Edmund Simms's avatar
$30.6m follower assets
Economies of scale in four charts
Amorim, the world's biggest producer of cork stoppers, has benefitted from economies of scale. As the firm increased production, margins expanded. But, the firm didn't hike prices. Instead, costs came down.

Over the last 20 years, the firm has consistently sold more corks, with volume reaching 5.8bn in 2021.

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As the firm sold more corks, its profitability improved. Higher production and sales levels, but with similar fixed costs and the ability to negotiate harder on marginal ones, helped the company's profit margins expand.

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But margin expansion wasn't caused by above-inflation price hikes. The firm provides a commodity product with substitutes, like screwcaps, readily available. As a result, unit prices have been flat after adjusting for inflation. Lower costs must be the driving force behind wider margins.

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The profit margin per cork expanded as Amorim's production costs declined. The firm's profit margins and cost of sales have had a strong inverse relationship.

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Conor Mac's avatar
Where do you find names like these, screening?
Edmund Simms's avatar
@investmenttalk I first came across them when I was in Portugal last year.

But usually, yes, screening is how I find a list of companies to look at each week.
Jazzi Young's avatar
We love this example ! Thanks for the excellent post Edmund.
Too bad this company is headquartered in Portugal. These are the types of overlooked niche market leaders we love to research and invest in. Reminds me of Leggat & Platt ($LEG), manufacturer of bed and seat springs, another boring business that we've liked for a very long time (multi-decades).
In our side of the world, most of the mid-market wines are now screw tops. The switch to screw top was very controversial at the time, but now it's commonplace in Australia as mentioned in this article.
Edmund Simms's avatar
@jazziyoung Are you Australia-based? I'm in Aus at the moment. Most low/mid-level wine here is screw cap.
Jazzi Young's avatar
@valuabl Yes, Queensland. I have to say, after a period of adjustment, I prefer the convenience of the aluminium screw cap. Especially for the cheap to mid level wine.

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