Brazil - Sustainable business development in the Amazon with Guarana
Fundacacao Amazonas Sustentavel
The 2019-2020 school year was the third year of Business on the Frontlines (BOTFL) working with Amazonas Sustainable Foundation (FAS). FAS is a Brazilian NGO, created as a partnership between the Government of the State of Amazonas and the Bradesco Bank. Their mission is “to promote the sustainable involvement, environmental conservation and improvement of the quality of life of community residents and users of protected areas in the State of Amazonas.” Each year the BOTFL teams have advised FAS on how to build a business around a product supply chain to help communities to capture a larger portion of the economic value of that product. In 2018 the BOTFL team advised on the Pirarucu fish, in 2019 on Farinha Ribeirinha and in 2020 on guaraná and wood management. This year’s team was specifically focused on developing a go to market strategy for Jirau guaraná and accessing profitable markets for wood management.
What was the problem?
The resources of the Amazon rainforest are abundant and this year the FAS team approached Notre Dame with 14 different possible products they were looking into helping the local indengious communities commercialize. Of the fourteen supply chains, the team focused on two, guaraná and wood management.
While guaraná is commonly known throughout Brazil, when most Brazilians hear guaraná they think of the soda they drank growing up. We learned that guraná comes in many forms: seed, syrup, extract and powder and is used in a variety of products including energy drinks, supplements, food products and lotions. Guaraná has been consumed for years due to its many health benefits including enhanced stamina and reduced mental fatigue. The traditional way to consume guaraná was to mix it in powder form into water or juice and drink it. Today, people use guaraná powder as an in-home ingredient, caffeine alternative, fitness product, and weight loss supplement.
The key challenge for FAS, in working with the Maués communities, was to identify the right go to market strategy for a product that in powder form is largely commoditized with multiple sales channels in a fragmented market. The solution would require product differentiation and identifying and marketing to the right consumers. The main problem FAS faced after constructing a fabriqueta to produce guaraná powder was establishing optimal production levels, raising the required working capital investment, product differentiation, and identifying key sales channels.
The greatest challenge facing the wood management program in the Rio Negro Reserve was a need for government licenses and subsidies. In addition to this external constraint, there was a sales constraint around both the supply and demand of wood management and the logistics of the sales process.
What did we do?
The Notre Dame team researched the guaraná market in the US prior to going in-country, learned about the production process and the products guaraná is used in from energy drinks, to lotions, to supplements. In-country we traveled over 20 hours by boat from Manuas to Maués to meet with guaraná producers and local community members to learn about the production process and their current challenges and opportunities. We also met with a local businessman who currently sells guaraná powder from Maués to get a better understanding of the logistical process. Additionally, we did ethnographic research in Manaus to learn about the other products on the market and how they were branded and positioned. The intent of this was to explore how the Jirau brand can stand out in the marketplace and grow their customer base. To identify the right markets and opportunities we had meetings with key stakeholders at FAS to understand various logistical and marketing challenges.
For wood management after arriving in-country we learned that the challenge was different than initially expected. So much of the research we had done prior to visiting the reserves was not relevant. We were previously unaware of the licensing issues and the great hurdle that this presented to the communities. While in-country we learned as much as we could about the production process, what the wood is used for, the process to get a license and how the communities find buyers. We visited two communities, walked five kilometers into the jungle, spoke with members of the government and explored potential alternative revenue streams.
What was the turning point?
Realizing that if FAS were to proceed with the proposed plan to produce 2,400 kg of powder in year 1, it would lead to an inventory of 22,400 boxes of guaraná powder, which is just under 2% of the powder market, was a turning point for the team. We needed to evaluate the size and fragmentation of the market as a whole to help determine the best strategy for FAS. We learned that the guaraná powder market, while limited in size, represents a substantial opportunity for increased income to the communities who produce this product. We realized that managing working capital levels early and having an integrated marketing strategy were critically important in launching this product. Additionally, through talking with another powder producer, we learned how fragmented the market is and that FAS will need a strong marketing strategy to be successful. We also learned that among the most profitable uses for guaraná powder were weight loss and caffeine supplements sold in capsule form. Our market research indicated that by weight, guaraná powder in encapsulated form can be sold for up to four times the retail price of boxed powder. This in combination with evaluating FAS’ existing privileged relationships, including with the Brazilian retailer Lojas Americans helped set the stage for our recommendation.
The turning point for wood managament was when the Notre Dame team identified a new source of potential revenue for the Rio Negro communities that does not rely on government licenses. The team had taken a 5km hike into the forest and were interviewing two community members when they walked us over to a tree where they inserted a tap and began extracting oil. We learned this was a copaíba tree and its oil is currently extracted for personal use by members of the Rio Negro communities. Upon further research the team identified that there is a market for copaíba oil, and there does not appear to be a licensing constraint. FAS already has a relationship with S A Pharmacos e Cosmeticos through their andiroba oil supply chain in another reserve. Expanding this relationship to include the manufacturing and bottling of copaíba oil could provide a new source of revenue for the communities that are waiting for their wood management licenses to be approved.
What was the recommendation?
The recommendation for guaraná was laid out as a multi-year plan. Including steps to successfully launch Jirau brand guaraná and ways to build the brand for continued growth and success. In year one we suggested that FAS utilize a salesperson to identify optimal markets and get powder into grocery and supplement stores, develop the story of Jirau guaraná, employ online marketing tactics including email, video, and social media marketing to increase awareness of the brand and generate sales on Lojas Americanas. For year two we recommended they utilize data analytics to access the product launch and the year one marketing efforts, scale production of powder as the demand changes, and begin exploring capsules as a viable option and look to extend sales into pharmacies. In years three to five we suggested transition to sustainable in resealable packaging for powder, obtaining an organic certification, being using a distribution center in São Paulo to reduce shipping costs to consumers, monitor sales data and consider adding a distribution center in an additional city if there is demand and adjust marketing strategy include updated labeling and branding.
The recommendation for wood management was to first address the challenges with obtaining government licenses. Currently, the lack of licenses has paused all profit-generating wood management efforts. Once licenses are obtained we recommend that FAS establish effective product differentiation to distinguish their timber and lumber from their competitors’ products. This could include telling the stories of the communities and sharing the backgrounds of harvesters whose quality of life has been elevated by escaping the dangers of illegal logging. As well as adding a designated salesperson to ensure there is a plan in place to consistently identify and communicate with potential buyers. One salesperson with close contact with the buyers could serve the entire reserve by working directly with the association. The association can in turn work with a single point of contact in each community to keep the salesperson updated.
The team also provided suggestions for future opportunities including building a wood storage facility to address current logistical challenges and selling copaíba oil. Copaíba oil presents an opportunity for profits that do not require government licenses. The oil is easy to extract, and the market for copaíba oil is growing. Further investigation into the business aspects of extracting and selling copaíba oil are highly recommended.