PERU: Alicorp improves profits, slashes debt

Consumer spending in Peru declined over the past year, eating into the sales and profit margins of most food processing companies. In spite of declining sales volume, one of Peru's leading food processing companies, Alicorp, increased its profit margin this year by streamlining production and distribution. The company started to cut its debt in the first half of this year and expects to pay off a total of US$30m in debt by the end of this year.Alicorp launched several new and improved products this year, including an enriched vegetable oil sold under its Primor brand name. Alicorp basically relaunched the Primor brand with a new logo and label. The new vegetable oil formula includes Vitamin A, which is lacking in the diets of many mid to lower income Peruvian households. Alicorp brands currently control 58% of the Peruvian cooking oil market, and the Primor brand alone has a 32% share. Over the past two years, cooking oil production in Peru has risen. During 1999 alone, production increased 10% compared with 1998, reaching a level of 180,000 metric tonnes.This year Alicorp also launched its AlaCena brand mayonnaise, which gained widespread consumer acceptance and a 45% market share in less than 6 months. In light of the initial success of AlaCena mayonnaise, Alicorp management recently announced that the company will convert AlaCena into a "megabrand" including a variety of new food products.The company's sales declined 5.9% in the first half of this year relative to the same period in 1999. At the same time the profit margin rose by 15.6%, making it possible for Alicorp to reduce its debt by US$10m. During the fourth quarter of this year, Alicorp expects to pay off another US$20m in debt. The company's improved debt to equity ratio could come in very handy as Peru enters a period of political volatility that could destabilise the national currency and further depress food expenditures at the national level.