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Thanksgiving demand for cranberries is surging as supply is constrained, Ocean Spray CEO says

Tom Hayes, Ocean Spray CEO, joins Yahoo Finance Live to discuss the ways in which the supply chain and resource crunches are compounding upon issues like a low cranberry harvest yield before this year's Thanksgiving.

Video Transcript

ZACK GUZMAN: Ah, with Thanksgiving in the air, it's a nice time to reflect on the two types of people out there. There are, one, the people who like cranberry sauce and, two, the people who don't. And for the former, we've got potentially a reason to be worried. That is because there are supply chain issues. Of course, we already talked about the costs and how they've increased this year about 14% higher, according to the American Farm Bureau when it comes to all the food on the table.

But when it comes to cranberries, central supply chain issues there around the cans used to put the cranberries in there and get the cranberry sauce out. And for more on that, I want to bring on the CEO and President of Ocean Spray, Tom Hayes, who joins us now. And Tom, I mean, I don't necessarily count myself a cranberry fan. I'm a simple man. I like the turkey and mashed potatoes. But there are a lot of people watching this that do, and they're concerned about the fact that there are no cans of cranberry sauce, or at least, a shortage there. Talk to me about what you're seeing and how we got into this situation.

TOM HAYES: Well, first of all, Zack, I can't believe you're not a cranberry fan. We got to win you over. But during this week, there will be 80 million pounds of cranberry products consumed. So we've got to get you onto the path here. But yeah, we have had some supply chain issues. And steel cans have been a challenge for us. And like the other challenges that are constantly thrown at us in the agricultural business, our co-op that is 700 family farmers strong, we take these challenges, and we just overcome them. The first thing that we had to do is get another can supplier.

And we had to make sure that those cans ran on our lines. And we did that. And so, of course, you know, it put us behind a little bit. But I got to tell you, the real reason why we're seeing some of the challenges we have is just the demand. The demand has been incredible. And as consumers want to come back to the Thanksgiving table, many of them have been gone away from it for a couple of years, at least in the same numbers of folks they'd have together. The demand has really surged. And so it's not only supply challenges, but also meaning that demand has increased.

AKIKO FUJITA: Tom, I count myself as somebody who likes cranberry sauce. But I have to tell you, I read the headline saying the can shortage prompts a shift to fresh cranberries and thought, you're supposed to be using fresh cranberries in the first place. So talk to me about this switch in suppliers, though, because you've been able to manage it even with the demand. And yet, I have to wonder what that's meant from a cost perspective.

TOM HAYES: Absolutely. So, Akiko, you know, the costs have gone up at retailers. We have taken pricing in the marketplace because it's not something that we have to do in order to make sure that our farmer owners are making the money that they need to. And it's that constant balance between taking consumer pricing, but making sure that our owners are well served. And we haven't taken price in 10 years. So this is a new ground for us, at least, you know, in the last decade. And we do have to take pricing in order to cover those costs.

Now, going from one cranberry to another cranberry, the reason why we suggest this flexibility is that fresh cranberries can make a great sauce, do make a great sauce. Fresh cranberries are used to make our canned sauce, both whole berry and the jelly version. So, regardless of those three types, I think everybody will find what they need in order to make their sauce this year or take their sauce out of the can. But it may require just a little more flexibility than it has in the past.

ZACK GUZMAN: Yeah, we've got a bit of a bougie good cop and bad cop situation here, as Akiko is a cranberry fan, but uses fresh ones. I will say I'm a cranberry juice fan. So we're still-- I don't want to completely alienate myself here. But when we do talk about what you've discussed, obviously, it comes down to the farmers, right?

And you work with more than 700 farms here to kind of source the cranberries. But talk to me about what they've seen and kind of how they've been able to manage this, too, because we talked about that earlier on the pandemic and farms not really knowing what was going to happen in the pandemic. But now, what have you seen in terms of the resilience there in terms of where you're sourcing all this from?

TOM HAYES: Sure, so like, supply chains around the world and particularly here in the US, as it relates to the food business, they have seen increased costs, cost of transportation, cost of labor, cost of materials. And so they have weathered that storm. I would say, what does also added to some of the issues that we're having is that the overall supply of cranberries is down a bit this year as the harvest experienced some challenges due to weather weather. There was hot weather in the northwest or exceptionally wet weather here in the northeast. There have been implications to the crop size.

So in addition to having some challenges as it relates to cost, there's also been some challenges on the total supply of cranberries available. So like I said, you know, the farms worked through it. We have a grower mindset across an entire cooperative. And we deal with these challenges. And they're not new to us, but coming up with ways to serve our customers, we might have to have new ideas and new ways of working that we haven't done before in the past. But that's what we're up to, and we will get it solved.

AKIKO FUJITA: Tom, what's your assessment on how long these supply chain issues last? I mean, what's the base case that you're operating under?

TOM HAYES: So I wish I could tell you that we see light at the end of the tunnel. I know that there's been a lot of conversation about, you know, is this inflation going to abate here anytime soon? We don't see it right now. I'm hopeful that as we get into next year, that we do see some relief in the supply chain. We see some relief in the cost structure. But raw materials, whether it's sugar or other fruit supplies, we do a lot of combination in our products with other fruits. Those costs are going up.

So, right now, I think the long-term view is the consumer is in a really good spot. Consumer is very healthy. And costs are not. I mean, so costs are going up and consumers are going to be paying more. Of course, not just for cranberry products, for a lot of different items. And that is something that I do not see right now getting much better, but I'm hopeful, and I'm optimistic that we will have some of this turn the other direction in our next fiscal year. And you'll be able to put that money behind innovation and other things that we maybe have put on pause just for a moment.

ZACK GUZMAN: Yeah, and another reason to get creative here this Thanksgiving. Of course, we have no shortage of reasons to get creative in the pandemic, but Tom Hayes, Ocean Spray CEO and president, thanks again for coming on here to chat with us. Have a happy Thanksgiving, man.

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