Tuesday, March 11, 2014

First Day of Team Visits in Chile - Agriculture 2

Our first team day of site visits in Chile was one we were very excited about!  As a team, we had leveraged the BU network and names provided by Pete to set up two meetings with BU alums: Javier Larrain of Coquineria and Jaime Ruiz-Tagle Claro of Cintazul.  Additionally, Tom leveraged his Oracle connections to set up a meeting with a Risk Officer and Relationship Manager at Rabobank, Jorge Torres Montebruno.

Our day began with breakfast with Irene, an employee at Oracle in Santiago, but a native Peruvian.  Irene was kind enough to accompany us on our site visits for the day and assist with any language barriers.  Given her time in Chile and her upbringing in Peru, we also wanted to spend time talking to her directly about her own experiences.

The morning was great as Irene offered some important insights.  Specifically, she mentioned how there is a lack of variety in food / produce offered in Chile.  She said that Peruvians (and other South Americans, specifically Brazilians) were used to having a large variety of produce to choose from year round - she found this to be lacking in Chile.  Additionally, she said the best restaurants in Santiago were all Peruvian and the food scene in general was lacking.  She thought that Chile was clearly a more booming economy and offered a better quality of life for her family, but she missed very much the culture of her native Peru.  Irene also mentioned the growing industry for specialty herbs and supplements grown in the Andean region - specifically Maca and cat claw.  She thought there could be an opportunity there.  Lastly, Irene discussed the difference in food quality and standards from Chile to Peru.  In Chile there is more access to refrigeration, storage and higher inspection standards than in Peru.

Janice was our advisor for the day and we began by walking over to Coquineria which was located a few blocks from the Ritz.  It was another beautiful day in Santiago and we sat down at Coquineria and waited for Javier to join us.  Coquineria is a boutique food store and restaurant.  There are currently two in Santiago.  Javier's wife started the store with a partner (a chef) and Javier has now joined the business full time.  He talked about the fact that this market didn't exist in Chile prior to Coquineria.  It was a previously unmet demand.  The store focuses on importing high end food products from mostly Western Europe, specifically many French foods.  They also sell cookbooks, high end cooking ware and do a robust wedding and catering business.  The store has an attached restaurant featuring many of the products sold.  Javier mentioned that the market in Chile is probably only 4-5 restaurants TOTAL.  He also mentioned he had been approached to open a store in Miami, but wanted to focus on the Chilean market first and foremost.  We had a great time walking around the store and seeing the best selling products - a pre-packaged duck and canned bellini's.  We asked Javier about where his customers shop besides his store, since it is not a full service supermarket… he said they do regular shopping, but would come to him for special products to round out their kitchens.  We learned from Irene, a middle-upper class woman living in Santiago, that her family wouldn't shop at Coquineria except for VERY special occasions.  It seems that it is certainly for a very high end clientele.  We thought the concept was very interesting, as we see a lot of this having success in the United States.  Javier mentioned that his biggest challenge is training and retaining talent.  He said that the service standard is Santiago is not what he would expect and want for his clientele.  He mentioned that ensuring his staff shares his expectations has been an ongoing issue.

After our meeting at Coquineria we stayed there to eat a delicious lunch and could clearly see that quality is a differentiator.  We then had some time before getting in the van to head to Rabobank.  Rabobank Group is a leading global financial service provider.  Their global customers are primarily in the agriculture business.  From Rabobanks' website:

"The food and agribusiness is undergoing a period of dynamic development. The world population is growing rapidly and the agricultural sector is facing the enormous challenge of meeting the growing demand for food. The agricultural sector must not only produce more, it must also do it more sustainably. Rabobank is committed to contributing to this endeavor with our global network and unrivalled knowledge of the players that operate in this market."  

We met with Jorge Torres Montebruno who is a key relationship manager for Rabobank Chile in the Agriculture sector.  He is also knowledgeable of the groups movement into Peru.  Jorge walked us through the key risks in the business today and how his group sizes up financing opportunities and needs.  He mentioned that many of the smaller producers receive their cash flow financing from larger groups like Dole.  Jorge's team is focused on corporate clients in the $75MM-$100MM space.  In Chile, they are working with salmon, poultry and fruit producers / exporters.  They are beginning to cover Peru as well.  In Peru there is less banking competition, so higher net spreads, lower rating (BBB) and higher risks.  He mentioned the fruit industry has suffered a lot over the last 4-5 years and operations and therefore margins have been impacted.  The key contributors to this have been the drought, strikes and the exchange rate. He did mention that berries have been able to weather this storm, as they have higher convertibility and can turn over >1 x a year. He said the bank looks at new technologies and higher conversion ratios as the future--specifically focused on more effective uses of water. 
Once we left Rabobank, we went back to the hotel to meet up with Jaime of Cintazul.  Jaime spent almost two hours with our team and a member of the other Agriculture team.  He was such a wealth of knowledge and someone I'm sure we will continue to be in touch with throughout this process.  Jaime runs a family business spanning MANY different disciplines, however he is specifically focused on fruit and egg production.  They also produce almonds, olives and other items - but we spent most of our time talking about fruit.  Jaime talked to us about Gesex which is an export conglomeration.  Gesex has about 12-15 mid size fruit producers and sells to large players in the US, Asia, Europe and Latin America - namely Kroger and Walmart.  Gesex sells under that brand, but has the producers provide the fruit directly to them in provided packaging.  It is then up to Gesex which fruit goes where and each package is individually coded so the original producer receives the sale.  Gesex collects an 8% fee.  They also help with consultation on quality, technology, better production, etc… The producers ultimately take the risk but don't have to deal with the buyers.  Jaime spoke very highly of this model and said it has been great for his business.  However, it is one with limitations.  He believes there is opportunity for more Gesex like companies for smaller producers, or even for specific products.  Gesex itself, when looking to grow, does not add more producers, rather it asks for more from their group of producers.  The group itself also shares ownership and has about 70% of the company.  The remaining 30% is among the management team.  The management team is a key driver to the success of Gesex.  The team consists of large players in the food business who came in with connections to many of the key buyers.  These relationships are so important that Gesex recently went to the second layer of management and offered retention bonuses.  Lastly, Jaime spoke at length about the challenge of water. 

Overall, it was a great day with a ton of learning.  Our team didn't have a big dinner that night, rather everyone sort of crashed as we prepared to head to Peru the next day!

By: Christine Maloblocki Blanchette

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