Philip Morris Brazil Centralizes Its Manufacturing Operations in Santa Cruz do Sul

Source from:  Tobacco Reporter  07/01/2013

Philip Morris Brazil (PMB) opened a new production facility near Santa Cruz do Sul at the beginning of April. With 40,000 square meters of floor space, the modern cigarette factory cost $57 million, making it the company's largest investment in recent years. The industrial complex is also one of the largest tobacco-industry investments to date in the state of Rio Grande do Sul, reflecting the sector's dramatic growth over the past decade.

Built on existing PMB property in an industrial park on the outskirts of Santa Cruz do Sul, the new factory centralizes all phases of production under one roof. The facility incorporates processing and receiving of raw tobacco, and all intermediate steps until the finished cigarettes come off the production line. It also houses chemical analysis laboratories and graphic design facilities for packaging. PMB expects centralization to improve communication between the various production departments, facilitating scheduling and reducing downtime. In addition to locker rooms and a cafeteria, employees have access to a dance studio, a game room, a gymnasium and several television lounges. The building's design incor-porates architectural elements that minimize the use of electricity, including a special roof that takes advantage of natural sunlight. To ensure the safety of personnel during the manufacturing process, all electrical installations have been installed within insulated tubes located on the second floor.

Tarso Genro, the governor of Rio Grande do Sul, attended the dedication of PMB's new facility to demonstrate his government's continued support for the tobacco industry, an important employer and taxpayer in the state. In remarks to the audience, he confirmed his administration is currently developing the third phase of a plan to encourage continued growth in the tobacco sector, which will soon be released to the public.

He said the new tobacco facility will benefit the area by generating new jobs and increasing tax revenue. According to data from the 600 municipalities that are involved in tobacco production in the region, the tobacco business generates 241,000 seasonal and 114,000 year-round jobs.

"The inauguration is a milestone for Philip Morris Brazil as the company realizes its plans to unify all production units on a single industrial campus in Santa Cruz do Sul," said Amâncio Sampaio, president of PMB. "The new configura-tion, with infrastructure of the highest quality consolidating all our production stages, will further increase our competitiveness so that we can continue to grow and innovate."

"Besides generating employment for 1,200 persons from this city, the facility also contributed $16 million in tax revenue in 2012," said Sul Telmo Kirst, mayor of Santa Cruz do Sul. Philip Morris, he added, accounts for 54 percent of the tax on circulation of goods and services collected by the city.

PMB began consolidating and restructuring its commercial operations in 2010, following its decision to purchase tobacco directly from 17,000 local tobacco growers in the region. During this process, PMB acquired tobacco purchasing facilities in Rio Grande do Sul and Santa Catarina, among other states. The investment in streamlin-ing the tobacco purchase process included hiring 200 additional employees, most of which were specialized technicians with experience in the field.

Between its administrative offices in Curitiba, Parana, and its production facilities in Santa Cruz do Sul, PMB currently employs 2,700 people. It also has offices in Sao Paulo, Porto Alegre, Rio de Janeiro, Campinas, Florianópolis, Salvador, Brasilia, Belo Horizonte and Recife.

PMB's distribution network has more than 170,000 direct sales locations nation-wide. The company markets a mix of international cigarettes, such as Marlboro and L&M, and domestic brands such as Shelton and Dallas. In addition, it exports semi-processed tobacco products to its international subsidiaries.

Philip Morris has been operating in Brazil since 1973, the year it began building its first factory in Curitiba. Two years later, it introduced to Brazil the world's most famous and prestigious international cigarette brand—Marlboro. After that, it went on a spree of acquisitions and mergers in order to obtain a larger market share in the country. This growth by acquisition continued through the 1990s, and in 1998 Philip Morris Brazil moved its base of operations to Santa Cruz do Sul, where it launched in Brazil another international brand, L&M. The company currently has a 16 percent share in Brazil.

According to Philip Morris's 2012 annual report, cigarette shipment volumes in Latin America and Canada decreased by 1.6 percent, mainly due to smaller overall markets in Argentina, Colombia and Mexico. Marlboro shipments increased by 0.7 percent, reflecting greater market shares in Brazil, Colombia and Mexico. In Argentina, the total cigarette market declined by 0.9 percent to 43.4 billion units. In Mexico, the total cigarette market was down by 2.2 percent to 33.6 billion units, reflecting the impact of price increases in January 2012 and the continued wide prevalence of illicit products. Enditem