"At the end of the day this has cost us a tremendous amount of money from the standpoint of our reputation in the marketplace once again with the Honduras fruit. And once again, no one ends up paying the piper is what it comes down to." - Robert F. Kistinger, Chiquita Banana Group president; Overripe fruit hurts reputation, bottom line
Chiquita lost millions of dollars and hundreds of thousands of boxes of bananas, damaging relations with corporate customers worldwide because of a breakdown of its quality control operations in Honduras late last year.The problem contributed to Chiquita's 1997 fourth quarter losses of more than $56 million. Chiquita did not report the problem publicly, and it was not legally required to do so. Company officials did not say how much of the $56 million loss resulted from its Honduran problems.
The fruit that was shipped from Honduras - one of Chiquita's largest operations in Central America - arrived overripe at its ports around the world and resulted in many customers' refusal to accept or keep the bananas. Chiquita's sales people today are still dealing with the aftermath of the problem as they try to persuade customers to accept once again the Honduran fruit, according to company records.
Asked about the problem by the Enquirer, Chiquita responded through its attorneys that "the process of harvesting and shipping perishable products is a delicate one, and we carefully monitor quality at each stage of production. Nevertheless, temporary supply disruptions can occur in the produce industry."
Internal, tape-recorded voice-mail messages of Chiquita employees obtained by the Enquirer showed the company lost business over the Honduran fruit problem.
Chiquita stated to the Enquirer that it did not lose any customers because of the problems. The company's reputation was hurt with customers around the world. Chiquita Banana Group President Robert F. Kistinger chastised employees of Chiquita's main Honduran subsidiary, the Tela Railroad Co., because of their failures, according to Chiquita records obtained by the Enquirer.
In a Nov. 5 voice-mail message to Benjamin Paz, a Chiquita official, Mr. Kistinger said: "To me, the bigger issue here is ... the total lack of discipline, the lack of responsibility, the lack of accountability on the part of the people in Honduras not to allow things like this to happen because it's just not right ... I'm prepared to make changes in Honduras. This type of behavior is just unacceptable."
The ongoing Honduran fruit problem reached a crisis point in October and November when customers in Greece, Syria, Turkey, Canada and Russia either refused to accept or returned boxes of overripe Chiquita bananas.
Chiquita had to negotiate a lower price for the bananas or look for other buyers for the problem fruit. In many cases, the company had to destroy hundreds of thousands of boxes of the worthless product, according to company records.
After Cincinnati-based company officials threatened to replace their Honduran managers, the quality of the Honduran banana shipments began to improve in December and January, according to company records.
Chiquita's efforts to stop the substandard fruit from being boxed in Honduras, regain customers and generally improve the quality of the Honduran fruit shipped to Europe, Canada and Russia has come with a large price tag, according to Mr. Kistinger and Jeff Filliater, a Chiquita marketing executive.
First, Chiquita bolstered its quality-assurance program by putting high-level company employees on the Honduran docks to check each load of fruit before it was placed on company ships.
Secondly, Chiquita's new efforts resulted in 70,000 to 100,000 boxes of bananas left rotting on Honduran docks each week because the fruit did not survive the greater scrutiny imposed by the company's Cincinnati officials.
The cost to Chiquita for each box of unusable or returned bananas depends on its contracts with independent growers, time of year, quality of fruit, the company's own production costs, etc. Chiquita's cost per box averages between $5 and $7, sources said.
Mr. Kistinger, in a Nov. 5 voice-mail message to Mr. Paz, said: "At the end of the day this has cost us a tremendous amount of money from the standpoint of our reputation in the marketplace once again with the Honduras fruit. And once again, no one ends up paying the piper is what it comes down to.
"(This is a) process we have to stop and change because apparently no one is paying attention by slapping them on the wrist," he said. "And this is incredibly significant. It's in a short period of time involving a tremendous amount of fruit and some very key customers. You know and I know that you can deliver somebody good fruit for 20 weeks straight and then one or two bad weeks taints your whole reputation and that is what the Honduran division has successfully done."
Providing examples of how serious the Honduran situation was, Taras Kowalczyn, a Chiquita logistics expert, told Arnaldo Palma, general manager of Chiquita's Honduran operations, in a Nov. 6 voice- mail message:
"We (recently) had two shipments leave out of Honduras," Kowalczyn said. "The first shipment was going to the Med (Mediterranean) mainly to Turkey, Greece and Syria. The last shipment ... was going to St. Petersburg (Russia)."
Referring to the Mediterranean shipment, Mr. Kowalczyn said, "Of the 136,000 boxes that were loaded for that ship we find approximately 23,500 boxes that were either destroyed, had claims (problems) on them or some other action ...
"There were 6,900 boxes destroyed at the berth prior to even being sent to a customer. Primarily these were found to be in the very, very late stages of ripening ... Another approximately 16,500 boxes were, in fact, shipped to customers and we have found that since then customers are either calling in complaints, claims on these items or in turn just want to return them," he said. That represented 17 percent of the entire shipload, he added.
Mr. Kowalczyn suggested a way to lessen Chiquita's financial losses on the returned fruit: "We could just try and send them to someone else to mitigate our losses."
Describing the fallout over the problem fruit, Mr. Kowalczyn said, "Right now there is an issue that our customers have with Honduras fruit. Some of it's perception, some of it's based on the reality that ... the number of claims and complaints we've been getting on Honduras fruit has escalated proportionately week in and week out and (has) kind of hit a crescendo ..."
And even though Chiquita has instituted tighter quality control measures on the Honduras fruit, Mr. Kowalczyn said the company's sales staff was having a hard time recouping past customers. Many customers said that they would only do business with Chiquita if they were guaranteed not to get Honduran fruit, he added.
"The customers told our sales people ... they would rather go to the Del Monte's and Dole's of the world who have plenty of fruit in the marketplace and purchase it from them since they have very little confidence in the Honduras fruit," Mr. Kowalczyn said.
The quality of Honduran fruit improved after the company criticized its Honduran employees and changes were made for stricter fruit inspections. But Mr. Filliater, the marketing executive, told Mr. Kistinger of ongoing problems in a Nov. 11 voice-mail message.
"The major issue is that they're (Honduran workers) leaving behind (on the docks) somewhere between 70,000 and 100,000 boxes a week in Honduras right now," Mr. Filliater said, referring to the boxes of substandard Honduran fruit found unacceptable for shipment.
A result of all that leftover problem fruit, he said, was that Chiquita packing stations were ordered to reduce cutting and boxing of bananas.
Mr. Kistinger, in several voice-mail messages to company employees, including Chiquita's Honduran officials, pleaded for an effort to regain and maintain shipments of high-quality fruit. "We have to work together to regain what we have lost. This is a serious problem for all of us."
(Copyright 1998)
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