Mauna Loa Macadamia Nut Corporation Business Information, Profile, and History

Company Perspectives:

Hawaii's perfect growing conditions, and Mauna Loa's matchless attention to quality at every step of processing, has earned Mauna Loa Macadamia Nut Corporation its premium reputation as the leader in macadamias.

History of Mauna Loa Macadamia Nut Corporation

With it corporate headquarters located in Irvine, California, and its processing facility in Hilo, Hawaii, Mauna Loa Macadamia Nut Corporation is the largest processor and marketer of macadamia nut products in the world. The private company, named after the largest active volcano in the world, markets nuts from 10,000 acres of orchards planted on the Big Island of Hawaii on the slopes of Mauna Loa volcano. Macadamia trees are highly fragile, their shallow roots putting them at risk to high winds. To provide a windbreak, pines trees usually ring the macadamia trees. They are also bred to be suitable to all micro-climates of the Big Island, offering something of a hedge if overly wet or dry conditions prevail during the course of a year. Because macadamia seedlings are so genetically unstable, commercial nut-bearing trees are created by grafting onto rootstock in a nursery, where they are kept for two years. The trees are then transferred to an orchard, but a dozen years will pass before they are producing at commercial levels. Mature nuts fall off the trees naturally and are harvested five times a season, which lasts from mid-August to March. In contrast to the trees, the macadamia nut is the hardest nut in the world, requiring 300 pounds per square inch of pressure to crack the shell. Further, the nut requires an extensive drying, separation, and dry roasting process, which leads in large part to the product's high price. In addition to selling salted and unsalted dry roast macadamias and honey-roasted macadamias, Mauna Loa also offer a number of confections relying on macadamias, including a variety of chocolate covered macadamias, candy-coated macadamias, nut and fruit mixes, macadamia candy bars, and macadamia cookies.

Macadamia Tree Named in 1857

The macadamia tree was not native to Hawaii. Rather, it originated in Australia, and in 1857 was named after Dr. John Macadam, a chemistry professor at the University of Melbourne and a member of Australia's Parliament who apparently had nothing to do with the plants. His friends, Baron Ferdinand von Muller, head of Melbourne's Botanic Gardens, along with Walter Hill, the superintendent of Brisbane's Botanic Gardens, were the first to classify the tree botanically, having discovered it on an expedition. The honor of providing a name fell upon von Muller, who elected to pay tribute to his friend Macadam. Hill removed the kernels from the shells in order to plant and cultivate the trees. He believed the nuts were likely poisonous, according to some aborigines at least, and was shocked to discover a young assistant happily snacking on some. When the boy seemed to suffer no ill effects, Hill tried the kernels, found them delicious, and became an enthusiast.

The man responsible for introducing the macadamia tree to Hawaii was William H. Purvis, who was a manager of a sugar plantation on the Big Island. While visiting Australia, he was so taken by the beauty of the macadamia tree that he brought back seeds to Hawaii and in 1881 planted them to adorn his house, uninterested in their nuts. Brothers E.W. and R.A. Jordan in 1892 were also successful in planting seeds at their home in Nu-Uanu. Macadamia trees thrived in the Hawaiian climate, but for the next thirty years they were valued mostly for their appearance, although residents of Hawaii had in the meantime learned to appreciate the flavorful macadamia nut. It was Massachusetts-born Ernest Van Tassel who commercialized the macadamia nut, having first tasted it at a cocktail party in 1916 after coming to Hawaii for his failing health. Because his health improved, he looked for a way to show his gratitude, and he decided to plant a macadamia orchard for the purpose of sharing the delicacy with other people and perhaps establishing a new industry on the islands. With seeds from the Purvis and Jordan trees, he leased 25 acres of government land near Honolulu to plant them, and in 1922 he created Hawaiian Macadamia Nut Co., Ltd.

Van Tassel was not experienced in agriculture, and his initial efforts at commercializing macadamia nut production proved unsuccessful because seedlings from the same tree produced nuts that differed wildly in terms of quality and yield. With the help of the University of Hawaii, a method of grafting was developed and over the course of 20 years nine strains of the macadamia were developed that were able to produce a consistently high quality nut. In the meantime, Van Tassel was able to begin commercial processing of macadamia nuts on a limited basis in 1934 under the brand name Van's Macadamia Nuts. Also in the 1930s, Ellen Dye Candies and the Alexander Young Hotel candy shop began to sell chocolate-covered macadamia nuts, and by the end of the decade Hawaiian Candies & Nuts Ltd. was marketing macadamias under the Menehune Mac label.

The consortium of corporations known as the "Big Five," which had dominated the Hawaiian economy for more than 100 years, took note of the macadamia nut's emergence and began to become involved. Castle & Cooke, best known as the owners of the Dole Pineapple Co., planted the orchard that would form the foundation of Mauna Loa Macadamia Nut Corp. in 1946 on the Big Island near Kea'au. In 1948, Castle & Cooke organized the Royal Hawaiian Macadamia Nut Company, but it was not until 1954 that trees began to bear fruit, and another two years would pass before the first commercial crop was available. Full production would not be achieved on the company's holdings until 1965, at which point a state-of-the-art processing plant was built near Hilo. The plant was ahead of its time in that it was designed to supply its own power by burning macadamia shells.

Mauna Loa Created in 1976

Another major Big Five company to become involved in macadamia nuts was C. Brewer and Company Ltd., which formed subsidiary Royal Iolani. Long involved in running sugar plantations, C. Brewer began divesting its sugar operations in the early 1970s, when sugar became an unprofitable commodity, and looked elsewhere for opportunities. In 1973, it bought Castle & Cooke's macadamia nut orchard and processing plant, which was doing about $4 million in annual business. Royal Iolani changed its name to Mauna Loa Macadamia Nut Corp in 1976 and began marketing its nuts under the Mauna Loa label. It was also in 1976 that C. Brewer began to convert five sugar plantations to macadamia cultivation, turning over 1,000 acres each year. In the late 1970s, Mauna Loa found a way to fund its expansion by selling off its nut orchards to private investors in small parcels. As part of the deal, Mauna Loa would buy the nuts produced under a long-term contract.

With the loss of sugar as a strong cash crop, many Hawaii agriculturalists believed that macadamia nuts held the most potential to make up the loss in business. However, macadamia nuts remained very much a delicacy enjoyed while staying in Hawaii or on the airplane during the flight to the islands. In large part, people on the mainland bought macadamia nuts as a way to relive their Hawaiian vacation. Although Mauna Loa was by far the largest producer of macadamia nuts, it faced serious challenges from other Hawaiian growers as well as from nuts grown in South America and elsewhere. The result was a glut of macadamias and concern that the market was simply not large enough for the gourmet nut. In the early 1980s, Mauna Loa began to advertise on the mainland (advertising ceased in 1988) and in 1984 moved its marketing division to Los Angeles in order to make further inroads in the mainland market, where it established regional distribution centers in New York, Atlanta, Chicago, and Los Angeles. In addition, Mauna Loa looked to the Japanese market, signing a distribution contract with Suntory, Ltd. Another answer was to find a way to add value to the product. In 1985, Mauna Loa opened a 10,000-square-foot chocolate factory. In this way, the company could increase the value of substandard nuts by making candy out of them. In addition, this strategy served to expand the appeal of macadamias. Mauna Loa also continued its program of selling small orchards to real estate syndicates, in many cases to visiting investors, as a way to fund its diversification efforts and plans to continue converting old sugar land to macadamia cultivation. In 1985, the company launched a ten-year program to sell off orchards in 30-acre parcels. At the same time, it purchased much of the land it had been leasing as a way to accumulate additional orchard land to sell to investors. Buyers had the option of signing a farm management contract, but no formal agreement was necessary in order to sell the nuts to Mauna Loa, which was always in the market to acquire the harvests.

In the mid-1980s, C. Brewer's corporate parent, IU International Corporation, decided to spin-off the Hawaiian company. C. Brewers' chief executive officer, John "Doc" Buyers, who had turned around the business ten years earlier, making it something of a cash cow for IU, was given the opportunity to head the spin-off. However, because IU suffered severe losses in 1985 and was burdened by an inordinate amount of debt, it was unable to afford the spin-off. Rather than take his chances with new owners, Buyers assembled a group of investors, formed a company called Buyco, Inc., and bought C. Brewer, including Mauna Loa. The sale of macadamia orchards was a key component in the financing, as Buyers sold shares in a master limited partnership, Mauna Loa Macadamia Partners, which packaged more than 2,400 acres of macadamia nut orchards. The offering raised about $35 million of the approximate $207 million purchase price for C. Brewer. Moreover, Buyco retained a management contract to farm, process, and sell the nuts produced by the orchards.

Sluggish Growth in the 1990s and New Owners in 2000

In the 1990s, Mauna Loa was far from aggressive in growing the business. The company increased its output of macadamia nuts and allowed the market for the product to essentially grow at its own pace. The company overcame some problems, such as a lawsuit from mainland buyers who charged that Mauna Loa and Mac Farm International Inc. conspired to fix the price of mac- adamia nuts. Another concern was a tree disease, Macadamia Quick Decline (MQD), which cost Mauna Loa some 25,000 trees over the course of a five-year period. A more positive development was the signing of a distribution agreement with the Planters Division of Nabisco Foods Group for the sale of Mauna Loa nuts on the U.S. mainland. In 1994, that relationship was severed when Mauna Loa formed a mainland marketing and sales division, headed by Scott C. Wallace. In 1998, Wallace was named president and chief operating officer for the company, working out of Irvine, California, a move that began the transition of the corporate office from Hawaii to Irvine.

In September 2000, Mauna Loa changed ownership as part of a restructuring of C. Brewer, which Buyers now wanted to reposition as an agricultural services company in alliance with the local biotechnology industry. Mauna Loa was sold to the Shansby Group, a San Francisco private equity group founded in 1987 by J. Gary Shansby, a former CEO who was responsible for growing Shaklee Corporation from a small family business to a Fortune 500 company. Along with partner Charles H. Esserman, Shansby invested in a number of brand consumer products, including The Famous Amos Chocolate Chip Cookie Co., Terra Chips, and La Victoria Foods.

Under the Shansby Group, Mauna Loa made a number of changes. Scott Wallace was named CEO and the headquarters relocated to Irvine. Mauna Loa resumed advertising on the mainland, which led to a major increase in sales. The company also expanded its product offerings, so that in spite of a significant macadamia nut shortage in the early 2000s, Mauna Loa enjoyed an annual growth rate in the 40 percent range. To make up for the lack of nuts, the company became adept at quickly launching products that did not rely on the entire kernel, such as trail mixes, cookies, caramel corn, toffee, and brittle. After decades in business, Mauna Loa was finally coming of age in its marketing approach. It now leveraged the strength of the Mauna Loa brand name, which management believed connoted more than just macadamia nuts and could be associated in the consumer mind with anything tropical. Not only would the company continue to expand its slate of confectionary products, it might acquire other food business in order to create a premium products company centered on the Mauna Loa name.

Principal Competitors: Hawaiian Host Inc; Mac Farms of Hawaii Inc.; Kraft Foods Inc.

Chronology

• Key Dates:
• 1881: The first macadamia tree in Hawaii is planted.
• 1922: The first macadamia nut company is launched.
• 1946: Mauna Loa's orchards are planted by Castle & Cooke.
• 1973: C. Brewer buys Castle & Cooke's macadamia nut operations.
• 1976: The Mauna Loa Nut label is created.
• 1986: Buyco, Inc. acquires C. Brewer.
• 2000: The Shansby Group acquires Mauna Loa.