---

CHAPTER SEVEN

Take Giant Leaps (Because You’re Not Going to Win with Timid Steps)

---

Chapter Overview

You need to be demonstrably different and better in all the ways that matter to your consumers. No one has ever dramatically changed a market by offering timid, incremental improvements. Dramatic market-share shifts can happen only when consumers are surprised and excited. It is about glorious differences. You need to be bold.

You won’t get there in one cycle of improvement. Realizing your dream takes persistence and patience. It takes daring and determination. When you think you’ve gone as far as you can go, you have most likely gone only half as far as you need to go.

Headline: Dare to Dream and Dare to Act

Every successful company starts with a dream. This is what drives its founders. This is what connects them with their original customers. But there are far more dreamers than there are successful companies. Why? Because successful companies are led by people who have not only dared to dream but also dared to act. The entrepreneurs do not know all the answers, but they are not inhibited by fear or a desire to protect the status quo. They are prepared to lose everything for a chance at the big win. When confronted with risk, they bet boldly.

In this chapter, we look at two companies that started with next to nothing but their founders’ dreams. After a series of giant leaps—redefining their markets, deeply understanding the latent needs of their consumers, and providing highly differentiated products—they have grown into leaders in their markets and created fortunes for their founders and early investors. The founders were not motivated solely by profit or wealth. They were guided by a deep commitment to other people—their customers, of course, but also their employees and suppliers—as they took a series of leaps toward their destination.

The first is Natura Cosmeticos, a Brazilian company that now ranks as one of the world’s most profitable cosmetics companies. It has turned the Amazon rain forest into a mystical source of ingredients for beauty, transforming the lives of 100 million Brazilian women and driving up the standard of living for 1.6 million female sales consultants.

The second is Mercadona, a Spanish company that began as a butcher shop and now ranks among Europe’s largest, most profitable, and fastest-growing grocery retailers. It has created an extended family of employees and suppliers, as well as their friends and families, all of whom have collaborated to serve the “boss”—the customer.¹

Natura Cosmeticos

The Amazon rain forest is one of the world’s most miraculous and globally important natural resources. Scientists call it the lungs of the planet because its rich, diverse vegetation recycles carbon dioxide into oxygen. A full 20 percent of the earth’s oxygen is produced by the Amazon’s plant life.² Under the canopy of Amazonia live half of the world’s species. At the floor of the Amazon forests, only 2 percent of the sunlight penetrates. Yet you can find 175 types of lizards, 300 types of other reptiles, some 500 different species of mammals, and 1,600 species of birds. Scientists also count 40,000 species of insects, 5,600 different fish in the massive Amazon River, and 16,000 varieties of trees. In the Amazon, it is always warm and humid—86 percent humidity during the rainy season and 77 percent humidity during the “dry” season. The mean temperature is about 80 degrees, with highs of over 100 degrees common during the dry months.³

This tropical environment is home to an amazing collection of plants and vegetation. Using modern science and “medicine-man” know-how, they can be combined to create products that perfume, moisturize skin, clean hair, protect skin from the sun, speed healing from cuts and bruises, and provide antidotes to age and disease. The environment is also fearsome—dark, moist, isolated, and home to electric eels, red-bellied piranha, the air-breathing fish pirarucu, poison dart frogs, parasitic candiru, anaconda, jaguars, payara (vampire fish), giant reptiles, and many other dangerous predators. In the forest, trees with 16-foot trunks and massive roots reach 200 feet into the sky. Below them are the canopy trees. They have dense leaves that filter out the light. They create a hospitable environment for flowers and fruit trees. In the shadows under them are low flowers and fruits and enormous concentrations of insects. In the bottom layer, the vegetation is decomposed by leaf insects, scorpions, earthworms, and millipedes.

This is a fragile ecosystem that is susceptible to the ravages and intrusions of man. The Amazon rain forest encompasses 2.124 million square miles—twice the size of India. Scientists believe that it has played a critical role in slowing global warming and stabilizing our climate. But the rain forest is under threat. It has been shrinking at 1.5 percent per year. And as it is burned off to make room for industry and farming, large quantities of carbon are released into the atmosphere.

Anthropologists say that 500 years ago, 10 million Indians lived in this vast jungle. The European conquistadors either annihilated them or spread diseases that killed most of them. Ambitious logging, farming, and road-building efforts have choked off the Amazon’s abundant food supply, killed wildlife, and altered the balance of nature. Only 200,000 indigenous people remain in Amazonia. These 350 different ethnic groups live in dire poverty, surrounded by resources of almost infinite value.⁴

From generation to generation, native medicine men have passed down formulas for dried potions from various plants to promote health and wellness and cure disease. Their secrets have been the source of many drugs now marketed by global pharmaceutical companies. Approximately one-third of the drugs prescribed today by our modern medicine contain ingredients from Amazon plants. Treatments for cancer, childhood leukemia, malaria, schizophrenia, dysentery, and many other diseases contain active ingredients from these plants. Most of the Amazon medicine men are elderly, and they hold the secrets of the forest in their heads and in undocumented regimens. Scientists are now discovering that many of the plants are sources of new drugs for conditions including AIDS, Alzheimer’s, arthritis, cancer, diabetes, and heart disease.

One company has decided to make a difference in the future of the Amazon, the people of the Amazon, and women worldwide. It is not a pharmaceutical company; it is a cosmetics firm.

In 1969, Antonio Luiz Seabra founded Natura Cosmeticos as a small laboratory and cosmetics shop in São Paulo. He was 27 years old and full of ambition.⁵ He was the company’s first door-to-door salesman. His start-up capital was around $7,500. Today the company delivers revenues in excess of $3.1 billion and earns $637 million in EBITDA (earnings before interest, taxes, depreciation, and amortization).

Some 85 percent of the company’s revenues come from Brazil, and it is Brazilian women, as both customers and consultants, who have grown this beauty business. Brazilians are proud of Natura; it is a national hero in its home country.

Natura’s secret has been to take a series of five giant leaps. First, use native Amazonian sourcing for the active ingredients in its products. Second, create a people-focused multilevel selling organization. Third, recruit, train, and enable 1.6 million sales reps who are willing to sell their heart out for the company. Fourth, use a philosophy of doing good to drive goodwill and a positive image. And fifth, stay focused geographically on Latin America, where the company understands consumers and exports Brazilian beauty.

Headline: “The Future We Dream Of”: Build a Business on a Philosophy

From the beginning, Natura was a values-driven company.

During its first three decades, it was managed by a founding triumvirate. Seabra was the company icon who pledged to avoid manipulative advertising and help the customers develop their inner beauty; Guilherme Peirão Leal was “the head,” in charge of process and organization; and Pedro Luiz Barreiros Passos was “the body,” in charge of practical, operational arenas. They shared power and a vision.

The three founders refer continuously to cultural drivers: commitment to the truth, caring for relationships, continuous improvement, doing things well (simply, in a disciplined way, and with honor), innovation, sustainable development, and pleasure and joy (conveying meaning in everything they do). Their mission is “to contribute in an innovative and exemplary way to the improvement of society, causing changes in attitudes and values that materialize the ideal of a fair society.”

More specifically, as Seabra says: “Natura’s reason for being is to create and sell products and services that promote ‘well-being’ and ‘being well.’” It’s a train of thought that he got from Plato. “At age 16, I was given this quote from Plato: ‘The one is in the whole; the whole is in the one.’ That was a revelation to me. This notion of being part of a whole has never left me.”

He goes on to explain the idea of “well-being, being well” (or “bem, estar, bem” in Portuguese): “Well-being equals the harmonious, pleasant relationship of a person with oneself, with one’s body. Being well equals the emphatic, successful, and gratifying relationship of a person with others, with nature, and with the world.”⁶

To carry out this mission, Natura implements a triple bottom line: (1) economic: cash, growth, and profitability; (2) social: wealth creation for consultants, corporate social responsibility investment, and benefits to the supplier community; and (3) environmental: carbon neutrality, refillable packaging, sustainable extraction, and extensive use of recycled materials, focused on economic, social, and sustainable performance.

The Amazon is central to everything Natura does. Its Amazon roots work for Brazilian women, too.

One of the myths of the Amazon is the story of the Amazonian woman. She was described by Dominican monks as “fierce, fiery, and deadly.” According to legend, she could fire arrows at a rate ten times faster than men, and had the accuracy to pierce the break in the armor between the shoulder and head of the heavily armored conquistadors. The fierce resistance of these women is said to have saved the Amazon from full conquest for decades. In 1542, Gaspar de Carvajal, a Spanish Dominican missionary to the Amazon, wrote: “These women are very white and tall, and have hair very long and braided and wound about the head, and they are very robust, with their bows and arrows in their hands, doing as much fighting as ten Indian men.…”⁷

Natura is dedicated to the preservation of the Amazon and the prosperity and well-being of women worldwide. It carries the legend forward.

Headline: Innovate Products, Selling Channels, Positioning, Source Material, and New Age

“Pitanga means red in the language of the Tupi Indians of Brazil.” So says the label on one of Natura’s hand soaps. It continues: “Red is the color of the fruit from the Pitanga bush native to the Atlantic Rain Forest. Tart and very Brazilian, the Pitanga fruit is an expression of Brazil’s tropical nature. This gentle hand soap, with Pitanga oil, has a pleasant fragrance inspired by the wild freshness of the Pitanga fruit. It cleans and perfumes your hands, leaving them silky and soft.”⁸

Natura has more than 700 natural products: perfumes and face and body care products. They include mother-and-baby goods and everyday items such as shampoos and shower gels. Its major brands are Ekos, Tododia, and Mamãe e Bebê. Although Natura uses precious ingredients, it is not a luxury company. It targets the premium mass-market and midtier price points. The Ekos product line, launched in 2000, is based on ingredients extracted from the rain forest: essential oils, seeds and nuts, and leaves. It is created through a combination of “science,” traditional medicine, and biodiversity. It has captured the hearts and souls of 100 million Brazilian women.

Iguatemi Costa, who is in charge of sourcing for Natura, says that the company continues to use the Amazon as a source of advantage. It is a world of discovery where new ingredients can deliver leaps in innovation. “We have a new factory, a center of innovation, in Amazonia,” he says. “We aim to have 30 percent of the value of raw materials come from this special land.”

Natura has innovated not only in products but also in ingredient sourcing, packaging, sales distribution, imagery, and philosophy. There is a day-and-night difference between Natura and not only the high-end global cosmetics companies, but also other multilevel-selling companies. Natura has created a streamlined hierarchy, from company to manager to sales consultant, so that there are fewer people taking profits from the frontline reps.

Natura’s products are directly inspired by ancestral Brazilian traditions, with ingredients sourced from 36 local Brazilian communities. The company uses 36 native species, 38 exotics, and 56 raw materials from the Amazon, including acai berry, Brazil nuts and Brazil nut oils, cacao seeds, cupuacu butter, cumaru, guarana, lemongrass, jambu, passion fruit, and piri piri roots. Its ingredients include Aloe barbadensis leaf extract, Chamomilla recutita flower extract, Malva sylvestris extract, allantoin, carica, and papaya fruit extract.

It is not easy to get these ingredients. To do so, Natura’s scientists must fly to Brazil’s northern Atlantic Coast. Then they drive four hours on mud roads and travel by boat for several more hours to the interior rain forest. The journey from São Paulo is a 55-hour trip. When they arrive, they find indigenous Indian families harvesting nuts, flowers, and roots from the rain forest to make ingredients for the company’s perfumes, soaps, and lotions. This crop delivers as much as $2,400 per acre in cash income—money that is desperately needed by the native Amazonians.

The products are sold as part of the Brazilian heritage of beauty, sensuality, and raw energy. On the company website, consumers are asked: “Do you know the tradition of the Brazilian banho? At all times, different cultures attributed to the waters a mysterious power. Bathing is more than body wash. [It has] magical powers associated with beauty, pleasure, happiness.” Natura continues: “The bath has always been something sacred and magical, especially when it is associated with power plants. Herbal baths wash, treat, fortify, repel dangers, and bring good luck. Magical powers are also present in the tradition of the scented bath. It also has a protective function, and good luck. Patchouli, wood angola, Cumaru seeds, roots priprioca, jasmine, sandalwood, cedar, vanilla are some of the Amazonian plants that go into the recipe scented bath, ‘fragrant scent’ of Pará, which has the power to ward off bad luck and the evil eye and bring happiness. It is recommended to take a bath at midnight and not to dry the body with a towel.”⁹

Headline: Customers as Sales Consultants—Give Them the Opportunity to Break Out of Poverty and They Will Reward You

Natura took its first great leap when it launched the company, originating an advanced set of values and opting to use the Amazon rain forest as its product laboratory. In 1974, it took its next giant leap by beginning to develop its direct-sales capability. Natura sales consultants sell the company’s products to their friends and family. With more than 1.6 million consultants—formerly stay-at-home moms—Natura ensures that it can successfully pitch a health, beauty, and wellness line of 1,600 items to more than 60 percent of Brazilian households.

The consultants are extremely effective representatives of the company. They forge deep, close relationships with their customers. They know the products intimately, and they know their customers’ hopes and dreams. They understand what it is to have economic limits and a desire to be beautiful. They can speak about all the technical, functional, and emotional benefits of the product as well as its authenticity. They can describe the product’s origins, why it’s so beneficial, and how it works.

When these consultants encounter skeptics, they use their deep product knowledge and their understanding of the customer. As one told us: “Many customers complain that the product is expensive. When this happens, I do not speak as a seller. I speak as a consumer. I say it is more worthwhile to buy a product that costs more and is good than a cheap brand you cannot trust.”¹⁰

Given the importance of its part-time sales force, Natura is careful to nurture the individuals. It is committed to training. “Natura consultants have the opportunity to develop skills and capacities to improve their relationship with themselves and their communities,” says Alessandro Carlucci, a former CEO.¹¹

For full-time staff members, Natura pays well. On average, women get higher salaries than men. The company pays 1.4 times the minimum wage as well as benefits for nursery care, healthcare, life insurance, and fitness. The average consultant makes $1,100 per year—a 25 percent boost in household income and a massive difference in her family’s standard of living. Many consultants use Natura as a stepping-stone out of poverty.

Natura benefits from the accumulated “friend lists” and the sweat energy of the individual sales consultants. It has come to be the fourth-largest direct seller in the world. More than 15 percent of its sales are outside Brazil, largely in Argentina, Colombia, Mexico, Chile, and Peru. It now beats Avon, the global titan, in Brazil and other Latin markets.

Headline: Commit to Sustainability, Well-Being, and Relationships

Natura has high ideals. It is a New Age company that talks about a “chain of relationships, commitment to the truth, greater diversity leading to greater wealth and vitality, a search for beauty.”

It has committed its resources and its corporate power to the perpetuation of the Amazon. One way it is doing this is by helping the native Amazonians earn higher incomes, receive education, and progress in their lives. It sources the ingredients for its products from 3,000 local Amazonian families. Natura’s goal is to source 30 percent of its raw materials from 10,000 families in the Amazon.¹² The company states: “We want to increase their profits, so we continue to use them. We contact them and ask for authorization to study the ingredients where they live in the forest. Then, when we develop products, we buy from them, pay a fair rate for the ingredients, and share some of the profits from the products.”¹³

Apart from its commitment to Amazonian families and other stakeholders, Natura has demonstrated a profound interest in developing Brazil with its education initiative. Since 1995, the revenues from its Crer para Ver (“seeing is believing”) product line have been donated entirely to education. The proceeds have been used to educate teachers and to improve educational programs and tools. To date, the program has affected 3 million people through 180 projects. It supports 350 municipalities and 5,700 schools. Some 15,000 consultants participate in the Crer para Ver program, forgoing their commissions to improve education. One consultant, Maria, says, “I only attended primary school, and I could not afford many things. I would like to see every child in school, and the Crer para Ver program is very important to support education. If I could, I would help more.”

Beyond these steps, Natura is investing millions of dollars to improve logistics, reduce its environmental impact, and invest in social infrastructure, helping the local people see sustainability as being in their interest. This is essential because the company processes 12.8 million orders per year to 1 million delivery points and targets 100 million consumers.¹⁴

Natura’s commitment to sustainable development has proved successful with both investors and customers. Since it went public in 2004, Natura’s stock has grown 916 percent—four times the BM&FBOVESPA index.¹⁵ “Our responsibility is not only to shareholders,” says Carlucci. “We take our economic results into consideration, but also the socioeconomic results. We try to align all of them. It’s in the DNA of the company.”

Natura’s management constantly measures and reevaluates what it calls the materiality matrix, a cross-reference of social and environmental topics that stakeholders regard as important. This matrix has seven priorities: education, sustainable entrepreneurship, relationship quality, biodiversity, reducing solid waste, saving water, and contributing to climate stability.

For a midsize company that is still largely based in one market, sustainable development is a bold aspiration. But Natura believes that it can be achieved. Luciana Hashiba, an executive in the innovation team, says that Natura “does not have to make trade-offs between doing good and doing well.”

“We have high financial return to shareholders, employees, and other stakeholders through sustainable development,” she says. “We provide consumers with cosmetics that enhance their well-being and sense of themselves. We support local economies and the areas around them. Our programs generate funds that are invested in projects that foster social reinforcement, the creation of alternative sources of income, food security, and leadership.”¹⁶

Headline: An Apostle Speaks—Brazil’s 100 Million Women Remain Fiercely Loyal to Natura

Vanya is a 38-year-old receptionist from São Paulo. She has a high school education, is married, and has three children. More than a decade ago, a friend visited her home and made the initial sale of Natura products. Vanya became a convert. “Natura products are good for the environment and natural,” she says. “I like the Natura company because it is worried about the environment. It makes me happy when I buy things from Natura—I feel like I am helping others.”

She buys 15 products per year, including Mamãe e Bebê shampoo because “it smells good on the baby’s head.” She also likes the “hard soap—it lasts forever,” the lipstick because “other lipsticks irritate my face,” and the moisturizer because it “makes my hands nice and soft.”

She has given products to foreigners as presents. “I have gifted them to a lot of people abroad—five people in the United States this year,” she said. “These people already know and like Natura. When I go to the United States, I take Natura products as a gift because I think that it represents Brazil in a good way.” She talks about the “good smell, good product, good packaging.”¹⁷

Headline: Always Look for the Next Great Leap

In our conversations with Natura, the leadership team was proud of the company’s growth.

The company has already established strong positions throughout Latin America. Also, it has launched in France and acquired in Australia. And it obviously has its eye on the United States. In 2012, it established a small office in Manhattan’s SoHo neighborhood.

Natura’s leaders desperately want not to become a conventional corporation. They have tried to avoid bureaucracy, layers of decision making, and decisions made solely on bottom-line criteria. They view their strength in the market as an opportunity to reinvest in their core values: saving the Amazon and its indigenous people, contributing to a more sustainable planet, giving their sales consultants a chance to break out of poverty, and educating poor Brazilians.

Any strategic decisions that they take will involve answering the following questions. This is the internal checklist that they use to evaluate every decision:

1. Are the company’s investments building the brand?

2. Is the company objectively connected to outcomes for the greater good? Is the company’s social purpose fully aligned with its business mission and strategies?

3. Is the investment tangible and real and does the market see it: Regard, Loyalty, Price Premiums, Brand?

4. Is the company focused on a key area of social investment and impact—for example, health, education, or nutrition?

5. Are there complete and full measures of activity, outcomes, learning?

6. Is the CEO personally involved and active in the orchestration?

7. Is the level of spending high enough to make a difference?

8. Is there internal congruence connecting the future world, the lives of employees, and the communities in which the company operates?

Headline: Natura Fits the “Consumer to Convert” Model Squarely

Natura is a company that delivers on our six brand principles, listed here:

Inspire. Put into effect singular inspiration and obsessive leadership that are authentic and original and that “break the frame.”

Well-being, being well is the company mantra to which all decisions are linked.

The focus is on sustainability and innovation, and how they connect.

Empathize. Be inside the head of the consumer. Understand what she considers to be trade-offs and compromises, and what her hopes, dreams, and fears are, as well as her vision for a better life.

A network of 1.6 million independent consultants allows the company to have a direct conversation with the local community (where the consultants live) and provides a robust channel for product development and feedback.

Natura takes a flexible approach in order to serve different customer segments. As the Economist reported: “Lower-income customers are being enticed with a new range in lighter, cheaper packaging that gives up every drop of its contents, prompted by the firm’s discovery that cost-conscious consumers were using a spoon to scrape out its containers.”¹⁸

Dazzle through design. Innovate ingredients, manufacturing, and packaging to reflect Natura’s concept of beauty and desire. Natura’s package designs are intentionally modest. They use single-color corrugated packaging. The secret is in the sauce.

Innovate and refine. Never stop. Never rest on your laurels. Always seek what’s next.

Natura was ranked number 11 in the 2013 Forbes World’s Most Innovative Companies list. It was number one in Latin America.

Natura’s core focus is on promoting products that represent and foster well-being.

Natura is targeting international expansion to the United States through an innovation hub that it opened in New York two years ago.

Engage and evangelize. Early users set the tone, drive referrals, and recruit more users. Personal endorsements drive trial and enthusiasm and provide an opportunity to listen to what customers have to say.

The first consumers of Natura became its first salespeople. They literally carried the bag to their friends.

Engagement was around product, the routine of beauty, and a celebration of femininity.

Treat people well. Employees and suppliers should be treated with respect and dignity, as Natura does with its suppliers and the broader community of the Amazon basin. The company is very aware of the issues surrounding sustainability and its own impact on the environment. For example, it assesses how much water it uses.

Headline: Lessons from Natura

There are four lessons.

First, one company can make a difference. Natura does it every day for its 1.6 million sales reps. It gives them training, income, and a position from which to engage in a commercial dialogue. It pays its full-time employees wages that are 40 percent higher than required, provides on average a higher wage for women than for men, and continuously focuses on opportunities for improvement. For the native Indian families in the Amazon, it furnishes employment, cash wages, education, and links to the modern world. To consumers, Natura offers natural products that make the customers feel more beautiful, pampered, and cared for.

Second, share the benefits. Natura treats its sales reps with respect and honor. It takes care of its suppliers. It pays its workforce above-market wages. It aims to deliver above consumer expectations. Everyone connected to Natura benefits.

Third, develop a philosophy and follow it. Natura stands out for its “well-being, being well” philosophy and its triple-bottom-line approach that takes into consideration society and the environment as well as its own financials. Its product innovation has the twist of being based on Brazilian Amazon secret ingredients, with their myths, science, and medicine-man mystique. The sales force is the customer. Consultants receive training about the products, but also training in self-discovery, self-esteem, and empowerment. The company has invested significantly in logistics to provide 24-hour delivery to 4,800 cities in Brazil. This is beyond the availability of traditional retail products. There is a huge emotional benefit for consumers and consultants, who garner respect, inclusion in the larger world, a sense of belonging, pride, and “real” beauty. Long before Dove soap’s celebrated campaign for real women, Natura was showing the full range of Brazilian women in natural surroundings. Other brands that compete in the space are more transactional and are perceived to be of lower quality. Natura reps stretch hard for the company and deliver up to three times the productivity of the competition.

Fourth, don’t stop taking great leaps. The Natura leadership team talks about the beginning of a new growth cycle. It has the resources for worldwide acquisitions. It has momentum in its home market. It has an army of sales consultants calling on 100 million consumers. It has the imagery of its innovation and production facilities in Manaus, deep in the Amazon. It takes innovation seriously and seeks consistency with Natura’s objectives—sourcing of ingredients from the Amazon; a sustainable, limited carbon and water footprint; and truth in its claims. It sees an opportunity to be innovative in broad categories, connect better to its consumers’ needs, and take its value-driven business forward.

Mercadona

Thirty years ago, Mercadona was a little-known laggard in the ancient Mediterranean port of Valencia, Spain’s third-largest city. Today, it’s the country’s number one retailer. Not only that, but it’s Europe’s most admired grocer, topping better-known retailers—such as Carrefour, Ahold, Delhaize, Tesco, and Walmart—by far in BCG’s proprietary Brand Advocacy Index, which rates companies according to consumers’ recommendations.¹⁹ Mercadona has added about €15 billion of market cap value in just two decades. It has defied the worst global economic crisis in 75 years. Above all, it has reinvented the supermarket segment in a global context. In its own market, it is considered to have a price offering similar to that of the lowest discounters and a quality and home-brand attractiveness that matches and even exceeds that of the best leading consumer brands. The Mercadona story is as significant an innovation and as powerful an industry influence as Walmart, IKEA, and Amazon.

It has achieved all this by doing the following:

Using its intimate knowledge of its customers to produce a heavily curated assortment of high-quality home-brand products. Customers go out of their way to buy Mercadona’s products rather than world-renowned brands.

Consistently delivering outstanding value. Through smart innovation in the way it works with suppliers, as well as in manufacturing, packaging and supply chain automation, the home-brand products are on average 40 percent cheaper than their rivals.

Constantly taking giant leaps with new products and business models. Every fourth year, we have seen Mercadona introduce business model innovation. For example, how it distills customer insight, or creates real customer advocacy, or empowers its employees.

The result is that it has left its competitors trailing in its wake. Around the world, the battle lines are drawn between retailers and suppliers/manufacturers. Big-brand manufacturers are retreating as home-brand or private-label products surge in value. In Spain, private-label products command 45 percent of the market value—well above the European average of 37 percent.

Who’s going to win the battle? Mercadona has found a unique way to integrate its preferred suppliers and beat its rival retailers. Cleverly, it has not needed to buy its way into manufacturing. It has stayed asset-light by pioneering a system of virtual integration. It has become both a retailer and a manufacturer—or, as it prefers to say, a “totaler”: a company that develops products in close partnership with its customers and suppliers.

Above all, it has taken giant leaps, not timid steps, on its journey. At each crucial turning point, Juan Roig, the company’s main shareholder and chief executive, has dared to be bold. Little did he know that by doing so, he would become a billionaire and Spain’s fourth-richest man.²⁰

One of his favorite phrases is, “El cambio es lo único que no cambia en Mercadona.” Translated, this means, “Change is the only thing that never changes at Mercadona.” It sums up his philosophy. It explains Mercadona’s restless quest to be better. The world never stands still, and neither should you. If you do, you will get overtaken by events—and by your competitors.

Headline: Giant Leap Number 1: Offer Your Customers the Lowest Prices—Every Day of the Week

Juan Roig and his wife, Hortensia, took control of Mercadona in 1990. He bought a majority stake from his brother and sisters. Ten years earlier, the siblings had bought the company from their parents, who had started the business as a butcher shop.²¹

The business was small. There were just eight grocery stores across Valencia. But it had prospered in its first four years as Spain enjoyed a period of rejuvenation after the restoration of the monarchy in the mid-1970s.

Over the next 10 years, Roig and his siblings steered Mercadona toward sustained growth. By 1991, it boasted 150 stores. But then it encountered its first real problems. It faced stiff competition from international rivals who were breaking into the Spanish market. One of these was Carrefour, from neighboring France. This supermarket giant was at the forefront of the new trends sweeping through the retail industry: investing in larger stores, economies of scale, automation, a wide selection of global grocery brands, and often hypermarkets on the periphery of towns and cities.

Mercadona looked old-fashioned. It was a classic “high-low” supermarket, with lots of promotions to tempt the customer. It was clear to Roig that his business was in urgent need of reinvention. With bankruptcy staring him in the face, he studied successful retailers abroad, including Walmart.

He vowed to offer what he called “everyday low (low, low) prices.” This was a major strategic shift. Until then, Mercadona had pushed products using periodic promotions with reduced prices.

Headline: Giant Leap Number 2: Keep Prices Low, but Don’t Compromise on Quality—and Surprise Your Customers

Mercadona is not merely a discounter. Roig deeply understands the power of the equation price times quality equals value. Soon after launching his low-prices strategy, he looked for a way to keep prices low without compromising the quality of his products. He also wanted to be different. After 15 years at the helm of Mercadona, he knew very well that he needed to “surprise” his customers. Otherwise, why would anyone choose to shop at his stores?

His solution was to work with a select group of suppliers to produce home-brand or private-label products. This way, he could be sure that he was offering something that his rivals couldn’t. This really was a giant leap—his second. He understood the enormousness of the decision. It would pit him against the big-name brands from around the world. He had to prepare for the battle of his career and do so from a position of disadvantage—a one-country footprint, and small scale. Only local market insight could fuel his success.

Roig turned to a few of Mercadona’s 2,000 suppliers. These suppliers were midsize, often family-owned businesses. They often owned the brand that was ranked third or even fourth in their category. He asked them to manufacture Mercadona-branded goods. He asked them to deliver unique products of exceptional quality at an exceptional price. In return, he offered them special long-term relationships and a guaranteed market.

But the relationship is not simply transactional. It goes deeper. There is a real integrated partnership. Mercadona, like most of its suppliers, is a family-owned business. Roig is the president of the supervisory board. His wife and his four daughters all sit on the board as well. He understands how the suppliers work and how they think. What he has done is take a family ethic, in which people are connected by a common emotional bond, and extend it to encompass all the people whose working lives are devoted to making Mercadona a success. The principle is simple: look after your suppliers, and they will help you look after your customers.

The suppliers’ fortunes have been transformed by their union with Mercadona. Their founding families have become rich. Their workers—more than 43,500 people—have earned good wages. For its part, Mercadona has achieved “virtual integration” without the cost of actually acquiring the supplier companies. They say that there is complete transparency and complete trust. Mercadona has an “open book” relationship, giving it access to the suppliers’ financial data. Equally, the suppliers get exceptional access to the bank of customer insights that Mercadona has collected.

To see how this relationship works, take the case of Siro Group. Until 2005, Siro was a secondary player in its core activity as a cookie manufacturer. Then, influenced by Mercadona, it entered the lucrative sliced-bread business under the supermarket’s Hacendado brand. At the time, this market was dominated by two companies: Bimbo and Panrico. Mercadona was keen to break this duopoly because these companies did not give it preferred access to their products, and, as a result, it could not respond to consumers’ demands for better-priced, better-quality, fresher bread.

Allied with Siro, Mercadona coinvested in new manufacturing equipment. Together they spent €250 million—and guaranteed the market for Siro’s sliced bread. The results were immediate. In 2005, Siro’s net sales were €105 million. The following year, they rose to €158 million. By 2014, they had risen to €600 million, boosted by sales of other new product lines created specifically for Mercadona: fresh and frozen pastries, savory snacks, and dried pasta.²²

Today, there are 120 integrated suppliers known as interproveedores.²³ They manufacture some 2,000 Mercadona products that account for more than 55 percent of the supermarket’s sales. As well as Hacendado, there is Deliplus (cosmetics), Bosque Verde (drugstore items), and Compy (pet care). The great strength of these products is that they are not just cheaper than their branded rivals, but also distinctive. They are designed to “surprise and delight” the customer.

Look at the products created by RNB Cosmetics under the Deliplus label. This family-owned business, founded in 1990 by two pharmacists in Valencia, produces skin care products. It has been a Mercadona supplier since 1994 and an integrated supplier since 1999. Its chief executive, Vicente Ruiz, sees eye to eye with Roig. “We are true partners, and our partnership is based on a win-win,” he says. “We believe that people need surprises. They need to be delighted.”

In 2009, RNB launched Oliva, a body cream that uses olive oil, which is greatly favored by Spanish consumers. Although other creams also use olive oil, RNB developed its product and packaging around this distinctive ingredient. It went the extra mile by partnering with Lavernia & Cienfuegos, a design boutique, to create the perfect container. Then it set the price at a third that of its branded rival. The result was stunning. Oliva soon started selling 1 million units every month. As one customer told us: “One of my finds of the summer is Mercadona’s Deliplus olive oil body cream. If you can save a few euros on a product that you know is going to work, why wouldn’t you?”

With these products, Mercadona has sealed its place in the hearts of Spaniards. In a survey of 5,200 households by TNS, a market research firm, its products were ranked number one in value for the money.²⁴ Deliplus, which can be bought only in Mercadona stores, is now one of the leading health-and-beauty brands in Spain, with a market share of nearly 20 percent. It is striking that its stellar growth has occurred during the depths of the global economic crisis. In 2008, it controlled just 8.2 percent of the market, as opposed to L’Oréal’s 25.5 percent and P&G’s 13.5 percent. Now, it has overtaken P&G and is just 2.6 percentage points behind L’Oréal.

Why has it been successful? Its products are well priced, and they can’t be found anywhere else. Another product that has wowed consumers is Deliplus Chica Fashion for Girls, a deodorant. “I used to use Rexona Girl because I was crazy about the smell,” one consumer told us. “But since I discovered this deodorant from Mercadona, I’m never going back.”

Headline: Giant Leap Number 3: The Power of Reciprocity—Look After Your Customers and Employees

Like many of the leaders in this book, Roig is driven by a greater purpose. It’s not only about making a profit. One of his most important principles is “reciprocity,” the idea that if you are to be satisfied, you must first satisfy others. “When I finished my studies, I had only one dream,” he once said, “to create a company whose objective was not only to generate profits, but also to take care of customers and employees.”²⁵ Throughout his career, he has sought to fulfill this dream. The various measures he has taken together constitute his third great leap.

Customers

Roig’s core belief is that the customer must be at the center of everything. Of course, many companies say this. But Mercadona’s story shows just how it should be done: by creating an emotional bond with the customer that will survive the most trying times. It means listening to customers. It means reacting to or anticipating their needs. It means delivering not once, not twice, but time after time.

For Mercadona, the customer is el jefe—“the boss.” This is not just another way of saying that the customer is king. From Mercadona’s perspective, the king is a distant figure, whereas the boss is an immediate and commanding presence, with powerful emotions that need to be listened and responded to. Many of the bosses, as conceived by Mercadona, are female. The name of the business stems from the words for market and woman in the local Spanish dialect of Valencia: merca and dona.

You ignore the boss at your peril. As Roig explained recently: “Our ‘bosses’ … have been the guiding light of the decisions we have taken, because every step has fulfilled our commitment to prescribing the best solution for them to put together their total shopping with the highest quality at the lowest possible price.”²⁶

This “prescribing” role—what we call advocacy—is critical. Ultimately, Mercadona aspires to be the shopper’s trusted advisor. Its stores are smaller than many hypermarkets. But it has refined the art of retailing so that it is renowned for its assortment or selection.

Typically, a conventional supermarket carries 15,000 to 25,000 items. Walmart, always the exception when it comes to size, stocks 140,000 items. Mercadona, by contrast, stocks just 8,000 items.²⁷ But it takes great care to pick those products—from among more than 1 million available in Spain—that offer the best quality-to-price ratio without sacrificing quality or safety. For instance, according to our analysis, the typical Carrefour hypermarket carries 120 SKUs (stock-keeping units) of detergents, as opposed to 45 at the typical Mercadona. If you look closely, Mercadona’s 45 SKUs actually cover more specific customer needs than Carrefour’s 120 SKUs. In other words, Mercadona helps its customers get what they really want—and more quickly.

To understand how Mercadona can do this, it is necessary to look at how it interacts with its customers. Most retailers use advanced analytics to track the spending habits of their customers and to help serve them better. In this respect, Mercadona is no different from its rivals. It was the first Spanish company to use scanners to read bar codes at the point of sale. On a routine basis, its market analysis department analyzes cash register receipts to form a profile of the needs of the average customer, inspects published data on pricing and supply, and reviews the stores’ product assortment data, including the total number of sales and the speed of inventory turns.

Where it does differ, however, is in its commitment to developing a face-to-face relationship with its customers. For a while, Mercadona conducted in-depth research groups. Regular customers, typically 12 to 14 people, were invited to the store for a 90-minute meeting with employees to discuss a new product or a new product category. Each session followed a prepared agenda: a welcome speech by the leading employee, then introductions by each of the customers (discussing what they like to buy), and then a deep-dive presentation on the new product (its key features, how it is manufactured, and advice on the best way to use it). At the end, customers were given a “goodie bag” with the product to take home and share with family and friends.

At the peak of this initiative, Mercadona held 180,000 meetings and attracted nearly 2 million customers. It created pride and ownership among store employees and strong emotional connections between Mercadona, its employees, and its customers. We talked to several customers who attended these groups. “In these sessions, you can try their products and they tell you who manufactures them and the quality controls they follow,” one customer told us. “You learn so much and you feel safe when using their products.”²⁸

Employees

If Roig cares deeply about Mercadona’s customers, he cares deeply about his workers, too. The company has become recognized as a national trendsetter when it comes to employment issues. In 1995, it launched its plan to offer permanent contracts for all employees, which it now does.²⁹ It also offers stable hours—and no Sunday work. “People have a family life,” said one executive.

There is equal pay for men and women and a generous profit-sharing scheme for all levels of staff. Even a cashier or shelf stocker who has been with the company for more than four years can get the equivalent of two months’ salary in bonuses. In 2014, Mercadona generated €543 million of net profit. Of this, some €263 million was given to employees. In many ways, Mercadona operates like a cooperative. Employees really feel that it is “their” company.

In another sign of his long-term commitment to his staff, Roig sanctioned the investment of €37 million in 1.4 million hours of training. He believes that, properly trained, “an employee has unlimited potential to satisfy our ‘bosses.’”³⁰ Much of the training focuses on the skills that employees need in order to advise customers on the best products to choose for any particular household task. This could be a Mercadona product or, equally, a product manufactured by a big-name brand.

This investment is paying off. Mercadona’s employee turnover is one of the lowest in the retail industry across Europe.

Headline: Giant Leap Number 4: Never Fall Asleep—There’s Always a Crisis Waiting to Get You

The story of Mercadona might seem like one giant leap after another, without any missteps.

Until 2008, it looked that way. Then the financial crisis struck. Spain was one of the worst-hit countries. Unemployment among young people exceeded 50 percent. Mercadona was not immune to the savage impact on customers. The crisis exposed the fact that Mercadona had not kept its promise to deliver “everyday low prices.” As Roig told his board of directors: “In times of plenty, we fell asleep.”³¹

Later, he met the CEOs of the privileged group of interproveedores. He was livid. No one who was there has forgotten what Roig did. As one executive told us, toward the end of the meal, Roig left the room. A few minutes later he returned, wearing a tie but no shirt. There was a deathly silence. But no one dared question him. Eventually, he asked them why no one had wondered why he had taken off his shirt. “You can’t remain silent,” Roig said. “You have to be brave, make proposals and take decisions.” He then pinched the fat on his waist. As he did so, he said: “This fat is not necessary. We must eliminate anything that does not add value and that the customer will not pay for.”³²

After this, Roig stood up and asked the CEOs to follow him. He led them to the car park. There, he pointed to all the grand cars parked next to each other—the executives’ cars. He did not need to spell out the obvious: that the suppliers’ executives, not the customers, had been the real beneficiaries.

His point made, Roig demanded major price cuts. This was his fourth giant leap. “We have to start pinching pennies,” he said. He set them the task of cutting the cost of the average household grocery bill from €600 per month to €500 per month.

To do this, the interproveedores changed the packaging on hundreds of products. For example, they cut the amount of plastic used in water bottles and the amount of cardboard used for packaging milk. The changes were seemingly slight. For example, the amount of cardboard used to make each milk carton was reduced by only 1.3 grams. But the impact was significant: overall, 440 metric tons of cardboard were cut, resulting in reduced manufacturing costs and a transportation bill that was lowered by €2 million per year. Likewise, the amount of air in packets of cereal and nuts was reduced, cutting costs by nearly €1 million per year. In all, since the economic crisis struck, Mercadona has achieved €3 billion of annual savings from clever innovations in packaging.

Another significant cost element for any retailer is distribution. In 2007, Mercadona had started to pilot warehouse automation. Then, as the crisis broke out, it went against the current and decided to triple its investments in large, fully automated warehouses for all kinds of groceries—ambient, chilled, and frozen. As a result, the accuracy and frequency of delivery were further increased. Also, Mercadona started to codevelop supplier parks located next to their warehouses to reduce logistics costs. Today the company has four large, fully automated—or “intelligent”—warehouses across Spain and a level of overall supply chain automation that is unique in the supermarket segment worldwide.

IN HIS OWN WORDS

Mercadona’s Boss on the Real Bosses: Juan Roig on the Customer

“Our results come from satisfying ‘the boss,’ as internally we call our customers. They are at the center of our decisions. In Mercadona, we firmly believe in the universal truth that first you have to give to receive. It is a law that is always fulfilled. It is based on the figure of the mother, who always is the first to give without initially wanting anything in return.

“The boss is the customer, because she has the power of life and death of the company when we lift the blinds at nine o’clock each morning. That is why we strive every day to fully meet the needs of our bosses. To achieve this, we need to know their expectations and understand what their real needs are.

“We are aware that we have to work in the digital area, and we are doing it little by little. In fact, we are conducting a Digital Transformation Plan 2012–2018, in which we aim to invest €126 million. We have begun putting in place a new Data Processing Center (DPC) that allows us to have computerized dry products and fresh products. That will allow us to streamline processes and manage the assortment in real time to further strengthen the efficiency and productivity of the company and suppliers.

“Our customers told us in late 2008 that they thought we were sleeping. So they forced us to react. We had to make decisions and review our assembly line. We anticipated: we reduced prices and reviewed the line. Along with our integrated suppliers, we reviewed all the processes to lower prices while maintaining quality. Since then, we have managed to save €3 billion for the bosses.

“Our daily challenge is to continue to strive to provide the highest quality at the lowest possible price and the best service to our customers—and try not to sleep, not to distance ourselves from our model because past successes do not ensure future successes.

“The most important thing is to be consistent between what you say and what you do. If the boss perceives that there is a difference between words and actions, she will lose confidence. Therefore, the results should be the result of, first, satisfy the boss; second, achieve sales targets; and third, obtain profits. The way to keep track of the daily activity of the company is to be in the field, constantly observing the environment and, of course, following the daily pulse of numbers.”

Headline: Giant Leap Number 5: Innovate, Then Implement

Private-label products are often dismissed as cheap imitations of branded products, which are seen as the real thing. Roig always resisted this slur. But in the wake of the financial crisis, he renewed his commitment to give customers products that were not only cheaper than before, but also better than before. He achieved this with his fifth giant leap, radical innovation. As he reduced prices for customers, he invested in two new initiatives. In the middle of the economic storm, he opted to add cost to the business. He hired and developed a collection of experts who were skilled in interpreting and implementing what customers really want. He then launched a series of innovation centers.

The Monitors

Roig is on a constant mission to get even better intelligence on what customers really, really want. Mercadona’s focus groups, which were attended by millions of people, had been an enormous success. But they were complicated and costly to run. As the economic crisis got worse, he had to find another way to collect and act on customer insight.

His solution was a fast-track system to establish what customers were thinking and to execute the best of their recommendations. The core rung of this ladder is the “monitor.” There are 186 of them. They are stationed in stores and in innovation centers across the country. They are human listening posts. They are the people who gather customers’ opinions from the stores, from social media, or from other sources.

Every year, Mercadona receives some 340,000 suggestions and inquiries from the bosses. This provides clear input for product development and innovation. The monitors also collect information from employees, who are encouraged to know their regular customers by name and to spot opportunities for new and better products.

Of course, it is one thing to listen to customers and quite another to act on their suggestions. The reason that Mercadona can make these innovations so quickly is that the crucial information is passed to the decision makers rapidly. Roig has been especially scrupulous in ensuring that the voice of the bosses is heard loud and clear by the top executives.

Mercadona learned this lesson the hard way. A few years ago, during a face-to-face meeting to taste one particular product, 19 customers expressed satisfaction. But one didn’t. Disregarding this minority voice, Mercadona pressed ahead with the launch of the product, only to find that it was not popular: the one critic had been right after all. Since then, Mercadona has been careful to respect the views of individuals. One of the phrases commonly heard at the stores is, “A single complaint is just the tip of the iceberg.”

Innovation Centers

From the mid-1990s, when Mercadona launched its first home-brand products, it has been committed to “surprising” customers with innovative products. But with the financial crisis, it committed to radical innovation. This required a different level of investment. So, in 2011, Mercadona launched its first innovation center. Here, regular customers were invited to spend up to four hours in “real-life” settings, where they could be observed trying out different new products.

Since launching its first innovation center, Mercadona has added another 11. The centers cover a broad product range, from cosmetics to chocolate. Hosting some 12,000 customers every year, they have allowed the company to launch new products that surprise customers on a regular basis. Mercadona is constantly introducing innovations and refinements. In 2014, it made changes in 450 of its SKUs—10 percent of its total number. For example, sticking a plastic lid on a large tin of tuna made it easier to open and increased its sales by 60 percent in 2010.³³

One innovation center focuses on dairy, desserts, and ice cream. It was launched in October 2012, and it has been visited by more than 2,000 bosses. It adopted a “listen and observe” approach—and responded quickly to the wishes of customers. For instance, it introduced a sweet-and-sour ice cream called Caramel Popcorn. Also, it developed a liquefied rice ice cream for people who are lactose-intolerant and mini-bonbon double chocolate ice cream for people who are conscious of their weight. Some of its ice creams have been ranked in the top 10 innovative products by Kantar Worldpanel, a market research company.

Headline: Great Leap Number 6: Make Change Your Watchword and Your One Constant, and Don’t Be Afraid to Go Back to Your Roots

Mercadona has been a startling success, one that’s all the more remarkable in that its growth has not been stunted by the global economic recession. From being on the brink of bankruptcy in the early 1990s, Mercadona has grown to become a giant, with €31 billion in revenues. From 1999 to 2011, profits rose 23 percent. Market share nearly tripled from 8 percent to 23 percent. Today, Mercadona has 1,521 stores across Spain.³⁴

Throughout the retail industry, supermarkets are cutting costs, shedding jobs, and removing old-style counters. Daring to be different, Mercadona is going in another direction. It is returning to its “shopkeeper” heritage with a focus on fresh food: fish, meat, fruits and vegetables, and bread.

Mercadona has trained a host of specialist shopkeepers—bakers, grocers, fishmongers, butchers, and charcutiers. Moreover, it has tested the best way to present the fresh products in six “laboratories” positioned in selected stores. This has allowed it to pursue its classic approach: questioning each strategy every day and applying only those that the customers, through their response, confirm that they want.

Just as it forged close relationships with selected suppliers of packaged goods, Mercadona is now building links with the suppliers of fresh food—the farmers and fishermen. Across Spain, this sector numbers some 22,000 people, including 12,000 fishermen, 6,000 crop producers, and 4,000 livestock producers. As Roig explained: “We have to get to know them and to work together, because they, through their effort and involvement, are the ones who are going to help us guarantee quality and service to win over our bosses.”³⁵

Mercadona’s readiness to work closely with farmers and fishermen underscores the big point: every retailer must provide the consumer with a connection to the core products it puts on its shelves. This could be the ingredients in a detergent or face cream or the freshly caught fish in the market.

Already, as a result of its “fresh” initiative, Mercadona has opened fish, fruit and vegetable, and bakery sections in every supermarket, as well as fresh meat and deli meat sections in 252 stores.

Headline: The Power of Brand Advocacy: The Value of Listening to Your Customers

It intuitively makes sense to think that if you listen and respond to your customers, they will reward you with their loyalty.

Of course, there are the corporate numbers, which point to significant growth as a consequence of customer approval. But there is another proof point. BCG compiles an index based on a company’s performance in a survey of 32,000 consumers in the United States, the United Kingdom, Germany, France, and Spain. It ranks companies on the basis of spontaneous and nonspontaneous or prompted recommendations and criticisms. Among grocers, Mercadona is the top-rated company, with an overall Brand Advocacy score of 54 percent, as opposed to the industry average of 24 percent. This places it above all the traditional “incumbent” supermarket chains in the different countries across Europe and the United States—that is, Carrefour and Leclerc in France, Aldi in Germany, Tesco and Sainsbury’s in the United Kingdom, and Walmart in the United States.³⁶

One consumer we spoke to is a 23-year-old medical student from Valencia, Mercadona’s home city. She has known about Mercadona all her life. Her mother took her there as a child, and she would play in the aisles while her mother did the shopping. “When I was a child, I remember that going to other places with my mother was like an obligation, but going to Mercadona was fun.”³⁷

“I know that in Mercadona, I can find everything I need to make a nice dinner,” she said. This is not to say that she is uncritical. As she pointed out, she has to go to Carrefour to get sushi. But she does the bulk of her shopping at Mercadona. “I can usually find something new to inspire me to create a new dish.”

In our survey, some 66 percent of consumers said that Mercadona provides a “great” or “good” experience. This places it above Aldi and Lidl, Europe’s leading discounters from Germany. Indeed, it puts it on a par with feted consumer brands such as Apple’s iPhone. With this level of advocacy, Mercadona does not need to spend money on traditional marketing. It can instead allocate its resources to brand development, innovation, and word-of-mouth marketing.³⁸

Mercadona is especially good at focusing not only on customers, but also on noncustomers. It drives customer advocacy. The company invited nearly 500,000 women to attend in-store sessions on its cosmetics brand, Deliplus. These demonstrations had professional trainers tell women about the products’ benefits—give the technical advantages, explain the science, translate it into functional benefits, and show how it works.

It was an immediate success—and a major contributor to same-store sales growth of 5 percent annually during the intense Spanish recession.

*****

THE STORY OF COOP ITALIA: WHEN THE CONSUMER IS ALSO THE OWNER

Another European retailer echoes the lessons from Mercadona. Coop Italia traces its roots back to 1854.³⁹ It predates the foundation of the Kingdom of Italy. Today, its revenues approach €18 billion, and it is thriving. The Coop is the largest Italian retailer. It is directly owned by consumers, like the outdoor equipment retailer REI in the United States. Its mandate is to defend its members’ purchasing power by collectively acquiring goods at better terms than the members would achieve individually.

The Coop has been able to set itself apart from other companies by establishing strong links with the people and their communities.

“Consumers expect more from a cooperative than from another type of player,” said Silvano Ambrosetti, former president of Coop Lombardia.

According to Turiddo Campaini, president of Unicoop Firenze, “The distinctive element of Coop is that the member is at the same time shareholder, client, and citizen. Responding to the needs and aspirations of members implies conditioning all our activities, forcing everyone in the cooperative to continuously verify the alignment of his or her activity to that mission.”

Coop offers its members exclusive financial services (loans and credit cards) and a dedicated Coop organization. This includes 1,400 centers for health, wellness, culture, and sports, along with other services, including psychological and legal assistance, payment of utility bills, and free home delivery for the elderly and disabled.

Headline: Consumers Trust, Love, and Promote the Coop

“I am a member, and so is everyone in my family,” says one 52-year-old female consumer who we talked to in Milan. “I have two children. For each one, I have opened a saving account with Coop. I’ve been shopping at Coop once a week for the past 30 years, and I often participate in my local Coop’s cultural initiatives. Coop is the supermarket I shop most frequently; actually, I almost never go anywhere else. I have dedicated promotions there.”

“When I think of Coop, I think of product safety, consistency, and confidence,” she continues. “Coop is always available to me and is honest. Whenever there is an issue, or even when I purchase the wrong product, they are willing to exchange it or refund me. There is a great assortment, and Coop always carries excellent brands. Other supermarkets don’t offer such a great variety, and there’s great care about best-before dates; I never have to worry about that. As a member, you are treated with great care. I remember not more than a few months ago I was about to buy a new cellphone. The lady behind the electronics counter asked me if I was a member. After I said yes, she pointed out that in a week’s time there was going to be a promotional sale on the same model that would save me 25 percent. This does not happen at ordinary supermarkets. This is a reason for coming back on a regular basis.”

In the last few decades, Coop revenues have grown steadily: €2.6 billion in 1980 (valued in 2003 €), €6.2 billion in 1990, €9.3 billion in 2000, and about €14 billion in 2013. It has held a 15 percent share and has 8 million members. Private-label goods represent one of Coop’s key strengths, strongly recognized by its consumers. Today Coop has the highest private-label penetration of all grocery retailers in Italy—about 27 percent, as opposed to its main competitors’ average of 17 percent.⁴⁰

Coop’s private label is an extension of its core values through the product concept and the supply chain. Private-label products are meant to be healthy, convenient, environmentally friendly, ethically guaranteed, and of good quality and taste. Coop guarantees strict sourcing definitions and multiple product controls. Standards are set to meet external certifications, and the organization partners with 24 universities and research institutes. Private-label products cover a broad range of Italian delicacies, from cured ham made from free-range pigs to buffalo mozzarella and Tuscan extra-virgin olive oil.

According to Marco Pedroni, the current president of Coop Italia, “Cooperatives are organizations with a very long life. This is due to the fact that they have always capitalized on the results achieved in good times, and at times of crisis, before winding down the business and shedding jobs, they use the capital accumulated over the years. We have accumulated capital over 150 years through a variety of processes. This form of corporate enterprise is very resilient in the face of varying market circumstances.”

One Conclusion

The stories of Natura and Mercadona are stories about founders who achieved ascendancy with customers. The core of Natura is its 1.6-million-person sales force. These people are consumers, advocates, and connectors. They speak about their experience with and the benefits of the products. They explain how the products are used and celebrate the beauty of expression. Mercadona’s customers are the “bosses.” These people look for innovation, experimentation, and value. Mercadona endeavors to provide this on a continuous basis—every day.

Three Takeaways

1. Consumers hang on your every word. They look for special, magical ingredients. They look at how you manufacture and package your products. They want to know all about the secrets inside those products. Natura learned to use Amazonian ingredients and to make them a point of differentiation. Mercadona found ways to make home-brand products that rivaled products from big-name brands.

2. Make bold investments. You need to distort your resources when you’re in a crisis and when you’re attempting to take advantage of an opportunity. You need to make decisions about parts of your business. Natura has invested in sales and manufacturing. Mercadona spent more than 50 percent of its R&D budget on a handful of high-visibility products. In your consumers’ eyes, you win when you create spectacular offerings that deliver a vision for them. Do this every day. In 2014, Mercadona introduced 450 new SKUs—more than one for every day of the year.

3. As leader, you make the first giant leap. All eyes are on you when you are the leader. When you speak the truth, your organization listens and accepts it. You must use this power to move your company forward in decisive ways. Natura’s Antonio Luiz Seabra and Mercadona’s Juan Roig are powerful, positive spokesmen for their brands. They are front and center of everything that their companies do.