After flirting with disaster in the 1990s, Cremer, Brazil’s leading manufacturer of textile and adhesive healthcare products is experiencing unprecedented growth and profits. Michael Sommers discovers the company’s prescription for success in the country’s notoriously fragmented health market.
In 2010, Cremer will celebrate 75 years of existence boasting an amazing bill of health that any business its age would envy. Based in Blumenau, a city located in the southern Brazilian state of Santa Catarina, the company is the leading manufacturer of textile and adhesive healthcare products in the country. More recently, Cremer has also become Brazil’s leading distributor of disposable healthcare products made by other manufacturers. Last year, the company earned gross revenues of R$426 million (roughly US$213 million) and gross profits of R$104 million (roughly US$52 million), representing compound annual growth rates of 15.2 and 11.9 percent, respectively, since 2006.
SERVING CUSTOMERS DIRECTLY
Viewing such robust results, it’s hard to believe that only a decade ago the company was at death’s door. During the 1990s, Cremer’s weak capital structure led the company to experience a severe financial crisis that came to a head in 1997. Faced with the option of sinking or swimming, the company chose to stay afloat by completely restructuring its administrative and operational processes, while selling off its disposable diaper product line. It also made the key decision to let its clients buy directly from the company instead of from third-party distributors.
“This direct sales strategy, which we inaugurated in 1999, was a major milestone – both for the company and for the market in which we operate,” explains Luiz Antonio Sacco, Cremer’s commercial director, alluding to the fragmented state of Brazil’s health market, which currently consists of over 6,000 hospitals and 55,000 pharmacies scattered throughout the country. “In order to provide better service to so many clients, it was necessary to create much closer relationships with them – an objective that was impossible when clients purchased our products through distributors. When we got rid of the intermediary, we had significant gains in terms of quality and efficiency of service, not mention our ability to cut costs and lower prices.”
Instead of using third-party distributors, Cremer created its own distribution centers – there are currently 11 of them strategically located throughout Brazil. As a result, today the company can provide rapid service to clients anywhere in the country. In most cases, products are delivered within 24 or 48 hours of the initial order.
Although Cremer wasn’t the first in the segment to launch direct sales, it was a pioneer in the creation of a state-of-the-art call center where 200 operators receive more than 10,000 calls and fill an average of 1,200 orders a day. Moreover, the company invested heavily in technology that allowed it to create very precise customer data bases. “As a result, we became very dynamic,” says Sacco. “The minute clients from anywhere in Brazil call our 0800 number, we have their entire purchase history in front of us and we’re prepared to give them whatever they want.”
POSITIVE CYCLE OF GROWTH
Traditionally, clients’ wants had been fairly straightforward. When it was founded in 1935 by a group of Blumenau doctors and businessmen in conjunction with Werner Siegfied Cremer, a German immigrant who already manufactured hospital products in the neighboring state, the company specialized in textile products made primarily of cotton, such as bandages, gauze, and cloth diapers. It wasn’t until the 1970s that the company decided to branch out into other segments. In 1970, it inaugurated a factory specializing in adhesive products (which was replaced 1994 by a more modern facility). The year 1974 witnessed the creation of Plásticos Cremer, a subsidiary that started out making plastic covers and reels for the company’s adhesive products and then, in an attempt to diversify, ventured into the manufacture of plastic components for textile and electronic industries.
However, once Cremer went into the distribution business, it decided that as long as it was selling its own products, it might as well extend itself even further by distributing and selling other manufacturers’ products that complemented the company’s preexisting mix. The advantages were numerous. “Since we distribute all over Brazil, many manufacturers are interested in working with us. Because our volumes are much greater, they can be assured of the fact that they’re going to sell more,” explains Sacco. “Meanwhile, larger volumes also mean that we can offer more competitive prices to our clients and to the final consumer, which in conjunction with our customized services, guarantee that they will continue to deal with us. Ultimately, this ensures a positive cycle of growth.”
Historically, Cremer focused its marketing efforts mainly on two segments: hospitals (both public and private as well as medical clinics and clinical analysis laboratories) and retail (pharmacies, supermarkets, and stores specialized in baby products mainly because of its distinguished cotton diapers, which are still extremely popular in Brazil). However, since entering the distribution business, it has not only extended its mix with respect to the aforementioned segments, but it has also entered the dental market, targeting both dental clinics and dentists. “Ninety percent of the products we sell in the dental segment aren’t made by us, where we’re experiencing growth rates of 50 percent a year,” says Sacco, pointing out that Brazil has 210,000 dentists. Indeed, in a remarkably short time, Cremer has consolidated itself as one of the segment’s top distributors.
A PROMISING FUTURE
In the meantime, in 2004, the company shored up its finances by selling 81 percent of its capital stock to Merrill Lynch. The move allowed Cremer to restructure outstanding debts while receiving an injection of capital. With a new management team in place, in 2007 the company raised around R$500 million with an IPO on the São Paulo stock exchange (Bovespa). By the time the global financial crisis hit last year, Cremer was on such firm footing that it continued to experience impressive levels of growth. By closing its nine months of 2009, Cremer experienced growth rates of 36.6 percent in terms of net income and 15.2 percent in terms of net revenues in comparison with the same period of 2008.
Meanwhile, the future looks promising. “The healthcare segment is in transformation and there is room for growth,” says Sacco, drawing attention to the fact that while the population is aging, healthcare expenditures have been increasing. He also points out that while there are hundreds of healthcare product distributors and manufacturers in Brazil, the majority are small that operate regionally. “In the end, very few players in this market meet our characteristics: our size, coverage, infrastructure, logistics, and quality of products. Because many of our clients are modernizing their businesses, it’s critical that they can rely on a partner like us.
“Although we’ve been building a strong and traditional brand in the healthcare industry during the last 75 years, we’re very much focused on the future,” adds Sacco. “Customers are demanding business consistency with suppliers. To support their needs efficiently, we are focused on continuous innovation and development of quality products that can offer a cost-benefit advantage, process integration and fulfillment for customers and solid long-term relationships with them. All of these are part of our strategy to keep Cremer’s brand differentiated among other players while continuing growth and gaining share in the coming years.”