Chiquita changes

The Cincinnati Enquirer reports on Chiquita's latest quarterly report.
From the story:

Chiquita Brands International Inc. (CQB) reported Tuesday it lost $3.4 million, or 8 cents per share, during the first quarter. Sales increased 3 percent to $1.2 billion.
The loss included a $5 million charge for Chiquita to exit unprofitable farm leases in Chile. During the same period last year, Chiquita earned $19.5 million, or 46 cents per share.

The changes in Chile don't came as a surprise, as large exporters have been troubled by unprofitable leases with growers in Chile for some time.


Here is an excerpt from a story I did last November in Chile:

SANTIAGO, Chile -- Innovation will be the driver of Chiquita's efforts with Chilean fruit, said Paulo Rosales, commercial director of Chiquita Chile.
Rosales appears well prepared to help with the mission. He joined the company in June with a background in consumer products, working in the Chilean wine industry and with commercial products, licensing for Disney in Chile.
Compared with the wine industry, Rosales said one of the great advantages of the fresh fruit business is its volatility.
"You can turn companies around from one year to the next, and that doesn't happen in the wine industry," he said.
One significant challenge in Chile is an increasing number of larger growers have established direct relationships with Wal-Mart, Costco, Sam's and other chains. At the same time, those growers devoted part of their inventories to traditional exporters like Dole, Del Monte and Chiquita, Rosales said.
Growers treated the fruit they gave to the large exporters "basically as fixed incomes in their portfolios," Rosales said.
Good growers could have a couple of big clients and give the rest of their fruit to exporters that diversify their risk by shipping to world markets where growers had no direct relationships, he said.
Under that model, large exporters allowed growers to access markets all over the world without investing in export managers and a sales desk. What's more, the exporters were reliable partners and would make good on their payments to growers.
That trend has had consequences in the way fruit is contracted, he said.
"It is so difficult to make relevant money in the current model that some exporters are saying "no more' to third-party growers," he said.
Now, larger exporters are becoming more selective, which will mean smaller growers or irregular producers will be left behind.

Make room for Tesco and Target

J.P. Morgan has published a study on the U.S. supermarket industry. It is a 76-page PDF file that I've uploaded to the Fresh Produce Discussion Group. You can find it here. To view it, you may have to join the group, but all the better, right?

The 2007 report takes an honest look back at last year's analysis:

We subtitled the 2006 edition of this report “Consolidation moves toward the end game.” We were right—and we were wrong. Even as major supermarket operators took important steps to consolidate the industry, two players with very deep pockets, British supermarket giant Tesco and discount merchant Target Stores, began to establish what are likely to become very important positions in food retailing.


TK: Clearly JP Morgan's analysts are infatuated wth Tesco. Here is why:

Tesco, in our view, is possibly the best food retailer in the world. It is one of the very few whose international record is as strong as its domestic performance. Success overseas has been founded on a commitment to doing advance homework properly and building scale quickly. What little information we have about the expansion suggests the company’s move into the US will follow this pattern. Tesco has been studying the US market for more than 10 years. It has gone to such lengths as building a mock-up of an entire store (apparently disguised as a film set) and having its senior executives stay with US families to understand their needs and shopping habits. In short, unlike many of the other foreign operators that have entered the US market, we think Tesco knows precisely what it is doing.


What to expect, JP says

Tesco is likely to scale up in short order. Tesco has shown an ability to build quickly when it enters a new market. If its Fresh & Easy format proves successful, we think the company will move rapidly to enter additional markets within the US. Competitors can be expected to react to Tesco’s entry. Incumbents, however, have the disadvantage of trailing their existing business models, including larger stores not well suited to quick visits. Tesco’s main defenses against competition will be its rapid roll out and the secrecy surrounding its intentions. Based on its initial choice of markets, Kroger, Safeway, SuperValu, Stater Bros., and the privately held Basha’s chain all are exposed to market-share loss from Tesco’s entry.

About Target, JP says that the chain is gaining significant market share of groceries in more and more markets.

Target is now moving aggressively to expand its role in food retailing. Beginning in 2006, all new discount stores have at least 34 aisles of food, up from 24 previously, and 40 freezer/cooler doors. Its P2009 store prototype, scheduled to be launched in the fall of 2008 or early 2009, will further increase its mix of consumables. Target is rapidly expanding its food distribution system to support this new selling space, including construction of its first distribution center for perishables. All told, 32% of Target’s sales in 2006 were in the Consumables/Commodities category, up from 30% a year earlier. We think that almost all of that amount represents supermarket-type items.


TK: JP Morgan says traditional supermarkets will feel the pain. Wal-Mart will keep growing.

JPMorgan estimates that Wal-Mart sold $106 billion of supermarket items through its supercenter division and another $25 billion at its Sam’s Club warehouse stores. The total of $131 billion gives Wal-Mart nearly twice the sales of supermarket items of Kroger, the largest
traditional supermarket operator.

Later..

TK; It's not getting any easier for the traditional supermarket. JP Morgan said that a full line supermarket needs a share of 15% to have a viable and sustainable position. Wal-Mart has this share in 75 of the top 100 food markets in the U.S. With Target's growth accelerating broadly and Tesco expected to ramp up quickly in selected markets, supermarkets will be hard pressed to find space to grow.

Wal-Mart's Midlife Crisis

The Business Week article on ""Wal-Mart's Midlife Crisis" is an interesting read, pointing out the mega-retailers struggles with out of stock/out of style merchandise, sagging same store sales and an under performing stock - not to mention getting handily beat in same store growth by Target, Kroger and others.

Here is an excerpt:

If Wal-Mart seems short of answers at the moment, it might well be because there aren't any good ones. Increasingly, it appears that America's largest corporation has steered itself into a slow-growth cul de sac from which there is no escape. "There are a lot of issues here, but what they add up to is the end of the age of Wal-Mart," contends Richard Hastings, a senior analyst for the retail rating agency Bernard Sands. "The glory days are over."

Here is the always instructive last graph of the story:

The odds are that Scott, or his successor, will have to choose between continuing to disappoint Wall Street or milking the U.S. operation for profits better reinvested overseas. Only by hitting the business development equivalent of the lottery in countries like China, India, or Brazil can the world's largest retailer hope to restore the robust growth that once seemed like a birthright.


TK: As critics say Wal-Mart needs to restyle and reinvigorate existing stories, the writer points out that the expansion impulse is "deeply encoded in Wal-Mart's DNA." Wal-Mart CEO Lee Scott Jr. wants to open a new store at the pace of one a day for the next five years. In fact, he believes that Wal-Mart can add 4,000 Supercenters to the 2,000 that now exist. Currently,AC Nielsen reports Wal-Mart controls 20% of dry grocery, 29% of nonfood grocery, 17% of perishables and 45% of general merchandise sales. As Bruce Peterson said when he left Wal-Mart, there will never again be another chain that grows its food business like Wal-Mart did in the past 15 years. That truism may now apply to Wal-Mart as well. Speaking of Bruce, I spoke with him briefly today. Sounds like he may be giving a speech at CPMA.

Put a lid on it

A Federal Register rule issued today regulates the use of lids for the Florida tomato industry.
From the rule:
The Department of Agriculture (USDA) is adopting, as a final rule, without change, an interim final rule changing the handling requirements currently prescribed under the Florida Tomato marketing order (order). The order regulates the handling of tomatoes grown in Florida, and is administered locally by the Florida Tomato Committee (Committee). This rule continues in effect the action that limited the use of inverted lids on tomato containers to the handler whose information initially appeared on the lid. This rule helps ensure that lids do not contain the information for more than one active handler and aids in maintaining the positive identification and traceability of Florida tomatoes.


TK: Today's FR also had a notice relating to the "grapes grown in southeast California" or marketing order No.925. I thought this was the monumental, long-awaited decision on the order's request to move up the effective date of the marketing order from April 20 to April 1, However, today's notice is only a proposed rule for an assessment increase for members of the order. Chilean grape exporters can breath easier for now.

Why not a real czar?

The FDA has appointed a new food safety czar, notes this CNN report. No, you are wrong. And I feel cheated.

Here is the official FDA release:

Commissioner of Food and Drugs Dr. Andrew C. von Eschenbach today announced the creation of the position of Assistant Commissioner for Food Protection to provide advice and counsel to the Commissioner on strategic and substantive food safety and food defense matters.
Dr. David Acheson, currently chief medical officer at the FDA's Center for Food Safety and Applied Nutrition, will become assistant commissioner for food protection, the FDA said.

There is no mention of "czar" in the FDA news release. The definition for for czar is:

1) a male monarch or emperor (especially of Russia prior to 1917): Doesn't apply here


2) a person having great power


From the FDA release:

One of Dr. Acheson's first projects will be the development of an agency-wide, visionary strategy for food safety and defense. The strategy will identify and characterize changes in the global food safety and defense system, and identify current and future challenges and opportunities. It will also name potential barriers, gaps, and most critical needs in a food safety and defense system. The strategy will serve as the framework in helping the agency prioritize and address food safety and defense challenges.


TK: As to the secondary definition, we may have to wait and see. The more money Congress gives FDA for food safety regulation, the more powerful Acheson and those who succeed him will be. As it is, the food safety czar can only be as powerful and authoritative as Congress allows him to be. When that day comes, the produce industry may remember the exchange from Fiddler on the Roof. In the movie, a student asks a rabbi if there is a blessing for the evil czar. "May God bless and keep the czar . . . far away from us!"

Getting the ball rolling

Here is the link to the first importer of Indian managoes, passed along first by Fred Teensma of the USDA. I visited with one of the principals from Savani Farms this week, and he said that the company hope to encourage other importers to become involved. Three Indian American brothers are involved in the startup venture - their father is involved in the mango business in India - and their office is in Philadelphia. The importer said cost of air freight, combined with other transportation charges, is about $2.50 per mango. Still uncertain is what the arrival condition of mangoes that are shipped by sea containers will be. Those should arrive in two to three weeks.

U.S. mango importers welcome the new varieties of Indian mango - check out the Savani Farms Web site for an extensive discussion of that topic - but remain unconvinced the deal will be more than a premium niche deal.

It is somewhat rare to have a new commodity in the marketplace, and that alone guarantees some level of interest. Considering the less friendly variables of distance and irradiation, the trade should know in about a year how big a deal this new deal is.