Arcor S.A.I.C. Business Information, Profile, and History

Company Perspectives:

We want to become, in the next few years, the number one candy and chocolate company in Latin America.

History of Arcor S.A.I.C.

Life is sweet for Arcor S.A.I.C., the privately held firm that has grown to become one of Argentina's two biggest food companies, manufacturing more than 1,500 products. Although Argentina's fertile pampas are noted for their yields of wheat, corn, beef, and, more recently, soybeans, Arcor has achieved its success by making candy, cookies, chocolates, and other sweets, then selling them to customers in more than 110 countries. The company leaves little to chance or outside suppliers, producing its own glucose, flour, dough, cornmeal and corn oil, milk, sugar, marmalade and other preserves, tin cans, corrugated boxes, and plastic film for packaging. A multinational company with factories in several South American countries, Arcor views the whole world as its market.

Candy Factory to Multinational Operation: 1951-90

In 1924, Amos Pagani, a young Italian immigrant, settled in Arroyito, a small town in the province of Cordoba, in order to install a bakery. His five children were put to work making caramel when they reached age ten. Fulvio Salvador Pagani, the second-born, proved the most energetic and daring of the children. In 1951, in partnership with a group of investors that included two of his brothers and members of the Maranzana, Seveso, and Brizio families, Fulvio built a small candy factory in Arroyito. Seven years later, Arcor (its name formed from Arroyito and Cordoba) was producing 60,000 kilos (132,000 pounds) of sweets per day. Its principle was to assure the best quality at the lowest price by supplying itself with its own raw materials. Argentina's closed economy made it difficult to obtain supplies at competitive prices, so Arcor inaugurated its program of vertical integration by constructing its own glucose plant.

Arcor began, in the 1970s, to build its own plants to satisfy its needs--not only for raw materials but also for packaging and energy. In 1970, the company opened a plant in Tucuman; in 1972, one in San Rafael, Mendoza; in 1975, a third in Villa del Totoral, Cordoba; the fourth, in 1978, in San Pedro, Buenos Aires; a fifth, in 1979, once again in Villa del Totoral, for plastic packaging; and in 1980, the sixth, in Parana, Entre Rios. The company also launched operations in neighboring countries: Paraguay in 1976, Uruguay in 1979, Brazil in 1981, and Chile in 1989. Arcor had grown to Argentina's 70th largest company in 1980, with sales of 268.35 billion pesos (about $140 million) and advanced to 46th in 1985. Fulvio's son Luis recalled in a 1998 issue of the business magazine Mercado that the key to Arcor's growth in this period "was the reinvestment of profits and the addition of the most modern technology. We invested strongly in technology during the Eighties. When we saw an opening, we were prepared to compete head to head with the multinationals."

Rapid Expansion in the 1990s

At the beginning of the 1990s, Arcor built a plant for chocolates in Colonia Caroya, Cordoba, that was the largest of its type in Latin America and supplied almost half of the Argentine market. The company also constructed a gas pipeline to its Arroyito plant. After Pagani died in an automobile accident at the end of 1990, he was succeeded by his brother-in-law Hugo D'Allesandro, while his eldest son, Luis Alejandro Pagani, was sent to the United States to study business. Luis Pagani assumed the chairmanship of Arcor in 1993. The inauguration of a new corrugated-box factory in Lujan, Buenos Aires, helped consolidate the national leadership in this field of Cartocor S.A., one of the companies that had been integrated into Arcor. Arcor also established a division of foreign commerce with its own marketing department, which encouraged marketing directors in each of the principal markets to create a network coordinating individual strategies according to the country, the consumer, and the brands most sold.

In 1994, Arcor acquired 90 percent of Aguila-Saint S.A. (in full, Cafes, Chocolates Aguila y Productos Saint Hnos. S.A.), a century-old Buenos Aires manufacturer that had been selling confectionery chocolate to Argentine households for generations. The purchase brought with it another chocolate brand, Cabsha. By the end of the year, Arcor was a giant, with sales that year of 718 million pesos and profit an enviable 94 million pesos (with the peso at parity with the dollar). The company competed in 20 categories of candy and chocolates, ranking first in 14 and second in the other six. Exports accounted for about 123 million pesos, or more than 15 percent of sales. Arcor also abandoned its low institutional profile and began a media advertising campaign, including commercials on CNN to reach Hispanics as far north as Mexico.

By now, Arcor's products were being sold in 60 countries. Nechar Alimentos Ltda., the Brazilian caramel, chewing gum, and comfit producer Arcor purchased in 1981, now ranked third in its field, its output having grown more than 30 fold. Nechar was producing chiclets for the entire Western Hemisphere, while in Uruguay Arcor specialized in suckers. In 1995, the company purchased Noel, an Argentine manufacturer of preserves and jams with more than 100 years of name recognition, and opened a state-of-the-art cookie-and-cracker factory in Salto, Buenos Aires. The following year, Arcor established a Peruvian subsidiary, Unidal, which built a candy plant not only to serve the local market but also to export the company's products to neighboring Bolivia, Colombia, Venezuela, as well as to China.

Arcor's sales passed the one-billion-peso mark in 1997. It was the national leader in the production of chocolates, caramels, marmalades, cornmeal, corrugated cardboard, and flexible packing, second in chewing gum and corn oil, and third in cookies. Pagani was aiming for Arcor to be number one in all Latin America in candy and chocolates and saw the company reaching as far north as Alaska by 2005. Some 33 plants were turning out a thousand products. The company was spending 60 million pesos a year on market research, the development of new products, advertising, and promotion. A network of 230 distributors working exclusively for Arcor guaranteed that its products would reach 200,000 points of sale throughout Argentina each week. The company had 35 accounts spread over four advertising agencies.

During 1997, Arcor acquired the Argentine cookie firm LIA and the Brazilian manufacturer of propylene film Koppol. The same year, Cartocor built its fourth plant for corrugated board. In early 1998, the company purchased, for about $200 million, the Chilean candy company Dos en Uno Ltda., including its plant in Argentina and its commercial operations in Brazil, Colombia, and Peru. Dos en Uno ranked second in Chile in chewing gum and chocolates, second in caramels, and third in cookies. Arcor now had 37 plants (30 in Argentina), was employing more than 13,000 people, and was the world leader in caramel production. Also in 1998, the company's revenues reached a record 1.2 billion pesos, and its products were selling in 82 countries.

Other Argentine companies in Arcor's field had been acquired by multinational giants such as Nabisco Holdings Corp., Group Danone S.A., and Cadbury Schweppes PLC. Arcor responded by shifting its focus from low-margin bulk products to ones that could be sold at premium prices for their quality and variety. It also found a relatively cheap way to penetrate the U.S. market by producing private-label candies for Wal-Mart Stores Inc. and Sara Lee Corp. When Brach Confections Inc., the seventh-largest U.S. candy manufacturer, closed its Chicago plant in 2001, it contracted the output to Arcor's Arroyito complex, paying $40 million a year for 30,000 tons of hard candy and chocolates.

Arcor in the New Century

As the 20th century neared its end, Arcor made a major foray into the Brazilian chocolate market--the largest in Latin America--by constructing a $50-million factory, the most advanced chocolate plant in the region, in Braganca Paulista, outside of Sao Paulo. The new factory opened in 1999, but the expense had contributed to Arcor's swelling debt of $310 million as Argentina's economy had fallen into recession, causing company sales to decline. When the Argentine government was unable to pay its own debts in late 2001, the peso was devalued and the national economy suffered a severe blow. Arcor incurred a loss of 122 million pesos (about $37 million) that year but remained current on its interest payments on bank loans and even raised wages for thousands of its employees in the wake of the 40-percent-a-year inflation that resulted from the peso devaluation. Largely because Arcor's net debt of $290 million was all in bank loans--and not in bonds that would have to be redeemed--Pagani was named chief executive officer of the year by LatinFinance. Sales rose slightly in 2003, when exports accounted for 24 percent of revenues, and the company was again in the black, earning 85 million pesos (about $29 million). Some of its plants had closed by this time; in 2003, there were 31: 25 in Argentina, three in Chile, two in Brazil, and one in Peru.

Arcor's industrial complex on the outskirts of Arroyito was a virtual city within a city. The company's primary candy factory consisted of hard-candy manufacturing in one building and the production of chewing gum, nougat, and other candies in two other buildings. Sharing the complex was a plant for the production of various corn products, including fructose and glucose, and the company's main distribution center for Argentina. Here, Arcor was also manufacturing paper and cardboard, chemicals, distilled natural oils, essence oils, menthol, and powdered flavors. The entire site was being powered by a gas turbine.

Arcor's plants in San Rafael, Mendoza, and San Pedro, Buenos Aires, were among the foods division's principal plants for a variety of products. The foods division also included Alicia S.A., which was making powdered products, puddings, desserts, jellies, cakes, juices, cocoa, and ice cream in Recreo, Catamarca; Frutos de Cuyo S.A., processing and packing vegetables in San Juan; Dulciora S.A., producing marmalades and sweets in Villa Mercedes, San Luis; Metalbox S.A., making tin cans in Villa Mercedes; and Alimentos Indal S.A., processing foods and candies in Los Andes, Chile.

The Arcor candy plant in Arroyito--at 78,000 square meters, the largest in the world--and the one in La Reduccion, Tucuman, made up two of the candy division's three facilities. The third belonged to Candy S.A., in Recreo. These units made caramels, chiclets, nougats, cakes, solid and jellied candies, and lollipops. The Arcor plants in Arroyito, Villa del Totoral, and Salto composed three of the four in the cookies division. The fourth was Carlisa S.A.'s plant in Recreo., turning out sweet rolls and nut-and-honey bars. This division also produced crackers, wafers, dried, filled, and coated sweets as well as puddings and salty snacks. The chocolates division had plants in Colonia Caroya and Braganca Paulista. Production included bonbons, dried fruits, icing, chocolate bars, and Easter eggs. Arcor's Bon-O-Bon, a chocolate-covered candy, was the leading chocolate confectionery product in Argentina. The Cofler and Tofi brands were engaged in the highly competitive chocolate-tablet market. Other Arcor brands included Saladix (snacks), Topline (bubble gum), Rocklets (candy), and Whispers (milk chocolate).

All of the basic and raw materials assembled by the agroindustry division--sugarcane, milk, glucose, fructose, and ethyl alcohol-- came from Arcor plants in Arroyito, San Pedro, and Rio Seco, Tucuman; a sugar refinery in La Providence, Tucuman; a glucose plant in Tucuman; and some 160,000 hectares (about 400,000 acres) in the states of Salta, Santa Fe, and Santiago del Estero, where some 40,000 heads of cattle grazed. Productos Naturales S.A. was the unit producing flavors, seasonings, and oils. Cartocor S.A. had plants for cardboard and paper boxes and sheets in Arroyito, Parana, and Lujan. Vitopel, S.A., a packaging subsidiary, was the biggest such in Argentina. Founded in 1979, it was located in Villa del Totoral, where it was making bi-oriented polypropylene film for flexible packaging. Both Cartocor and Vitopel were producing for other customers besides the parent company. Vitopel ranked first among Argentine plastic-products manufacturers; Cartocor was third in cellulose and paper.

Principal Subsidiaries: Alicia S.A.; Alimentos Indal S.A. (Chile); Arcor do Brasil Ltda (Brazil); Arcor de Chile (Chile); Arcor de Peru S.A (Peru).; Arcor U.S.A. Inc. (United States); Candy S.A.; Carlisa S.A.; Cartocor S.A.; Dulciora S.A.; Frutos de Cuyo S.A.; Metalbox, S.A.; Productos Naturales S.A.; Vitopel S.A.

Principal Divisions: Agroindustry; Arcor do Brasil; Arcor de Chile; Candy; Chocolates; Cookies; Flavors; Foods; International; Paper and Cardboard.

Principal Competitors: Bagley S.A.; Cadbury Stani S.A.I.C.; Kraft Suchard Argentina S.A.; Nestlé Argentina S.A.

Chronology

• Key Dates:
• 1951: Arcor is founded as a small candy factory.
• 1958: The company is producing 60,000 kilos (132,000 pounds) of sweets per day.
• 1980: With six plants in Argentina, Arcor is the nation's 70th largest company.
• 1989: Arcor now has operations in four neighboring South American countries.
• 1993: Luis Pagini, the founder's eldest son, becomes chief executive of Arcor.
• 1994: Arcor ranks first or second nationally in 20 categories of candy and chocolate output.
• 1998: Arcor's annual sales peak at $1.2 billion; 37 plants are in operation.
• 1999: Arcor opens a $50-million chocolate factory in Brazil.
• 2002: Pagani is named chief executive of the year by LatinFinance magazine.