Diamond of California

views updated

Diamond of California

1050 South Diamond Street
Stockton, California 95205-1727
Telephone: (209) 467-6000
Fax: (209) 461-7309
Web site: http://www.diamondwalnut.com

Incorporated: 1980
Employees: 1,200
Sales: $300.2 million (2003)
NAIC: 115114 Postharvest Crop Activities (Except Cotton Ginning)

Diamond of California is one of California's largest grower cooperatives and the leading supplier of in-shell and culinary walnuts. Its other products include pecans, almonds, hazelnuts, Brazil nuts, Spanish peanuts, macadamia nuts, and pine nuts. Formed in 1912 by a handful of walnut farmers, Diamond was an amalgamation of five agricultural cooperativesDiamond Walnut Growers, Sun-Maid Growers of California, Sunsweet Growers, Valley Fig Growers, and Hazelnut Growers of Oregonwho pooled their distribution and marketing resources. The group split in 2000, and Diamond of California began operating on its own.

History of Diamond Walnut and Sunsweet

Much of Diamond's history involves the coming together of individual growers to form cooperatives, which in turn formed larger cooperatives. The first of the cooperative members to confederate were Diamond Walnut and Sunsweet, both of which were already over 50 years old when they joined forces in 1974.

Diamond Walnut was organized in 1912 by citrus and walnut grower Charles Teague, who had also been a founder of another highly successful agricultural cooperative, Sunkist Growers. The company was originally known as the California Walnut Growers Association (CWGA) and sought to stabilize walnut prices. Success came early to CWGA, aided somewhat by the outbreak of World War I, which eliminated competition from imported French walnuts. In 1918, CWGA became the first producer of walnuts to pack shelled nutmeats in airtight metal cans, and, in 1925, it began using its trademark diamond-shaped logo, stamping it on the shell of every walnut that it sold.

The outbreak of World War II posed a threat to CWGA by cutting it off from its export markets, but domestic demand helped take up the slack. The federal government purchased 1.5 million pounds of walnuts as part of its Lend-Lease program; in addition, the military used the protein-rich nutmeats as a dietary substitute to compensate for the general scarcity of meat. The supply of walnuts quickly overtook demand after the end of the war, and this oversupply required more aggressive marketing in the postwar period. In 1956, CWGA changed its name to Diamond Walnut Growers to associate itself more closely with its trademark.

Sunsweet traces its history back to 1917, when some California fruit growers formed a cooperative named California Prune and Apricot Growers in an effort to raise and stabilize what had been disastrously low prices for their commodities. Immediately, the cooperative began nationwide advertising and marketing under the brand name Sunsweet. Although the company lost members during the boom times of the 1920s, as general confidence in market conditions prompted a desire for independence, it regained many members during the Great Depression when companies sought safety in numbers. In 1934, the cooperative joined with fruit juice company Duffy-Mott to produce and market Sunsweet prune juice.

Already smarting from the worldwide depression, California Prune and Apricot took another heavy blow in 1933 when the German government banned imported fruit. Exports to Germany had accounted for as much as half of California's annual prune sales since before World War I. The company sought to improve sales with improved packaging and high profile domestic advertising campaigns, and, once the United States entered World War II, the demand for dried fruit products rose again. However, as with its future associates in the walnut industry, chronic oversupply and depressed commodity prices burdened California Prune and Apricot in the postwar period. As a response, the company increased its membership in 1959 and in 1960 changed its name to Sunsweet Growers.

By the mid-1970s, both Diamond Walnut and Sunsweet had become preeminent in their respective domains. Diamond Walnut processed and marketed just over half of California's walnut crop, while Sunsweet handled about one third of the state's prune crop. Both companies felt that combined marketing would be of further benefit, and in 1974 they banded together to form Diamond/Sunsweet. The two companies did not merge assets and liabilities but did combine their marketing operations. Diamond Walnut president and general manager A.L. Buffington became CEO of the separate cooperatives, and headquarters were established in Stockton, California.

Sun-Maid Growers Joins Diamond
and Sunsweet in 1980

Such combinations between agricultural cooperatives were seen as necessary in a time of increasing competition from overseas, as well as from other large cooperatives in the United States, and Diamond/Sunsweet would soon show that it felt even further growth would be necessary for it to maintain its competitive edge. Seeking an alliance that would strengthen the marketing punch of its famous Sun-Maid raisins, Sun-Maid Growers of California began courting Diamond/Sunsweet. In 1980, its sales, distribution, and administrative functions were combined with those of Diamond and Sunsweet. Sun-Maid president Frank Light became president and CEO of Sun-Diamond Growers of California. Valley Fig Growers, a cooperative of California fig growers, also joined the alliance at this time. As with the Diamond/Sunsweet alliance, the member companies pooled their marketing operations but retained autonomy over their own assets and liabilities, although the agreement substantially centralized executive power by making Light CEO of all four member cooperatives, as well as of the new concern.

Sun-Maid had a long history not unlike that of its new allies. It was formed in 1912 under the name California Associated Raisin Company (CARC) to pool advertising resources and attempt to bring price stability to a market that had suffered from highly variable commodity prices. CARC debuted with a spectacular marketing gimmick, sending a train pulling sixty raisin-laden freight cars to Chicago, with each car displaying a banner with the slogan, "Raisins Grown by 6,000 California Growers." In 1915, the company introduced its longtime brand name and also its trademark, a smiling young woman wearing a red bonnet and backlit by a yellow sunburst, the Sun-Maid. In 1922, CARC changed its name to Sun-Maid Growers to link itself more explicitly with its famous logo.

Shortly thereafter, however, the Sun-Maid cooperative declared bankruptcy and was nearly dissolved. It recovered only to face financial disaster again during the depths of the Great Depression. After World War II, when both the federal and California governments acted to stabilize the raisin market, Sun-Maid once again became a steady and profitable organization. Despite its troubles, the Sun-Maid remained a popular trademark with consumers and perhaps the most famous logo in the dried fruit industry.

Sun-Maid's alliance with Diamond/Sunsweet and Valley Fig Growers produced a company with nearly $500 million in annual sales, and revenues grew sharply in the years immediately following the formation of Sun-Diamond despite a national recession and general crop oversupply. The new company owed much of its success to energetic marketing; under Frank Light's direction, Sun-Diamond significantly increased its annual advertising budget to $14 million. It also put considerable emphasis on developing new products, such as raisin bread and English muffins sold under the Sun-Maid name, and new applications for waste parts, such as distilling substandard raisins and prune pits into alcohol or selling them as cattle feed.

Sun-Diamond continued to expand, adding a relatively small cooperative, Hazelnut Growers of Oregon, to its ranks in 1984. It had also become a Fortune 500 company early in the decade. At the same time, however, sales began to slow, from $522 million in 1983 to $487 million in 1985, and low commodity prices continued to plague the company. Sun-Diamond also fell victim to international trade battles, as protective and retaliatory tariffs imposed by the European community cut into its export business.

Adding to these difficulties, Sun-Diamond found itself in a financial dilemma in 1985, when internal audits discovered a series of accounting errors worth $43 million. In August of that year, an accounting review found that Diamond Walnut had over-reported its profits for fiscal 1985 by $4.7 million, distributing more money to its member growers than it should have. Further review revealed that an inventory of unfinished walnuts sitting in Diamond Walnut's storage sheds had been overvalued by $11 million. Finally, in November, Sun-Maid discovered that it had over-reported its pool proceeds by $27.3 million and had paid its members accordingly.

The loss of members' equity that followed these errors and their discovery hit Sun-Maid particularly hard. The venerable raisin cooperative suffered a mass defection, as 29 percent of its member growers chose not to renew their membership contracts after the financial disclosures. These growers accounted for about one-third of Sun-Maid's crop, forcing the company to buy processed raisins from independent growers to make up for the shortfall. Diamond Walnut suffered far lessonly 50 of its 2,700 growers defectedin part because fewer of its members had their contracts up for renewal but also because daunting conditions in the walnut market made it risky to abandon the economies of scale that a large cooperative offered.

Company Perspectives:

The company is owned by approximately 1,900 family farmers from California who take great pride in the nuts they grow. Since 1912, they have led the industry in production and quality standards. This attention to detail shines through in every package that bears the Diamond symbolsignifying the best-tasting and highest-quality products grown anywhere. From our growers' orchards to your table, Diamond brings flavor and nutrition to every bite!

Frank Light's tenure ended late in 1985, and the company entered a period of restructuring as the cooperatives evaluated their needs and considered revised designs for the agency agreement that defined their relationship. By 1987, the process was complete and a leaner, stronger Sun-Diamond emerged. This was the Sun-Diamond that existed throughout the remainder of the 1980s and early 1990s under the leadership of its president, Larry Busboom, as a service organization rather than a management organization. Greater autonomy was returned to the cooperatives, and each had its own marketing team. Sun-Diamond provided a consolidated sales and distribution network for the cooperatives' consumer product line and earned a position of prominence in the agricultural commodity field. It showed healthy sales growth in the early 1990s, topping $600 million in both 1991 and 1992.

In addition, the efficacy of the concept behind Sun-Diamond was proven. The collective safety and the economies of scale that it created seem essential in an industry in which variable commodity prices, competition from overseas and large domestic concerns, and the vagaries of international trade could all have considerable impact on one's ability to do business. Perhaps even more important, the impact of consolidated representation for the leading brands in the business was a powerful tool for success.

Changes in the 1990s and Beyond

Distinct challenges in the 1990s would eventually bring about major changes for Sun-Diamond. During 1991, workers at Diamond Walnut walked out in protest and launched a boycott of the company. They claimed that during the mid-1980s they had accepted a 30 to 40 percent pay cut in an attempt to remedy the company's faltering financial record. When Diamond returned to profitability in 1991, its workers were not rewardedinstead the company asked for additional concessions from union representatives. As such, the employees initiated a very public boycott of Diamond Walnuts. By 1994, Fannie May and Fannie Farmer Candies, Godiva Chocolates, Dreyers Ice Cream, Nabisco, and Quaker Oats refused to buy from Diamond Walnuts.

Sun-Diamond took another blow in 1996 when it was indicted for giving illegal gifts to U.S. Agriculture Secretary Mike Espy. The company was convicted in September of that year and faced a ban that would prohibit Sun-Diamond and its affiliates from selling products to the military, federal prisons, and school lunch programs for three years. Espy was eventually acquitted, however, and the U.S. Circuit Court of Appeals for the District of Columbia reversed its conviction against Sun-Diamond in 1999.

By the time Michael Mendes took over as CEO and president in 1997, Sun-Diamond was in need of a face lift. Under his leadership, the company began to make significant changes. In 1998, it broadened its product line and began selling a full line of culinary and in-shell nuts. In 1999, Diamond Nut Company was formed to oversee the retail of mixed in-the-shell nuts. Overall, the company's product line grew from 30 items in 1997 to over 55 by 2000.

Under the leadership of Mendes, Diamond of California gained its independence from Sun Growers in 2000. The marketing partnership born in 1980 was dissolved in August of that year, leaving Diamond on its own. A March 2000 Modesto Bee article claimed, "With its new sales and marketing structure, Diamond is more focused on retail sales and can move more quickly as opportunities arise." Indeed, Mendes's strategies appeared to be paying off as both revenues and profits climbed.

As part of its split from Sun Growers, Diamond acquired Berner Nut Company in 2000. It also began bolstering its international business, adding Diamond Europe GmbH and Diamond of California UK Ltd. to its arsenal. In 2002, it launched a glazed snack nut line. By 2003, Diamond's nut sales had increased by 35 percent since 1998. According to the company, one in every two walnuts sold in the U.S. was a Diamond of California walnut.

In early 2004, Emerald of California was introduced as a new snack line that included different flavored almonds, walnuts, peanuts, and cashews. The company doubled its advertising budget to promote the new products, hoping to cash in on the $27 billion snack market. New product development and brand expansion promised to be at the forefront of the company's strategy in the years to come. With a longstanding history of success behind it, Diamond appeared to be well positioned for continued growth well into the future.

Principal Subsidiaries

Diamond Nut Company; Diamond Europe GmbH (Germany); Diamond of California UK Ltd.

Principal Competitors

Blue Diamond Growers; Dole Food Company Inc.; Tejon Ranch Company.

Key Dates:

The California Walnut Growers Association (CWGA) is organized by Charles Teague.
California Prune and Apricot Growers is formed as a cooperative.
CWGA begins using its trademark diamond-shaped logo.
CWGA changes its name to Diamond Walnut Growers.
California Prune changes its name to Sunsweet Growers.
Diamond Walnut and Sunsweet band together to form Diamond/Sunsweet.
Sun-Maid Growers of California joins the company and forms Sun-Diamond Growers of California.
Diamond of California begins operations independent of Sun-Maid.

Further Reading

Estrada, Richard T., "California Walnut Harvestor Tries New Approach to Reach Broader Market," Modesto Bee, April 18, 2000.

Fujii, Reed, "Stockton, Calif.-Based Walnut Processor Expects Acquisition to Raise Revenues," Record, September 13, 2000.

Greenberger, Robert S., "Top Court Rules for Sun-Diamond over Smaltz," Wall Street Journal, April 28, 1999.

Ingersoll, Bruce, "Sun-Diamond Growers Is Indicted in Case Involving Gifts to Espy," Wall Street Journal, June 14, 1996, p. B2.

Keppel, Bruce, "Sun-Diamond Co-op: Harvest of Discontent," Los Angeles Times, May 11, 1986.

Moran, Tim, "Stockton, Calif.-Based Walnut Cooperative Posts Increased Revenues," Modesto Bee, March 9, 2000.

Morrill, David, "Diamond Expanding Snacks Line," Oakland Tribune, January 20, 2004.

Reyes, Sonia, "Diamond Shells Out $10M to Uproot Rival Planters," Brandweek, April 19, 2004.

"Stockton, Calif.-Based Walnut Grower Changes Name, Focus," Sacramento Bee, April 19, 2000.

"U.S. Seeks to Cut Off Fruit Growers' Co-Op Over Gifts to Espy," Wall Street Journal, December 16, 1996, p. B10.

"What Makes Sun-Diamond Grow," Business Week, August 9, 1982.

Douglas Sun

update: Christina M. Stansell