Vitopel: Leading BOPP Manufacturer in Brazil and Latin America

Interview with Paulo Rochet, CEO of Vitopel

Let’s start with an overview of the packaging sector in Brazil. What is your opinion about it?

The BOPP sector in Brazil is shared between just few player. We are the largest player in Brazil with about 45% market share. Basically this is a move along the path. We had cellophane paper which was substituted by BOPP films.

We have a broad range films portfolio, such as: opaque films, metalized films, clear films, among others, for different segments. You can have films to be used in packaging for food/snacks, personal care, consumer products, home care, and tobacco segment. So different industries and consumers are using this product. It is a big market with a big potential for growth still remaining. In the future, I think it will be explored even more as a potential packaging material for different segments.

You told us that this is a great potential market and you are one of the leaders in Brazil. As the President, can you tell us what your company does to stay ahead of your competitors? What do you do differently?

That’s a good point. I have been talking to our internal people here about how we differentiate ourselves. Basically, we are in a kind of commodity business, so what drives a customer to buy from us instead of somebody else? In this case you have to be extremely efficient in production and quality, delivering the best product at a very competitive price while providing excellent service. We are in the B to B business so working very closely with customers differentiates us.

Once you build a strong relationship and you have very strong reliability that really strengthens the relationships with customers. This is one of our pillars – to work very closely with customers so that they feel comfortable that they have the best supplier delivering the best product just in time at a very competitive price while providing good service. We have a technology center that works with excellent technicians, always thinking about how to add value to our customers’ business. All of that combined is what differentiates us from other players in the market.

What is the history of Vitopel?

Vitopel is historically a combination of different companies. One company that was based in Argentina owned by Arcor decided to focus on their core business. After that, an operation was bought in Brazil with a site in Mauá. Later on, an operation from Votorantim called Votocel was acquired, so today we have two large sites in Brazil and one large site in Totoral in Argentina that have a good story in this whole process.

Can you tell us about this relationship with other countries?

We mainly focus on the local market because we have such a strong relationship with local customers and the excess capacity we export. Mainly we export to the U.S. and some neighboring countries such as Peru, Columbia, Chile, Uruguay and Paraguay, among others.

You still have a lot to do here in Brazil.

Yes.

What percentage stays in Brazil and what percentage do you export?

We sell about 80 to 90% locally.

What is the growth strategy for Vitopel in 2014?

The BOPP film growth basically follows GDP growth. Normally we have been growing a little bit above average on GDP. Last year we had a growth of 8%; this year we expect to follow GDP or a little higher, I would say 3 to 4%.

At the beginning of this year, sales are above our expectations, which is good. But what I usually say is if there are some restrictions on purchasing power in Brazil, perhaps people wouldn’t buy a car or a sofa, but they wouldn’t stop buying food. They would keep buying biscuits and snacks. This year is good because the World Cup will bring additional consumption. We are not very impacted by changes in economic behavior. It is always a challenge to be in Brazil but it’s not a big concern for us.

What are the biggest concerns for you?

One of our big concerns is protections that we should have for being a local supplier. For example, there are no import duties for imported films; this allows entrance of players from outside of Brazil that are in a different environment. Labor in some regions, such as India, Peru or China, is cheaper. If you look at the labor cost in Brazil, it is amongst the highest in the world. Energy is expensive compared to other countries, and there is a huge tax policy that in most cases is not applied in other countries.

So today there is a big entrance of imported materials due to all these facts and on top of that, there is no restriction on importation. There are no import duties for bringing films into Brazil. That is something we are working closely on because basically we believe that you should protect the local industry and provide more employment rather than buy outside products in which they have different conditions. They are entering the Brazilian market with a very aggressive behavior.

What is your plan for growth with all this competition?

That’s the big challenge we have. To be price-competitive, you have to be extremely efficient in production. We are always challenging ourselves to have the lowest scrap rate and the best efficiency on machines and use energy as efficiently as we can with a very concentrated SGNA control and the best service because that differentiates us. Import is always complex. For example, there are port strikes and quality problems; on the way containers become affected by humidity. If they have any quality problems, customer service is not local. So in this case, local customers still prefer to have local suppliers rather than importers but we have to consider that the price should be competitive. This is a challenge that we have every day. How do we reinvent ourselves to be the best suppliers with a very competitive price while providing quality and service.

How do you see Vitopel developing over the next five years?

I’m always optimistic and I think that five years from now, it will be a much bigger company. Most probably we will be considering the option of consolidating to become bigger rather than to just add capacity. We feel that most likely we will have two big players in South America and we will be one of them.

What are your plans in terms of mergers and acquisition? Can you give us more insight on that?

We are always considering the options of mergers and acquisitions. There are options locally and options outside the country. This market is still fragmented so this is something that we are always analyzing. If there are opportunities, we will explore those opportunities and move forward. We see ourselves as a buyer. To buy you need to find someone who wants to sell but this is something that is in our pipeline.

Do you have your own financial capacity for this?

No, we belong to a private equity fund called Vision Capital, based in London. Vision is a 2.5 billion dollar company with more than 25 operations in different places in the world. They are very aggressive, extremely professional and very easy to deal with. I personally like the way they manage the operation. They empower us and basically what we have to do is work hard to deliver results for sure but they are very easy to deal with and they are very open to explore all possible alternatives to grow.

Do you have a message for potential investors?

Brazil is a country of 200 million people and big changes have been happening in the past years. There has been a move from a credit rating of D and C to B-plus, purchasing power is growing, and people are flexible. I think Brazil is unique because we don’t have hurricanes, we don’t have earthquakes, we don’t have snow, we have a nice landscape and we are self-sufficient in many segments like corn, cotton, hopefully oil, soy beans, etc. There are still many opportunities for growth. What we really should improve upon is having clear rules because investors need to know clearly what is going to happen. Once we start to really have clear rules I see no problems for Brazil. Additionally, better infra-structure and lower tax.

The company is growing and Brazil is growing – maybe not as fast as we would like to but if you look at Sao Paulo it is a huge city with a low employment rate and purchasing power is good. I see things in a positive way. I personally feel that within the next two years, GDP growth will be around 2.5% but after that there is a big chance that we will have much bigger growth which is good. Looking at Brazil in the medium and long-term, I think there is no question that this is a great country to invest in. I have no doubt about that.

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