Demise of the banana republic, tariff regimes, first come first served… In recent years political wrangling has deflected the attention of the banana multinationals from equally weighty issues to which they must now devote time and resources. Issues such as product differentiation, brand loyalty and new routes to market need to be addressed if the banana heavyweights are to develop a genuine marketing proposition. Promar International’s John Giles comments.
No single issue over the last ten years has caused as much controversy in the international fresh produce trade as the future of the European banana regime. Although the eventual outcome has been designated to be “tariff only” access, as set out under WTO rules, the actual process of reaching this, initially through the “First Come, First Served” scheme, would seem to offer plenty of scope for further twists and turns.
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Obviously, the stakes are enormous not only for the ACP and $ zone suppliers, but for the EU import and ripening trade. The concentration of effort on disentangling the implications of various policy scenarios means that other developments at the POS and within the customer base are in danger of being overlooked.
The banana sector needs to concentrate on ensuring the things it can control are given full attention. Efforts must be focused on ensuring that the relationship with the customer base is as close as possible. Without close commercial and technical relationships suppliers could be left isolated in the market, regardless of progress in other areas.
The banana sector differs from many other areas of the fruit trade, due to the presence of major integrated players, with their own production, post-harvest handling infrastructure, shipping and distribution systems. However, although the major multinationals are driven by a combination of supply and demand issues, many of them still essentially act as volume trading operations, despite their investment in branding over many years. Their strength has traditionally lain in their sheer market muscle, but this has often led to inflexibility and loss of innovative competency. The scale of current activity and static demand at the macro level has often limited opportunities for further market growth.
The classic role of the banana sector has been to service the mass market in the UK and Europe with a standard product. It is only in the last few years that there has been any serious product tailoring, with the introduction of eco-bananas, organic products and produce sold at varying degrees of ripeness as a deliberate marketing ploy. But with the continued breakdown of the mass market over the next five years, and the emergence of a more clearly segmented consumer base than in the past, there will be more opportunity for this type of development than ever before.
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By GlobalData“The foodservice sector represents a major new area of opportunity for the banana sector” |
The growth of the foodservice sector and the consolidation expected to take place over the next three to five years represents a major new area of opportunity for the banana sector, but to date retail trade has dominated. Foodservice has been treated as the “poor relation.” Lack of understanding of the true dynamics of the foodservice sector is perhaps the biggest barrier to growth for the banana trade.
The politics surrounding the banana sector will be sorted out one way or another over the next five years, but the real challenge for the multinationals will be to supply volume, innovation and convenience in both product format and POS. To a great extent, they will need to decide where their core competencies lie -product and/or brand innovation or volume production – before targeting the appropriate distribution channel. Multinationals should be well positioned to service a rapidly changing market environment, not least because of their ability to reach a diverse range of POS partners. Developments in new areas, such as home shopping and HMR will also present new routes to market and new challenges to the banana sector and should not be ignored.
Banana companies need to begin behaving more like some of their FMCG counterparts. They need to invest more in customer focused market research and category management style techniques. For fresh fruit companies that have spent large sums of money investing in their own brand, having to think about the strategic development of the broader category requires the development of a new way of thinking.
“Banana companies need to invest in customer focused market research and category management style techniques” |
The future will also see the need to look at new sourcing opportunities in areas such as Latin America and SE Asia, in an effort to secure lowest cost products and offer an extra dimension to seasonality cycles as part of a move towards genuine globalisation of the production base. Another traditional area of strength for the banana multinationals has been their ability to effectively control pricing in the market and in some cases lower price as an aggressive tactic to remove competition.
However, this has been proved to be a dangerous tactic, with prices being sent into a downward spiral since the over-production of the early 1990s when efforts were made to secure a strong market position in the European market once licences were to be issued. A combination of this continued distortion of markets and slower-than-expected growth in the Eastern European market have all combined to produce a situation where prices have hardly changed over a long period of time – in hindsight a disaster for the banana sector. It has also been the case that aggressive retailers can play this game too, with devastating effect.
Whatever the final outcome of the policy regime, much damage has already been done to the sector and the companies operating in it. The key for future success will be for the leading banana companies not to rely on their technical ability (this is now taken as a given by the main retail players), but to develop a genuine proposition based around “solution provision,” as traditional forms of customer support are replaced by a much more proactive approach to solution development. This will require ever closer relationships with the supplier and customer base. Banana suppliers need to be proactive rather than adopting a “wait and see” attitude.
Policy developments may yet be spun out over a period of several years. This could produce a false sense of security for some. However, the commercial forces for change and the pressures that this will bring on banana suppliers will not be played out to an institutionalised timetable of events. It is happening now and it is relentless. The banana sector must not use the delay in achieving market regulation to hide behind the reality of today’s market environment, but should plan a forward-looking and proactive approach to relationship building in preparation for the commercial battles that lie ahead.
By John Giles, Promar International
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