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Losing Brand.

Argentine conglomerate Perez Companc aims to return food company Molinos Rio de la Plata to its former glory.

MARIA LUZ SUAZE REMEMBERS JUST A few years ago when the name Molinos Rio de la Plata was almost synonymous with basic foods like pasta and wheat flour.

But when the 51-year-old Buenos Aires housewife makes her weekly trip to the supermarket these days, she fishes through a dozen brand names and a whole range of prices. "For me, grabbing Molinos is no longer automatic," she says while casing the aisles at Disco, Argentina's second-largest supermarket chain.

Broadening competition in Argentina's supermarkets underscores the challenge that billionaire J. Gregorio Perez Companc and his family face as they try to turn around the country's oldest--and best known--food company.

Flush with cash from his US$1.2 billion sale of Banco Rio de la Plata in 1997, Perez Companc bought 60% of Molinos from agriculture company Bunge International for $397 million last January in a broader move into the food business.

Argentina's wealthiest entrepreneur wouldn't talk to LATIN TRADE about his game plan for returning Molinos to its former glory. But analysts and industry sources say the turnaround won't be easy.

Running to stand still. Founded more than 90 years ago when commodities traders Ernesto Bunge and Jorge Born built their first flour mill in Buenos Aires, the US$1 billion (1998 sales) Molinos is facing some of its roughest times ever Increased competition, slumping commodities prices and economic recessions in Russia and Brazil, two of its largest export markets, pushed losses to almost $40 million last year after five straight years of profits.

"One of the biggest challenges will be to hold onto the market share it's traditionally enjoyed," says Jose Costa Buck. who covers the food industry for Robert Fleming Securities in Buenos Aires. "It will have to become more competitive just to stand still."

Last March, the Perez Companc family selected the man they're betting can turn things around: Juan Manuel Forn, who came from U.S. cigarette giant Philip Morris Co. The 55-year-old was apparently lured by a U.S.-style bonus program that would make him one of the country's highest-paid executives if Molinos becomes profitable.

Forn is not starting from scratch. Of the 18 different food markets Molinos competes in--from vegetable oils to fruit juices--it is the market leader in nearly half and ranks second in most of the rest In wheat flour and edible oils, which account for more than a third of its total sales, the company controls half the market.

Former owner Bunge had already been expanding Molinos out of its traditional lines and into more-profitable, value-added products like premium name-brand foods, including fruit juice maker Pindapoy and the Granja del Sol line of frozen hamburgers, breaded chicken, vegetables and fish. As a result, dependence on its commodities businesses has shrunk from 47% of revenue in 1996 to less than 20% today.

Molinos has further diversified by expanding globally pushing into Brazil, Chile and Russia and opening offices in Japan, Vietnam and China. In 1997, exports accounted for 43% of total revenue, with export revenue nearly tripling in four years.

Supermarket pressure. Even so, profits have languished. Bunge, which sold its non-core businesses to focus on the genetic seed business, has made few management changes over the last few years and reined in investments last year as it negotiated to sell Molinos, according to analysts. That's given big competitors like Nabisco, Danone and Cargill a chance to grab market share. Smaller competitors, such as Chile's Luchetti & Cia. and Brazil's Santista, have also expanded into the Argentine market.

Furthermore, a flood of foreign investment into Argentina's supermarket industry has reshaped the landscape. Shopping in neighborhood markets has given way to one-stop supermarket chains like Carrefour of France, Wal-Mart of the U.S. and Disco, which is now owned by the Royal Ahold Group of the Netherlands. These supermarkets are using their buying power to shop around, and purchasing more from their suppliers abroad, thus weakening Molinos' traditional hold on the local market and driving down prices.

With little room to expand market share, Molinos will have to concentrate on cutting costs, boosting exports and expanding into non-traditional products like frozen foods to keep growing, contends Dario Lizzano, research chief at Banco Santander in Buenos Aires.

Before slumping into loss-making territory last year, the company was posting profits of just 1% to 3% of sales, well below the industry average of 3% to 6%. Improvements could be made by reducing its work force and improving the efficiency of its distribution network, Lizzano says.

The company might also have to look into producing private-label food products, a practice it's shunned in the past. Supermarket chains have been cutting into market share with their own brands, including Wal-Mart with its Value line and Disco with its Bell line, which are substantially cheaper than name-brand items. For example, a one-kilogram bag of Bell white rice costs 91 cents, versus $1.24 for the Molinos brand. "We've developed a name that customers associate with quality but that costs less," says Javier Vejo, a regional brand manager at Disco. "That's a market that Molinos may have to rethink."

Maybe. Molinos still has the advantage of being one of Argentina's best-known brand names. Just ask Luz Suaze, who still buys Molinos pasta and flour. But if the company doesn't figure out a way to compete, it may increasingly get passed over on the supermarket shelf.
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Author:RUBENSTEIN, BETH
Publication:Latin Trade
Geographic Code:3ARGE
Date:Aug 1, 1999
Words:912
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