By Hugh O’Brian
The word Melhoramentos means “improvements” in Portuguese, with that term related to the period in the late 19th century when the company was founded, dedicated to bringing improvements to the country and people of Brazil. Activities which the group engaged in ranged from railroads, infrastructure and reforestation projects, to publishing and retail outlets, with in many cases Melhoramentos acting as a pioneer for these activities in the country.
Paper has also played a key role in the company’s history as Melhoramentos explains that it was the first company to make toilet paper in Brazil, in 1928, as well as being the first to produce wood pulp in Brazil, in 1943.
However, in more recent history, over the past year or so, the company has been working on some improvements of its own as it seeks to grow in the tissue business. As the number three tissue maker in Brazil, Melhoramentos has been refining its business model for further profitable growth.
Therefore, starting in late 2006, group management has been carrying out a process of change in its consumer business to focus its efforts on the south-east region of Brazil. It has at the same time decided to pull out of the consumer market in far-away regions of the north, north-east and south Brazil. These areas have not been profitable for Melhoramentos recently, and it therefore is concentrating efforts in the south-east area, which includes São Paulo and Rio de Janeiro states as well as Espirito Santo and Minas Gerais.
TARGETING PURCHASING POWER
Aldo Bergamasco, director of marketing for consumer tissue products at the company, explains: “Since we made this change in late 2006, about 85-90% of our consumer tissue is going to the south-east region versus about 60% before. So you can say that now, for consumer tissue, we are a regional player, not national any more.”
“We think it makes a lot of sense to put our products where we can get the best return on investment and where the greatest purchasing power is. We estimate that about 60% of the Brazilian GDP is accounted for in these four states, although it holds 40% of the population. So for the time being at least, we are focusing here.”
Another reason that Melhoramentos is undertaking this strategic change is quite simply that is does not have enough tissue paper capacity to fulfill its needs for both consumer tissue and AfH products over the entire country.
Total tissue capacity in the group today amounts to about 75,000 tons/yr from three paper machines at two mills, both located relatively close to São Paulo. The Caieiras mill has two PMs making around 51,000 tons and the Mogi das Cruzes mill has one PM with about 24,000 tons output. The Mogi das Cruzes plant was bought from Kimberly-Clark in 1994, when KC decided temporarily to pull out of Brazil.
It has been rumoured for several years that the company is thinking of installing a new tissue machine but Melhoramentos will not comment on the talk other than to say that “it sees good potential in the Brazilian market.” Considering the fact that it has a tight paper supply situation, it must be realistic to expect something in the near future.
STRONG NAPKINS AND FACIAL
In consumer tissue Bergamasco says that Melhoramentos is number three after Santher and KC, which came back into the Brazilian market in 1997. The company has the number one brand in Brazil for table napkins, called Kitchen, even though it is only selling regionally. Alongside the single-ply Kitchen brand, Melhoramentos also has a good position with its Lips brand for two-ply napkins. In addition to having a large market share with these brands, Melhoramentos is also a big player in the private label (PL) sector, supplying retailer brands to big chains such as Carrefour, Pão de Açúcar and Wal-Mart.
The company is also Brazil’s leader in the facial tissue sector with its Softy’s brand as the market leader. The facial tissue area is one that Bergamasco says offers a very good opportunity for Melhoramentos.
“As the market leader for facial tissue it is our job to grow the market. Brazil has very good potential for facial tissue, as it is the world’s third largest market for cosmetic products but only the 36th largest market for facial tissue. Cotton is widely used for application and removal of cosmetics here but there is a good opportunity to displace some of that with tissue. We think that with creative market development we can grow the entire sector and of course grow our business at the same time.”
In kitchen towels Melhoramentos is number two in terms of market share with the Kitchen brand name. But in toilet paper Melhoramentos does not presently have a strong position, with its Sublime and Softy’s brands trialing the marking brands Personal and Neve from Santher and KC, respectively.
As far as the consumer side is concerned, Bergamasco says there is good potential and much work still to be done. “This is a work in progress,” he says. “We have made some changes over the last 12-18 months and are starting to see the improvements that we are seeking. But it is certainly too early to make any big claims of success. The key thing is that we have started the process and the results so far have been very encouraging.”
“Additionally,” he points out, “we foresee a trend of market price increases, to offset the recent rises in on raw materials and energy, as well as manpower.”
VERY STRONG IN AFH SECTOR
Melhoramentos clearly feels it is in a much stronger position in the AFH market than in the consumer sector. Cesar San Juan, marketing manager for Melhoramentos’ AFH business says that, while he does not have statistical proof of its leadership position in AFH, it is evident that Melhoramentos is the Brazilian market leader.
“We don’t have detailed market numbers to prove our leadership but our coverage, as well as the fact that we are in all the top-level establishments, is evidence of our dominant position. Our products, both paper and dispensers, are in the best restaurants, hotels, catering, as well as a very wide range of commercial buildings, hospitals, and industries.”
San Juan says that the company has taken this leading position based on a strategy of offering superior products, with attractive well functioning dispensers and backed by exceptional maintenance and service.
An interesting item in its promotion package is a high-quality book on beautiful restroom designs and the role of the paper and dispensers in restroom aesthetics. Entitled “O Charme dos Banheiros” or “The Charm of the Bathrooms” the book show numerous examples in glossy color photos of tastefully designed restrooms in high-class restaurants, nightclubs and bars throughout Brazil, with a few examples from Argentina and Chile as well.
The idea, says San Juan, is to inspire places like these to put more emphasis on the restrooms and create their own quality feeling and ambiance that reflects the high level of the rest of the establishment. Melhoramentos AfH products are all made at the Mogi das Cruzes mill near São Paulo. San Juan, who joined Melhoramentos in 1996, says that the company has been growing very nicely in AfH at around 20% per year since that time. He estimates that Brazilian AfH market growth is around 15%/yr or slightly higher, which means Melhoramentos is taking an ever bigger share of the expanding market.
The overall Brazilian tissue market has been increasing by about 6-7%/yr in recent years, or about 1.5 times GDP growth of 4-4.5%, says Melhoramentos. A major change has been the increasing demand for higher quality tissue. Today about 85% of the market is made up of one-ply product, but the two-ply share has been increasing.
Around 50% of the tissue used in Brazil is based on recycled fiber and is of fairly low quality. But the quality levels are moving up and this trend should bode well for Melhoramentos since, says Bergamasco, it is the only company using only 100% virgin fiber on the Brazilian tissue market. TW
