Del Monte squeezed by loss of Wendy’s fruit business

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The loss of Wendy's orders will hurt Fresh Del Monte's aspirations of building its fresh-cut business into a $500 million juggernaut by 2007, but the company and others are still bullish that fruit will flourish in the coming months.

Back in April, Fresh Del Monte CEO Mohammad Abu-Ghazaleh attributed the fruit and vegetable purveyor's 55% first-quarter sales increases in large part to its relationship with Wendy's, a partnership that, at the time, he said, "is exceeding both Wendy's and our own expectations." He projected that in 2005 Fresh Del Monte would hit $375 million in sales in fresh-cut alone and projected continued "phenomenal growth."

Fast forward just six months and Wendy's expectations have clearly not even been met, much less exceeded. John Loughridge, VP of Fresh-Cut, North America for Fresh Del Monte, acknowledged that the loss of Wendy's "significant" business is indeed a setback but said, "there is a lot else in the works to help replace that and gain strong growth."

The publicity surrounding the launch of Wendy's fruit products "put fresh fruit on the map," Mr. Loughridge said, and prompted a lot of interest from other fast-food chains and food-service venues.

Fresh Del Monte has developed a partnership with food-service distributor Sysco and yogurt marketer Dannon Co. to launch fruit-and-yogurt salads like Wendy's offerings to food-service operators, especially universities that are increasingly demanding fresh fruit, Mr. Loughridge said. Despite the termination of the deal with Wendy's, which Fresh Del Monte hopes will be reinstated in some form in the future, Mr. Loughridge still projects growth in the fresh-cut category of at least 15% or more in 2006.

"Big picture: There is still lots of opportunity for growth in fresh and healthy alternatives, not only in quick-service restaurants but in every sandwich shop in the country, and in convenience stores," said Scott Van Winkle, managing director of investment bank Adams Harkness. Though bigger successes seem to be minor replacements of existing products, such as carrots instead of french fries, or apples instead of desserts rather than stand-alone menu items, "it's still pretty early and companies are going to be moving forward based on what really works [with fruits and vegetables], not based on what the headlines say the competition is doing."

Matt Patsky, portfolio manager with Winslow Management Co., said that while the Wendy's failure is "obviously a blow to [Fresh Del Monte's] efforts, fast feeders will have to address the changing demographic with healthier alternatives if they want to keep their customers as they age." Fresh Del Monte is hoping that is true.

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