early 1990s faced the prospect of cheap Mexican avocados entering the U.S. market after years of being banned because of a seed weevil. Despite an increase in the demand for avocados, growers anticipated a drop in prices. Although Calavo was a growers cooperative, as a marketer of avocados and avocado-based products it required a steady supply of the fruit, especially during California’s off-season. To protect its position in the market, Calavo began to look for sources of avocados outside of the United States to ensure year-round availability, ultimately leading to import agreements with Chile and New Zealand. After the ban on Mexican avocados was lifted in 1997, Calavo opened a major packing plant in Mexico in order to process avocados destined for export to the U.S. market and around the world. Soon the facility was handling one-third of Mexico’s avocado export.

Key Dates:

1915:: The California Avocado Association is formed.
1924:: The California Avocado Growers Exchange is formed as a cooperative.
1927:: The Exchange changes its name to Calavo Growers of California.
1965:: Frozen avocado dip is introduced.
1975:: A processing plant opens in Santa Paula.
1998:: A Mexican packing facility opens.
2001:: Calavo converts from a cooperative to a corporation.

Converting to For-Profit Status: 2001

In the 1990s, it was becoming clear that the traditional cooperative model of Calavo, one that had worked so well for California growers during the formative years of the avocado industry, was becoming outmoded. In 1998, Calavo initiated a restructuring plan that consolidated processing and packing house operations, combined all sales activities into one department, and established a centralized marketing department to oversee strategic planning. These changes were only a precursor to the decision to convert Calavo from a non-profit cooperative into a for-profit corporation in order to allow Calavo to become more competitive in the increasingly competitive avocado industry. Member growers approved the change in October 2001, and the cooperative was merged into a new corporation, Calavo Growers, Inc., a company that was already generating nearly $220 million in annual revenues. Going forward, management maintained that it would endeavor to strike a balance between the income of growers and maximizing the profitability of Calavo. It also expressed a belief that Calavo would now be in a position to bring into the fold new growers, who had hitherto dismissed the cooperative model as being outdated, and thereby increase market share. Moreover, as a corporation Calavo would have an easier time in raising money through banks and the public markets in order to expand its operations into new agricultural products. Growth through acquisition also became a likely possibility. How such growth would be balanced against the desire to stay true to the Calavo legacy remained to be seen.