Banana Battlefield

Chiquita's c-store strategy has appeal, but slipping past competition isn't easy

Published in CSP Daily News

CINCINNATI -- Chiquita Brands International Inc. is trying to shift the banana market share battlefield from the supermarket to the coffee shop, the convenience store and the gas station, reported The Cincinnati Business Courier.

I would love to be able to compete with Frito-Lay, Chiquita CEO Fernando Aguirre said in a recent public appearance, but I can't today because I can't be present in all the little places where you find Frito-Lay [products].

In the future, you'll be able to buy bananas in a lot of little stores and even [image-nocss] in places like Starbucks. That could give us as many as 200,000 to 300,000 more distribution points than you can buy bananas today, Aguirre told business students at the University of Cincinnati, according to the report.

The new distribution strategy is one of several new initiatives aimed at reducing Chiquita's reliance on European profits. Those initiatives include last year's purchase of Fresh Express, a California-based salad maker that added roughly $1 billion in annual revenue to Chiquita. It also includes this year's launch of fruit smoothies in the United States and nonfrozen fruit drinks in Europe. And it includes the development of new global markets, including Asia. By 2010, Aguirre hopes to double Chiquita's annual sales to $8 billion. Bananas, which now account for 42% of total sales, would shrink to 25%, while Fresh Express brands would swell to 45% of total sales.

Chiquita is a long way from reaching that goal, but it is moving rapidly on the c-store front, the report said. In February, it announced a distribution agreement with Core-Mark International Inc. to distribute individually wrapped bananas to at least 7,500 c-stores nationwide by the end of this year. Aguirre said Chiquita already has achieved 3,000 stores, and he thinks Chiquita will reach 10,000 stores by yearend. Core-Mark, which delivers products to 20,000 c-stores in the United States and Canada, pegged its progress at 2,000 stores in a May 24 conference call, according to the report.

Chiquita sells to c-stores individually wrapped bananas dubbed single-fingers, using packaging technology by Landec Corp. of Menlo Park, Calif. Its permeable plastic wrap slows the ripening process for bananas, giving them a shelf life of up to nine days (compared with one or two days in grocery stores). All of that translates into a higher price. Aguirre said single-finger bananas sell for an average of 75 cents, more than triple the grocery store price of 18 cents to 20 cents per banana.

In a March 29 conference call, Landec Corp. CEO Gary Steele boasted of 50% gross profit margins in Chiquita's c-store launch, the Business Courier. He predicted Chiquita would take the initiative to Europe once it proves there's a North American market for premium-priced, individually wrapped bananas.

He said Chiquita's competitors are starting to scratch their heads a little bit and wonder maybe they ought to be thinking about this thing a little bit differently, Steele said in the March 29 call. They're stuck in the commodity world...you know, commodity bananas is not a lot of fun.

Chiquita's competitors are pursuing similar strategies, Gary Murray, manager of perishables for McLane Co., a Texas-based distributor that competes against Core-Mark, told the newspaper. McLane's customers include about 30,000 U.S. c-stores. Murray said Dole Food Co. Inc. is testing a new line of portion-packed fruit aimed at the c-store market. Within two years, he thinks fresh fruit will be widely distributed through convenience channels. I don't think it'll be limited to bananas, he said. I think you'll see it with grapes, apples, all kinds of things.

The new distribution strategy offers Chiquita its best chance for improving profits in the near term, said Heather Jones, an analyst at BB&T Capital Markets. As for Aguirre's dreams of competing against Frito-Lay, Jones is skeptical. Frito-Lay has significant shelf space in these c-stores, she told the paper, not to mention the American predilection for saltier, junkier foods. But she noted that Frito-Lay is catering to a growing demand for healthier snack foods.

Research shows that more than 40% of the people would be buying more and eating more fruit if they had it available, Aguirre said. Now, they buy a Coke and a bag of chips. Tomorrow, they could buy our [fruit] smoothies and a banana or a sliced apple.