May 26, 2009 Big Things in Small Packages

Volume 12 | Issue 3

From its infancy as a cottage industry, Sapeka Indústria, a Brazilian diaper company, has grown by leaps and bounds over the past decade.

In 1999, José Alvarenga, a successful business man in the recycling sector wanted to give his son a gift. He did not buy him a plane ticket or a sports car. Instead he gave his son and nephew a cottage industry. The two cousins, Marco Antônio Raimundo and Vitor Hugo Alvarenga, were now the proud owners of a small diaper factory in Goiás, Brazil. A workforce of 45 turned out diapers with machines marketed to homemakers on infomercials. The ambitious young men saw potential in this infant-sized factory and began making changes and improvements right away. Their feel for business certainly paid off and they managed to grow and expand significantly and steadily. Sapeka, which is slang for clever or mischievous in Portuguese, is now a well-known, highly-regarded brand and among the top three producers of disposable diapers in Brazil.

Sapeka has grown, not by baby steps but by leaps and bounds. In 2000, the fledgling company purchased its first industrial-quality equipment which, along with doubling the number of employees, gave Sapeka the capacity to produce 130 diapers per minute. The two owners capitalized on their success and continued getting bigger and better. In 2002, the company built a 5,500-square-meter plant and headquarters. The following year, new equipment tripled production capacity, with the same manpower. Four years later, Sapeka opened a second plant, in Pernambuco state, in Northern Brazil. The 8,700-square-meter facility added an impressive 1,200,000 diapers per day to the company’s production capacity. This expanded space also meant an increase in personnel: the company now had 570 employees. The positive results from this growth fed further expansion and in 2009, Sapeka opened a 6,000-square meter factory in Goiás. Currently, the company has three plants: two in Goiás and one in Pernambuco powered by a workforce of over 700.

This diaper company’s growth spurt shows no signs of easing up. Currently, the company’s factories are running three shifts a day to meet the demand so expansion is in the works. To reach its goal of doubling production by 2010, Sapeka will invest $100 million through 2010. The expansion will give Sapeka a total of 48,000 square meters and 1,000 employees. Like babies, who do more as they mature, Sapeka continues to grow in size and to broaden its scope. It has been manufacturing adult diapers since 2000 and plans to add new products such as sanitary napkins and moist towelettes. Co-founder and executive sales manager Marco Antônio Raimundo tells of plans to begin production of items with a higher profit margin and a limited summer edition line of colored diapers, targeted at beachgoing babies in the Northeast of Brazil. He boasts, “In addition to fashion, we have also improved absorption and added Velcro fasteners.”

NURTURING NATURE
Since its inception, Sapeka has focused on the less economically developed regions of northern and northeastern Brazil. Selling smaller packages with accessible prices allowed it to capture over 34 percent of market share in those areas, accounting for 65 percent of Sapeka’s sales. Raimundo notes that 10 years ago a 24-diaper package was too expensive for most customers in that part of the country so Sapeka marketed 10-diaper packages at competitive prices. Now, due to an expanded middle class in Brazil, Raimundo says, “Smaller packages are still a significant portion of our sales even though it’s losing space to larger packages.” Nowadays, Sapeka is reaching out to these middle class clients in the South and Southeast and recently began producing a package of 96 diapers.

Most of Sapeka’s sales are through wholesale distributors and the company’s products can be found throughout Brazil on the shelves of smaller supermarkets and markets, pharmacies, children’s stores and even in large-scale chain stores like Walmart and Carrefour. A fleet of 50 trucks in the transportation branch of the company, Sapeka Transportes, moves 20,000 boxes of diapers daily from factory to distributors’ warehouses. Raimundo explains that exports – to Paraguay, Angola and South Africa – now account for less than 1 percent of sales, saying the company is “more focused on consolidation.”

Sapeka, the first 100-percent Brazilian diaper producer, is also focused on nurturing members of the community through partnerships with a local cancer hospital, day care centers and a public hospital. Raimundo says that Sapeka donates products to these organizations. It has in-house programs to promote education and well being among its employees and their families who can take advantage of college scholarships and classes about smoking and alcohol.

GLOBAL AFFECTS
The company has been affected by the ebbs and flows of the global economy. Raimundo explains that in 2003 the value of the dollar rose to four times that of the Brazilian real. This made the cost of raw materials – mainly imported – prohibitive. Because 60 percent of supplies were paid for in dollars, costs went way up. Raimundo says: “We adjusted prices and invested in more efficient equipment to improve our cost-benefit ratio.” The company’s owners contracted the services of an engineer to redesign the production line with new, professional quality machines to process domestically produced raw materials. In 2008, another dip in the value of the Brazilian currency caused a 35-percent increase in Sapeka’s costs. But thanks to appropriate development, the company had the base necessary to survive economic rough spots when many more informal companies with non-professional machinery went under.

Raimundo realizes that “2009 is going to be a challenging year given the current economic environment, but we’re optimistic and are sticking to our plans for growth and expansion.” He added that company management expects the crisis to lift in 2010. He bases his optimism in the fact that Brazil saw record foreign investment in 2008 and says, “We’re going to keep faith in our investments.”

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