Empresas Polar SA

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Empresas Polar SA

4ta. Transv. De los Cortijos de Lourdes
Centro Empresarial Polar, Piso 1
Caracas 1070
Telephone: (212) 203-111
Fax: (212) 202-7210
Web site: http://www.empresas-polar.com

Prívate Company
Employees: 18,000
Sales: $2.5 billion (2002 est.)
NAIC: 311919 Other Snack Food Manufacturing; 312130 Wineries; 312120 Breweries; 312111 Soft Drink Manufacturing; 311999 All Other Miscellaneous Food Manufacturing

Empresas Polar SA operates as Venezuelas largest private industrial conglomerate, manufacturing and distributing a wide variety of food products and beverages, including beer, soft drinks, juice, corn flours, rice, pastas, margarines, corn oil, cheese spreads, jellies, tuna fish, and frozen sea food. Beer accounts for over half of company sales; subsidiary Cervecería Polar is the 17th largest beer company in the world. Empresas also has key investments in Venezuelas oil, petrochemical, and banking industries. Third-generation Lorenzo Mendoza was named CEO in 1999. In 2002, he was listed as one of the richest men in the world by Fortune magazine.

Origins and Growth: 1940s70s

Dr. Lorenzo Mendoza Fleury, a Venezuelan lawyer, inherited a soap factory from his family during the late 1930s. Although this factory proved to be a financial failure, Fleury established a business style worthy of future success; he soon sold the soap factory in pursuit of a more profitable industry. The search ended in 1941 when he established a brewery in Antimano, a suburb of Caracas. The rapid expansion that followed is the legacy of Mendoza Fleurys far-sighted decision.

The Antimano facility enjoyed sufficient success so that by 1950 a second brewery, Cervecería de Oriente, could be established in the Venezuelan city of Barcelona. A year later, production demand required the construction of a new brewery with large scale capacity. Also located in Caracas, this establishment eventually became the headquarters for all Polars activities. The company trademark, a polar bear looking across a body of blue water, emerged from this facility. In 1954, the firm also began its initial expansion into the food sector when it created Refinadora de Maiz Venezolana C.A.

By 1960, at a time when large Venezuelan corporations lacked confidence in the countrys beleaguered economy and thus turned their attention to overseas markets, Cervecería Polar decided instead to expand at home. This decision marked a significant turning point in establishing Polar as the pre-eminent Venezuelan brewery. Soon Cervecería Modelo, the companys newest brewery, was in operation in Maracaibo in western Venezuela.

During the following decade, Cervecería Polar captured 50 percent of the domestic market. The continual pursuit of product stability and production quality required adaptation to climatic conditions and the eventual automation of all Polars activities.

Beer sales tripled during the 1970s. To maximize existing capacity, the company introduced a number of improvements in the production process. They included the implementation of high-gravity brewing, first fermenting wort of 14 percent extract and then correcting this to 11.3 percent extract. Three week cycles of fermentation and storage followed this process. Tight production schedules were maintained.

By the end of the decade, yet another brewery, Cervecería Polar del Centro, began operations in the city of San Joaquin. A major innovation, signifying a technological breakthrough in the brewing process, was initiated at this site: the San Joaquin facility became the first brewery in the world to use a one-tank system with cylinder-conical tanks from the start of production. The efficiency of the process marked the end for the company of the kind of beer supply shortages which had occurred in the past. The small Antimano brewery had now outlived its usefulness and was duly closed.

Cervecerías Brewing Process

In the 1980s, Cervecería Polars brewing process began with water, supplied by municipal sources, that was passed through sand and activated carbon filters and then decarbonated by weak-acid ion exchangers. Since Venezuelas climate precluded the cultivation of malt or hops, these supplies were imported from countries as diverse as Canada, Finland, Czechoslovakia, and Australia. Pre-cooked rice flakes were used as an adjunct, and wort was extracted by the infusion mashing method and lautering. Flavor stability was guaranteed through the separation of the hot trub.

The fermentation process followed over the next 21 days. Except at the Caracas brewery, where conventional fermentation continued, all other Polar facilities used cylinder-conical tanks. Fermentation occurred at 11 to 14 degrees Celsius. Then, after reducing total diacetyl to under. 1 mg/liter, the beer was cooled until it reached 1 degree Celsius.

Automation at the Cervecería Polar breweries took the form of milling, mashing, lautering, and wort boiling. Later, automation was used for filtration and cleaning. The company also planned to automate the one-tank fermentation process promises to increase production capacity. The bottling process, using both European and U.S. equipment, involved two different size glass bottles and standard aluminum cans. Once in the containers, the beer was pasteurized in tunnel pasteurizers.

Cervecería Polar conducted its operations with careful attention to water conservation and environmental protectionthe recycling of condensates, the use of air coolants for diesel engines, and the condensation of exhaust steam. Waste water was treated with activated sludge to eliminate 95 percent of the organic load. In an attempt to extend their environmental activities, the company began to demineralized treated waste so that it could be reused for indirect processes. Polar worked in close cooperation with Venezuelan universities in conducting research on uses for sludge produced in waste water treatment. Possible uses for the sludge ranged from improving sandy soils to forming an ingredient in cattle feed.

During this time period, research and development at Polar concentrated on process innovation. Numerous laboratory tests involved investigations into methods of improving beer flavor stability. Venezuelas climate subjects the country to year-round sunshine; high temperatures cause product variability. At Polar laboratories a method was devised to deal with this problem peculiar to tropical climates. A simple means of measuring oxygen content in the bottles eliminated flavor instability. The method has subsequently been adopted by other breweries around the world.

Distribution of Polar products took place under the direction of eight wholly-owned regional distributors, and Polar beer could be found in even the most remote regions of Venezuela. Although transportation conditions were at times precarious, Polar succeeded in the consistent delivery of its products.

Polar also operated its own in-house advertising agency, Cadesa, which directed a highly effective campaign using patriotic messages. A popular example is the short film entitled Traveling with Polar. Here viewers share in the celebration of images of national scenery and cultural heritage.

By 1984, Cervecería Polar controlled an 85 percent share of its domestic marketplace. New areas of expansion included the production of alcohol-free malt beverages and the penetration of overseas markets. The establishment of a food division signaled Polars attempt to become a more diversified business. Prior to their use of rice flakes, the company had used imported cornflakes as an adjunct to the brewing process. Corn, however, was an indigenous crop to Venezuela. Instead of continuing to import, Polar purchased a small local corn mill to produce cornflakes. This operation was the precursor of Polars food divisions, which now produced corn oil, animal feed, and the traditional Venezuelan arepa, a type of corn-based pancake. During the mid-1980s, over 500,000 tons of corn were processed annually. The company subsequently expanded into other agricultural activities, including poultry farms, pork production, and slaughterhouses.

Over the course of its history, Polar acquired several subsidiaries to augment company growthSuperenvases Envalic, a manufacturer of two-piece aluminum cans; Plásticos Metalgrafica, a manufacturer of plastic beer cases; and Industria Metalgrafica, producers of crown corks. All three of these subsidiaries supplied products not only to Polar but also to industry competitors. In 1988, Polar acquired nine food processing companies from U.S.-based TLC Group, an investment firm that had purchased the international food operations of Beatrice Companies in 1987. Included in the deal was Industrias Savoy, which came to be known as Savoy Brands International.

Company Perspectives:

We strive to satisfy the needs of consumers, customers, sales companies, concession holders, distributors, shareholders, workers, and suppliers through our products and the development of our businesses. We further strive to guarantee the highest possible standards in quality, efficiency, and competitiveness, with the best possible relationship between price/value, profitability, and sustained growth, while contributing to the improvement of the standard of living in the country and its development.

Expansion Continues: 1990s and Beyond

During the 1990s, the companynow known as Empresas Polarcontinued its acquisition strategy and focused on restructuring company operations in order to position itself as a major industrial conglomerate. In 1993, the firm entered the soft drink market when it acquired Golden Cup. It gained a much stronger presence in that sector in 1996 when it teamed up with PepsiCo Inc. to bottle and market PepsiCo products. PepsiCo had entered the Venezuelan market in the 1940s and had remained a market leader over competitor Coca-Cola until 1996, when its bottler Cisneros prematurely terminated its contract and went with Coca-Cola. A Financial Times London article asked PepsiCo CEO Roger Enrico about Cisneros abrupt departure, to which he replied that a big red truck full of money showed up on the door step and our partner decided to get in and drive away with it. PepsiCo instantly lost its 80 percent market share and as a result sued Cisneros for breaking their contract, which should have lasted until 2003. The anti-trust agency in Venezuela fined the new partners $1.9 million for violating anti-monopoly regulations. Nevertheless, the partnership was approved and left PepsiCo scrambling to find a new distributor.

Empresas Polar jumped at the chance to secure a stronger foothold in the soft drink industry and partnered with PepsiCo to form Sociedad Productora de Refrescos y Sabores (Sopresa), a joint venture that manufactured and distributed PepsiCo products throughout Venezuela. By 2000, Sopresa had six production facilities and 55 distribution warehouses, and its products were found in over 200,000 stores. Empresas next move came in 1998 when it created a 50-50 joint venture with Frito-Lay Inc., PepsiCos snack food division. The venture manufactured and distributed products in Venezuela, Chile, Columbia, Ecuador, Guatemala, Honduras, Panama, Peru, and El Salvador.

During 1999, third-generation Lorenzo Mendoza was named CEO. Under his leadership, Empresas began to restructure company operations, creating distinct company divisions. The company also began to bolster its existing business lines with a goal of securing a larger share of the Latin American food and beverage industry. The company prospered amid a weak Venezuelan economy. In 1999, it purchased a 7.5 percent stake in Backus & Johnston, Perus largest brewer. By 2001, its stake had increased to 25 percent. During that year, Empresas acquired a 98.2 percent stake in competitor Mavesa S.A., a Venezuelan food manufacturer traded on the New York Stock Exchange. The $500 million deal signaled Empresas determination to continue its growth well into the new century.

Principal Operating Units

Beer and Malt Beverages; Foods; Soft Drinks.

Principal Competitors

Cisneros Group; Grupo Empresarial Bavaria.

Key Dates:

Lorenzo Mendoza Fleury establishes a brewery in Antimano, a suburb of Caracas.
A large-scale capacity brewery is constructed in Caracas.
The firm expands into the food sector.
Industrias Savoy is acquired.
The company enters the soft drink market with the purchase of Golden Cup.
Empresas teams up with PepsiCo Inc.
The company forms a joint venture with Frito-Lay Inc.
Empresas acquires 98.2 percent of competitor Mavesa S.A.

Further Reading

Castano, Ivan, Venezuelas Polar Buys Mavesa for $500M, Daily Deal, March 28, 2001.

Dolan, Kerry A., The Beer Baron, Forbes, July 5, 1999, p. 198.

Galloway, Jennifer, Quenching Corporate Thirst, LatinFinance, December 2002, p. 22.

Hoag, Christine, Empresas Polar Reports Record Sales Rise, Financial Times London, October 2, 1998, p. 17.

Mann, Joe, Venezuelan Brewer Expands, Financial Times London, June 21, 1988, p. 27.

PepsiCo Begins South American Marathon, Financial Times London, December 13, 1996, p. 29.

Polar Doubles Up, LatinFinance, September 2001.

Rousch, Chris, Pepsi Finds Bottler in Venezuela, Atlanta Journal and Constitution, November 14, 1996, p. 2F.

update: Christina M. Stansell