Chiquita

951 WordsOct 18, 20124 Pages
There were several reasons visible from the Balance Sheets & Income Statements that reflect errors in judgement from the management. Most notable reasons are: 1. Lack of Product Diversification Compared to its competitors, Chiquita had close to 60% of sales linked to bananas as compared to other companies with exposures closer to 40%. The chart below illustrates this: While trying to save its banana business, it should have hedged its risks and diversified in different businesses. Despite a company strategy devised in the 1980’s to convert some banana fields to other crops, Chiquita did not adhere to that policy and invested in more banana fields in 1991. Instead it should also have bolstered its presence in European markets by…show more content…
A large part of this was due to the branding efforts undertaken by Chiquita. It promoted the “Chiquita” brand, divested Fyffes and pursued an aggressive global expansion strategy. Reversing an earlier strategy to diversify, it invested in acquiring new production fields in Latin America and buying transportation ships. In essence, Chiquita focused its resources in the wrong strategy and the EU embargo caught it off-guard. 7. Supply-Demand Rebalancing in US Market As shown by Exhibit 7, the price of banana in the world market declined from 1992 to 1994. This could be due to the fact that EU import restrictions forced most of Chiquita’s produce found its way into the US domestic market thereby depressing the prices here. This dealt a double blow to Chiquita as this meant its margins in the US domestic market were reduced thereby affecting its revenues. The Chiquita management failed to respond adequately to each of these problems and this is what resulted in its troubles. The losses in 1992 should not have been offset by undertaking a debt but rather by divesting some of the non-core assets so that earnings are not artificially depressed. Also most of Chiquita’s competitors had already started efforts to hedge their risks to trade barriers by diversifying into different produce and different markets. Competitors like Dole & Del Monte even acquired stakes in traditional EU producers

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