Sweat More In Peace = Bleed Less In War
Brick-and-mortar Magazine Luiza (Magalu) was founded in 1957 and brewing giant Ambev was founded in 1999. Each are Brazilian leaders in their corresponding retail and brewing industries.
Despite their substantial size and age, they were able to establish innovation cultures and infrastructures before periods of severe macroeconomic uncertainty. By doing so, these two visionary Brazilian companies were not only prepared to survive, but thrive, during times of crisis. Below I outline how each one prepared for success years before their respective crisis hit, be it Magalu’s record-setting EBITDA despite Brazil’s 2015–2019 recession, or Ambev’s continued beer sales despite the COVID 2020 lockdowns.
MAGALU:
From 2015 to 2019, Brazil was facing its worst recession in history. During that same time period, Magalu stock price increased more than 18,000% in value, finishing 2019 with record earnings at 33% growth, 28.9% EBITDA, and a strong cash flow position. This success did not happen overnight; it started back in 2012 with the visionary leadership and culture established under COO Frederico Trajano. Frederico had spent years studying Silicon Valley digital players, as well as new retailers entering the Brazilian eCommerce market. From his learnings , he launched the Luizalabs innovation team in 2012. This small team of developers were freed from the company’s heavy governance to help scale digital projects quickly across the organization. Even more importantly, they were not isolated as is usually the case with innovation labs; the group was given direct access to Magalu’s core ecommerce business systems from the start. As such, by 2014, the Luizalabs team had begun spearheading the technology, supply chain, and logistics for a digital first company.
By the time the recession hit in 2015, the team culture and infrastructure was set to execute digital transformation. Magalu entered the crisis by launching its digital marketplace with fully updated API technology in 2016. The new system eclipsed the legacy system of 50,000 SKUs with 1M SKUs by 2017 and then 7.5M by 2019. Additionally, in 2017, Magalu updated their digital avatar Lu with AI to suggest products to users on their website, and also opened her instagram, Tinder, Twitter, and TikTok accounts to incorporate into their omnichannel Marketing campaigns.
She was a Tinder success, reaching 150,000 Tinder matches and also helping contribute with a 56% YoY increase in Magalu’s eCommerce sales, much greater than Brazilian ecommerce average of just 12%. Lu is now the largest virtual influencer in the world with over 31M Followers in social networks. In 2018, the company rebranded with the omnichannel name “Magalu”, and only used “Magazine Luiza” for the brick-&-mortar stores. Finally, in 2019, they launched MagaluPay, Magalu’s digital wallet which allows for cash withdrawals and deposits, payments for purchases via QR Code, and integrations with Magazine Luiza Credit Card. Since Magalu already had the proper team and culture entering the recession, they were able to quickly digitize their point of sale, marketing, brand, and payments during Brazil’s recession.
AMBEV:
A similar story happened with Ambev and the 2020 Covid Pandemic. All “social” industries were suffering low sales during the lockdown months, including nightclubs, bars, restaurants. Yet, while many brewery companies were stockpiling unsold inventory, Ambev was well positioned to deliver their beers directly to consumers with their own Zé Delivery app. Again, the story started a couple years earlier, in 2015, when Ambev invested in its innovation group and launched ZX Ventures, which launched the Zé Delivery app in 2016. By 2019, the innovation team had refined the product and reached 1.6M orders.
Once the pandemic began in 2020, the Zé Delivery team started scaling its efforts, helping keep over 3,000 retailers and 30,000 couriers in business during the lockdown months. By Q2 in 2021, the app had grown exponentially to 14M orders in-quarter, leveraging their existing distribution network and expanding quickly to 10 additional Latin American countries. As mentioned by Ambev CFO Lucas Lira, Ambev is currently in the process of launching the Zé Delivery app in other regions under the global brand “TaDa Delivery”. This AWS Case study provides more technical details on how Zé Delivery continuously adapted its technology to maintain both quality user experience with sustained hypergrowth during that pivotal period of 2020 to 2021.
Lucas also mentioned to us that culturally, the process to embrace innovation and technology in a highly traditional industry was not immediate. It took time, and it required all stakeholders to buy into the innovation culture. When I first met Lucas, he completely shattered the stereotypes of traditional CPG executives in suite-and-tie. As you can see from the image below, his appearance resembles more the founder of a unicorn tech startup. The physical space of the AMBEV office was striking too. When we walked into their offices, it did not feel like a traditional, cubicle-ed, CPG space. There were open spaces, neon-lights saying “Download the Zé Delivery App”, QR codes and ping pong tables all over the place. That is when I realized: AMBEV was not a beer company with a digital strategy; AMBEV had become a tech company that sold beer.
CONCLUSION
As the old adage goes: “The more you sweat in peace, the less you bleed in war.” It seems that these two Brazilian companies magically transformed themselves during the crisis; but as it turns out, that transformation had been years in the making (we are starting to see a similar theme: read An Ode to the Brave to see something similar happen in Mexico). In these two Brazilian examples, visionary leadership setup a team of new experts and changed the company culture on the verge of trying times. Magalu did it with LuizaLabs while Ambev did it with their own ZX Ventures arm. A group of ecommerce developers led a brick-and-mortar retailer, while a group of app developers led a brewer. Both led to major tech transformations, and both show the importance of letting employees with different knowledge bases enter the company and lead strategic innovation projects.
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