Nestlé-Garoto case to be judged by Cade again – 06/06/2023 – Market

It is scheduled for this Wednesday (7), starting at 10 am, the judgment at Cade (Administrative Council for Economic Defense) of the act of economic concentration involving the purchase of Garoto by Nestlé. The judgment comes 21 years after the acquisition was announced in February 2002.

The acquisition of Garoto was vetoed by Cade in 2004, since the companies together would have almost 60% of the chocolate market in Brazil. But the Swiss multinational appealed to the courts and in 2005 obtained the right to maintain the operation. In 2009, this decision was annulled and the case should be reopened by Cade.

Nestlé continued to appeal in court against the reopening until, in 2018, the TRT (Tribunal Regional Federal) of the 1st Region stated that Cade should reopen the process, which was only done in 2021. Now, in June 2023, it begins a new trial.

“The Nestlé-Garoto case was emblematic and changed business legislation”, says lawyer specializing in business law Marcelo Godke, partner at Godke Advogados. Before, Cade had up to two years to evaluate a purchase or merger operation that exceeded R$ 400 million. At the time, the purchase of Garoto was announced for R$ 1 billion.

“Now, if the companies earn BRL 750 million, individually or jointly, or if they hold 20% of the relevant market, the deal cannot be concluded in a binding manner before Cade gives the endorsement”, says Godke.

When the agency disapproved the operation, in 2004, Nestlé and Garoto already operated together.

Founded in 1929, with a single factory, in Vila Velha, in the metropolitan region of Vitória (ES), Garoto owns iconic brands such as the Serenata de Amor bonbon, Talento tablet and Baton chocolate.

In these more than 20 years, Nestlé has diversified Garoto’s portfolio, taking the brand to categories such as biscuits, panettone and ice cream. Garoto, until then a popular brand, in turn, helped the Swiss multinational to improve its distribution in small retailers, in the neighborhood, where it has always been stronger than the multinational and than the rival Lacta, controlled by the American Mondelez.

According to sources in the chocolate market, Garoto’s products have always been synonymous with a good cost-benefit ratio, between 10% and 15% below Nestlé’s. But that has ceased to exist since the merger. The prices practiced by the two brands were becoming similar and who lost was the consumer, who no longer had a cheaper option, said the sources.

When contacted, Nestlé did not respond to the report until the publication of this text. Cade stated that it does not comment on ongoing cases.

Last month, on the eve of Cade’s new judgment, Nestlé announced investments of R$ 430 million in Garoto to expand production.

For Godke, it is very difficult for the deal to be undone after so long, a period in which the brands started to be produced at each other’s factory. “In theory, it’s possible, but the operations are already integrated, it’s not easy”, he says.

In the past, it was even considered that Nestlé would sell some brands to continue with Garoto. But now, both no longer dominate the chocolate market, which has seen the rise of cheaper, regional brands.

The expectation is that Nestlé is committed to maintaining investments in Garoto and not buying anyone who has 5% or more of the chocolates market.

According to the consultancy Euromonitor, the 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%).

In 2022, according to a survey carried out by the NIQ consultancy (formerly Nielsen), while food sales as a whole fell by 2.5% in volume, chocolates increased by 4.7%.

What has been pulling this high are the stuffed chocolate bars (“candy bar”) and wafer biscuits covered with chocolate, segments that registered high of 22% and 12% in volume, respectively.

NIQ does not reveal the main brands in each segment, but an example of a candy bar with a competitive price is Trento, 32 grams, by Peccin from Rio Grande do Sul, while the most popular chocolate-covered wafer is Bis, by Lacta.