How the Argentine Company San Miguel Became the World's Largest Industrial Lemon Processor
Pablo Plá has extensive experience in the organizational world. His most recent challenge was the turnaround of the food company Ingredion, which culminated in a joint venture with Arcor.
September 2024
Pablo Plá, CEO of the citrus processing company whose main shareholders are the Miguens Bemberg and Otero Monsegur families, explains the strategic redirection of the company, which shifted its business model from fresh fruit to industrial processing. He discusses the main challenges and the next steps.
"For 15 years, I've been dedicated to the strategic redirection of organizations," introduces Pablo Plá, CEO of San Miguel, the world’s largest industrial lemon processor. His resume includes experience at companies like Coca-Cola, Cervecería y Maltería Quilmes, and General Mills, as well as the turnaround of Ingredion, a U.S.-based food company. Ingredion, which had acquired Refinerías de Maíz in Argentina, went from losing $20 million annually to making $20 million and culminated in a joint venture with Arcor.
After this experience, Plá joined San Miguel to lead a business transformation that involved moving away from fresh fruit (its historical core) to focus on the industrial market, which is less volatile to commodity prices and offers more added value (processing lemons to make concentrated juice, essential oil, and dried lemon peel, among other products). The results: the company went from a negative EBITDA of $24 million in 2022 to a positive result of $4 million in 2023, with better prospects ahead.
In the last four years, the company invested $18 million in its Tucumán operations, with an additional $4 million planned for this year, and projects another $20 million over the next five years, allocated to technology, R&D, infrastructure, the environment, and improved agricultural practices. Throughout this process, the company received key support from its investors (mainly the Miguens Bemberg and Otero Monsegur families, along with South African holding company African Pioneer Group, APG) and the market.
“The company had a business portfolio based on two major units: fresh fruit (produced in its own fields and third-party fields in Argentina, Peru, Uruguay, and South Africa) and industrial lemon processing, mainly done in Argentina at its own plant and through partnerships in other countries, serving 220 customers across different industries," explains Plá. Before the transformation, fresh fruit accounted for 70% of San Miguel’s business. The lemon market faced an oversupply, which drove down prices from $1,200 per ton to $600.
Lemons, Fruits, Food
Before undertaking the strategic shift, the fresh fruit business (mainly lemons) accounted for 70% of San Miguel's operations. "So, we designed a corporate strategy to define the portfolio and where to compete. This led me to propose exiting the fresh fruit business. It’s a significant change in the company’s DNA, and for that, you need to convince many internal stakeholders (employees, shareholders) and external ones (customers, market, the communities where you operate)," says Plá. Along the way, many things happened: they sold that operation, which included assets in Peru and South Africa, to the Spanish group Citri & Co., negotiated long-term contracts with their customers, and developed new plants. “A strategic shift requires three key elements: the optimization of internal efficiencies and cost competitiveness; finding a way to increase revenues (through securing long-term contracts); and a strategic leap or a strong shift in terms of the overall strategy,” Plá adds.
They built a US$23 million plant in South Africa, together with APG, and another US$31 million plant in Uruguay, with a loan from the Banco de la República Oriental del Uruguay (BROU), which was inaugurated in July this year. All of this was aimed at becoming, as Plá explains, the largest industrial lemon processor in the world, with a 16% share of the global lemon processing market, projected to reach 20% in about three years when both new plants reach full production capacity. “In South Africa, APG first made an investment for 27.5% of the subsidiary and then decided to invest in the Argentine holding, aligning with a capital injection initiated by our group of shareholders, which totaled US$44 million,” Plá highlights. These two plants join the one in Tucumán, which has a processing capacity of 300,000 tons per year. “We are the only company in the world with multiple supply sources, being present in these three countries,” says Plá. "We will celebrate 70 years of presence in the country this December. Our shareholders have a long-term vision, and the strategic plan is to continue with a strong presence in all three countries."
In this decision, aside from the international price of lemons, was the local situation for exporters, who often face challenges due to exchange rates or export taxes, a factor?
The drop in the price of lemons is an international supply-and-demand phenomenon that has nothing to do with Argentina. However, it's true that Argentina suffers from a high number of taxes and regulations that undermine the country's competitiveness in many export industries, including ours. Therefore, we continue working on efficiencies, but the government also needs to help by reducing the number of regulations and taxes, making it more comparable to other regions. Companies must keep focusing on operational optimization and strategic capability to penetrate markets and grow businesses, and the government must also help—regardless of political affiliation—by improving Argentina's cost structure.
What are the next steps after this entire process?
The key now is to consolidate the changes made. This is very important. So, 2024 and 2025 will be about consolidating the numerous changes that have taken place and finishing the optimization of all our subsystems, both in agriculture and in our new industrial areas. This transformation brings us a highly promising and profitable business model. Our financial flows have very low beta (low volatility) because they are secured by long-term contracts. It's a highly interesting and predictable business model, which will make it easy to scale in the future.
And new businesses?
In parallel, we are analyzing "new arenas" or areas of product and service development. Think of it as a two-engine airplane—if you want to fly long-term, you need both engines working. Our engines lie in the logic of the business model we are building. One engine is the current business model, which we need to consolidate and bring to its maximum efficiency. The other engine is the pursuit of new business opportunities. We have a team working on that, and we are exploring new product areas with some international companies, but I can't disclose them as they are confidential. However, this approach is part of our DNA and our way of constantly developing the business model and, therefore, competitiveness in a sustainable way.
What's your vision as an Argentine company, headquartered in Argentina, with local investor groups?
Our shareholder group is Argentine, mainly comprised of two families, and we are listed on the Buenos Aires Stock Exchange. It's a group with a long-term vision and commitment to the country. This long-term vision is so significant that, as we progressed with this new business model, they invested US$ 22 million at the end of 2023. This was through a capital increase that resulted in a follow-on, a mechanism by which shareholders contribute capital and give the market the opportunity to join that subscription. It was the largest capital subscription in Argentina since 2015. It was then followed by our South African partner and the broader market, reaching nearly US$ 68 million. Afterward, we completed a bond placement for US$ 35 million, which served as a rollover of debt.
How is the current economic climate affecting you?
We are affected like any company with operations in the country by the various economic or regulatory measures. In our case, the temporary drop in consumption in Argentina affects us less because much of our business is export-based. We generate foreign currency for Argentina. What does affect us is the web of regulations that historically reduces the competitiveness of the export industry. From that perspective, we are hopeful that Argentina will start to experience lower levels of regulations and taxes, or at least make them more comparable to our competitors worldwide. We export 90% of our production.
How do you see the Argentine corporate world today?
It's a period of significant change, and the IQ of Argentina's leadership class is low because it's a country and society accustomed to absolute short-termism. So, there is a major challenge for leaders to improve their strategic capabilities. The question is how much awareness there is about this. Some leaders are clear about it and have already developed those skills, improving them because they realize they need to close gaps in strategic competencies. Others continue on autopilot. It's a very interesting time in Argentina, with visible and invisible changes, depending on the level of awareness regarding the capacities we need to compete today, the ones we will need tomorrow, and how we will develop them.
When a company undergoes a process like San Miguel's, you have to negotiate or convince multiple stakeholders. How was this process? Were some more difficult to convince than others?
A strategic redirection is not the same as an annual plan. Even when there is a high level of urgency, there is a gradual process of bringing different stakeholders on board. If you don't understand that, you risk ruining the process, and organizational resistance can play against you. The first to see and support this were the shareholders, given their level of sophistication, industry experience, and long-term commitment. We did that strategic work together. Perhaps the greatest communication effort was with the employees, using a storytelling approach to explain that we had a solid strategy. The way you structure internal communication is strategic in itself. We did this with employees, key partners, clients (another very important stakeholder group), and the financial system. In two slides, you can be very clear: what's the strategic diagnosis, where the organization's main challenges lie, the guiding policy to address that diagnosis, and the coherent set of key actions to make it happen. These are the three components that define the DNA of a good strategy.
