Inversiones Nacional de Chocolates S.A.

Carrera 43A #1A Sur 143 P 6
Medellín, Antioquia
Colombia
Telephone: (57 4) 266-1500
Fax: (57 4) 268-2872
Web site: http://www.grupochocolates.com

Public Company
Incorporated: 1920 as Compañia de Chocolates Cruz Roja, S.A.
Employees: 7,738
Sales: COP $2.87 trillion ($1.22 billion) (2006)
Stock Exchanges: Bolsa de Valores de Colombia (Bogotá)
Ticker Symbol: CHOCOLATES
NAIC: 311320 Chocolate and Confectionery Manufacturing from Cacao Beans; 311340 Nonchocolate Confectionery Manufacturing; 311520 Ice Cream and Frozen Dessert Manufacturing; 311612 Meat Processed from Carcasses; 311821 Cookie and Cracker Manufacturing; 311823 Pasta Manufacturing; 311920 Coffee and Tea Manufacturing; 551112 Offices of Other Holding Companies

Inversiones Nacional de Chocolates S.A. (also called Grupo Nacional de Chocolates S.A.) is the parent company of the leading food group in Colombia. It consists of some 40 companies in the food processing sector, which is the nation’s largest industrial sector. Despite its name, the company does not restrict itself to chocolates or sweets but is engaged in a broader range of foods: processed meats, coffee, and pasta, as well as chocolate, cookies, candy, and ice cream. Inversiones Nacional de Chocolates is also one of the three groups that compose Grupo Empresarial Antiqueño (GEA), the largest business group in Colombia. As part of GEA’s complex web of cross ownership, Nacional de Chocolates has stakes in the other two and, in turn, the other two own almost half of its own shares.

THE MAKING OF A FOOD CONGLOMERATE

Like so many other Colombian companies, Compañia Nacional de Chocolates S.A. was founded and based in Medellín, Antioquia, the nation’s industrial capital. While Bogotá, Colombia’s capital, dominates government and finance, Medellín grew to business prominence because the coffee plantations and the gold and coal mines of its department—Colombia’s richest—yielded products for export, and the earnings, in turn, attracted investment both from Colombians and foreigners. The processing of these products required investment in factory machinery, transport, and power plants. From the early 1900s Medellín and its environs came to be dotted with textile, soap, and cigarette factories, metal foundries, tanneries, printing plants, and breweries.

Beans from the cacao tree, although not as commercially important as coffee beans, provided the raw material for chocolate, a native American product that predated European colonization. Alejandro ángel Londoño and his son Gabriel ángel Escobar founded Compañia de Chocolates Cruz Roja, S.A., in Medellín in 1920. This company was formed from the merger of Chocolates de Jesús María López V., Chocolates San Bernardo, and another firm. The name became Compañia Nacional de Chocolates in 1924. Over the next 15 years or so it opened a number of plants in other cities, including Bogotá and Cali. Another similar Medellín enterprise was Fábrica Nacional de Galletas, or Fábrica de Galletas y Confites Noel, founded in 1916. This company added other plants in Barranquilla and Cali. Noel was merged into Nacional de Chocolates in 1933, when it became Galletas y Confites Noel.

Four years later, Nacional de Chocolates bought four other companies. The factories of these four companies were merged in 1959 to create Compañia Colombiana de Café S.A. (Colcafé), which began exporting instant coffee to Japan under the Colcafé name. Another company that would later become part of the food conglomerate was Productos Zenú, founded in 1955 to produce preserved meats. In 1961 Nacional de Chocolates introduced Chocolatina Jet, a chocolate bar which came to occupy more than half of the market in its field.

Shares of Medellín companies were usually traded on the local stock exchange. Share prices were undervalued when, in the mid-1970s, bargain hunting Bogotá business groups began appearing on the scene. To fend off hostile takeovers, Medellín businessmen formed an alliance, contributing funds to support any company threatened by such a takeover. Each member committed to reinvest at least 30 percent of its profits in the group. In this way Sindicato Antiqueño, as journalists called it, developed as a web of enterprises with stakes in one another. The structure was somewhat simplified in 1978, and three holding companies emerged: Suramericana de Seguros S.A. for finance, Cemento Argos S.A. for construction and construction materials; and Nacional de Chocolates for food processing. Sindicato Antioqueño had no legal existence and no headquarters, but monthly meetings coordinated the activities of its members. The group fostered the economic and social development of Medellín and contributed to its educational institutions, which in turn provided the enterprises with managers and technicians.

REORGANIZATION: 1995–2005

By the late 1990s, however, it became increasingly clear to Sindicato Antioqueño’s leaders that the alliance could no longer protect its members from a new threat—globalization. The free market consensus of the decade was bringing competitors into the Colombian economy in the form of both investment and goods, and the syndicate did not have the capital to defend all its members. Integrated steel mills and some of the textile companies were lost or shed. On the other hand, the syndicate invested in eight other countries of South and Central America and explored the export potential of its own firms. Nevertheless, plowing profits back into the syndicate was not providing enough capital for expansion. Carlos Enrique Piedrahita, president of Nacional de Chocolates, compared the process to a dog chewing its own tail. The syndicate began cautiously to solicit foreign capital. Danone S.A., a large French food group, was allowed in 1999 to take a 20 percent stake in Noel’s cookie-producing division, which became a subsidiary. Danone soon raised its share of the business to 30 percent and later to 50 percent.

The syndicate, by 2001, was being called Grupo Empresarial Antioqueño. In the previous year its more than 100 companies had combined revenues of $5.7 billion, employed over 80,000 people, and comprised over 7 percent of Colombia’s gross domestic product. However, GEA’s managers realized that they would always have difficulty raising outside capital as long as its holding companies lacked a well-defined identity. Piedrahita told James Wilson of the Financial Times, “My vision is that Nacional de Chocolates should only have investments in food, or in Suramericana and Argos, not cross-holdings at a lower level.” In practice, however, GEA managers were reluctant to divest noncore assets of the group because they felt their companies were not sufficiently valued by outsiders—partly because of Colombia’s endemic violence and reputation for drug trafficking.

COMPANY PERSPECTIVES

The mission of our company is to progressively create value, obtaining an outstanding return on our investment, surpassing the cost of employed capital. In our food businesses, we are always seeking to improve consumers’ quality of life and the progress of our people. We aim at profitable growth, with leading brands, outstanding services, and excellent national and international distribution. Our activities are carried out with the best human resources, outstanding innovation and exemplary corporate behavior.

The holding company Nacional de Chocolates was, in 2002, renamed Inversiones Nacional de Chocolates S.A. Compañia Nacional de Chocolates, now a subsidiary, had a presence in 14 countries of the Americas. It was the leader among the 24 Colombian enterprises in the production and sale of chocolates and candy, with a one-third share in this sector. In addition to Jet, its products included the chocolate drink Chocolisto. In Venezuela and Ecuador, it had installed local plants and its own distribution systems. In Mexico, it formed a strategic distribution alliance in 2001 with Jugos del Valle, S.A. Outside Colombia, the company was better known for its production of instant coffee, a business that was suffering from low commodity prices, which in turn had a dampening effect on the price that could be charged for the finished product.

Noel, by this time called Industrias Alimenticias Noel S.A., was doing even better than Compañia Nacional de Chocolates. Its annual sales had reached $352 million in 1996, more than double the total in 1992. During this period Noel became the food processing company with the most rapid expansion and up-to-date technology in Colombia. It was restructured into three brands: Noel for the cookies and biscuits, in which it held 52 percent of the Colombian market; Zenú, its processed meats line, with a 46 percent market share of this sector; and Dragus, a new line of candy with 13 percent of the national market. The addition of more advanced automated equipment enabled Noel to trim its number of employees from 5,300 to 3,800. By 1997 it had a presence in Ecuador, Peru, Venezuela, and Central America, and it was exporting to the United States, Europe, and Asia. Strategic alliances with foreign companies included a distribution agreement with H.J. Heinz Co.; a joint venture with Mexico’s Grupo Bimbo S.A. de C.V., Latin America’s largest bakery, to make bread in Colombia; and another with Chupachupa, the Spanish leader in lollipops, to produce candy under the Chupachupa name.

The process of simplifying the groupings within Grupo Empresarial Antioqueño continued into the 21st century. In 2004 GEA entities sold the group’s quarter-share in Compañia Colombiana de Tabaco (Coltabaco)—which dated from 1920—to Philip Morris International Inc. for about $310 million. (Coltabaco, with other agricultural holdings, had been sometimes considered a fourth GEA holding company.) Inversiones Nacional de Chocolates was selling some of its subsidiaries to Argos, while Suramericana was passing on its food sector assets to Nacional de Chocolates, which in 2005 absorbed Inveralimenticias S.A., the holding company that had been established for candy, meats, and Noel’s cookies and biscuits. Nacional de Chocolates’ presence abroad included an instant coffee plant in China, one for cured sausages in Venezuela, and two candy factories in Costa Rica. At least one-sixth of its annual sales was coming from exports.

ANTICIPATING A SWEET FUTURE: 2005–07

By 2006 Inversiones Nacional de Chocolates had reached the point where 80 percent of its assets were in food and beverages. Indeed, it was the only remaining company in this sector listed on Colombia’s surviving stock exchange, in Bogotá. The 40 companies under its banner in 2006 formed one of the largest food groups in Latin America. During 2005 Inversiones Nacional de Chocolates acquired a 95 percent stake in Setas Columbianas, a leading mushroom producer, and Comarrico, a pasta maker. It also repurchased the half-share of Compañias de Galletas Noel held by Danone, for 50 million euros.

KEY DATES

1916:

Founding of Fábrica de Galletas y Confites Noel.

1920:

Merger of three firms creates Compañia de Chocolates Cruz Roja.

1924:

Chocolates Cruz Roja becomes Nacional de Chocolates.

1933:

Noel is merged into Nacional de Chocolates.

1959:

Nacional de Chocolates begins exporting coffee under the Colcafé name.

1978:

The Company becomes a key component of Sindicato Antioqueño, an unofficial conglomerate.

2002:

Holding company Nacional de Chocolates is renamed Inversiones Nacional de Chocolates S.A.

2006:

Acquisitions continue, raising the holding company’s revenues by about $125 million.

Piedrahita felt that Inversiones Nacional de Chocolates had no need of a partner for exports to neighboring countries because of its own business model, which, when interviewed by Michael Thomas Derham for LatinFinance, he called “a capillary distribution system … like an army of ants,” meaning that it had close links with the myriad small stores that dotted rural Colombia. Its distribution arm, Cordialsa, extended to 11 American countries. Its subsidiaries included Novaventa S.A., the 35,000-woman “army of ants” that was selling the products of Nacional de Chocolates and Noel door-to-door. Piedrahita was planning, in 2006, to take this model to Costa Rica.

In 2006 Inversiones Nacional de Chocolates picked up the pace of its expansion, investing about $271 million in Latin American businesses. The main acquisition was Puzuelo S.A., a Costa Rican cookie firm it bought for $119 million in order to raise, with Noel, its market participation to 32 percent in that country. Its purchase of a chocolate company, Good Foods S.A., for $36 million, put the holding company in Peru for the first time. It entered Panama with the acquisition of Blue Ribbon Products S.A., the national leader in processed meats, and Inversiones Saronia S.A. for $19 million. The purchase of Meals de Colombia S.A. placed it into ice cream, yogurt, and juices for the first time, and it also bought Mil Delicias S.A., a manufacturer of frozen products. These acquisitions raised the holding company’s revenues by about $125 million.

Inversiones Nacional de Chocolates was exporting to 66 countries. Its candies were being sold by Wal-Mart Stores Inc. and its coffee in China, in alliance with joint venture partner Mitsubishi Corp. of Japan. It had a presence in 12 countries, with plants in Costa Rica, Peru, and Panama, as well as Colombia. Within Colombia, it was the leader in preserved meats, cookies, candy, chocolate, ground coffee, and pasta. It ranked second in instant coffee and instant beverages. The biggest sector of business was meats, accounting for one-third of sales, followed by cookies and biscuits, chocolates, coffee, ice cream and other ices, pasta, and candies.

Inversiones Nacional de Chocolates’ packaged meats included Hamburguesa Ranchera, Pietran sausages, and Sofia Express ravioli. Products of the chocolates division included Chocolates Jet, Corona Kids, Jumbo Mix, Maíz Tostada, Frutas Expresión, and Maní. Among the cookies and other confections were Antojos, Festival Tin Fresa, Cereales Mini, Navidad Noel, Saltín Noel (Queso y Mantequilla), Saltín Noel Light, and Tosh Frutas. Coffee items included Café Sello Rojo Mocca, Colcafé Premium, and Colcafé Stick Pack (in classic and granulated forms). Frozen treats included Poler Frutas del Bosque, a vanilla ice cream bar with fruit sauce; Bocatto, an ice cream bar; Bocatto Shock Crocante, an ice cream cone; Tosh, an ice cream sandwich; Aloha Xandía, watermelon sherbet; and Heladino Cars, cookies with strawberry or cream flavors and miniature cars enclosed. The pastas were Doria Classic (spaghetti and vermicelli); Doria Verduras (spaghetti and tornillos with tomato and spinach); Doria Huevo (egg-flavored spaghetti and rigatoni); and Doria Kids (macaroni and cheese in the form of animal and human figures).

The inversiones (investments) of Inversiones Nacional de Chocolates, constituting about one-fifth of its assets, were being handled by its subsidiary Valores Nacionales S.A. These included not only shares in Suramericana and Argos but also two big Colombian retailers, Almacenes Éxito S.A. and Makro de Colombia, and the nation’s largest financial-services company, Bancolombia. By 2007 Inversiones Nacional de Chocolates held only about 6 percent of Suramericana and Argos. Suramericana and its affiliates held 37 percent of Nacional de Chocolates, and Argos and affiliates held 7 percent.

Robert Halasz

PRINCIPAL SUBSIDIARIES

Compañia de Galletas Noel S.A.; Companña de Galletas Noel (Costa Rica); Compañia Nacional de Chocolates S.A (88%); Cordialsa; Dulces de Colombia S.A.; Fábrica de Café La Bastilla S.A.; Industria de Alimentos Zenú; Industria Colombiana de Café S.A. (91%); Novaventa S.A.; Valores Nacional S.A (89%).

PRINCIPAL COMPETITORS

Colombiana S.A.

FURTHER READING

Aldunate Montes, Felipe, “Dulce Chocolate,” AméricaEconomía, May 2, 2002, p. 24.

Carter, Jessica, “Café con galletas,” AméricaEconomía, September 1997, p. 50.

Derham, Michael Thomas, “Cleaning House,” LatinFinance, March 2006, pp. 24–26.

Lane, Patti, “The Other Medellin Cartel,” Business Week (International Edition), April 22, 1998, p. 56.

Pazos, Connie, “Hora del Postre,” AméricaEconomía, January 29, 2007, p. 43.

Sabogal, Hugo, “Cirugía grupal,” AméricaEconomía, October 8–21, 2004, pp. 37–39.

Wilson, James, “Divide and Capitalize,” LatinFinance, October 2002, pp. 37–40.