It’s a melancholy time for the business of cantaloupes, honeydews and watermelons. At least that’s the view of the “Big Three” U.S. fruit companies.
Chiquita Brands International Inc. quietly halted melon sales last year, unable to generate profit on par with the company’s core banana and salad operations.
Fresh Del Monte Produce Inc. is “aggressively” restructuring its melon program, with the company’s chief executive earlier this month saying he does not “see much of a future” in traditional melons. Dole Food Co. got out of melons in 2008, a spokesman said.
The three companies’ abandonment of melons reflects several broader trends over recent years, analysts say, including an increasing emphasis on “value-added” products, such as packaged salads and healthy snacks.
Such items produce fatter profit margins than bulk commodities, appealing to both Wall Street analysts and shareholders fixated on earnings growth.
For the big multinational fruit and vegetable companies, melons are a challenging business for a couple of reasons, said Jonathan Feeney, an analyst who follows the food and beverage industry for Janney Capital Markets.
Melon quality “varies greatly from year to year” because of weather and other factors, Feeney said. Also, “only the highest quality melons have demand in the market. So it’s quite easy to spend a lot of money and wind up without a lot of great product.”
The Big Three’s shift raises questions for U.S. melon growers, whose crop was valued at $856 million last year, according to a government estimate. Questions include: who will step in and provide the distribution and marketing muscle to make sure the country’s grocery stores and restaurants are adequately supplied?
Produce industry representatives say they’re not concerned and expect the U.S. market to be sufficiently supplied with quality melons.
“There are sufficient handlers to adequately supply the market, and the taste and quality are constantly a focus of our members’ production,” said Matt McInerney, executive vice president with Irvine, Calif.-based Western Growers Association. “With the diverse growing regions here in the U.S., there will be sufficient opportunity for supplies.”
Arizona, California, Florida and Texas produce most U.S. cantaloupes, honeydews and watermelons, and Mexico, Guatemala and Honduras also large growers.
Based on U.S. Department of Agriculture data, the country’s melon industry appears to be on the upswing following a period of softer prices in recent years.
During the second quarter, grower prices for cantaloupes averaged 20 cents a pound, up 7.8% from the same period a year earlier, the USDA said in a late June report.
Across the entire melon category, producer prices during the first five months of the year soared 52%, the USDA said, with domestic and foreign shipments rebounding from a late start after a cold, wet spring. Nationwide melon production is expected to total 6.28 billion pounds in 2011, down 1% from 2010.
That hasn’t been enough to keep Chiquita or Fresh Del Monte interested. During the second quarter, sales in the Chiquita’s segment that includes melons fell 23%, to $63 million, “due to the discontinuation of certain low-margin produce items, such as melons and vegetables,” the company said Aug. 3.
The business had an operating loss of $1 million during the quarter.
In addition to melons, Chiquita also discontinued North American sales of other “whole” items, including bell peppers and tomatoes, Andrew Ciafardini, a spokesman for the Cincinnati-based company, said in an Aug. 11 e-mail.
Fresh Del Monte, in an Aug. 2 statement, said it’s shifting resources to a new specialty melon program, without specify the varieties of products. In a conference call the same day, Mohammad Abu-Ghazaleh, the company’s CEO, said the melon business “isn’t rational,” adding that many retailers “don’t care” about quality, but rather are focused on price.
Fresh Del Monte said its second-quarter melon sales dropped 23% compared to the same period a year earlier to $41.9 million, as volume tumbled 22% and prices fell 2%.
Specialty melons include miniature and yellow-flesh watermelons and organic items, according to industry research. A spokeswoman for Coral Gables, Fla.-based Fresh Del Monte didn’t respond to messages.
Asked about Dole’s decision to leave the melon business, Bil Goldfield, a spokesman for the Westlake Village, Calif.-based company said “we were a very small player in that market, and for business reasons decided it was not worth efforts to continue.”
The likes of Frontera Produce Ltd., an Edinburg, Texas-based distributor, say they’re happy to fill the gaps left by the three biggest fruit companies. Frontera acquired Chiquita’s melon operations late last year, taking on Don Johnston and several other former Chiquita employees.
Johnston, who’s director of Frontera’s cantaloupe and honeydew business, said that among retailers, whether a product has a high-profile brand is not an issue for melons.
“The absence of branded melons from the three largest U.S. fruit companies is not a problem for the industry,” Johnston said. “Our business is relatively simple. It’s all about exceeding their expectations for quality, service and offering competitive pricing. That’s all buyers want.”