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Colombia 2015 | ECONOMY | VIP INTERVIEW

TBY talks to Carlos Ignacio Gallego P., President of Grupo Nutresa, on the benefits of having a wide portfolio of products in the foods industry.

Nutresa is the fourth largest food company in Latin America, with a total market capital of $6.7 billion. How is the group continuing to expand its portfolio today, both domestically and abroad?

In 2013, international sales accounted for 39.5% of our sales, which in total amounted to around $3.4 billion with an EBITDA margin of 14% (proforma figures). This group arose out of the development of several companies, and it was founded almost 100 years ago in the 1920s. The National Chocolates Company was the result of a merger between nine or 10 small chocolate companies, recently branching out into other businesses as well. We have eight business units: cold cuts, biscuits, chocolate, coffee, ice cream, pasta, Tresmontes Lucchetti, and retail food. For the latter we have 500 ice cream stores across Central America and the Caribbean. In 2013 we formed a partnership with Alsea from Mexico in order to open Starbucks in Colombia. We have 41 manufacturing plants, and our products are sold in 72 countries on five continents. As a result of our portfolio, we do not depend on a single commodity, none of which represents more than 9% of the total cost. It allows us to maintain better management of commodity risk. The main commodity today is packaging material. The business model of the Nutresa Group is based on three pillars, the first and most important being people. We have more than 38,000 employees, 12,000 outside Colombia. These are crucial for us because our company has a robust innovation model based on committed and well-trained people. The second pillar is brands, and we have a strong portfolio that reflects the respect we have for local tastes and preferences. We have 16 brands that generate in excess of $50 million. We prefer to consolidate our brands to develop a stronger market status and pursue synergy in marketing our investments. In Colombia, the average market share is 60.5%. During the first nine months of 2014, we have grown 8.9% in Colombia, while the Finance Minister is forecasting GDP growth of close to 4.7%. Over the last eight years, we have grown by 10.6%, and by 7.8% over the last five years. Our strategic region covers those countries in which we operate, from the south of the US to Chile, including the Caribbean and South East Asia. We are also growing in the US. The third pillar is distribution, where we operate our own networks. We serve around 1 million clients with over 11,500 sellers.

With regard to the various business units, are you concentrating on any one in particular?

In Colombia, for instance, we are present in the cold cuts business, a particularly local segment, and we have a company in Panama and another in Venezuela. Operations in the latter are currently limited at 1.8% of our total sales and 0.5% of liabilities. In Colombia, we have a market share of 73% in cold cuts, and are growing. We are leveraging the currently positive dynamic of the Colombian economy for all of our businesses. Meanwhile, we are also focusing heavily on the biscuits industry in Colombia, the US, and Peru, and have a 53% local market share. It is the most aggressive and competitive environment in Colombia because all the global players are present. But we are growing based on solid innovation. We are building a new crackers factory in Texas to initially serve the US market and to export part of the production. In Colombia, there is always the worry of losing market share due to new competitors, although we have not lost market share in biscuits. In regards to the chocolate business, we have factories in Mexico, Costa Rica, Peru, and Colombia, and a 69% share in the market of chocolate bars. In Colombia we also have drinking chocolate and instant chocolate powder. In the coffee business, we have factories in Colombia and one in Johor Bahru, Malaysia, in a joint venture with Mitsubishi, and Takasago International Corporation. There has been a lot of volatility in the commodity price for coffee this year, but we are still leaders in roasted and ground coffee and we are second in soluble coffee in the Colombian market. We have a very good opportunity in Colombia to increase consumption per capita. Even though Colombia is a very good producer of coffee beans, the consumption rate is low. We believe that players like Starbucks can promote new moments for consumption and new preparations, and it can attract young consumers. This can definitely increase rates of sale. We recently bought Tresmontes Lucchetti, the second largest food company in Chile. Through it we acquired instant cold beverages, pasta, coffee, and snacks brands. Chile is growing at a low speed this year but we are still growing more than the country. We are consolidating our synergies in distribution and manufacturing. We are very happy to be in Chile because we have opened the door to a very strong market.

“FTAs such as the Pacific Alliance are positive and bring new challenges."

What are the most significant investments you've made over the past year to expand your export base in Latin America? How significant an effect on exports have the free trade agreements (FTAs) had?

FTAs such as the Pacific Alliance are positive and bring new challenges. It all depends on how you prepare to take advantage of the possibilities that these agreements bring. Grupo Nutresa is present in Chile, Peru, Colombia, and Mexico, among others, and, at the same time, we are present in Malaysia. It is not just luck; it is related to our preparation to be in the right place and use the productive platforms available. We look at FTAs as a two-way relationship. We will not only have access to raw materials and technology but also to markets. Let's look at Mexico. It is a big country. We believe that with innovation and a strong value offering we can increase that market and be part of its growth, and our location in Mexico has easy access to the ports so we can export from there. We can sell there and send it to other countries in the region, including the US, which is a strong neighbor, so Mexico will improve its own capabilities and experience the direct impact of US growth. This will be promoted by our new plant in Guadalajara, for which we expect to have robust sales the first three months of next year, and which adds to our current facilities in Mexico.

What was the strategic purpose of forming the Oriental Coffee Alliance with the Mitsubishi Corporation?

Our first coffee export to Japan was made in 1961, and our relationship with Japan is long-term in nature. We decided on the joint venture Oriental Coffee Alliance in order to develop the coffee market in Asia, especially Southeast Asia. We have a coffee factory in Malaysia but the plan is to develop the market through commercial efforts. In addition, potential acquisition opportunities in the region will be considered. Looking toward the future, we hope to expand the alliance to other categories in the region, mainly in Southeast Asia. We perceive opportunities not only in coffee, but also in instant powdered drinks, chocolate, and others. The interesting thing about the joint venture with Mitsubishi is the combination of capabilities. We are a diversified consumer goods company, while it has the local knowledge; we are combining our strengths in a region full of opportunities.

What are the key elements of Nutresa's 2020 strategic action plan?

Our main goal is to double the size of Grupo Nutresa by 2020 and maintain our EBITDA margin at a rate of 12-14%, and that should be achievable through the combination of strategies we are currently pursuing. We believe that we will reach this goal of offering consumers our products and experiences with strong, beloved, and well-known brands with good distribution and affordability. To reach our goal we will work strongly on innovation, we will invest a lot of money in human resources, and diversity will become even more important.

© The Business Year - December 2014