Sourcing in Sao Paulo: The Brazilian Buyer Project
July 1, 2014,
By Allison Zisko
From top: The Coza Retro collection coa.com.br; Dish rack by Ou ou.com.br; Laundry items from Plasvale plasvale.com.br; Gourmet line pan from Nigro nigro.com.br
Over the course of two days in early May, 51 Brazilian housewares manufacturers descended on a hotel conference room in Sao Paulo, Brazil, lugging suitcases filled with plastic and glass and metal goods, armed with the optimism of traveling salesmen.
This Buyers Group event was hosted by ThinkPlasticBrazil, a consortium of Brazilian plastic manufacturers, and its counterparts in the glass and metal industries, in collaboration with Apex, the Brazilian government's trade and export agency. Participants included retail buyers with a focus on housewares; importers; distributors and global sourcing agents. There were representatives from Lowe's, Big Lots, the Canadian retailer Loblaw and American global sourcing company Fourstar Group USA, among others. They were chosen based on marketing studies conducted by ThinkPlastic and the other associations and meetings during the International Home + Housewares Show in Chicago in March. The purpose of the program, according to Nivalda Fonseca, ThinkPlastic's marketing and communications specialist, is to allow vendors to show their products and have face-to-face meetings with buyers or agents, and to instill trust among retailers in the Brazilian vendors and allow them to speak directly with top decision-makers. ThinkPlastic does not receive a commission or payment for this work. "We just promote the match; we connect buyers and vendors," Fonseca said. "This is our strategic vision."
Maxine Campbell, a member of the European buying office of Optimum Buying, attended the event to scout out opportunities for Big Lots. The goal of the trip for Campbell was to grow its existing Brazilian vendor base. "As a buying office, we are always looking for new sources and new product categories," she said.
Graham Kohlmeyer, a product manager for Fourstar Group, attended the event on behalf of discount merchandiser fred's. "My real hope was to make contact with the local market in Brazil to explore whether or not there would be cost savings opportunity on existing items we already sell to our North American and European customers, or to find unique opportunities to generate new business that we are not currently doing," Kohlmeyer said. He described the trip as more of a "fact-finding mission" to assess competitiveness. Fourstar, which primarily does business in China and southeast Asia exporting to North America, recently expanded operations into Brazil and is interested in importing from Asia into Brazil. With the exception of some candy, it does not currently produce in or export from Brazil.
Brazil's trade promotion groups are playing a slight game of catch up, considering that Brazil had a closed economy until 1992. Its export culture is not as strong as other countries', but it's growing. In 2013 it exported $1.4 billion in U.S. dollars of converted plastic products. Its goal for 2016 is $2 billion.
Brazil believes it has a number of competitive advantages over other countries such as China: its supply chain is the 10th largest in the world, its production chain is fully integrated and it has the raw materials needed to make plastic (namely, oil); it protects brands and patents; it is willing to produce smaller lots; and its technical standards are in compliance with international regulations.
The advantages of sourcing product for the American market from Brazil, according to Campbell, who is based in France, are lower minimums than certain other countries, including China, and spreading out the buying risk across several geographic areas to ensure consistent manufacturing options. Brazilian companies offer reasonable pricing, Campbell said, "although pricing remains higher than many other countries we source from."
"One of the aspects of our business with which we struggle most is finished goods' quality," said Kohlmeyer. "My company primarily services North America, which is an over-saturated, fiercely competitive and very price-sensitive market. We focus on the value segment of the market and that segment is traditionally rife with quality issues. Price and cost competition often drives quality down and quality-related problems up. Relative to China, Brazil seems to offer much more reliable quality and consistency of production. In conjunction with higher standards of quality in the manufacturing process, I also found that a higher percentage of these manufacturers had completed not only manufacturing standards and audits such as ISO 9000, but also social compliance (ISO 26000) and environmental compliance (ISO 14000) audits. This is definitely a benefit as there is a distinct shift taking place amongst the North American retailers to ensure that their import goods are coming from manufacturers that not only maintain a system of manufacturing quality, but also social and environmental responsibility. Most definitely an advantage for Brazilian manufacturers that are already taking it upon themselves to achieve these higher standards and certifications."
To promote these advantages, ThinkPlastic, in addition to hosting buying events such as the one in May, takes its show on the road. It participates in trade shows such as Ambiente and the Housewares Show, where in March it occupied 3,300 square feet of exhibit space in North Hall and generated $3.1 million in sales. "It's a showcase for us," said Marco Wydra, general manager of ThinkPlastic. Members said they appreciated visits from international buyers in Chicago, particularly those from Latin America, one of their target markets, but many are eager to do business in the United States. Several of the companies who participated in the buyer event in Sao Paulo said they once worked, roughly 10 years ago, with American retailers such as Crate & Barrel, The Container Store and Bed Bath & Beyond, but business dried up when exchange rates became unfavorable. Now they are trying to jumpstart business. During the two-day buyer project, 516 meetings were held, with an average of 30 meetings per guest company. Their wares ranged from thermal carafes, plastic dish racks, laundry baskets and decorated food storage containers to metal cookware, stainless-steel flatware and the tea bomba, a metallic straw with a strainer on one end that is popular in South America for drinking tea and is marketed in the U.S. to Latin American consumers.
"We are trying to place our product in high-end stores, one step at a time," said Lucio Motta, who handles international sales for Ou, a design-focused plastics company that makes everything from dish racks to ice buckets and pitchers. The 20-year-old company works with about 5,000 stores in Brazil and exports to 20 countries. Ou works with a distributor in the U.S. for the dish rack and also sells to Canada.
America is the "dream market," according to Roseli Schmidt, a member of the export department of Plasvale, which makes products for the kitchen and the laundry room. The company has been exporting for 30 years, mostly to South America and Africa, but Schmidt said she hears that Americans are looking for suppliers from outside China and the company sees an opportunity. It is targeting the mid-market.
Grupo Bettanin, a group of six companies based in south Brazil that offers more than 3,700 SKUs of cleaning, organization and food storage products, works with American grocery stores through three distributors; about 10 years ago it did business with Target and Bed Bath & Beyond. The time is right to try again, said Thiago Vanin, export general manager. "Our product has always been well accepted in the American market" and its perceived value is high, he said.
Nonetheless, attendees of the buying program said there are a few weaknesses that Brazilian companies need to focus on.
Among the challenges of sourcing Brazilian product are the quality of packaging and the dimensions of the product themselves, according to Campbell. "Packaging is always an issue," she said. "The packaging is often of an inferior quality, film and card are often thin. The print quality is poor. Four-color or six-color printing is very expensive.
"Our other main concern is the size or dimensions of the products. They are often made for the local market, which do not correspond to USA sizes. [They are] often too small.
"The vendors have little knowledge of the U.S. market and how competitive it is. This program helped many of them understand what they need to do to enter into the USA market."
ThinkPlasticBrazil's Wydra said that among the group's members are companies that follow international quality standards. "For instance, one of the biggest packaging companies in Brazil, Vitopel, has a factory in the USA," he said. As far as proper sizing of products is concerned, Wydra said most of the companies that focus on the American market have the capability to develop products by demand. Buyers should ask each company about its capabilities, suggested Wydra. ThinkPlasticBrazil can also help connect retailers and suppliers at no cost.
Kohlmeyer said the primary challenge facing the Brazilian manufacturers he met with was international competition, "mainly related to cost, scale and customization."
Brazil's consumer market is protectionist, according to Kohlmeyer, which limits competition and inflates domestic prices. "I imagine it can be difficult for Brazilian factories to realize the benefits of exporting when global pricing dictates that their most profitable segments and sales come from their domestic market," he said.
Scale, or output, was another concern. "Production allocation decisions must be made based on what is best for the company's bottom line, which is currently heavily focused on domestic business," Kohlmeyer said. "Brazil has a particularly large domestic market with plenty of room for organic growth, so it may be some time before market saturation demands the need to venture into international markets to sustain growth."
A "domestic-centric attitude," as Kohlmeyer termed it, may also make original equipment manufacturer (OEM) work difficult for Brazilian companies, because production is geared to the domestic market. Brazilian companies want to promote their brands in the international market, which Kohlmeyer said he readily understood, but the North American market has well-established brands in the food storage and glass categories, among others, so private label work might be a better opportunity. Yet customization may price Brazilian goods too high, Kohlmeyer said.
Addressing these concerns, Wydra said, "Promoting exports is part of our mission and we can help ... find companies able to supply the USA because they have developed strategies to overcome the challenges ... mentioned."
Case Study: Plasutil
Top: Every aspect of the manufacturing process is conducted on-site at Plasutil. plasutil.br.com Above: Plasutil prides itself on its decorating capability.
About 200 miles northeast of Sao Paulo, in the city of Bauru, lies Plasutil, one of the largest plastics manufacturers in Brazil. It specializes in decorated food storage containers, its largest product category, but also offers kitchenware, plates and cups, laundry items, and, most recently, chairs and small outdoor tables. Plasutil's products are BPA- and phthalate-free. It makes one million pieces a day and exports to 42 countries.
The factory is open 24 hours and employs 1,500 people in three shifts. The plant is a model of innovation and efficiency. Everything is done on-site, from product design and development to the making of the steel molds to the warehousing and shipping of goods. This local control helps ensure product quality, increases efficiency and reduces waste.
Plasutil is committed to the health and well-being of its workers. In addition to medical insurance and free transportation to and from work, Plasutil offers free breakfast, lunch and dinner to its employees in a spacious, sun-lit cafeteria, and has an on-campus gym available to workers for a small monthly fee. Plasutil also operates a free on-site day care for children ages one through six. Of the 90 children currently enrolled, 80 percent live in the nearby favelas and the remaining 20 percent are the children of employees.
Plasutil has done business with U.S. retailers in the past (mostly opening price point operations.) It works with a New York-based distributor and wants to expand its U.S. business, with an eye on the specialty chains. It participated in the International Home + Housewares Show in March as part of the ThinkPlasticBrazil consortium, but plans to operate its own booth at the show next year, according to Everson Targas, import and export manager. "We think we have something different to offer - technology and capacity," Targas said.
Brazilian manufacturers are trying to present themselves as a viable manufacturing option to Chinese factories. In making Plasutil's case, Targas said, "We are closer [to the U.S.] than China, we have a better freight cost, and our products - our colors, our decorations - are not Chinese. We believe there is no other company in the world with as many decorated products as our company."
What sets Plasutil apart? "Innovation, innovation, innovation," Targas said. "We invest a lot in new products and new technologies all the time. That's our only way to survive."--Allison Zisko