Revenge Strategy: Wasting the power of your hate on the guiltless (XI). How to fix a banana split!
Wishing you a beautiful weekend.
On my last writing, we saw the context and the overview of Chiquita´s past. Whenever you are performing a corporate strategy analysis, it is so important to dig in the company´s past, not because we want to ruminate the antiquity of its mess, or because we wish to regurgitate and masticate the sins of Chiquita´s ancestors… It is only a necessary step required to learn its history and help them for a corporate suitable transformation of the present and its promising future.
Sorry for those who don´t like to see the past, but there is no other way. The past is necessitated in our quest to learn and help companies to regenerate with wisdom. Historians are crucial for our future. We need more historians at top consulting companies in every single industry, to help us to don´t mess up with our future. Don´t forget it.
Let´s advance. In the case of Chiquita´s past, I have divided the banana Chiquita wars into three sections. The first banana wars passed off under the UFCo original founders domain Keith, Preston, and Baker. The second set of banana wars happened when the company changed its name to United Brands. And the last set of banana wars (including the 1990s USA-UE commercial conflict) occurred when the company switched to Chiquita Brands International. On my last publication, I left you with the facts about the last or third phase of banana quotas war between the European Union and the USA. “In April 1999, the WTO authorized the US to impose trade sanctions for an annual value of $191 million. The US carried this out by setting 100% customs duties on an equivalent amount of trade. The US has now been applying these prohibitive duties to a number of products from European Member States (excluding Netherlands and Denmark) since 3 March 1999”.
The first question to ask ourselves: What is the meaning of 191 Million dollars annually for a company that was selling more than 2 million of thousands of dollars of bananas at that time (the year 1999)? Is this “discipline measure” relevant in terms of a punishment for Europe? Why did the USA decide to apply tax duties to luxury items exported from Europe to the USA? What brands or luxury items from Europe were punished? Who was the owner of these European luxury companies? What was the deal here?
Was the banana´s revenge strategy (1999) a simple Jaque-mate to keep President Clinton out of his impeachment trial? Or is this just a joke that has been around the political American class for 20 years? What do you think? These questions are brain workouts for you to explore over the weekend.
Let´s see what has happened since the year 1999 to 2019. Let´s find out what is Chiquita doing forthwith.
- What is Chiquita now?
Chiquita Brands International grows, procures, markets, and sells bananas and other fresh fruits like pineapples, under the Chiquita name and other related third parties. Bananas account for about 85% of Chiquita’s sales. Its other offerings include pineapples and freight services. Chiquita’s products are sold in nearly 70 countries, however mainly in North America and Europe.
Chiquita is not anymore an American company. Yay! It is Brazilian-swiss. It was bought in July 2014 by a joint venture between agriculture group Cutrale (Brazilian orange-juice maker Cutrale Group, who is also majority-owned by Safra) and the Safra Group for only USD $ 681 Million dollars in cash plus the value of the debt. The total transaction was 1.3 billion dollars. “The $1.3 billion value of the deal reflects nearly a 50-50 split of cash (about $680 billion) and assumed debt (WSJ)”. Nowadays, Chiquita or the evolution of the United Fruit Company is simply a swiss agricultural fruit company with headquarters in Etoy, Canton Vaud, Switzerland. Chiquita Brands International SRL CEO is Mr. Carlos Lopez Flores. Since Chiquita is a private company, we do not have available updated financial information about their operations, but only what we can gather in the press news. Since I am not an insider within the company, and it is not a public trading company anymore (before it was public and trading as CQB in the New York Stock Exchange), we do not have the capacity to know their financial reports with all the details. Shhhhhh! Chiquita is now under swiss privacy.
Although we can extrapolate from the past, to get a flavor of the present. I will define Chiquita with the data from the last available American SEC Report from the year of 2014.
|Financial Data||Data from the year 2014 (SEC Report)||
Data from the year 2013 (SEC Report)
|Sales (Thousands of USD)||USD $ 3,090,224||US $ 3,057,482|
|Cost of Goods Sold (Thousands of USD)||USD $2,735,117||US $ 2,708,428|
|Gross Profit (Thousands USD)||USD $ 355,107||US $ 349,054|
|Operating Profit (Thousands USD)||27,404||49,845|
|Net Profit (Loss) (Thousands USD)||(62,536)||(15,815)|
|Volume of Banana Sales (in millions of 40-pound boxes)||122.9||124.0|
|Assets (Thousands USD)||USD $ 1,612,038||USD $ 1,659,138|
|Liabilities. Long Term
|USD $ 637,518||USD $ 629,353|
|Shareholders´ Equity (Thousands USD)||USD $ 323,334||USD $ 374,438|
|Market Share||Probably is still between 25% to 33% of the whole banana sales in the world|
|Major competitors||Dole, Del Monte, Fyffes|
|Major Countries of Production||Guatemala (26%)
Costa Rica (23%)
- Gross Margin/Profit: How good are they at making their product?
- Operating Margin/profit: How profitable are they at selling the product after overhead costs?
- Net Margin/Profit: How profitable are they after financing (or paying the debt) and paying taxes to the government?
- What is Chiquita doing?
By observing the news about the company, the fact that it has changed ownership may have cracked their banana split wrongdoings legacy. For the better, I hope. More than 100 years of the banana´s age mess had to be diagnosed by the new owners, before the acquisition transaction. As I mentioned above, the company was acquired by a Brazil-Swiss financial conglomerate, The Safra Group (Safra Sarasin). And, it seems to be more than a re-structuring, Chiquita is now under a corporate strategy renewal process. The Swiss Brazilian new proprietors may have different views and hopefully a more honorable compass. My personal perception is that during the last 4 years the company´s whereabouts have been reviewed thoughtfully by the Safra´s team. Even though I don´t manage the recent numbers, I lived in Switzerland enough time to catch the swiss cultural style. Knowing how the Swiss are, I am sure Chiquita new leaders and management team had understood the painful history of it, and they are trying to fix not just the financial issues but also the operating procedures under a new standard policy panorama for the future. I am convinced that Safra Group is installing a corporate strategic repairing phase in this company.
In addition, after the acquisition, Chiquita started an expanding network of ripening centers and sales offices across Europe. Chiquita changed his American home Headquarters to Switzerland. And transferred their US HQ office to Fort Lauderdale, Florida.
I suggest that Safra´s investors (the new owners of Chiquita) want to sell more fruit (not just bananas) in Europe. Chiquita is trying to diversify its location markets. Traditionally, around 75% of their annual sales have been performed in North America. Safra probably will deepen Chiquita´s sales in Europe, and probably, if I am not wrong by writing this, I believe their next steps will be to defend their sales markets in Europe since the Indian and Chinese are now the first and second producers of banana in the world.
The production of the banana is still meaningful in Brazil, Central America, and Ecuador, which brings a point of attention to me. Chiquita, a Swiss-Brazilian banana company is now one of the major owners of the banana industry. We expect from Safra a completely different sailing strategy than what they got from the past, leading the company into a different magnitude, provoking an integral strategy for the development of our Latinamerican Societies. We also hope Safra will walk the talk of their sustainable value proposition, as much as they have written it in their Annual Report from last year.
- What does the UFCo shuffle?
According to the SEC 10-K report (2014), at that point in time, Chiquita´s core business was bananas. Still today, it is bananas.
- Bananas: Includes the sourcing (purchase and production), transportation, marketing and distribution of bananas.
- Salads and Healthy Snacks: Includes ready-to-eat, packaged salads, referred to in the industry as “value-added salads” and other value-added products, such as healthy snacking items, fresh vegetable and fruit ingredients used in foodservice; processed fruit ingredients; and our former equity-method investment in Danone Chiquita Fruits, which sold Chiquita-branded fruit smoothies in Europe
- Other Produce: Includes the sourcing, marketing, and distribution of whole fresh produce other fruits such as Pineapples.
- Cutrale´s Brazilian firm also produces oranges, apples, and peaches. But this is not part of Chiquita´s company
- Who is Chiquita now?
The Safra Group (as a parent company of Safra Sarasin Brazil). If you wish to know more about Safra´s parent organization interests and current developments, click here:
Click to access jssh_annual_report_2018.pdf
- For whom does Chiquita work?
For a minute, let´s see the past: Do you think Chiquita worked for the development of the banana republics? Do you consider that the infrastructure (railroads, ports, load trains, plantation´s irrigation systems, telecommunication operations and highways) were cooked for the benefit of the poorest populations of Guatemala, Nicaragua, Honduras, Costa Rica, Panamá and Colombia? Or were these infrastructure structures merely built for the banana sourcing (purchase and production) and transportation to the ports of shipment?
What type of infrastructure facilities should have been of the benefit of the population? Public schools? High-quality universities for free? Decent Housing? Water facilities for the workers and their communities (sewage and drinking water) or even high-quality hospitals?
Ultimately, do you think UFCo, next United Brands, later Chiquita were only working for their shareholders?
- Value Chain Analysis of Chiquita?
The value chain analysis is part of the business strategy domain. From the point of view of corporate strategy, I will leave it out of this banana wars example. Nevertheless, if you wish me to do it, I will provide it as bonus material at the end of the total saga. Just let me know. For the time being, let me provide you a graph wherein the % of the cost of each banana you eat. That will give you at least a blissful hint about the cost analysis which is fundamental to understand the value chain. Again I am not responsible for these numbers, but even without reviewing them, I believe the graph could be a starting point to smash the value chain road. I leave the review of these numbers as strategy homework for you.
The source of the following slides is: http://www.atdforum.org/journal/pdf/Embeddedness_Chiquita_Panama.pdf
Another website you can visit, for more clarification about the cost analysis, in the value chain of banana production, transportation, and distribution: http://www.bananalink.org.uk/who-earns-what-from-field-to-supermarket
- Reflections about 100 years of Banana Wars´corporate strategy.
- Let me share with you my first thought about this example: I wouldn´t like to receive a heritage as Chiquita (previous to Safra takeover). I would be disgraced to have ancestors who couldn´t manage their stakes in Central America to honor the quality of life of our poorest countries on earth. The business model in which the bananas developed their value proposition was not correct. It was not integral. Particularly since the banana is part of the most basic foods on earth, which can be categorized as food commodities.
- First thing first: Whenever a multinational corporation (MNC) is considering to work in foreign lands, they should be aware of the needs and wants of these countries. It is like when you are invited to dinner. The host will prepare a beautiful menu for you to be delighted. In return, you don´t show up without a gift of thankfulness. Usually, you bring something (either chocolate, dessert, flowers or a special gift for the hostess). Every time you are invited to a place, you also try to behave correctly (you don´t eat with your fingers or bad table manners). You don´t steal things from the entertainer house, neither bribe or plan coups d´etat… I mean if you are an educated person, you don´t even speak about politics or religion. You don´t mess dinner. In summary, multinational corporations (MNCs) have to be guided by ethics and mutual respect, as simply as when they are invited to dinner to another country. So easy.
- In addition, the multinational corporation (MNC) is obliged to respect the priorities of the government´s local infrastructure master plan. This is regardless if the infrastructure works are crucial for the Chiquita value chain or other companies´ operating business models. Don´t get me wrong. Each MNC has the right to push for its own infrastructure benefits using their own money. But please each government has its priorities too, which must be respected, such as to build decent schools, invest in public universities, public hospitals, massive transportation (metros, trams, etc), parks-recreation, educational support libraries and water systems to the populations. It is not possible that an MNC dedicates resources to build a railroad for its banana boxes, without considering the priorities of the host country. There is a delicate balance to fulfill.
- By all means, the MNC has to avoid getting into bribes and corruption scandals. If the country of operations is an embryonic democracy, the MNC must help the country to establish and polish its system. Hand by hand, they can hire the United Nations and other international cooperation entities designed to help to overcome the country institutional organic weaknesses. The better standards a country has, the better is for the MNC economic interests and long term growth.
- In the case of the last banana war (European Union- US), and far away of a conspiration rationale, a revenge strategy can be used as a media curtain fume in politics. It could be that the banana media scandal of 191 million per year was caused just as a way to avoid President Clinton impeachment at that time. But I don´t know all the details. It is just a hunch. If I am wrong. Sorry, please.
- Lessons learned
It is bitter to read about the messy banana age in Latin America. Our continent was forgotten for 100 years. Our development was truncated because of the lack of progressing long term vision of our government leaders, and the lack of smartness at the top of MNCs leaders, who were not able to help us to develop our embryonic democracies either.
For the public sector leaders, the needs and wants of the people are in the hands of the governments, and decision making must be prioritized according to the priorities of the majorities´ populations. It is wise for new government leaders to learn how to lead their countries development with balance. Public infrastructure investments must be designed for the benefit of the majority of the populations, not for the benefits of the shareholders´ profits of the MNCs. In consequence, there is a delicate balance between the interests of the MNCs and the majority of populations needs and wants. It is an art for any government leader to find this balance, that must be pursued, particularly when it comes to the prioritization of the public infrastructure works. At the end of the day, if the government raises debt to pay for these schemes, our taxes will repay these projects up to 50 years ahead.
For the leaders of the MNC´s, they should think that it is a privilege for them to be accepted to work in a particular country. Each infrastructure project has to be analyzed carefully. Particularly when it comes to projects, in which the sources of funds are public debt and are going to be repaid with the taxes of the population. I am a firm believer that the public and private sector (local and MNCs) can work together, but always pursuing to honor the development of the nation. MNCs mental shift is required. MNCs, help us to develop, for the sake of the reduction of poverty, to eradicate the causes, not just the symptoms. It will payback for the long term, for your own economic interests too. Help us to be educated with high standards, help us to develop our quality of life standards, help us to be honestly thankful, to live with salaries that can provide the same degree of standards than other developed nations like USA, Norway, Denmark, Switzerland, The Netherlands, etc. Our issues are not demographic, your concerns should be how to help each of the country´s conditions to be transparent, honest, organized and fair for everyone. Migration issues will stop once you help us to live with dignity and with quality of life in our own territories.
When a multinational company has been in sour waters for so many years, it is important for them to start a corporate strategy renewal. I will stick my atomizers to the Bartlett-Ghoshal model, which was explained to you in our Volvo Ocean Race 2017-2018 (Leg 8 from Itajai to Newport). Please, I invite you to visit the posts about this transformation process. Click the links below please to understand the corporate strategy renewal fundamentals.
My last text paragraph of today: There is always hope to perform a turnaround in any company. Since companies are ruled by people, and people can change, anything can change. In the proceeding of Chiquita, I believe in genuine swiss people. I do hope the Safra Sarasin Group can help Chiquita to become a beautiful international corporation. But things take time. It won´t be automatic to change the conceptual chaos of Chiquita corporate strategy. I truly expect (for the benefit of the banana industry) that Chiquita new strengths will follow through an integral strategy. If the new owners, the Safra Group wish it, it will pass.
A mess can become the best. Yes. Beautiful businesses can emerge from the ashes of a lousy past. Let´s keep our fingers crossed for Chiquita. There is always beauty coming out from the ashes.
This is it. I will stop here. Next week we will continue with the next example: The Boston Tea Party revenge strategy. Thank you.
Sources of reference utilized to write this article (and the last 4 publications about banana wars in Latin America):
Disclaimer: Illustrations in Watercolor are painted by Eleonora Escalante. All the presentation slides shown on this blog are prepared by Eleonora Escalante. Nevertheless, all the pictures or videos shown on this blog are not mine. I do not own any of the lovely photos or images posted unless otherwise stated.
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