DREAM BIG: How the Brazilian Trio behind 3G Capital - Jorge Paulo Lemann, Marcel Telles and Beto Sicupira - acquired Anheuser-Busch, Burger King and Heinz

by Cristiane Correa

  Sicupira ended these tricks and introduced a system of variable remuneration that was tougher and more aggressive, inspired by the Garantia model. The staff complained. Six months after the arrival of the new controller, a group of 35 executives requested a meeting with Sicupira and called for the previous system to be reinstalled. Sicupira made no attempt to hide his irritation but said he would consider the request. When the meeting ended, three people from the group told their new boss that they did not go along with the others. The remaining 32 went off to have lunch, confident that they had won a victory. Sicupira was so furious with the behavior of those who had complained that he ordered the human resources department to fire them all immediately. The group was not allowed to return to the building after lunch. (Many of them were so annoyed by this treatment that they took out legal suits against the company.)

  Sicupira called attention with his merciless style, but also his informality. His normal dress consisted of jeans, tee shirt, running shoes and backpack. He shared a room with the other directors instead of remaining isolated in his own fiefdom. He walked around the whole company and made regular visits to stores. As always, he avoided any appearance in the media and, as he dressed like a normal employee, he was often not even recognized by them. A favorite story tells of the day when a worker who was unloading a truck filled with diapers asked a colleague who was passing to help him without knowing who he was. The “colleague,” who turned out to be Sicupira, did not think twice, rolled up his sleeves and helped lift the goods into the store.

  Sicupira’s informal style and truculent approach brought rapid results. Garantia had spent US$ 24 million to acquire 70% of the retailer. Six months after the purchase, as the operation improved, it had attracted investors who were prepared to pay US$ 20 million for a stake of only 20% of the company.

  Shortly before assuming command of Lojas Americanas, and when he was still on the executive board, Sicupira sent 10 letters to some of the world’s biggest retailers. He introduced himself and asked if he could learn how each company operated at firsthand. His aim was to learn from the leaders and then adopt the best ideas. Why waste time reinventing the wheel if he could copy from the most advanced companies in the world? Two never replied while another two politely declined. Five companies, including Kmart and Bloomingdale’s, replied and invited him to visit their head offices. The CEO of one of the companies Sicupira contacted went further and phoned him directly. He said he would be happy to receive him and show him the operations of his company, a chain he had founded in Arkansas in 1962. His name was Sam Walton and the company he ran was called Walmart.

  Walmart played the same role for Lojas Americanas as Goldman Sachs had done for Garantia. It was the model to copy and the greatest source of inspiration. Sam Walton was 44 and had notched up a lot of experience in the retail trade when he opened his first Walmart store in Rogers, a small town in the Midwest that had fewer than 6,000 residents at the time. Right from the beginning, he had decided that low prices would be the driving force of his company. In a sector with squeezed margins like retail, this meant an almost morbid control over costs.

  In his autobiography, Made in America, Walton wrote that the first stores – spacious and extremely simple, with products piled up on all sides – were in such a precarious state that the clothes on sale in one of them were hung from overhead pipes instead of hangers. Squeezing suppliers to get the lowest prices was also a recurring practice. Walton did everything in the stores: he controlled stocks, directed employees, spoke to customers, personally sought out new suppliers and was always visiting rivals’ sales points. He was never the kind of person to remain locked up in his office. Much of his time was spent trying to find people who could help him run the company. As Walmart expanded, he began to distribute share plans among the top performing staff.

  In 1982, when Sicupira and Lemann landed at Bentonville, where Walmart’s head office was located, they found a company that was much larger than the cluttered little store Walton had opened in Rogers. The 1970s were glory years for Walmart. The chain had 32 stores and revenues of US$ 31 million at the start of the decade. By 1980, it had grown nine fold, with 276 sales points, and revenues had jumped by almost 40 times, to US$ 1.2 billion. The Walmart owner was one of the richest men in the United States and was listed first in the Forbes magazine ranking in 1985.

  “Like most overnight success stories, ours took 20 years,” he joked in his autobiography. As soon as the Brazilians stepped off the turbo-prop plane at the small local airport and saw that the man with a baseball cap, sitting in an old pickup truck with dogs and hunting rifles in the back, was Sam Walton himself, they were agreeably surprised. A powerful company and a simple lifestyle were exactly what they also wanted.

  As they had so much in common, it was hardly surprising that Lemann, Sicupira and Walton became friends. Lemann and Sicupira were an unbeatable double in crushing their adversaries on the tennis court and Sicupira proved to be the perfect companion to get to know the market and visit rivals’ stores. And in Walton, the Brazilians could not have met a better teacher to show them how to operate in the retail business. They became so close that Walton visited Brazil twice.

  During one of his trips, he visited a Carrefour store in Rio with Sicupira and was apprehended by security staff on suspicion of “industrial espionage” for taking photos, measuring the size of the supermarket shelves with tape and noting down the assortment of products. Lemann had to phone the Carrefour CEO in Brazil (the company was one of the bank’s clients) to plea for the two offenders to be freed.

  Like his Brazilian friends, Walton was a workaholic and those who worked with him had to demonstrate the same work ethic. On Saturday mornings, he would bring together the managers to make a weekly assessment of the results and plan ahead. He did not mince words in giving directives. At one of these meetings in the mid-80s, Walton threw down a challenge to his executives: if the company’s pre-tax profit margin was higher than 8% (the sector average was half this amount), he would dance the hula-hula in Wall Street. The company beat the target and he was forced to pay the bet. The circus came about in front of the head office of Merrill Lynch on March 15, 1984. Sixty-five year-old Walton, wearing fancy dress – grass skirt, garlands around his neck and headgear – wiggled awkwardly to the sound of the Hawaiian music accompanied by three dancing girls. Walton was shy – far from being an exhibitionist – and certainly did not dance to appear in the newspaper and magazine photos that surfaced. But he danced to prove to his “associates,” as Walmart employees are known, that he would do anything to see the company expand.

  “I learned a long time ago that exercising your ego in public was not the best way to build an efficient organization,” he said.

  Some years later, Sicupira copied his mentor’s tactic at Lojas Americanas and promised to dress like a belly dancer if the company had an EBITDA margin (earnings before interest, tax, depreciation and amortization) of 6%. Like Walton, his challenge was met, and when he saw the company’s results at the end of that year, he had every intention of keeping his promise. So on a sunny December day at the Praça Mauá square in downtown Rio, dressed in veils, accompanied by dancers and the band of the Beija-Flor samba school, and standing right in front of the drummers, the tall, ungainly Sicupira put his belly dancing skills on display, working admirably to follow the rhythm.

  Sicupira was always paranoiac about controlling expenses at Lojas Americanas. He used to say that “costs are like nails; they always need to be cut.” His other obsession was to identify new opportunities for gain from the business, preferably opportunities that required low investments. This is how the property firm São Carlos Empreendimentos Imobiliários came about in 1989. Lojas Americanas had 50 of its own sales points at that time and Sicupira squeezed two things from them. The first, that the company’s shares were not as valued as highly as they should because of these buildings. The second was that the stores were hiding the company’s real profitability as they did no
t pay any rent. He put forward a new format. The company should split into two areas of activity – retail and real estate – as he felt they would be more successful apart than together.

  Property management at that time was a small market and usually in the hands of family-run concerns. São Carlos grew unnoticed and faced little competition. It was only when the Brazilian real estate market enjoyed a boom recently that the company became popular. In 2013, it had a portfolio of R$ 3.5 billion – of which less than 10% were Lojas Americanas sales points – and a market capitalization of around R$ 2.8 billion. This was a great return, particularly for a business that was founded without a penny of investment.

  Sicupira’s right hand man at Lojas Americanas for many years was José Paulo Amaral from São Paulo. They met at a lunch at the start of the 1980s given by André De Botton, an aristocratic type from Rio whose family controlled Mesbla, a large department store chain at that time. Amaral was Mesbla’s superintendent and De Botton had been preparing Amaral to replace himself in charge of the company.

  After that meeting, Amaral and Sicupira started practicing sports together such as running, cycling and diving and became friends. During a conversation at Sicupira’s beach house in Cabo Frio on the Rio coastline, Amaral said he loved working at Mesbla, but there was one thing that bothered him. The company had been founded in 1924 and remained under family control. No employee, regardless of how well he performed, had a chance of obtaining an equity stake. Sicupira got the message and liked what he heard. There was just one precaution to take as he did not want to upset De Botton. Amaral suggested a deal in which he would take a 40-day “sabbatical” period between leaving Mesbla and joining Garantia’s retail outfit. He resigned and spent his time setting up a small series of outlets called Mais por Menos.

  “The initial investment was US$ 1 million and half of it came from Garantia,” said Amaral, who now splits his time between Rio de Janeiro, where he lives, and Mato Grosso do Sul state where he has a ranch.

  Less than a year after opening his first store in Avenida Santo Amaro in São Paulo, Mais por Menos was bought by Lojas Americanas.

  “I received Lojas Americanas stock and Lojas Americanas became the owner of Mais por Menos,” he said. For the first time in his life, Amaral was a shareholder in a company where he would work and he loved the idea.

  Amaral started working as the superintendent at Lojas Americanas in December 1985. He quickly saw that he would have to leave the sober Mesbla dress style behind.

  “He arrived wearing a classic business suit, slicked-down hair and brogue-type shoes,” said a former Lojas Americanas executive. “The following day he was wearing jeans and running shoes.”

  He also needed to get used to doing without his own office, personal secretary and company car – perks available at his old firm that had no place in the Garantia culture. He was not bothered. His only concern was to make Lojas Americanas grow. (After all, he was a shareholder now.) Amaral recalled the early days:

  “When Garantia bought Americanas, the company was going from bad to worse. Beto saw there was a chance of turning things round, but it had to be done in a radical way. Everyone knows he is a radical person. At that time, when he was younger and tougher, he was imposing enormous discipline within the company by cutting expenses... When I arrived, the plan was in full swing, people were being fired, others hired and a revolution was underway... I learned a lot with him.”

  They had a great relationship for a number of years. During the week, they worked flat out to turn Lojas Americanas into a money-making machine. On Saturdays and Sundays, they often went fishing together at Cabo Frio or Angra dos Reis where they had beach houses. Their friendship grew so close that Sicupira invited Amaral to be godfather to his second daughter, Helena. However, 11 years after arriving at Americanas, Amaral left during a troubled episode that also put an end to his personal relationship with Sicupira.

  When the Real Plan was successfully implemented in 1994, it led to the end of an era of high inflation and exposed a series of Brazilian companies to a new reality. Companies had enjoyed a tremendous competitive advantage for a long time by setting up a sophisticated financial department that used the company’s money to profit from the exorbitant hikes in prices. A stable economy ended this opportunity for financial gains. Companies now had to be efficient in their own operating activities and no longer act as financiers in disguise.

  The retail sector that had been used to years during which prices were constantly marked up, sometimes on a daily basis, was dealt an immediate blow. The blow was even harder for Lojas Americanas, which had banking origins in its DNA. It registered a loss in the first quarter of 1996, after four years of consecutive profits. (The warning light had flashed the previous year when earnings were lower than the company’s expectations.) Part of the problem was due to the deficient technology and logistics, and part was due to a partnership with Walmart in 1994 that would bring Walton’s retail chain to Brazil.

  The partnership with Walmart was one of those ideas that made complete sense on paper but failed in practice. The two companies were old acquaintances, had similar cultures and shared the same ambition to expand. Their owners were friends. Lojas Americanas was Brazil’s leading retailer at that time and there seemed no better idea than to bring the world’s biggest retailer to Brazil and speed up its expansion even more. The agreement between the two parties was that Walmart would have 60% of the new company created in Brazil and Americanas having the rest. When the deal was announced, the competition trembled.

  However, against all expectations, everything went wrong. As Walmart knew nothing about Brazilians’ consumption habits, it just repeated what it did in the US. This led, for example, to it trying to sell bags for golf clubs, live fish and life-saving vests in its stores. Lojas Americanas, the minority shareholder, was unable to warn the Americans off.

  “The Walmart people said their approach worked in the US and would also work here,” Amaral recalled. “When they opened the Supercenter at Osasco (in Greater São Paulo), we warned them to put electronic labels on items to prevent theft but they didn’t listen. It was party time for thieves who stole razors, clothes, shirts, everything.”

  The Brazilians’ role in the business was virtually reduced to helping finance its expansion. The problem was that this was an expensive joke – at least for Americanas, which was a lot smaller than Walmart. When it had to choose between continuing to inject money into a company where it could not dictate the rules and withdrawing from the business, Americanas took the second option. Three years after signing the agreement, the Brazilian retailer sold its stake to Walmart. Sicupira and his partners were forced to give up their dream of a partnership with the world’s biggest retailer to preserve Americanas’ cash – a decision they never regretted. Without local partners, Walmart’s Brazilian operation took almost a decade to finally get up and running.

  By the time the separation from Walmart was formalized, Sicupira was no longer involved in the daily running of Lojas Americanas. He gave up the CEO position in 1993 to dedicate his time to setting up GP Investimentos, the first private equity company in Brazil, but remained chairman of the board of directors. Amaral succeeded him.

  But Sicupira felt that, after running Lojas Americanas for almost five years, it was time to create a new success story and give an opportunity to younger people to move ahead. His idea was to make Amaral a partner in GP Investimentos where his experience as an executive could be best exploited.

  The thinking would have been perfect if Amaral had agreed with the plan. But Amaral felt that leaving the direct running of a large company to become involved in an investment fund was the first step towards retirement. He wanted to keep his hands on the daily operations rather than accompany the performance of a handful of other companies from a distance.

  This obstacle of Amaral’s own future was the first element to undermine the relationship between the two friends. The other element concerned who would replace Amara
l as CEO of Lojas Americanas in the future. Sicupira’s candidate was Fersen Lambranho, an engineer from Rio and graduate of the Universidade Federal do Rio de Janeiro who also had a master’s degree in business administration from the Coppead business school. He entered Lojas Americanas when he was 24, the same month as Amaral started. Amaral had his own favorite, Luiz Meisler, also an engineer, who was in charge of the retailer’s technology area. (Later, he was to become executive vice-president of Oracle for Latin America.)

  Lambranho was known to share Sicupira’s hands-on approach and was indefatigable, truculent and ambitious. As he was in charge of the financial area of Americanas, he had undertaken a kind of internship at Garantia. This had given him a valuable immersion in the bank’s culture. (This proximity was the reason why Lambranho is the only person who did not work for Garantia to be invited to the lunches held for former partners by Castro Maia.) “Beto was 100% decisive in my education,” said Lambranho.

  Amaral and Sicupira’s pupil had very different views of how the company should be run. None of them hid the conflict. On one occasion, Lambranho took advantage of the fact that Amaral was traveling to discuss with Sicupira the need to invest in the logistics area and make the company more efficient. He was given the go ahead and contracted the McKinsey consultancy for US$ 1 million to redesign the operation. When Amaral learned about this contract, carried on behind his back, he was furious.

  “He called me into a corner and said he would pay for the project, but wanted me to know that it would not work out,” Lambranho said. “As a result of delays like this, the company lost a lot of time in adapting to the end of inflation.”

  The situation became intolerable. Amaral laid down an ultimatum at a meeting of the Lojas Americanas board of directors with Sicupira, Telles and Lemann.