Latin America’s top chief executives have prepared for inflation.
Members of Institutional Investor’s Latin America Executive Team — representing industry sectors including food and beverages, healthcare, and banking — said that rising costs are a key threat to their business. At Coca Cola FEMSA in Mexico, John Santa Maria Otazua, the top-rated chief executive in the food and beverage sector as voted for by the sell side, said the company is combatting inflation by improving the affordability of its products and investing more than $500 million in its capacity for recycling bottles. FEMSA has introduced a universal bottle, enabling the company to use the same refillable bottle across territories for Coca-Cola, flavored sparkling beverages, and even non-carbonated beverages.
FEMSA is also using big data to be more strategic about discounts and promotions to protect its profitability. Crucially, hedging strategies have helped FEMSA mitigate price increases for raw materials. “Our resilient profile coupled with the tremendous efforts from our procurement team to ensure raw material sourcing has allowed us to continue operating without any disruptions, also ensuring our business continuity going forward,” Santa Maria Otazua said.
Gilberto Tomazoni, chief executive of the world’s largest meat company, said that he and his team at JBS focus on the aspects they can control: increasing productivity, improving efficiencies, and ramping up innovation. Tomazoni was voted as the top ranking food and beverage chief executive by buy- and sell-side participants in the II survey. He said that in the last two years, JBS has accelerated its direct-to-consumer sales with an e-commerce platform selling ready meals and various types of protein online. “We want to be increasingly closer to our consumers,” Tomazoni said.
In the banking sector, inflation looks a little different. Milton Maluhy Filho, chief executive of Itaú Unibanco, the largest banking institution in Brazil and therefore in Latin America, said that inflation can affect the creditworthiness of clients, requiring special monitoring from banks. Itaú Unibanco uses data to respond to changing markets and the state of its customers’ finances. Investments in technology have helped the bank keep its cost expansion below the rate of inflation over the last ten years. “Currently, we have the lowest cost-to-income ratio in our history and the best one among our peers,” says Maluhy Filho, who was ranked first by buy- and sell-side voters in the banking sector.
In the healthcare sector, Paulo Moll was voted second in the combined rankings and ranked first by sell-side participants. He heads up the biggest hospital chain in Brazil, Rede D’Or Sao Luiz, where the size of the company has helped it reduce the impact of inflation by switching to new suppliers and squeezing margins. “The main impact from geopolitical tensions for our sector in Brazil seems to be related to the production cost accelerating for many of our suppliers,” Moll said. “Yet, geopolitical tensions have fortunately not affected an important trend in one of the main economic indicators that could boost private healthcare in our country, which is the unemployment rate.” Brazil’s unemployment rate is now at its lowest in over six years.
Inflation has also come with unexpected benefits to the Brazilian economy. Maluhy Filho from Itaú Unibanco said that although investors’ risk appetite is lower, economic activity is stronger in commodity-exporting countries, such as Brazil, which has created opportunities for the agribusiness sector, among others. “The Brazilian economy is, therefore, expanding at a faster pace than we initially predicted,” he said.