June 26, 2009 Candy on a Stick

Volume 5 | Issue 2

For over 60 years, Simas has been a leading manufacturer of candies in the Brazilian northeast. Recently, however, the largest producer of l

Sometimes it really pays off in the long run to lend a hand… or a buck. It certainly did in the case of Orlando and José Gadelha Simas, two brothers from the Northeastern Brazilian state of Rio Grande do Norte. In 1946, upon receiving payment for a personal loan they had made, the Simas brothers up and invested in a small candy factory in the state capital of Natal. Surely, at the time, neither imagined that the artisanal factory, where candies were initially made and wrapped by hand, would one day grow into Brazil’s largest exporter of candies and lollipops.

It certainly took a few decades. It wasn’t until the mid-1950s that Simas acquired its first machines, imported from Europe, which allowed it to produce candies on an industrial scale. By 1970, the company had grown so big that it was obliged to move to a larger factory on the outskirts of town. By the time it attended the first Brazilian Export Fair, held in São Paulo in 1977, Simas had distinguished itself as the top candy manufacturer in the Brazilian Northeast. Clients from Brazil’s South and Southeast took notice as did foreign buyers. Three years later, Simas participated for the first time in the global candy and confectionary industry’s biggest annual trade event, ISM, held in Cologne, Germany. The company’s presence in Germany proved to be a breakthrough moment. Simas received a number of important orders that marked the beginning of what would develop into a thriving export trade.

The timing was propitious. In the 1980s, Brazil entered into the “lost decade,” a turbulent economic period marked by rampant inflation, rising costs, and the opening of the economy to foreign competitors, which forced many traditional industries to sink or swim. Instead of trying to stay afloat in the chaotic domestic marketplace, the company stayed alive by channeling its energies into exports. Despite the difficult economic times, Simas invested heavily in bringing its equipment, technology, packaging and products up to international standards so that it could compete in the global marketplace.

LOLLIPOPS AS A LIFESAVER

“This was a big moment for us,” recalls Luiz Eduardo Simas, assistant director. “We invested a lot in new technology and began to diversify our product lines. The new standards we adopted are normal for today, but at the time, for Brazil, we were in the vanguard.” Up until this moment, Simas was mainly known for its hard and chewy candies as well as it caramels and gum. But in the late 1980s, it also invested in new equipment that would allow it to produce lollipops.

“At the time, there wasn’t much of a lollipop market in Brazil,” says Simas. “But there was a great overseas demand, particularly in the U.S., whose market we were really targeting. Actually, it was with the American market in mind that we built a factory dedicated exclusively to making lollipops. Interestingly, in doing so, we ended up helping to create the lollipop segment here at home. In fact, to this day, we are very strongly associated with lollipops. We were the first in Brazil, for example, to introduce lollipops filled with gum in the center, which was considered a pioneering concept.”

Today, lollipops are Simas’ biggest seller: The manufacturer has more than a 30 percent share of Brazil’s lollipop market. At its 66,000-square-foot facility in Natal, 70 percent of its production capacity is reserved for lollipops. While Simas currently produces 60 tons a day of candies, gum, and caramels, its output of lollipops is over 100 tons a day. This translates into the largest production capacity of lollipops in the country, a fact that gives it a distinctive advantage over the competition.

“As the only industry player based in this region, we’ve become market leader throughout the Brazilian Northeast and North,” points out Simas. “Getting a foothold in the South and Southeast, (encompassing the populous states of Rio de Janeiro, São Paulo, and Minas Gerais) has been more of a challenge due to distance and the fact that we have more competitors there.” In order to compete more efficiently and increase its market share in the enormous markets of the south, several years ago Simas opened a commercial office in São Paulo.

EXPORT ADVANTAGE

At the same time, the company is launching a new offensive aimed at increasing its already significant exports, which currently account for 40 percent of its business. The U.S. has always been Simas’ largest export market, but Central America has proved to be an important source of revenue as well. “Although the Caribbean countries aren’t as wealthy, candies are very inexpensive, so comsumption is very high,” points out Simas. Additionally, a major coup for the company has been its strategy of signing contracts with foreign clients who have their own private labels.

“This is quite different than supplying the conventional market in that we have solid partnerships with these companies and quotas to fill on a yearly basis,” explains Simas. “Clients only make these types of commitments if they trust in a manufacturer’s quality and ability to fill large-volume orders.” In many cases, Simas actually develops customized products for individual clients, who visit the Natal plant and decide upon specific mixes, flavors and fillings, and packaging. American customers, for example, like candies to have aroma. They are also much fonder of acidic flavors than Brazilians whose sweet tooth is legendary. Simas’ willingness to customize has borne significant fruit: Over the last decade, the company’s roster of clients with private labels has become quite impressive. Among the heavyweights are Americans such as Spangle, Hershey, and Walgreen’s as well as Spain’s Chupa Chupa; a global reference when the subject is lollipops.

Over the last several years, these private label contracts have been critical to the company’s weathering recent economic turbulence. Beginning in 2005, the decline of the U.S. dollar put a major dent in the profitablitiy of Brazilian exports. “As a result, the domestic market was flooded with products. The Brazilian market couldn’t absorb so many items and, as a consequence, prices were driven down,” says Simas. “During this period, many of our competitors abandoned exports altogether, but since we had these long term contracts with strategic clients, we stayed in for the long haul. Now with the current ecomonic crisis, the dollar has gone up again, which has benefited our sector. Moreover, since we never abandoned exports, we’re perfectly positioned to increase international sales by 10 to 15 percent. Our goal for next year is to have exports account for 50 percent of our business.”

If recent figures are any sign, Simas’ goals are easily within reach. Last year, the company’s revenues were R$112 million (roughly $54 million), which represented an 11 percent increase from 2007. And, despite the current crisis, during the first few months of 2009 growth rates have topped 10 percent in relation to the same period in 2008. Says Simas: “No other Brazilian manufactuer has the volume or variety that we do. And in terms of lollipops, nobody has as many sizes and flavors.” Indeed, this year, the company will launch several new flavors and fillings as well as giant lollipops weighing 22, 24, and 26 grams (the average is 14 grams). Although, these long-lasting suckers may prove challenging to wrap one’s tongue around, they are certainly an apt symbol for a company that has become an industry heavyweight.

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