The aftershocks of the spinach crisis are still playing out:
FRESH EXPRESS ACQUIRES VERDELLI FARMS
Transaction Fits Company’s Sustainable Growth Strategy and Accelerates Market Penetration for Fresh Express Salads in the Northeastern United States
Fresh Express, a wholly owned subsidiary of Chiquita Brands International, Inc. (NYSE: CQB), announced that it has acquired privately held Verdelli Farms, one of the premier regional processors of value-added salads, vegetables and fruit snacks on the East Coast of the United States. The company, which markets its products under the Harvest Select and Verdelli Farms brands, operates in 10 states from Massachusetts to Virginia. Verdelli Farms will be integrated into Chiquita’s Fresh Express unit.
“The acquisition of Verdelli Farms, with its focus on meeting the needs of consumers for fresh, healthy and convenient foods, superior food safety and strong customer relationships, is a great fit within our sustainable growth strategy and an excellent complement to our Fresh Express brand,” said Fernando Aguirre, chairman and chief executive officer of Chiquita Brands International. The acquisition accelerates our expansion into the Northeast, where there is strong demand from the largest U.S. concentration of value-added salads consumers, but where the Fresh Express brand has been under-represented.
Aguirre continued, “We are also pleased that Dan, Mike and Jen Verdelli, as well as other members of Verdelli Farms’ strong management team, will remain with the company following the acquisition and offer leadership talent that is a good cultural fit with our focus on innovative value-added products, food safety, freshness, customer service and category development.”
Fresh Express is the No. 1 brand of value-added salads, with a total U.S. market share of approximately 47 percent. Through this acquisition of Verdelli Farms’ modern manufacturing capabilities and efficient distribution capacity, Fresh Express will be able to expand its share in the Northeast from approximately 30 percent today and gain an effective platform for growth in this important region. In addition, the acquisition will allow Fresh Express to gain networkwide cost synergies in distribution and logistics costs while achieving up to a two-day improvement in the freshness of salads it delivers to customers and consumers in the Northeast.
Harrisburg, Pa.-based Verdelli Farms is a third-generation, family-owned business founded in 1924. The company employs approximately 400 people and has annual revenues of approximately $80 million. In 2006, the company produced more than 8 million cases of fresh salads, vegetables and fruit snacks for more than 80 customers in 10 states from Massachusetts to Virginia.
Of course all the reasons that Fresh Express gives in the press release for wanting to buy Verdelli are correct. Fresh Express does have a lower market penetration in the northeast and Verdelli does have both a good reputation and market share where Fresh Express is weak.
However all this was true for a long time. Verdelli has had plenty of interest before this offer. So what has changed?
Verdelli, with its heavy spinach business, was hurt disproportionately, and unfairly, by the spinach crisis. Although it made it through the crisis, when a family business goes through something like that it often changes the thought process of the owners.
When the spinach crisis hit, the FDA acted in a way that hurt many innocent businesses. In asserting for itself the right to do so, the FDA action will have long-term effects the extent of which are still unclear.
Instead of spreading a pro-entrepreneurship message reassuring business owners that they would be judged on their own merits, even though they may be held to strict standards, the FDA instead sent out the message that a family could have its business destroyed by government fiat due to no fault of its own.
Thus the supposedly pro-business Republican administration of George W. Bush sent out the most profoundly anti-business message imaginable.
One can list a lot of practical reasons for why the Verdelli family ought to sell, but here are three reasons:
- New food safety requirements are only going to make fresh-cut plants more expensive and difficult to operate.
- The possibility of a National Marketing Agreement for leafy greens might constrain East Coast supplies of raw material.
- Fresh Express may have made a generous offer to avoid having to build a new east coast plant to better compete with Dole’s new plant in North Carolina.
Still, on some level the FDA’s decision to assert the right to act in a way that could destroy a family business has altered the cost/benefit calculation for remaining family-owned.
Maybe the FDA didn’t intend that; maybe they didn’t even think about it — that is why they are called “unintended consequences”.
We wish Dan, Mike and Jen Verdelli the best in their new roles, and we congratulate Fresh Express on its acquisition.
