Xandó wants Vigor to become Brazils number one dairy company

Xandó wants Vigor to become Brazil's number one dairy company

Brazil's Vigor, created when meat giant JBS listed the business last year, wants to be the largest dairy company in the country. Two months ago, Vigor invested in rival Itambé, a deal that enabled it to take the number three spot in the Brazilian dairy sector. However, as Paula Krizanovic discovers, Vigor CEO Gilberto Xandó has grander ambitions for the business.

When Brazilian dairy processor Vigor bought 50% of rival Itambé in February, it said it went from being the fourth-largest in the country to third. However, its ambitions do not stop there.

The BRL410m (US$208.3m) deal was in fact part of a larger plan to be the largest company in Brazil's fast-growing dairy sector.

"With the acquisition of Itambé, Vigor became the third-biggest dairy producer in Brazil, which means we are well on our way to reach our goal to be the largest dairy company in the country," Vigor CEO Gilberto Xandó tells just-food.

Vigor was created when Brazilian meat giant JBS spun off and listed the business last year. JBS still owns just over 21.3% of the business. Vigor's investment in Itambé allows it to expand in markets close to its HQ in São Paulo but also in other regions in the country.

Itambé operates five facilities in Brazil - four in Minas Gerais and one in the state of Goiás in central Brazil - in addition to ten distribution centres.

"Itambé is a traditional brand of milk by-products, with a strong presence in the Minas Gerais market – where its headquarters are – Rio de Janeiro and the north-east of Brazil," Xandó explains. "Vigor's strategy is to expand in the south-east region, since nowadays its activities are strongly concentrated in the state of São Paulo. And Minas Gerais and Rio de Janeiro are regions that are complementary to that goal," These last two states, as well as São Paulo, are located in Brazil's south-east and are some of the richest of the country.

Xandó refuses to comment on whether Vigor would follow up its investment in Itambé with further acquisitions, pointing to its status as a listed company. However, he says: "Vigor's focus is set on conquering more consumer markets in Brazil. At the moment, our goal is to grow specifically in states close to our base in São Paulo, such as Rio de Janeiro, Minas Gerais, Espírito Santo and Paraná."

Brazil's dairy sector is forecast to grow rapidly. According to Euromonitor, in 2012 dairy sales in Brazil were US$29.77bn. It estimates that figure will rise to $46.3bn by 2017.  

Vigor specifically sees potential in added-value dairy products. It has already started to make some modifications of its own. In July, at around at the same time as Nestle, Vigor launched a range of Greek yoghurt. Last month, the company reported a 54% rise in EBITDA in 2012, after a year of focusing on high value-added products, such as yoghurt and cheese.

"With the increase of the local population's purchasing power, products such as yoghurt will become part of Brazilians' daily diet," Xandó says. "Brazilians demand about six kilos of yoghurt a year while in neighbouring countries such as Argentina consumption is 15 kilos per year. This means there's a very big growth potential. We want to offer consumers differentiated options of high added-value, as we did by releasing our Greek yoghurt, a category we started in the country."

Interestingly, at least in the short term, Vigor and Itambé will remain competitors in some of these coveted dairy categories. Xandó stresses there are no plans to merge the firms in the near future. "For the next two years at least, the operations of both companies will continue to be independent from each other," he says. This means they will be rivals in categories such as fermented milk, butter, cottage cheese and yoghurt, in which they operate under different brands. 

Such a scenario does not seem to concern Xandó. "There's a lot more synergy than rivalry between the brands, and we are focusing our efforts on that. And regarding products which are similar, we believe the exchange of experiences will be fundamental to building one of the largest dairy firms in Brazil."

Of course, Brazil will be a country in the spotlight in the next three years with the country hosting the 2014 football World Cup and Rio set to hold the 2016 Olympics.

Xandó says the events will add to an already buoyant consumer goods sector in Brazil.

"We believe the organisation of large worldwide events such as these ones in Brazil will boost an increase in demand of all consumer goods categories and also the foodservice sector," stresses Xandó.

"[They] will contribute to heat up the local economy, a movement that has already begun. The economic situation in the country, with the growth of purchasing power, has already generated an increase in retail sales in diverse sectors, and the food business has not been the exception," he says.

Crucially, Xandó believes the growth of Brazil's economy has led to higher demand for convenience foods. "The category of ready-to-use products has been growing due to a series of factors such as the rising of the middle class, the entrance of women in the workplace, and globalisation," Xandó asserts. "People spend more time outside their home and demand more practical solutions."

Xandó, meanwhile, sees those factors helping drive Brazil's foodservice sector, a channel in which Vigor wants to expand. "[There is] a large possibility to grow in the foodservice area, which is in the middle of a consolidation process in Brazil, as a result of the rise of the C class, that began to get out of the house to dine, as well as the presence of women in the labour market and globalisation," he says.

Vigor, then, has its sights on a range of methods to continue to grow in Brazil's expanding dairy market.