Case study: How Mexico’s Grupo Bimbo’s cooked up success across the border 

Its name provokes snickering across the English-speaking world. It promotes its products using a cuddly white bear dressed in baker’s overalls. It remains steadfastly family-owned, rebuffing investors and buying back many of the few shares it has put on the open market.

Much of what Grupo Bimbo does may seem idiosyncratic. Yet it has proved devastatingly effective. The bread and baked goods company has conquered the US by acquisition, shrewd management and a focus on logistics. With its US$959m purchase of Sara Lee’s North American baking business, it is ready to reach new heights.

In Mexico City, where it was founded by Lorenzo Servitje in 1945, Bimbo’s iconic delivery trucks drive thousands of routes every day, taking Marinela biscuits, Barcel snacks and dozens of packaged bread brands to the “mom and pop” stores that dominate the country’s consumer landscape. The company grew steadily and by the 1980s already had a stranglehold on the Mexican market, particularly in bread.

Bimbo entered the big leagues in December 2008 when it paid US$2.38bn for the US operations of Weston Foods, adding cookies and confectionery to its portfolio. Executed at the height of the financial crisis, it was an audacious move that overnight made Bimbo the world’s biggest manufacturer of baked goods. It also increased the company’s debt by 800%.

Bimbo went about the integration of Weston with a customary fortitude. It set a target of 100 days to bring operations and logistics into line, and spent US$50m on a business intelligence system that aimed to identify wastage and improve distribution routes.

For 51-year-old CEO Daniel Servitje, son of Lorenzo, the deal was “undoubtedly the most important purchasing decision in the history of the company.” Servitje Jr.’s first memory was the smell of baking bread.

His approach to growth, however, is deceptively ruthless. Bimbo has always been innovative (it was the first company to wrap bread in clear cellophane); recently, it has invested in oxodegradable packaging on baked goods products, and a joint venture with an alternative energy company to build a US$200m wind power plant to supply the company’s Mexican needs.

Servitje has also had to deal with complexity. Bimbo had 5,000 product lines even before the Sara Lee purchase, and 1.8 million points of sale. In the US, as unsold, as supermarkets favor busy shelves in bread aisles. In Mexico, Bimbo has helped its customer base modernize by offering microfinance and insurance to local shopkeepers.

Pedro Herrera, an HSBC analyst in the US, describes Bimbo as “conservatively managed but very focused – a step ahead of similar companies in its market.”The company is adept at debt management, he says, while the Weston deal has been a “huge success, beyond even what Bimbo would have expected.”

The figures bear this out. Weston gave the company a 38% boost on operating margins, though net income for 2010 was down 9% at US$445m. The US has now overtaken Mexico as Bimbo’s biggest market, with 43% of revenues. The Sara Lee deal will give Bimbo access to the Sunbeam bread brand, among others, in a market with potential for growth. Bimbo believes it has identified efficiency savings and has pledged US$1bn for supply chain enhancements.

A greater push in the States will offset sluggish growth in Latin American countries such as Chile and Argentina, where consumers are reluctant to buy packaged bread. Bimbo also has a small bakery operation in Beijing. Bimbo is one of relatively few Mexican companies making significant progress internationally, says Miguel Leon, Partner, KPMG in Mexico.

“While domestic consumption has been increasing, they have preferred to focus on the Mexican market,” says Leon. “However, their proximity to the US, and the way they have been incorporating new technology, positions them well for future growth.”

“Multilatinas” like Bimbo are expected to become a force to be reckoned with. But their rise may not be an untroubled one: Bimbo’s latest financial results, while showing modest growth in sales, demonstrate the effects of rising commodity costs on the company’s bottom line. And as Leon points out: “Security issues, poor infrastructure in agricultural regions and public safety issues are holding back many major Mexican companies from becoming internationally competitive.”

Servitje sees a focus on modernization as key to the company’s future. “In Mexico, we have been very successful and success typically leads to rigidity and makes it difficult to see changes in our environment,” he has said. “This worries me. We should reflect on our current situation while keeping everything open for change.” Whatever path Bimbo pursues, it is unlikely to be bound by convention.