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April 15, 2020
Augusto Bauer, Vice President of Strategy and Business of the AJE Group, comments that they have prioritized the production of essential products such as water and juice. In addition, given the protocol they sent along with other brewers, he points out that beer production is not a priority for the company at this time.
The owners of brands such as Cielo and Volt have reoriented their production and are facing the impact that their main partners are experiencing: the wineries. We talked about this with Augusto Bauer, the company’s Vice President of Strategy and Business Development.
The first two months of the year were very good for the AJE group, a company of the Añaños Jerí family. At a rate of 20% to 30% above projections, the group was preparing for a “spectacular” year, as Augusto Bauer, the company’s Vice President of Strategy and Business Development, says. The pandemic also disrupted their plans and posed new challenges. From adjusting their production to confined consumer demand to monitoring how they supply the consumer through various channels. Its main allies, the warehouses, are closed by 30% to 40%, the executive calculates, which has already impacted its sales. Inside the factories, in the middle of the day-to-day production, there is some peace of mind. For the moment, says Bauer, fortunately no cases of infection have been reported.
How is the company responding to consumer changes due to the coronavirus?
These changes have occurred at the industry level, the trend now is to migrate to more familiar formats and more basic products, all more oriented to consumption within the home. The category of water, which is the star of the portfolio, has increased, followed by bottled juice. Volt (energizer), on the other hand, has decreased in consumption due to social isolation, but Bio (juice based on natural fruits) has increased, despite not having a familiar format, because of its properties.
Given these new demands and changes in the consumer, did they have to make changes at the production level?
Yes, this forces you to redirect your production plan, inventories. We work with demand projections for weeks or months and according to that you refine or adjust your production according to how the new demand behaves.
Within this reordering of the portfolio, have they had to stop producing some?
Yes, we are producing less personal size products in products such as energizers and some in isotonics such as Sporade, whose sales have stagnated. Many of these sales were made on the street, at the cruceristas (vendors at the intersection of avenues and on the street) or shops.
How long have you projected that this new demand will continue?
I think all of May. They have talked about a gradual return, I don’t think this will change all at once when the quarantine is lifted. The demand is going to change as the channels are opened. We don’t know, for example, in the case of the warehouses, if they will all reopen (as they did before the social isolation) or if they will do so gradually. We estimate that May will be similar.
The water category has been the most demanded by the Peruvian consumer in these weeks of confinement. The family formats, according to Aje, have been the most requested.
How has the distribution been in all the different channels? Have they been able to reach everyone efficiently?
We all have been affected by this situation. We are a country where the traditional distribution channel (markets and stores) has a very high presence; 70% of the national consumption. However, as a result of this quarantine we have estimated that there are, at this time, 30% to 40% of stores that are not working (for fear of contamination or shortage) in the country and all this affects the industry. The modern distribution channel is not going to replace this drop in demand, that is why you see that the companies of massive consumption are trying to supply it with e-commerce or telephone sales. On our side, we are trying to promote that these stores or minimarkets reopen, giving them biosecurity protocols so that they feel safe to do so. These are often home-based businesses, one-person businesses, especially in the interior. We are approaching them to help them have the peace of mind that there will be no infections.
What is the impact of this reduction in quarantined mini markets?
The fact that there are fewer mini markets or bodegas changes the mix. For us, the volume of online or telephone sales increases, the modern distribution channel increases, but the traditional one decreases. All this has to do with changes in habits and is not done overnight. The impact on turnover can be 20% or 25% for the group.
You have entered e-commerce, what results are you getting?
Yes, we are working with our own platform (AJEdelivery.pe) and also using others. We are providing services with basic products and you can access all categories. We are also working with other multi-category companies to offer alongside more products than people look for in a typical food basket.
Focused on direct sales for the consumer or for small businesses as well?
For both cases.
Has this situation caused you to rethink your launch strategy?
The Aje group is present in different countries around the world. In continents such as Asia, where the impact has already decreased a little, we have resumed the launch pipeline. In Central America, so far, the effect of the coronavirus has not been as strong, so everything indicates that it will continue. Peru and Ecuador are the countries where sales have been most affected (by the spread of the virus). If we have to launch a product in April, we will put that launch on standby and see when it will be convenient. We monitor this week by week, we have a COVID-19 commission to do it. Whatever has to be delayed is delayed and whatever has to be rushed is launched. We are going to continue developing functional products.
A few weeks ago, a protocol was presented to return to the production of beer with other massive and artisanal breweries.
We have been told that it can be commercialized, but we are not going to produce it, we are very clear about that. Beer production is not authorized at this time. As of today, we don’t know if the situation will change until the end of the quarantine. Our priority is to take care of basic products and of first necessities: waters, juices, hydratants. And, above all, to protect our workers.
Aje, along with other companies that manufacture beer, presented a protocol to the government to indicate that they were ready to resume production of this beverage. They have not yet received a response. Aje says they can now commercialize and that beer production is not their priority.
What measures are being taken to reduce the risk of infection in the plant?
This is something so new that we are learning along the way. We gathered the experience from Asia to adapt it here in Peru and we are being advised by medical specialists from the Cayetano Heredia University to reinforce all the points considered for the protocol. The key is that our medical staff on the ground must be trained. In addition, we are disinfecting buses, taking temperatures in the plant and also our sales force.
Have you reported any cases of infection or suspected infection?
Thankfully, not to date. In Peru there are more than 2 thousand people working in our plants.
Are all Aje workers still part of the company or have you had to resort to suspension or other labor arrangements?
It has not been necessary to use the suspension or licenses. We have sent workers over 60 years old to their homes in quarantine for being high-risk personnel.
Is it too early to re-estimate your projections for the closing of this 2020?
Yes, it is too soon. But I think we are one of the few, in a way, lucky because we are operating. In our case, there is a drop in volume and an impact on profitability, but it is something we will be able to withstand. Fortunately, the months of January, February and the beginning of March were very good; we grew between 20 and 30 percent above the forecast. That has given us a cushion to mitigate the fall a little. It was going to be a spectacular year.
What is your opinion about the 4 phases of economic reactivation?
I think it’s good that this is being done gradually, seeking a balance between economic recovery and control of the pandemic so that there is no resurgence that would lead to a collapse of our health system.
Do you agree with María Isabel León, president of Confiep, who said that the health protocols requested for the reactivation are full of requirements as for a European country?
The health protocols requested must comply with the stipulations of the World Health Organization (WHO).