Chiquita Brands International, Inc. History

Address:
250 East Fifth Street
Cincinnati, Ohio 45202
U.S.A.

Telephone: (513) 784-8011
Fax: (513) 784-8030

Website:
Public Company
Incorporated: 1885 as the Boston Fruit Company
Employees: 36,000
Sales: $2.44 billion (1996)
Stock Exchanges: New York Boston Pacific
SICs: 0179 Fruits & Tree Nuts, Not Elsewhere Classified; 2033 Canned Fruits, Vegetables, Preserves, Jams & Jellies; 5148 Fresh Fruits & Vegetables; 2037 Frozen Fruits & Vegetables

Company Perspectives:

As the leading marketer and distributor of bananas, Chiquita sets the pace for providing the world's finest quality fresh fruits and vegetables. The famous "Chiquita" brand is universally recognized as a symbol of superior quality, taste and nutrition.

Company History:

One of the world's foremost marketers of fresh fruits and vegetables, Chiquita Brands International, Inc., is a food conglomerate whose name will forever be linked with the Chiquita Banana, a perennial market leader with a long and colorful history. Sales for the Chiquita Banana--which have been curtailed in recent years thanks to the imposition of a banana quota by the European Union&mdashe the driving force of the company's fresh foods operations, which also market other fruits under the Chiquita, Frupac, and other brands, and a wide variety of vegetables under the Premium and other brands. The company has also capitalized on the Chiquita name in its prepared foods operations, which feature fruit and vegetable juices, processed fruit and vegetables, fresh cut and ready-to-eat salads, edible oils, and other value-added products. The company sells its products in about 40 countries in the Americas, Europe, the Middle East, and the Pacific Rim. Carl H. Lindner's American Financial Corporation, a large Ohio-based holding company founded in 1955, retains 44 percent of the voting stock of Chiquita Brands.

During the pre-Lindner era, Chiquita was known first as the United Fruit Company and was reviled in some corners as the creator and perpetuator of "banana republics." Beginning in the 1950s, the company began diversifying widely, while repairing its image, and eventually became the United Brands Company in 1970 under Eli Black. After suffering a $70 million dollar loss in 1974, which was followed by the suicide of Black and revelations of corporate scandal in early 1975, the future of Chiquita was in jeopardy. Now, more than two decades later, the Chiquita name is not only intact but has become the company's leading image, governing its product line and propelling it onward as a global leader in branded foods.

Founding of the United Fruit Company in 1899

The idea for a dominant international banana company was first launched in 1870 when Captain Lorenzo Dow Baker speculatively sold 160 bunches of Jamaican bananas in Jersey City at an enormous profit. The delicate fruit--coupled with the vagaries of transportation, weather, and prices--made for a particularly risky business. In addition, the American public was, until the Philadelphia Centennial Exposition of 1876, largely unfamiliar with the many merits of bananas. However, Baker soon found an ally in Boston produce agent Andrew Preston, who agreed to handle marketing. The two men, aided by Preston's other partners, eventually joined to form the Boston Fruit Company in 1885. When three other banana companies, including railroad pioneer Minor Keith's concern, agreed to merge in 1899 with Boston Fruit, the United Fruit Company was born.

The strategy behind the merger was to create a broad base of operations in an effort to continue trade when droughts, floods, or political upheavals were disrupting one or another of the harvesting lands. From then until well into the twentieth century, the company operated principally in Ecuador, Nicaragua, and Panama, though shipments also came from Colombia, Guatemala, and Honduras. The governments of these Central and South American countries were eager to develop but were unable to finance the construction of railroads and ports themselves. For North American companies who were willing to buy land, which was cheaply priced, and do the building themselves, the situation offered unimaginable potential. Although United faced some competition, namely from the Standard Fruit and Steamship Company of New Orleans, for all practical purposes, it became the U.S. banana company and guided not only the economic but also the political developments in the countries it had invested in.

Technologically, too, United led the fruit-producing and importation industry. In 1903 it became the first company to transport refrigerated cargo; in 1904 it established commercial radio on its ships; and in 1910 it successfully introduced uninterrupted radio service between headquarters in Boston and New York and its various crop-producing outposts. Aside from continuing to acquire more plantation land with its profits, the company expanded into the Cuban sugar trade with acquisitions in 1907 and 1912. A much later acquisition of Samuel Zemurray's Cuyamel Fruit Company in 1930 led to new management three years later under Cuyamel's largest shareholder, Zemurray himself.

From this period through the mid-1980s the company prospered and wielded considerable influence, both at home and abroad. Several of the Central American governments felt powerless when negotiating land rights and new development with "The Fruit Company"; Hondurans commonly referred to the corporation as "the Octopus," for its control seemed to reach virtually everywhere. In the United States the company enjoyed a far better image, particularly with the federal government, which found United indispensable during World War II and in later years for maintaining security (in 1961 United supplied the government with ships for the failed Bay of Pigs invasion) and the free flow of both durable and nondurable goods throughout the Caribbean.

Chiquita Brand Gained Fame in 1940s

In 1944 the company unleashed its single greatest public relations campaign with the creation of the "Chiquita Banana Song" for radio. Soon such notables as Xavier Cugat, the King Sisters, and Carmen Miranda transformed the Calypso jingle into a long-running, nationwide hit. More importantly, the name Chiquita (meaning "little one") became imprinted in the American consciousness and domestic banana consumption rose rapidly. In 1947 the company solved the problem of distinguishing their bananas from the competition's with the colorful Chiquita sticker. In so doing, United made advertising history by creating a branded premium product out of what was essentially a common commodity.

From the early 1950s through the early 1960s the company experienced radical and disturbing changes. Although United's share of the banana market had been declining since 1910, the company still had a near monopoly of the market. Earnings of $45 million during the early 1950s translated into profit margins of around 15 percent. A decade later the company was posting losses of half a million. As John M. Fox, the executive charged with reorganizing operations in the 1960s, recounted: "No longer was United Fruit the major source of quality bananas. No longer was the 'Great White Fleet,' as United Fruit's ocean ships were called, the only dependable furnisher of refrigerated transport of fruit from the tropics." With rising production costs and dropping prices, the company was in serious trouble. Contributing to the dire situation was the gradual evolution of the banana republics into the role of self-sustaining exporters as well as the outbreak of Panama disease, a fusarium wilt virus that was proving to be a huge capital drain on the company. In addition, antitrust action by the U.S. Justice Department would ultimately require United to help establish a domestic competitor through the sale of a portion of its operations.

Merged with AMK Corporation in 1970

United's response was to hire new management to better integrate its three often autonomously run branches of production, shipping, and sales. Greater competition in the commodity market also suggested that the company begin diversifying; United proceeded to acquire a miscellany of companies, including the A & W Root Beer Company, Baskin-Robbins, and Foster Grant. The result was a relatively unfocused stream of purchases that ended when United Fruit merged with AMK Corporation in 1970. In 1966 AMK, originally a producer of milkbottle caps, had acquired a third of the common shares of John Morrell and Company (a meatpacker once involved with orange-trading during the early nineteenth century) and in December of the following year acquired the rest. Eli Black, the president and chairman of AMK, gained a reputation for financial wizardry with this acquisition because Morrell, the fourth-largest meatpacker in the country, was twenty times larger than AMK.

Unfortunately, Black's triumph as chief executive officer of the expanded United was short-lived, punctuated only by a few years of solid earnings and the company's considerable strides forward in eradicating injustices against workers. During the mid-1970s United Brands experienced some of the worst losses in its history. In April 1974 Central American governments began levying a large export tax on their bananas. Then, in September 1974, hurricane Fifi bit Central America, wiping out 70 percent of the company's Honduran plantations and causing losses of more than $20 million. Black sent relief teams to the victims of the hurricane, but he could do nothing to help the company. Losses continued to mount; because of high cattle feed costs, the John Morrell division contributed another $6 million in losses to United Brands' $70 million operating loss in 1974, compared to a $16 million profit the previous year. Black's final attempt to alleviate the company's troubles was to sell United's interest in Foster Grant--once touted as the company's "crown jewel"--for almost $70 million at the very end of the year. The sale was considered a tremendous success, but apparently it was not enough for Black, who committed suicide on February 3, 1975.

Investigations into Black's death uncovered a bribery scandal that was to plague United Brands for more than three years. In April 1975 the Securities and Exchange Commission (SEC) charged United Brands with having paid a bribe of $1.25 million and having agreed to pay another $1.25 million to a Honduran official in exchange for a reduction in export taxes. The SEC also accused United of bribing European officials for $750,000. Trade in United Brands stock was halted for almost a week. Black's culpability, however, offered only a partial explanation for his leap to death from his Manhattan offices. Jefferson Grigsby surmised that the scandal was simply "the last straw." Through his so-called wizardry Black "had created a giant company ... but he had also made a classic mistake. By merging a cash-rich company with a capital-hungry company, he had hoped to create one strong company but instead created a weak one. In this case, one plus one had equaled zero."

In May 1975 Wallace Booth, a former executive at Rockwell International, succeeded the string of chairmen who had headed the company by committee-rule in the wake of Eli Black's death. Booth is credited with leveling the rocky operation by methodically tightening management control, streamlining banana delivery systems, and updating meatpacking technology at John Morrell. Yet United was far from recovery. In 1972 it had been forced by the government to sell its Guatemalan operations to Del Monte. Perhaps the sale came as a relief--Guatemala had for a long time been the company's most politically volatile producer region. Yet the transaction also signaled a weakening of the once monolithic food company that, unlike fruit-producers Del Monte or Dole, was still largely dependent on a single, highly perishable cash crop. Booth lasted only until 1977.

Until 1984 a series of chairmen and presidents, including Paul and Seymour Milstein, managed to keep United Brands afloat, but profits slipped and net losses increased steadily. John Morrell came close to closing a plant in the early 1980s, and in 1983 tropical storms in Panama and Costa Rica inflicted further damage. Fortune writer Eleanor Tracy, in 1984, summarized United's downward spiral: "For more than a decade United Brands has looked about as appealing to investors as a black banana. The debt-ridden successor to the old United Fruit Co. had cumulative profits of only $97 million from 1974 through 1982. In fiscal 1983 ... it lost $167 million on revenues of $2.4 billion." Another Fortune writer called the ailing company "a case study in corporate calamity."

Carl Lindner Took Over Company in 1984

Carefully watching these developments was board member and American Financial founder Carl Lindner. Since 1973 Lindner had been amassing stock in United. Beginning in 1982 he accelerated his purchases and prepared to overtake the company two years later by buying out the company's principal shareholders: Max Fisher and the Milsteins. With 87 percent control of the company, Lindner named himself the new chief executive officer. He quickly moved the company away from large diversified operations and toward a narrower focus on stable profits. He and the four new directors he elected doubled United's cash flow between 1985 and 1988. Lindner streamlined the company's operations by selling some of its extraneous operations (i.e., soft drinks, animal feeds, domestic lettuce, and telecommunications) and lowered its overhead by moving the headquarters from New York to Cincinnati. Most importantly, under Lindner the company succeeded in recapturing from Dole its position as the number one marketer of bananas worldwide.

In 1988 Lindner, after beginning to reduce his stake in the company, quieted rumors that he was planning to either take the company private or sell it. A health-conscious American public, new ad campaigns, and Lindner's financial savvy had all served to revive Chiquita and there was little reason to be suspicious of the company's future. In 1990 the company changed its name to Chiquita Brands International, Inc., and ushered in a new age of aggressive, food-related business acquisitions. The Chiquita label began to appear on a wide variety of fruits, including kiwis, melons, and pineapples; fresh produce, though limited to 45 percent of the company's sales, was contributing some 90 percent to operating profits.

With the new age, however, came new problems. A 1990 rebellion by Honduran growers pointed out the fact that Chiquita was offering a full 30 percent less for its banana shipments than British competitor Fyffes. Although an agreement between Chiquita and its growers, securing such prices, remained in effect until 1992, it did little to assuage flaring tempers or halt strikes by underpaid workers. Given Chiquita's reliance on independent suppliers for 50 percent of its banana production, maintaining good trade relations had become and would continue to be a primary concern for the company.

Most of Chiquita's profits during the period, from earnings and from public offerings, were funneled into enormous capital expenditures on land and equipment. In 1990 such investment totaled $282 million; in 1991, $400 million. Chiquita also remained acquisition hungry and in October 1990 acquired Frupac International Corp., a Philadelphia-based importer, packer, and exporter of fresh fruit, primarily grown in Chile. In late 1991 Chiquita combined its North American tropical diversified fruit sales operation with Frupac to form the new Chiquita Frupac Inc. subsidiary.

Entered Difficult Period Starting in 1992

After eight years of solid performance, however, the company faltered in 1992, reporting a $284 million net loss. This loss compared to record earnings during the previous year of $128.5 million. Poor banana quality (due to El Niño and outbreaks of banana disease), a sluggish European market, and increased domestic competition among meatpackers were all cited as contributing factors. Profits were also affected by the company's heavy debt load and the resulting hefty interest expenses. Late in 1992 Chiquita embarked on a cost-cutting program that involved consolidation of operations, asset disposals, and workforce reductions and that resulted in a restructuring and reorganization charge of $61.3 million. At the same time, the company decided to divest its troubled meat division. In 1994 the division's specialty meat operations were sold for $53 million, and the remainder of the meat division was sold in December 1995 to Smithfield Foods, Inc., for $60 million. Chiquita also made other divestitures in 1995, including the sale of older ships and the Costa Rican operations of the company's Numar edible oils group, the closing of part of Chiquita's juice operations, and the reconfiguration of banana production assets. Proceeds of $217 million were realized from these moves.

Despite these attempts to clean up Chiquita's portfolio of operations, the company continued to lose money well into the mid-1990s, with the exception of the modest $9.2 million in net income posted in 1995. Chiquita was affected severely by trade barriers erected by the European Union (EU) in 1993. The EU enacted quotas on bananas that favored the former island colonies of European countries to the detriment of bananas originating in Central and South America, the source for most of Chiquita's bananas. The company, which previously held 40 percent of the European banana market, saw its sales in Europe cut in half. Bananas turned away from Europe then flooded the U.S. market, driving prices down and delivering another blow to Chiquita's earnings. Company sales declined from $2.72 billion in 1992 to $2.44 billion in 1996.

Chiquita, meanwhile, incurred a public relations black eye in February 1996 when it evicted 100 families of banana workers in Honduras from their homes on a banana plantation that the company was closing down because it said the land was no longer productive; the company also razed the families' homes. A Honduran human rights commission and the Roman Catholic Church both denounced these actions as violations of Honduran law, but Chiquita maintained that it had acted legally and with justification.

The EU banana quotas were eventually protested by the governments of the United States, Ecuador, Guatemala, Honduras, Costa Rica, Colombia, and Mexico, who brought the issue before the World Trade Organization (WTO). Although the WTO ruled in favor of Chiquita in the spring of 1997, it was not immediately clear whether this ruling would be enough to turn Chiquita around.

Principal Subsidiaries: Chiquita Brands, Inc.; Chiquita Brands Company, North America; Chiquita Citrus Packers, Inc. (80%); Chiquita Frupac Inc.; Solar Aquafarms, Inc.; Compania Mundimar, S.A. (Costa Rica); Dunand et Compagnie des Bananas, S.A. (France; 94%); United Brands Japan, Ltd. (95%); Chiquita Banana Company B.V. (Netherlands).

Further Reading:

  • "The Banana Rebellion," Time, June 11, 1990, p. 49.
  • Brown, Christie, "Banana Split," Business Week, August 12, 1996, pp. 94--95.
  • "Chiquita Cites Lower Meat Margins in Results," Feedstuffs, December 21, 1992.
  • De Cordoba, Jose, "Fruit Fight: Two Banana Empires, Latin and Caribbean, Battle Over Europe," Wall Street Journal, January 15, 1993.
  • Fox, John M., "How 'Chiquita' Helped United Fruit, Agribusiness Worldwide, February/March 1980.
  • Grigsby, Jefferson, "The Wonder Is That It Works at All," Forbes, February 18, 1980.
  • Hannon, Kerry, "Ripe Banana," Forbes, June 13, 1988, p. 86.
  • Jaffe, Thomas, "Don't Slip," Forbes, July 1, 1985.
  • Larmer, Brook, "Brawl over Bananas," Newsweek, April 28, 1997, pp. 43--44.
  • Lavine, Harold, "Bright New Image for the 'Octopus'," Saturday Review World, April 20, 1974.
  • "Lindner's Buildup at United Brands," Business Week, August 26, 1985.
  • Mejia, John, "Chiquita, Polly Peck Deny Reports of Del Monte Sale," Supermarket News, March 4, 1991.
  • Rohter, Larry, "Where Banana Is King, a Revolt over Farmlands," New York Times, July 22, 1996, p. A4.
  • Sanger, David E., "Trade Group Backs Effort to Ship Bananas to Europe," New York Times, March 20, 1997, p. B11.
  • Shapiro, Eben, "Revitalized Chiquita Seeks Growth," New York Times, September 11, 1990.
  • ------, "Yes, They Have Too Many Bananas," New York Times, July 8, 1992.
  • "Sorting Out the Wreckage," Fortune, June 1975.
  • Tracy, Eleanor Johnson, "United Brands' Hidden Charms for Carl Lindner," Fortune, March 19, 1984, p. 41.
  • "United Brands Trades More Assets for Cash," Business Week, January 13, 1975.
  • "Who Calls the Shots at United Brands," Business Week, May 26, 1975.

Source: International Directory of Company Histories, Vol. 21. St. James Press, 1998.