With 1.2 thousand salespeople on the streets, Fertilizantes Heringer gets rid of inventory and pulls ahead of the competition
There is nothing more frustrating than watching a bad movie with a bad ending. Fertilizantes Faced with an obscure plot with an uncertain outcome, due to the global crisis, Heringer took a starring role. It wanted to at least try and produce its own "the end". With share prices at rock-bottom – R$ 2.30, as compared to R$ 17 at the company's trading floor debut in 2007 – and a scenario of collapsed market demand, the company sent out its elite troops with a single order: sell. "The scenario was bad and so was the outlook. Credit was scarce, there was too much supply and too little demand", says Wilson Rio Mardonado, the company's controllership and investor relations director.
In line with the company's need to "relieve" its storerooms, the sales team carried out the strategy to perfection. It swarmed out into the field to sell fertilizers for different agricultural applications. Mardonado repeats a cliché: "We've always had an excellent relationship with our customers". Then he immediately explains that in the rural world, salesman-customer bonding makes a world of difference. "It's a relationship of trust." "With this brutal global crisis, rural producers have become more cautious when buying for future crops", he says.
The onslaught worked, enabling Heringer to reduce its stocks by 17.7% to 5.1 million tons by June as compared with the same period last year, according to information released by the company's CEO, Dalton Carlos Heringer, in a teleconference with analysts. We should mention that, in rural areas, the relationship between the salesperson and customer eliminates the need for most of the formalities seen in the corporate universe. The dealings are more face-to-face, including a good amount of friendly chitchat and, why not, a break for some coffee. "The people know each other personally, and sales representatives are more than just a salesmen", Mardonado says. Moreover, business usually is passed from father to son and often involves more than one family member.
The tactics employed by the company – which started out as a family-run business set up with Brazilian capital – proved effective and sparked a similar movement among its competitors: major multinationals such as Bunge and Yara Fertilizantes. To make a comparison, Bunge heads the ranking with over 30% market share, whereas Heringer takes home the bronze with a bit more than 11%. The company markets a considerable part of its total production (87%) to end consumers – its clientele includes 38 thousand customers across the country. Heringer sells common fertilizers (comprised basically of nitrogen, phosphorus and potassium), but also markets special formulas produced to meet the needs of specific crops, such as sugarcane, or for reforestation purposes. "The nationwide scope and the diversity of crops mitigate the risks in this industry, such as climate adversities, pests and other diseases in given regions", Heringer says.
The company turned its attentions not only to its customers, but also to its investors. Traveling Brazil and the world in “non-deal road shows” was one of the alternatives chosen. Especially since when a company goes public, explaining its plans and setbacks becomes much more than a duty. "Clarity is extremely important", says Mardonado, adding that the company has also given priority to meeting with broker analysts and investment banks that track the company's moves.
Despite taking a blow from a domestic and international crisis of almost unprecedented proportions, bringing with it a critical need to cut down on costs, Heringer was already aware that the fertilizer market was past its honeymoon stage. Both here and overseas. After growing continuously, the fertilizer industry worldwide declined 4% last year, dropping to 160 million tons. Brazil went along for the (downward) ride. Expected fertilizer consumption was 26 million tons in 2008, but the year ended with only 22.4 million tons sold. Prices dropped considerably and given the outlook of a poorer agricultural harvest, farmers put their activities on standby. But now, there are signs of recovery. "For the coming year, we are already expecting higher demand from segments such as sugarcane and reforestation", says Heringer.
Brazil – and its rich, profitable rural areas – shows ample possibilities for success in the coming years. This served as somewhat of a lure in Heringer's IPO, which raised more than R$ 200 million when it went public. The Brazilian fertilizer industry has been growing more than the world average and faster than the expansion of agriculture. Its compound annual growth rate (CAGR) is 5.8%, whereas the agricultural GDP growth rate is 4.6% and the Brazilian GDP's is 3.3%.