Chiquita Brands International, Inc. (“CBII”) and its subsidiaries (collectively, “Chiquita,” we, us or the company) operate as a leading international marketer and distributor of bananas and other fresh produce sold under the Chiquita® and other brand names in nearly 80 countries and of packaged salads sold under the Fresh Express® and other brand names primarily in the United States. We produce on our own farms approximately 30% of the bananas we market, and purchase the remainder of the bananas and all of the lettuce and other fresh produce from third-party suppliers throughout the world.
Chiquita reports the following three business segments: Bananas. The Banana segment includes the sourcing (purchase and production), transportation, marketing and distribution of bananas. Salads and Healthy Snacks. The Salads and Healthy Snacks segment includes ready-to-eat, packaged salads, referred to in the industry as “value-added salads”; fresh vegetable and fruit ingredients used in foodservice; processed fruit ingredient products; and healthy snacking products, including our fresh fruit smoothie, Just Fruit in a Bottle, sold in Europe. Other Produce. The Other Produce segment includes the sourcing, marketing and distribution of whole fresh fruits and vegetables other than bananas. No individual customer accounted for more than 10% of the company’s net sales during any of the last three years.
We source, distribute and market bananas that are sold principally under the “Chiquita” brand name. Banana segment net sales were $2.1 billion, $2.1 billion and $1.8 billion in 2009, 2008 and 2007, respectively. Banana sales amounted to approximately 60%, 57% and 52% of our consolidated net sales in 2009, 2008 and 2007, respectively. Banana sales in Europe and other international markets were approximately 61%, 62% and 67% of the segment sales in 2009, 2008 and 2007, respectively. The remainder of the banana segment sales are in North America. Our other international markets are primarily the Middle East, Japan and Korea.
Bananas are distributed and marketed internationally in a highly competitive environment. Although smaller companies, including growers’ cooperatives, are a competitive factor, our primary competitors are a limited number of other international banana importers and exporters, principally Dole Food Company, Inc., Fresh Del Monte Produce, Inc. and Fyffes plc. To compete successfully, we must be able to source bananas of uniformly high quality at a competitive cost, maintain strong customer relationships, and quickly and reliably transport and distribute products to worldwide markets.
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Markets, Customers and Distribution
Our principal markets are North America and Europe. In Europe, we are the market leader and obtain a price premium for our Chiquita bananas. In North America, we maintain a No. 2 market position in bananas and import more than one-fourth of the bananas in the market. Our Core Europe market consists of the 27 member states of the European Union (“EU”), Switzerland, Norway and Iceland. In 2009, we added regular service to certain non-EU Mediterranean countries that offer a growth opportunity through increasing consumption and purchasing power. In adding regular service to sell in Mediterranean countries, we choose the port of discharge and sale in the region based on current market conditions, to maximize our return. Our other international markets are primarily the Middle East, Japan and Korea. In August 2009, we sold our interest in a joint venture that sold bananas into markets in the Middle East, Japan and Korea. We now purchase bananas grown in the Philippines from our former joint venture partner for sale in the Middle East and we license our former joint venture partner to sell bananas in Japan and Korea using the “Chiquita” brand name. Sales in the Mediterranean, Middle Eastern and Asian markets are primarily invoiced in U.S. dollars. Prior to its sale, the joint venture sold approximately 12%, 11% and 10% of bananas imported into Japan in 2008, 2007 and 2006, respectively.
Our customers are primarily retailers, ripeners and wholesalers. In North America, our retail customers are national and regional grocery retailers. Continuing industry consolidation has increased the buying leverage of these major grocery retailers. North American retailers and wholesalers generally seek annual, and sometimes multi-year, contracts with suppliers that can provide a wide range of fresh produce. In Europe, our customers are also large chain stores, ripeners and wholesalers with similar consolidation trends; however, they do not typically seek annual or multi-year contracts, but rather competitive high-quality suppliers with whom they can build lasting profitable relationships.
We have regional sales organizations to service major retail customers and wholesalers. In most cases, these sales organizations provide services for all of our products, not just bananas. In addition, the sales organizations provide customer support, including assistance with transportation and logistics, ripening, and category management for bananas and other produce. In both Europe and North America, we sell “green” (unripened) bananas and “yellow” (ripened) bananas, which are ripened in our facilities. Many customers have their own facilities to ripen “green” bananas purchased from Chiquita or other sources; in some cases, we provide technical advice or operate the customers’ ripening facilities. We also provide retail marketing support services for our customers. These ripening, advisory and support services help us develop and strengthen long-term supply relationships with our customers.
In North America, we enter into product and service contracts with large retail customers, most often for one-year terms. These contracts typically have fixed-prices, but include surcharges based on fuel indices that are intended to recover changes in transportation and other fuel-based costs. An advantage of these contracts is that they stabilize demand and pricing throughout the year and reduce our exposure to volatile spot market prices and supply and demand imbalances. A disadvantage is that we may not be able to pass on unexpected cost increases when they arise or may not be able to take advantage of short-term, market-driven price increases due to short supply or other factors. Approximately 90% of the volume sold in North America is sold under these contracts.
In recent years, we have developed additional distribution channels for bananas. In the past, it was not economically feasible to distribute single bananas to quick-service restaurants and convenience stores because of the high spoilage rates when bananas are not kept under controlled conditions and when they cannot be delivered frequently. In 2004, we signed an agreement with a subsidiary of Landec Corporation to obtain patented packaging technology that extends the shelf-life of bananas and allows profitable distribution through these channels. This technology was used to introduce “Chiquita to Go” bananas into quick-service restaurants and convenience stores in supply boxes containing individual bananas. We have also applied this technology to certain other produce items, such as avocados, to extend shelf-lives.