Electric ignition stoves and two-door refrigerators may not raise any eyebrows in Europe or North America, but in the rest of the world, these are features that many low-income families have only dreamed of having. Esmaltec S/A is specializing in bringing quality features to affordable domestic appliances. Christopher Van Buren tells the story.
In Brazil, as in much of the world, kitchen and domestic appliances are often painted with white enamel. As such, they are grouped together under the term “white line” or linha branca, indicating a “basic” line of domestic appliances. For years now, Brazil’s white line manufacturers have been putting out economical solutions for the mass market with little attention paid to special features, like lights inside ovens and ice makers in refrigerator doors. These features were available only in imported and high-end products; very few special features were available in low-end and mid-range products. Of course, that has paralleled the very small middle class in Brazil. Now that the middle class is growing, a new era of white line manufacturing is also on the rise.
For the past five years, one company, Esmaltec S/A, has been investing heavily in renovating its products. After $60 million and an all new factory in the northeast region, Esmaltec is ready to occupy space in kitchens throughout Brazil with new products aimed at more sophisticated low-end and mid-range markets. With sales of $400 million, the company is off to a good start.
Annette de Castro, Director of Esmaltec, is focused on both design and production improvements to offer better products to the domestic market, which has more and more purchasing power every year. “In these past four years, our market share in ovens went from 12 percent to 28 percent. This is from increased productivity and investments in our market with a lot of work in processes, organization, design, and marketing.”
DESIGN AND PRODUCTION
Esmaltec has been building its lines of ovens, refrigerators, water dispensers and freezers while increasing its marketing efforts in each of these areas. “In ovens we have almost 30 percent market share in Brazil and 5 percent of the refrigerator market. We had a refrigerator line in the old factory, but now we have increased it and added better quality and accessible prices with low energy consumption, just like all our products. We also have water dispensers and, in the freezer line, we’ll enter the market with more commercial products for commercial customers, like ice cream stores.”
All together, Esmaltec produces more than 300,000 products per month in its shiny new 700,000-square-foot factory and de Castro is ready to bump it up. “We have two shifts [in refrigerators] for the Brazilian market and this will increase. We can increase our capacity in the second shift.” Esmaltec perfected its production line processes, reducing waste and improving cost-benefit. The company combines a number of production philosophies in an eclectic management system that includes just-in-time manufacturing and lean management. “In the North, our company has always been practical—close to the big suppliers. We are very horizontal; we work with companies all around us. We are now working with lean and augmenting production.”
Other big changes at Esmaltec have occurred in product design updates, getting products ready for a more feature conscious consumer. “Now ovens are difficult to light. You need three hands to light them; so we created a new oven with a low-cost electronic ignition. In these four years, we’ve bettered our designs in all lines, always to provide more value to the customer. We worked internally to reduce costs, increase production and improve market share. We practically doubled in four years, in ovens and now in refrigerators, where we were once not very strong.”
In the midst of product innovations and improvements, De Castro stays focused on the company’s primary strengths. “We are known as a company that makes practical products and we maintain products for low-income consumers. But even with inexpensive products, people want better design, so we aggregate value in our products. For example, we have automatic ignition even in our low-coast ovens. We’ve changed from one-door to two-door refrigerators and are also adding frost-free technology. And we are working on lowering the energy consumption of all our products.”
De Castro has also introduced commercial lines in water dispensers and freezers, augmenting the capacity of Esmaltec’s basic designs to serve industrial needs. Esmaltec is improving its services and offers customized casings for its commercial partners, adding product images and logos to the finished enamel coatings. “We have the potential to increase this line with the growth in our economy and we are one of the only companies in the North with this capacity and know-how.”
GAS OF A COMPANY
Like most of Latin America, natural gas appliances in Brazil run off propane tanks that are delivered door-to-door from a number of regional distributors. Flat-bed trucks haul the tanks down even the narrowest dirt roads to bring gas to the people of Brazil. The standard-size silver tanks, called butijões, hold enough propane to provide an average family of four about 45-60 days of cooking time. Restaurants typically use a larger version that holds six times the amount of gas and most busy restaurants have six or eight of these tanks hooked up to its stoves. If you add up all these stoves all across Brazil, you end up with an incredible number of tanks.
Esmaltec started in 1963 as the second company in the Grupo Edson Queiroz. The first company, called Tecnorte, produced propane tanks. In 1963, the company produced almost 65,000 tanks and grew to 1.5 million tanks by 1982. With all that capacity to provide gas to the people of the Northern Region, Grupo Queiroz saw an opportunity to increase the market, and started Esmaltec, to produce metal stamped and enamel coated ovens that hooked up to the Tecnorte tanks. “At that time gas was not really used a lot,” remembers de Castro, “so we created something to help people consume the gas: ovens.”
Esmaltec began with 122 employees and a single oven design. By 1966, the company was making 100,000 ovens per year and exporting to Africa and Puerto Rico. In 1980, production reached 450,000 units and grew to 600,000 in 1982. Then the company began to diversify and created a series of brands, like Alvarado, Panama and Columbia. Soon after that came enamel kitchen sinks, refrigerators and freezers. Finally, the two companies merged and Esmaltec S/A was stamped out and given a fresh coat of enamel.
“We consolidated in the North/Northeast regions with economical products of high quality. We had to be national, not just regional, so we worked on extending our brands and creating points of sale. This was our greatest investment, helping the points of sale get to know our products and value them. Now we are considered one of the best in Latin America.”
Esmaltec uses TV, magazine and newspaper ads to pull products from the stores and increase its brand penetration. The company also uses sales contests to create incentives at the point of sale. Esmaltec has forged strong relationships with Brazil’s large home appliance chains, such as Casas Bahia. The commercial lines have their own clients: Coca-Cola, Schin Cerveja, and other AMBEV companies. “These companies are looking for price and service. We have a system for servicing these clients. We have 600 service centers and we are implementing an online system for tracking in the commercial area. We also have in-store service in some chains for our domestic lines and our own service centers. We have to look for ways to make a difference. Our creativity has to go beyond our competition. We are highlighting the service area.”
Internationally, Esmaltec has doubled in the past four years and currently exports 20 percent of its products. “This could have been more,” laments de Castro, remembering the refrigerator wars
between Brazil and Argentina that led Argentina to tax Brazilian domestic appliances. “We have focused on Latin America and Argentina, but with difficulty in Argentina from taxes on Brazilian products, we opened distributors in other countries, includingMexico. Today we have about one-third of our exports in Latin America, one-third in Africa and one-third in Northern Europe and Russia. We don’t work with North America at this time. They have different products and they are not part of our profile.”
Even if Esmaltec’s design and production enhancements are not big news for the North American and European markets, they are very important to a great many consumers in Brazil and around the world. Perfecting the low-end of white line products is what Esmaltec does best.