How a small business in Argentina learned to compete with juice industry giants.
BY ALEXANDRA RUSSEL-BITTING
Small business owner Miguel Maccagno sits in his factory office in the low-income neighborhood of Matanza outside Buenos Aires, examining identical-looking plastic bottles for the juice drinks his plant produces and pondering their impact on its competitiveness. By shaving 14 grams off the bottles' weight, he can lower costs enough for his firm, Agroindustrias Río Tercero, to compete with the large U.S., Brazilian and Chilean firms that have cornered the low end of the local market.
When Maccagno bought the plant, it produced a single product—fruit juice—in a single-sized bottle, entirely by hand, and the product had no market penetration. Maccagno wanted to expand production to juice drinks in different-sized bottles and powdered drinks. The idea, said Maccagno, was to target the low-income market by manufacturing beverages with the same quality standards—including ISO quality certification and certified suppliers—as the big-name competitors, but competitively priced.
But where to get the funding to bring the plant up to standard and purchase the new equipment he needed? Enter the Argentine Technology Fund, known by the Spanish acronym FONTAR, a small business development program run by the National Agency for the Promotion of Science and Technology. Through FONTAR, which receives support from the Inter-American Development Bank, Maccagno obtained funding to purchase new machines to expand production of his “Tropic Frut” juice drinks.
To be competitive and reduce costs, Agroindustrias Río Tercero would need to use reliable suppliers and redesign its drink containers. Slightly lighter weight plastic bottles would be just as rigid but would cost one-third less. The new design included a special lip to make the bottle drip-proof and easier to pour. The company started producing different-sized containers, such as a 1.5-liter model. It also ventured into diet drinks, and was exploring use of a natural sweetener called stevia, a herb in the Chrysanthemum family that grows in Brazil.
BREAKING INTO THE MARKET
The company also had to improve distribution. Maccagno explained how the economic crisis in Argentina had had an impact on large distributors, which collapsed into smaller ones. These smaller firms, which now account for 60 percent of the distribution industry, have the advantage of being more flexible, reaching more retailers and points of sale.
New products, however, can be difficult to introduce. Agroindustrias Río Tercero had established itself in Patagonia, but the Buenos Aires market proved more difficult to crack. Products need brand recognition, said Maccagno, which requires money for promotion. He cited Kraft’s Royal gelatin brand, which has been in the Latin American market for almost 60 years and is the undisputed leader of the desserts category in Argentina.
With only 12 employees, the small business does not have the means to market itself, so it struck a strategic partnership with a marketing firm that has 90 distributors nationwide. It also joined the Argentine Chamber of Food Product Manufacturers (Cámara de Industriales de Productos Alimenticios), which provides marketing assistance.
Agroindustrias Rio Tercero was interested in introducing new packaging for its juice drinks using the foil pouches pioneered by Capri-Sun, which are manufactured by a German company, WILD. Maccagno had dreams of eventually exporting them throughout Latin America, but wondered who would finance the marketing.
On a tour of the factory led by company engineer Raúl López, a visitor was struck by the large spaces and simple but spotless facilities. The hermetic “clean room” area for preparation and packaging of powdered drinks, scented with fruit, has a special floor, as required according to international standards. There stood the gleaming “make and fill” machine, manufactured in Argentina, that was financed under the FONTAR project. With a top production capacity of 120 pouches/minute, the machine is temperature and humidity controlled and meets all international standards for food production.
Maccagno had plans to buy two more machines and hire more staff for packing. Before the project, the company only had about five employees, but is now up to 12. Maccano plans to hire another four workers for powdered drink production.
In the mixing room, a batch of orange drink made of 50 percent juice was being prepared in a special tank ordered from Brazil. The chilly temperature-controlled air was scented with orange. A quality control worker in a white smock and mask offered visitors a sample taste of the drink, which accounts for the bulk of company sales. The brightly colored beverage tasted cool and flavorful.
The production process is entirely automated, said Maccagno, except for quality control. Bottles are filled, capped and labeled on the assembly line, then boxed in export quality packing, before being shipped to Patagonia and distributed in the factory area.
The company owner cites innovation, price and quality as the conditions for company expansion and growth. He credits FONTAR for helping but notes that it does not provide assistance in two crucial areas: marketing and human capital.
According to Alberto Narcy, FONTAR project evaluation coordinator, the results of the technology modernization program have been “very, very good.” Designed to improve technology, develop new products and promote investment in capital goods and infrastructure, the program has received three loans from the IDB, which covers 80 percent of its expenses; the remaining 20 percent being provided by the central government.
Project evaluations have found significant returns on investments, human resources and capital goods, especially in such industries as pharmaceuticals, chemicals and metal-mechanics.
Republished with permission from IDBAmerica, the magazine of the Inter-American Development Bank.