Jeffrey Hall, CEO-designate for Jamaica Producers Group, says his strategy is to reshape the group from a production-led to a consumer-led operation. - file

Opting not to sugar-coat its prospects, Jamaica Producer's Group (JP) has warned shareholders that it anticipates a 'difficult year'.

But the conglomerate which built its multibillion business on bananas, is already reshaping its business mix to expand focus on foods whose fortunes are not sensitive to global trade squabbles.

The timing seems almost poetic: as banana king Dr. Marshall Hall exits into retirement, his son and CEO-designate Jeffery Hall - who is the current business development manager - is about to take the reigns with fresh new plans that, the younger Hall says, targets the "sweet spot" of the fresh food business.

Hall will ascend to the top slot July 1, trailed by first quarter net loss of $102.3 million, and a tumbling stock price that hit a low of $22.50, but has since bounced back to $25.75.

The direction in which he plans to lead JP was already decided last year, when at the end of its third quarter, the conglomerate sold its 65 per cent shareholding in its fresh produce business, JP Fruit Distributors Limited (JPFD), to minority partner Dole Foods.

Falling stock price

JP made a gain on sale of $2.34 billion, but the business had represented more than half of JP's sales made largely from its banana and fresh and processed food divisions, and the proceeds constituted nearly all its $2.59 billion net profit for calendar year 2006.

The conglomerate's falling stock price in the aftermath of the deal would have mirrored market uncertainty of JP's game plan to replace the JPFD income.

But CEO-designate Hall, in a Financial Gleaner interview, indicated thatJP has a clear direction.

Continual evolution

He describes the current strategy as part of a continual evolution from its historic business of moving bananas from Jamaica to the United Kingdom, and building a core competence for supplying short shelf life foods - some which have a life of five days, others more - particularly to the United Kingdom (U.K.) supermarket, retail and service sector.

Bananas from high cost jurisdictions like Jamaica require trade preferences to be profitable, he said.

JPFD had been JP's first response to the competitive pressures created by the change in the trade regime, successfully using its core 'supply chain' competence to diversify into importing a much wider range of fresh produce than bananas - including citrus, apples and many other fresh fruits - from all over the world.

In 2006, the non-banana portion of its fresh fruit distribution business had grown to just over $7 billion, only slightly less than its banana distribution business at $8.1 billion. Bananas represented only one of the commodities in JP's fresh fruit business, and its Jamaican farms represented less than 10 per cent of the global sources of supply for that business.

After a significant degree of success, over time JPFD's business had become commoditised. Using the example of apples, Hall said the nature of the retail trade in the U.K. is for price to be determined by auction.

With a 15-25 per cent U.K. market share in areas such as pineapples, melons and bananas, the business had been built to the point where it was an attractive purchase for the world's largest produce company.

But with the Dole offer on the table, JP decided the time was right to exit the business at a profit.

Successful diversification

Their next successful diversification - coming out of the company's need to work out what it could do to add value to fresh produce - was the move into freshly squeezed orange juice, instead of oranges.

Producers once was one of the largest suppliers of fresh juice in the U.K., but thisbusiness too began facing competition, making it less easy to pass on the cost of the underlying commodity price fluctuations.

From that operation, JP had learned how to build a large food processing business, and gained expertise in the logistics required to manage short shelf life foods.

The company dramatically increased its commitment to the fresh prepared food sector to meet consumer demands for healthy (no additives), fresh food that are pre-cooked.

According to Hall, the "sweet spot" of the prepared food sector were products that met consumers demand for health, freshness and convenience.

Going forward, the conglomerate is building three new food processing factories in the U.K. for each of its three main new segments - fresh smoothies, fresh soups and fresh desserts - creating branded products.

Despite start up losses, Hall views the creation of these early stage value-added businesses as critical to JP's strategy of moving from a production-led, fresh fruit business to a market-led consumer products company.

He intends to continue cutting costs in the core fresh food businesses - orange juice and banana - while increasing investment in the fresh food 'sweet spot' segment.

The U.K fresh prepared food segment is not yet dominated by the global consumer giants, said Hall, presenting JP with an opportunity to grow through expansion of its product lines - last year's acquisition of Simply Organic expands the company into organic soups, ready meals and sauces - and its distribution capability into the heavily populated South East.

expandng tropical snacks

JP is also expanding its tropical snack business, building a plant in the Dominican Republic to serve the Latin market in the United States, and is increasing its emphasis on the high growth, premium priced 'ethical' banana segment in the U.K.

The company is still in cost-cutting (particularly local overheads), high-investment mode, with associated start up losses. Hall warns that he expects continued difficult trading conditions for JP'slarge Sunjuice business.

keithcollister@cwjamaica.com