Heavy artillery was brought in to overthrow the rival. The battle got off to a quiet start in 1990, when Brahma tried to make its production and distribution process more efficient and faster in 1990, by hiring Eduardo Fischer, chairman of the advertising agency Fischer, Justus (now Fischer & Friends).
Fischer, who was in his early 30s, started what became known as the “beer war.” He carried out a survey to find out how Brazilians generally ordered beer in bars. The customers’ responses were videoed and Fischer studied them. It revealed that a large number of those interviewed raised their index finger to show waiters that they wanted “another cold beer.” It was a simple, direct gesture, recognized nationally. That finding gave Fischer the origin of a slogan for his new client: Brahma was now “number 1.”
Backed by this slogan, Fischer enacted all sorts of initiatives. In 1991, he created the Brahma VIP lounge for the Rio Carnival, a place very much in demand by glamorous people, artists, politicians and businessmen who could watch the parades of the Carnival schools at the Sambadrome in lavish comfort. The trump card was to oblige all guests to wear a tee shirt bearing the Brahma logo. Any celebrity who was photographed for newspaper and magazines, or who gave interviews to the TV networks, ended up carrying out advertising for the brewer – albeit unwilling and for free. The Brahma lounge became the place to be seen at the Carnival and invitations were highly coveted. Those who did not fit the profile required to enter were automatically banned, even if they were close to the company’s owners. This happened with Robert Cooper, who was Lemann’s nephew and frequent companion on the tennis court. Cooper asked his uncle if he could get into the lounge. His uncle’s reply was good humored but pointed:
“This is a business. The invitations are for those who help me gain money, famous people and beautiful women. In what category are you?” Cooper had to watch the samba parades on television.
Fischer’s campaign enjoyed one of its greatest moments during the 1994 World Cup. Brahma was not a sponsor of the Brazilian team and had not bought sponsorship spots on the Globo and Bandeirantes networks that broadcast the games because they had agreements with Kaiser and Antarctica, respectively. Despite this, Brahma was the brand that drew most of the fans’ attention by using ambushing marketing campaigns in the friendly games that took place ahead of the competition. The main tactic was to distribute advertising material among the public in the stadiums bearing the “number 1” image. An article in Veja magazine featured the result of this guerrilla strategy in the match between Brazil and Paris Saint-German in April, in the preparations for the World Cup. Brahma appeared during 34 minutes and 46 seconds of the broadcast while Kaiser was given exposure lasting only 1 minute and 41 seconds.
“The index finger sums up one of the most aggressive, if not the most aggressive, advertising campaigns Brazil has even seen,” Fischer claimed. “It was the most ambitious, wide-ranging in the publicity it gained, and the most controversial.”
Antarctica made great efforts to stop the advance of its rival, but it was an unequal battle. Its approach was slower and more cautious. Advertising executive Nizan Guanaes, who was with DM9, which handled the Antarctica account at that time, had this to say:
“My first experience of them (Telles and his partners) was like being given an enema and being attacked from behind. I could feel them breathing down my neck. Competing against them was really complicated. It was a steamroller. Do you know why? Because these guys had technology, science, discipline... They had developed this ability to attract and develop people and rely on the best brains... Marcel was there the whole time holding the reins... They took decisions very quickly, unlike Antarctica.”
Organizing VIP lounges at the Rio Carnival was important. Getting the fans to raise their index fingers in the stadiums was important. Sponsoring mega shows performed by stars of the Brazilian Popular Music movement (known as MPB), as Brahma had done with singer João Gilberto in 1991, was also important. However, none of these combined initiatives would be enough to force Antarctica to its knees.
“Jorge Paulo said the only way to kill a competitor is through the cash,” former Brahma director Magim Rodrigues recalled. “The company needs to have the best marketing, best product and best people. All this is great, but if you want to liquidate your rival, you need to go for his cash. When he has no more money left, he’s dead.” The game had to get a lot rougher.
During the second half of the 1990s, Brahma began structuring a sales system that could analyze all its clients’ data – not by state or city, but by each of its thousands of sales points. By doing so, it would know exactly how much each bar or supermarket sold and its profit margin. Rodrigues explained the impact of the initiative:
“We stopped launching atomic bombs and spending astronomical amounts of money to try and grow on some markets and started to aim with great precision for the bull’s eye. The salespeople began to learn everything about each of their clients – how much they sold and how much they had in stock. It was a system that initially cost more as it needed 20% or 30% more salespeople, but it brought an amazing result. Until then, the salesperson used to go to the bar and ask the owner how many crates he needed that day. This ended. He now knew exactly what the client needed to buy and the margin he needed to leave for the company. As the salesman was free to negotiate discounts and payment conditions, he made a big effort to beat his target.”
Carlos Brito, who was Brahma’s sales director at that time, was responsible for putting this system into operation. Brito was a rising star within the company. His first contact with the culture of Lemann and his partners had occurred much earlier.
Brito came from an upper middle class family in Rio and studied at the Colégio Santo Inácio. He then studied engineering at the Universidade Federal do Rio de Janeiro. His first job after graduating was at Mercedes-Benz. He quickly drew the attention of his bosses and was transferred to head office where he could practice the German he had learned as a teenager, because his mother had believed that being fluent in English would not be enough to boost her son’s career. He later left Mercedes and was hired to work in the robotics area of the Brazilian subsidiary of Shell, where two friends in his new workplace encouraged him to take an MBA course abroad. So, he applied to Stanford and Wharton, two of the most prestigious business schools in the US, and was accepted by both but chose Stanford, which was generally regarded as the best in the world at that time. He would be the only Brazilian in the class. However, there was one problem: Brito did not have the money to pay for the course and needed to find a sponsor.
His first impulse was to try and get a loan from Shell, but this did not work. The company claimed that it had made this kind of concession to employees in the past who had not returned after completing the course and thus the policy had been suspended. So Brito needed an alternative and remembered Lemann’s name.
Although he did not know Lemann personally, Brito knew he was a great believer in education and had helped finance Garantia staff’s studies abroad. Would he help someone who was not even from the bank? Brito boldly asked an acquaintance who worked for a brokerage in Rio for Lemann’s contact, and the banker agreed to see him for an hour.
Brito arrived for the interview, all dressed up: suit, tie, well-polished shoes. Nothing like the Garantia style. He brought along a CV, but Lemann said it was not necessary. He preferred to talk with the young engineer and later confirmed with Shell that Brito really was talented. He asked about Brito’s studies and the work he planned to do in the future. When the time was up, the two said goodbye and Brito was unsure whether he would talk to Lemann again. Some days later, he received a call while he was working at Shell. Leman was on the other end of the line:
Lemann: “Brito, I spoke to some people I know at Shell and they said you were doing well. Come over and I will give you a grant and pay for the first year.”
Brito: “Jorge, how will I pay you all this back? I don’t have this money [US$ 22,000 at that time].”
; Lemann: “We’ll talk about that later. I only want you to promise me three things: The first is that you will keep me informed. I want to know how the course is going. If you read any interesting articles about finance, send them to me. The second is that if you can help someone else in the future as I am helping you now, you should. The third is that when you finish the course, come and talk to us before accepting any job offer.”
Brito went to Garantia the following day to sort out the details of the grant. Lemann called one of the legal staff and asked him to bring a loan contract.
“The contract only stated that I had to study and if I gave up the course, I would return the money,” Brito recalled. Before heading off to Stanford, he resigned from Shell and spent two weeks at Garantia. It was a very different world from what he had known until then. Used to the world of large corporations – slow and hierarchical, particularly for those who worked in the subsidiaries – he found himself in a meritocratic and informal place where decisions were made quickly. He met Telles and Sicupira and loved everything he saw there.
Brito fulfilled all the promises he made to Lemann. He sent a letter every month in which he recounted what he was doing and his performance in works and tests. He usually attached copies of academic articles or material that might interest the banker.
“He never wrote to me but always called after he received the letters,” Brito said.
When Brito finished his MBA, he received a job offer from the McKinsey consultancy where he had been an intern during the summer. His first year’s salary would be US$ 90,000. Before accepting the job, he called Lemann as agreed. Lemann said he would like to hire him to work at Garantia or on a big project that was being concluded, although he could not say what it was. He offered a salary of US$ 20,000. Although the choice seemed stark in financial terms – the offer by McKinsey, one of the most toughly contested places in the world to work, was almost four times as much – Brito preferred to return to Brazil, and after a great effort, Lemann and Fernando Prado (the other partner with whom Brito negotiated his salary) agreed to pay an extra US$ 5,000 to pay for the move.
He spent several months in Garantia until it bought Brahma. Along with Telles, Rodrigues and Nascimento, Brito was part of a foursome that took over the brewer after the acquisition. He worked in a number of areas, often without being ready to do so. For example, in the 1990s, he was promoted manager of the Agudos plant in São Paulo state. He told Telles that he knew nothing about the process of producing beer.
Telles’ response: “Forget that... You’ll never be a master brewer. I don’t know anything about it either. Go there, get some good people around you and it will work out.” Brito followed the instructions and moved to upstate São Paulo. He knew he could not refuse the “invitation.” As at Garantia, missions at Brahma had to be accomplished.
Lemann’s sponsorship of Brito’s studies was the embryo of the Fundação Estudar (Study Foundation), a non-governmental organization Lemann founded in 1991 to finance the studies of young people in top-class institutions. It was through the Foundation that Brito fulfilled the last of his promises – to provide financial help to talented young people to study in first-class institutions. Brito has been one of the main contributors to the Foundation in its history of over 20 years.
Increasing sales, thanks to the intelligent system created by Brito, was excellent news. The problem was that, despite that incentive, Brahma’s earnings were just gliding along. At the beginning of 1998, Rodrigues realized how difficult it would be to achieve these goals, which put the personal bonus at risk. If the company’s problem did not lie in revenues, it could only stem from expenses. He ran a fine tooth comb over the accounts and was shocked to learn how much was being spent on items like transport, travel and meals. These figures had to be cut urgently.
Rodrigues and Telles called Professor Vicente Falconi and Gustavo Pierini, an Argentinean former McKinsey consultant and former partner of GP Investimentos to the Brahma office. Pierini had recently opened his own consultancy called Gradus.
“There was a question at that time over whether it was better to create an internal cost-cutting program or call Cláudio Galeazzi [the executive who had carried out a restructuring of Lojas Americanas several years previously],” said Falconi.
After a long conversation, Telles and Rodrigues opted for an in-house solution. Pierini and Falconi looked for inspiration in well-known cost-cutting programs abroad and created a simplified version adapted to Brahma’s situation. From this arose the Zero Base Budget, known simply as OBZ, after the Portuguese acronym, a radical cost-control program that foresaw a complete annual revision of all the company’s spending. From then on, any cost – from input to travel to the use of mobile phones to the purchase of IT material – had to fit in with the new rules.
All the company’s executives were summoned to the program launch, which took place at the Academia Militar das Agulhas Negras academy in Resende, upstate Rio de Janeiro. The choice of a military academy was not by chance.
“It was to show how serious the game was from then on,” Falconi recalled. “There would be no stepping back.”
Rodrigues explained how the program would work to the assembled group, including the rules, the timetable of meetings at which results would be presented and the importance of everyone being directly involved in controlling costs, and said the program would come into practice on January 1, 1999.
Despite all this preparation, the program got off to a complicated start, as Falconi recalled:
“Magim told us at the February meeting that there was a problem. The Rio de Janeiro regional director had not carried out one of the recommendations – to cut the number of hired cars from 17 to five. It was sheer indiscipline. People had developed a certain cynicism over the years as they were used to the fact that the goals would never be upheld... Along with this case, Rodrigues said that five managers were not bearing their targets and refusing to make the reports. He asked what to do with these guys. Well, they had been warned verbally and in writing of the rules and were not willing to comply with them. There was only one thing to do: get rid of them. If you want to change a culture and come up against resistance, that’s a pity... The five were fired that very day. The regional director got off as he was set to retire the following month. It was an important attitude to take and showed that things had really changed in the company. The targets from March were all beaten. A culture of action, which transformed the company’s history was created.”
Rodrigues was right. The year 1998 was the first in which no bonus was distributed since Brahma was taken over by Garantia. Although the company had made a profit, the goals had not been achieved. Not a single employee received anything in March the following year, the month when the variable remuneration was traditionally distributed. Rodrigues and Telles were among them. The meritocratic rules could not be compromised, and those who had become accustomed to earning up to 18 extra salaries for their good performance had to knuckle down and accept this reduction at a time of so-so results. Losing their bonuses was another encouragement for people to adopt the Zero Base Budget program and cut the company’s costs.
“São Paulo and
Corinthians in the
same team”
The well-oiled Brahma machine began to hit Antarctica. The São Paulo-based brewer’s profit, which came to R$ 161 million in 1995, slumped to one-third – R$ 64 million – in 1998. The market share of its main brand, Antarctica itself, came to 22% while Brahma and Skol jointly held 49%. In the marketing duel, sales and distribution between the two largest brewers in Brazil showed that Brahma was winning with room to spare. It was time for Telles and his team to end the game.
The structure of the deal that would change the face of Brazil’s beer market and create one of the largest companies in the country began being outlined one Friday night, at the beginning of May 1999. Telles and Rodrigues were still working at the Brahma head office. They were talking about the future of the company.
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br /> Rodrigues: “Marcel, shall we buy Antarctica?”
Telles: “Are you crazy, Magim?”
Rodrigues: “They’ve run out gas. They’re in trouble...”
Telles: “How do you know?”
Rodrigues: “I’m not going to tell you how, but I know.”
Telles: “Should we? Well, it won’t hurt to talk to them... I’ll call Victório [De Marchi, Antarctica’s CEO] tomorrow.”
Victório De Marchi had become Antarctica’s chief executive officer in 1998, after a bizarre period in which the command of the company was alternated every week among the board of directors. Although they headed rival companies, he and Telles met from time to time to talk about the market. So, De Marchi was not surprised when Telles called him over the weekend to invite him to lunch the following Monday.
They chose a public place, the Gero restaurant in the Jardins district of São Paulo. During the meal, Telles launched the idea: “Victório, isn’t it about time we got together? The world is going global. Those guys are arriving here.” The “guys” he was referring to were mainly the American companies Anheuser-Busch, which had ended up with a 5% stake in Antarctica, and Miller, with which Brahma had formed a partnership to distribute its products in Brazil. Other giants, like South Africa’s SAB and Heineken from the Netherlands also had their eyes on Brazilian consumers.
It was not exactly the first time Brahma had made this kind of suggestion to Antarctica. Rodrigues had raised it with De Marchi at the end of 1998, but Antarctica decided not to proceed. However, in the meantime, Antarctica’s situation had worsened, and De Marchi was accordingly more open to Telles’ suggestion, saying he would discuss the proposal with the board of directors.
DREAM BIG: How the Brazilian Trio behind 3G Capital - Jorge Paulo Lemann, Marcel Telles and Beto Sicupira - acquired Anheuser-Busch, Burger King and Heinz Page 16