Wal-Martâs decision to lower prices on thousands of items, including fresh bananas, made some analysts nervous about how banana suppliers are going to handle the change.
The Associated Press called Wal-Martâs tactic a price war, saying the companyâs buying power allows it to undercut rivals. In an Oct. 21 news release, Wal-Mart introduced its plan, which included knocking the price of bananas down to 39 cents a pound starting Oct. 19.
Wal-Mart declined to talk about the pricing tactic beyond what was included in the release.
During both Fresh Del Monte and Chiquitaâs third quarter conference calls Oct. 27, analysts used the opportunity to question the companiesâ chief executive officers about Wal-Martâs plan.
âThere was some concern that banana pricing in the U.S. would go down, just because of what Wal-Mart did,â Heather Jones, senior vice president and analyst for BB&T, told The Packer Oct. 29. Jones focuses on agribusiness and food for BB&T, the eighth largest bank in the U.S.
Fernando Aguirre, chief executive officer of Chiquita Brands International Inc., said the company has no plans to lower its price on bananas, and will work to maintain its margins.
âWe have been very disciplined in our pricing negotiations, to make sure the customer understands the types of margins weâre making, which are certainly a lot better than theyâve been, but certainly also not anywhere close to the types of margins they make,â Aguirre said in response to Jonesâ question about Wal-Martâs banana pricing and the stipulation that the difference would be covered by retailers, not by banana suppliers.
ââ¦What we have seen so far, the moves they have made, are moves that have been funded by them because they have very healthy margins,â Aguirre said.
Mohammad Abu-Ghazaleh, chief executive officer of Fresh Del Monte, said he knew analysts were concerned, but that the move by Wal-Mart could actually be good for business.
âNow, I know that so many people are also very concerned about Wal-Mart, for instance, reducing their prices on bananas recently,â Abu-Ghazaleh said during the conference call. âThis is â actually itâs beneficial in one way, that it is driving more sales of bananas in the supermarket. But on the other side, there hasnât been any pressure on us to reduce our prices because we cannot, as our costs are very high and our margins will not allow us to make any kind of reductions on our prices.â
Jones said she viewed positively the responses from both companies, and their commitment to maintaining their margins.
âAlso with Chiquita, they were very positive and bullish that they would remain rational,â Jones said.
Jones was just one of the analysts who brought up the retailerâs price move during the conference calls.
âAnd we may see other, as well, supermarkets, other chains, maybe doing the same,â Abu-Ghazaleh said during the call. âThis, in my opinion, will drive more sales into the supermarket â with lower prices, definitely people will be encouraged to buy more. Or people that do not buy will buy. So we see a positive side to this.â
In response to a question about whether Fresh Del Monte was forecasting a change in contract prices when its current Wal-Mart contract expires, Abu-Ghazaleh reiterated that the pricing decision was an internal policy for Wal-Mart.
He also said, in his personal opinion, that the price decrease is not a trend.
âBut when fruit will be scarce and short and tight in a month or so, I donât think that there will be enough volume to justify this kind of promotion,â he said. âThatâs my own opinion. Thatâs my personal opinion.â