Twenty years ago, a 17-year-old youngster worked with his family as an apparel sales representative. Inspired by his mother’s sense of entrepreneurship, young Alexandre Tadeu da Costa decided to start working on his own as a sales representative—but one selling chocolate. Full of youthful energy, he took to the streets with his catalogs in hand and sold two thousand units of a 50-gram chocolate egg, motivated by the Brazilian custom of exchanging chocolate at Easter. However—in a tribute to his lack of experience—Alexandre never checked whether the chocolate manufacturer would be able to meet such a large order.
Instead of canceling the orders and disappointing his clients on their very first purchase, Alexandre borrowed US$ 500 from his uncle, bought some chocolate bars, molds and wrapping paper, and, together with a woman who made artisanal chocolate, produced all two thousand chocolate eggs himself. After paying the bills and the loan he was left with US$ 500 of profit and the valuable realization that he did, indeed, have a business in his hands.
From an order that was not met by a third party, a business was born that is expected to close year 2009 with revenues of US$ 121 million. The Cacau Show franchise system already has 680 stores (as of April 2009, with more on the way) and by the end of the year will probably be the largest food chain in the Brazilian market. Cacau Show was born in a desirable demographic. According to the Brazilian Association of Chocolate, Cocoa, Peanut, Candy, and Derivatives Industries (ABICAB), Brazilian production for 2009 is estimated to reach 340,000 tons, which makes Brazil the second largest chocolate producer in the world, second only to England. With an average consumption of 2.5 kg/year per inhabitant, consumption in Brazil ranks second only to the US, Germany and the United Kingdom.
The initial 50-gram egg was his inspiration. Today Cacau Show manufactures 200 different products, with a total of 10,000 tons per year and a 7 percent market share at Easter—the category’s “holiday season.” Despite its broad portfolio and Easter’s relevance for the business, the main stars of Cacau Show’s sales are the 20 types of truffles sold at a mere US$ 0.57.
Long before the advent of Low Cost Society, still in the early years of his business, Alexandre noticed there were no brands offering luxury to the masses. The concept of a large class of people that desires the best but doesn’t have the means to pay for it was introduced by Massimo Gaggi, the New York correspondent of the Italian newspaper Corriere della Serra, and his partner Edoardo Narduzzi, in the book La Fine del Ceto Medio e la Nascita della Società Low Cost (The End of the Middle Classes and the Birth of Low Cost Society). Other companies riding the same wave are H&M, Zara, Wal-Mart and Ryanair, which have succeeded in interpreting people’s appetite to consume more and better while paying less and less.
The economic force of 86 million Class C consumers in Brazil today is easily recognized: 20 million people have joined this segment between 2006 and 2008, driven by the economic growth experienced by the country during this time.
Since its inception, the Cacau Show business had a very lean operation model, with low costs, aggressive pricing, high-quality products and creative marketing. There was nothing similar on the Brazilian market. High-class consumers had several alternatives for artisanal or imported chocolates, while, on the other end, industrialized chocolate brands were sold to all social classes through supermarket chains and food sections at department stores. The middle lane was free. But not any more: Cacau Show has already attracted followers who are now trying to copy its market positioning of providing high-quality chocolate at accessible prices.
Though the product offered superior quality, an important aspect was missing in the brand’s attractiveness: the buying experience. In its early years, Cacau Show distributed its products via door-to-door sales but eventually opted for a sales format that used bakeries and small supermarkets. With the expansion of the factory, Cacau Show began using major supermarket chains and large department stores, but the narrow profit margins of this format, combined with the bankruptcy of some relevant and important players, drove the search for alternative distribution channels elsewhere. Today the distribution format is through franchises, a key part of the equation’s success. The store was the missing link for turning the brand’s magic into a tangible asset.
To remain competitive, Cacau Show has had to be creative in order to maintain growth and appeal. The company keeps up a frantic production schedule to ensure expansion driven by a Brazilian market that still offers significant unrealized potential and an international market with even more promise. The brand now operates from a 36,000-square-meter fantastic chocolate factory on the outskirts of São Paulo.