Garoto factory is one of the 5 largest of Nestlé in the world – 07/06/2023 – Market

Located on the coast of Espírito Santo, in the metropolitan region of Vitória, the city of Vila Velha has two major tourist attractions: the Penha Convent, founded by Friar Pedro Palácios, in 1558, and the Garoto factory, created in 1929 by the immigrant German Heinrich Meyerfreund, with the chocolate shop open to the public.

Controlled by Nestlé, the factory in Vila Velha has become one of the five largest of the Swiss multinational in the world. In all, Nestlé owns 344 plants, 17 of them in Brazil. “On a global scale, involving all manufacturers, the Vila Velha factory is one of the 10 largest chocolate factories in the world,” he told Sheet the legal and public affairs vice-president of Nestlé Brazil, Gustavo Bastos.

The plant, which today occupies an area of ​​130,000 square meters in the Glória neighborhood, north of Vila Velha, employs around 1,500 direct employees and is responsible for a large part of the city’s economy, with 509,000 inhabitants.

Owner of popular brands such as Serenata de Amor, Baton and Talento, Garoto gained the spotlight this Wednesday (7) after Cade (Administrative Council for Economic Defense) finally approved its purchase by Nestlé, an imbroglio that had dragged on since 2004.

The acquisition, announced in February 2002 for R$ 1 billion, was even rejected by the municipality in 2004 (at that time, companies could unite first and Cade would evaluate later).

While the fight with Cade continued in court, Nestlé continued investing in Garoto, which it turned into its “crown jewel”. The most recent contribution, in the order of BRL 430 million for the 2023-2024 biennium, was announced in May. The objective is to expand production by 10%, adapting the plant’s profile to the industry 4.0 concept, with greater automation and robotization to gain efficiency.

In the previous biennium (2021-2022), contributions totaled BRL 270 million.

According to sources that have commercial relations with Nestlé, the significant contributions made over the years in the only Garoto factory served to reinforce, before society and the public authorities, the Swiss multinational’s right to do business. According to these interlocutors, the more investments in the factory, the more difficult it would be to disentangle Nestlé from Garoto.

In the 21 years since the acquisition, however, much has changed. Cade’s negative in 2004 was due to market concentration: Garoto and Nestlé together accounted for almost 58% of sales of chocolates in Brazil, in value. But today companies have much less: 32%, according to Nestlé itself.

“We lost market share, but even so the business continues to be very worthwhile”, said Bastos, who joined Nestlé in 2000 and accompanied the entire “saga” of the company with Cade. “Garoto represents Nestlé’s connection with Brazil.”

According to him, the chocolate market has changed a lot in recent years, with the entry of new brands, changes in retail formats –with cash and carry gaining space– and new consumption formats, with giftable chocolate, for example. “The lost [de participação] It’s a consequence of industry dynamics, we’ve made choices about where to invest.”

The chocolate topping segment, in which Nestlé and Garoto had an 80% share, is no longer a priority for the Swiss multinational, he says. “Nestlé assessed it as unprofitable,” said Bastos. The company, however, still accounts for around 40% of participation in this segment.

When he bought Garoto, in 2002, the brand was more popular than Nestlé, with prices between 10% and 15% lower than those of the Swiss multinational. But that ceased to exist since the merger: the prices practiced by the two brands became similar and the consumer lost, who no longer had a cheaper option.

“Saying that Nestlé lost participation because it increased the price is a simplistic reading”, said Bastos. “The competition increased a lot, in some moments we did well, in others, not so much.”

According to data from consultancy Euromonitor, consumption of chocolates in Brazil reached BRL 22 billion in 2022, an increase of 18% over the previous year (nominal values), with the sale of 336 thousand tons (growth of 7%).

The Garoto brand is Nestlé’s main brand in the Northeast and also in the South of the country. “Today, we differentiate Garoto as a brand for those who like cocoa. In fact, 100% of the cocoa used by the brand is national”, says Bastos. “Nestlé, stronger in the Southeast, is a brand for those who prefer the creaminess of milk.”