After months of disagreements, Uruguay and Brazil smoothed things over and at the Summit of the Americas, Uruguay promised to provide consensus to lower the Mercosur Common External Tariff, while Brazil gave preferential access to Uruguayan exports from all free zones. The latter especially affected PepsiCo, a firm that from its plant in the Colonia free zone exports beverage concentrates to more than 20 markets. In a conversation with Café & Negocios, the general manager of the Food division for the Southern Cone of PepsiCo, David Kahn, stated that they expect the rules to be generated to make these exports viable with preferential conditions before the end of the year. The manager arrived in Uruguay as part of the activation of Pep+, a transformation of the company’s business towards a more sustainable model that involved the arrival of a fleet of electric trucks and a photovoltaic park, among other actions.
In turn, the executive referred to food labeling and pointed out that through the business chambers they insist on the governments of the region to implement a common criterion. Below is a fragment of the conversation between Kahn and Café & Negocios.
The bilateral negotiation between Uruguay and Brazil to be able to export the products from the Colonia free zone took longer than expected. How did this period of uncertainty impact the company?
We are a company that absolutely respects all the laws and rules that are made in each country. We adapt to the institutional framework that governs each country where we operate. We play as it has to be played, there is no other way to do it; it’s the way we do business, doing the right thing the right way. Obviously we will always seek to unlock those things that are complicating us in terms of business flowing in the right way.
Uruguay is one of the few countries in the world where PepsiCo has its three complete business units: food, beverages (with our bottling partner, FNC) and the beverage concentrate production business, which are very few plants in the world. We found a place that gives us legal security, institutional security and that allows us to have a plant like the one in Colonia that supplies all of Latin America plus other markets.
In the case of Brazil, it was obviously very important to unblock this agreement that had expired and for us it is important because an important part of that volume goes to Brazil. We live it by having the conversations that need to be had with the authorities in the right way and expecting them to do their job. We are super happy that they have done it and that they have signed it at the Summit of the Americas and now we are waiting for the correct rules to be generated so that they can be made viable and we hope that it will be as soon as possible. For us it is important.
In what time will it be resolved?
We know that the commissions in Brazil are working on the regulation and we are waiting for it to be formalized. We expect it to be this year, but we have no committed dates from anyone.
How does this impact in relation to the real income of the company?
I don’t have the exact number. We have not stopped exporting concentrate to any of the markets, except Brazil. We operate on consumer demand, to the extent that our partner was demanding product, we continue to deliver it. We don’t know what’s going to happen in the future but whatever it is is going to be good, it’s going to be better than now.
Does the Uruguayan have a similar consumption profile to the rest of the region?
We have just done a study to plan our next five years, to understand how the consumer in each country works during the day. Understand how our products fit into each consumer space.
In general, taking part of the south of Brazil, Argentina and Chile, the consumer is quite similar due to the European influence, the climate, the consumption of meat. There are certain similarities that are not found in the Brazilian northeast, Colombia or Venezuela.
In Uruguay there is an informed, educated consumer, people know and choose. People look for options that they understand are the ones they want and not the ones that exist, and that is super interesting because it puts industries in the position of having to understand what they want in order to deliver value to the consumer and for them to pay for what the product okay.
For example, this is the only market in Latin America where we have Lay’s without salt. You might think “the Uruguayan population is older or has hypertension”, but if you take the numbers and compare it with other nearby countries, the percentage varies very little, they are the same. The truth is that you are a more informed and sophisticated consumer. In addition, there are a lot of imports here, we crossed the pond and there are much fewer. The supermarket is wonderful, there are products from all over the world and people read the products, understand what they want to eat and make a decision.
This combination means that we have an important portfolio of salt-free products in Uruguay. Of course we are going to launch it in Chile and Argentina and in many markets because people are evolving as the Uruguayan consumer has already evolved.
What consumer trends are taking hold at the local level?
The big trends are: lower sodium, controlled calorie portions, gluten-free and lactose-free. Those are the most relevant, the one to have products with some degree of protein is coming in because people believe that with that they will maintain their muscles, but if you do not go to the gym, the protein will not help improve the muscles. They are not just from Uruguay, they are global trends, but being so connected is receiving them directly through this entry of imported products.
Do business lines of products that offer those features become more profitable?
We don’t see it as a profitability issue, it’s a total business growth issue. They are not necessarily more profitable because many times producing them is more expensive and that bill is not necessarily going to be passed on to the consumer. But if it goes there, you have to go there, otherwise I’m out of the game.
As far as food labeling is concerned, each country in the Southern Cone has its own parameters. Does this complicate the operation?
Yes, it complicates. We have no problem with the stamps, we place the ones that the law says. It complicates from the perspective that for it to have a seal the sodium level is A in Chile, B in Argentina and C in Uruguay; It means to me that in a production plant I am going to have to make specific production runs for each one of the markets and of course that complicates it. We have been very insistent so that the authorities of the countries agree. People are people, it is not that more sodium or less sodium is going to be better or worse than for another. In the end, we are going to respect what is regulated in each of the countries. I wish they were all the same, but they are not.
Did you have conversations at the government level for this initiative to reach an agreement with the countries of the region?
Always through business chambers, not us directly.
How do you see Uruguay in terms of sustainability?
Regarding what I am seeing in the Southern Cone, super advanced and there is no way back. Uruguay does not have a pollution problem, I do not believe that the sustainability agenda is going backwards. I hope that a circular economy will be generated that makes recycling and the use of renewable energy sustainable because it is still very expensive. We are the companies that are investing and allocating the resources so that this happens and the authority has to create the conditions so that this is really sustainable over time.
Your arrival in Uruguay is justified by the inauguration of several initiatives related to your global Pep+ movement. What are these launches?
We inaugurated the first electric fleet that we have in the Southern Cone, but the most interesting thing is that we installed a park of solar panels in our plant, so we have photovoltaic energy that feeds almost 50% of the use of our plant in Montevideo, and during the night , when the plant is not running, it will be loading the trucks. It begins to be a sustainable process where the environment is not damaged in terms of energy use. It is a road that has a very high cost because the electric power fleet is very expensive compared to a traditional fleet. We are doing it anyway and if we don’t buy more it is because there is no availability.
In turn, in the case of Uruguay we have 97% of the waste is recycled and the team is focused on bringing it to 100%.
We also inaugurated the lighting system, where part is natural lighting, part is LED and is supplied by the photovoltaic park. In turn, it has sensors everywhere and where there are no people, the lights go out.
What investment required this transformation of the business model in Uruguay?
I don’t have the exact data, each of these trucks costs around US$60,000, more than double that of a traditional truck. But no matter, PepsiCo is absolutely committed to doing it because it’s the right thing to do.