FMCG

by Greg Thain

  The new regime then concentrated on the underlying problem: Perdigão was not well equipped, in either facilities or strength of product range, to withstand a flood of cheap meat imports from the Far East. Therefore, more than $260 million was spent on modernising and upgrading manufacturing facilities while the product range moved towards higher margin, added-value categories. Here branding could play a greater role.

  In 1997 the company launched the Healthful Choice brand of frozen foods, initially a range of vegetables and then fish products. Next came the launch of a range of ready-made meals under the Toque da Sabor brand, which was quickly followed by the Apreciatta range of frozen pizzas. Perdigão acquired the Batavia brand of turkey products, which they quickly extended into a range of low-sodium products. Sales grew so rapidly that Perdigão became the number two meat products company in Brazil behind Sadia. The company’s success enabled a 2001 investment of $250 million to construct Latin America’s largest pig and poultry facility. By 2002, Perdigão had got into the cheese business. Their total annual sales were R2.8 billion ($1.4 billion), almost half of which was exported.

  Pursuing essentially the same strategy nearly doubled sales between 2002 and 2006. A takeover bid from rival Sadia was promptly rejected. The next year Perdigão changed gear. They agreed with Unilever to create a joint venture to manage the Becel and Becel pro.activ heart health brands in Brazil. As part of the deal, Perdigão acquired Unilever’s Doriana, Delicata and Claybom margarine brands, together with the associated production facilities. Perdigão soon overtook Sadia as Brazil’s biggest food company, helped by the acquisitions of poultry and dairy producer Eleva Alimentos SA; and the meat-processing unit of Cebeco Groep BV. By now Perdigão had more than 55,000 employees and was selling its poultry, pizza and lasagne in more than 110 countries (see next section).

  However, Perdigão’s big break came in 2009 when they launched a bid for their great rival. Sadia had lost more than R3 billion in ill-advised derivative bets on the Brazilian Real currency and made a whopping loss in the year. Perdigão agreed to take over Sadia in a share-swap transaction, thus forming the world’s biggest poultry processor. Its value, at about $5.3 billion, had overtaken the US’s Tyson Foods. The new company would be called BRF Brasil Foods SA and was forecast to generate anywhere from R2-4 billion cost savings in distribution and production. This would give them a significant cost advantage over other major global players.

  However, the deal, in which Sadia would be run as a wholly owned subsidiary of Perdigão, had to be considered by Brazil’s anti-trust body, Cade. Their approval came with strings attached. The company was required to sell off a host of processing plants, farms and abattoirs, plus thirteen brands and the suspension of the Perdigão and Batavo brands in certain categories. These disposals brought in R1.7 billion, while the brand suspensions decreased combined revenues by R1.2 billion. These seemed an extremely tough set of conditions, but in recompense BRF received the entire shareholding of Quickfood SA, owner of Argentina’s leading hamburger brand, Paty. During this convoluted and highly complex integration process, management kept their eye on the ball. Sales rose from R20.9 billion in 2009 to R25.7 in 2011 - making BRF the world’s seventh-largest food company - and contributing to an average total shareholder return of over 30% since the merger had been announced.

  Even after the enforced shedding, BRF still had a portfolio of over thirty brands spread across 3,300 product lines. An average of approximately 300 new products launched each year helped earn the company a place in the Forbes list of the world’s 100 most innovative companies. The company now had one of the most impressive supply chains in Brazil, reaching over 150,000 distribution points, and giving access to their products to 98% of the country’s population. The new company’s mission was ‘To be a part of people’s lives by offering tasty foods with high quality, innovation and at affordable prices anywhere in the world’. This mission was being realised: over 40% of sales were being exported to over 120 countries.

  The International Dimension

  In 1975 Perdigão had been the first Brazilian poultry company to export its products when it sent its first shipment to Saudi Arabia. This led Brazil to become one of the world’s leading poultry-producing countries. In 1985 Perdigão set up a partnership with the Mitsubishi Corporation to export its products into Japan and in 1990 EC permission was granted for the company to import into Europe. The next step change had come in 2001. Perdigão and Sadia joined forces to create an export joint venture, BRF Trading, with the aim of exploiting new markets in Russia, Africa and the Caribbean. When the partners fell out Perdigão took over the entire operation.

  By 2012, they had amassed 19 commercial offices overseas and owned, in addition to 61 plants in Brazil, five in Argentina, and two in Europe (UK and The Netherlands). Another was under construction in Abu Dhabi. Perhaps the most promising was a joint venture with Dah Chong Hong Ltd to distribute the company’s products in China through both retail and food service sectors. In 2012 export sales reached R11.6 billion off a volume of 2.5 million tons. This was up nearly 10% year-on-year. With the exception of North America, they enjoyed a good global spread: 33% going to the Middle East; 20% to the Far East; 16% to Europe; 13% to South America; 9% to Eurasia and 8% to Africa. Africa had previously been a Sadia strength. Now, the latter’s products were rebranded under the Perdix name. The Sadia brand itself was repositioned as a premium brand and as such was re-launched into fifteen African countries. This was the first leg of a new international strategy. Their processed foods were to be branded upmarket, regionalised to meet local tastes and supported by the acquisition of local producers and distributors.

  How Are They Structured?

  After Sadia’s acquisition, the latter operated as a stand-alone subsidiary, in parallel with the company’s other main Brazilian businesses. The international divisions were consolidated under one holding subsidiary, Crossban Holdings BmbH (which was registered in Austria). By the end of 2012, Sadia SA had been fully absorbed into the main business.

  What Have They Done Recently?

  The merger with Sadia was one of the most complicated anywhere in the world. From 2009 onwards a huge number of activities were necessary: absorbing and divesting facilities and brands; and also managing brand transitions where their names had been forced to take a hiatus. All this was accomplished while still driving the business forwards.

  The enforced transfer of assets and suspension of brands knocked an eye-watering one-third off the company’s domestic sales. Even so, it still managed to move ahead by 10.9% in 2012. Even more impressively, like-for-like domestic sales in the second half of the year were up 50%. The company quickly replaced the lost sales. It rolled out new lines under the Sadia brand to replace the suspended Perdigão products, and launched new lines under the Perdigão brand into categories not affected by the suspension. In total the company brought out 99 new products into the Brazilian market. These were principally ready-to-eat meals, pizzas and the Meu Menu brand of frozen pasta meals. They contributed an additional 8.5% to the top line.

  The company had built up some very impressive market shares:

  2012 % Share

  Speciality meat 56.6

  Margarine 59.9

  Pizzas 64.6

  Frozen meats 68.3

  Pastas 72.7

  Only in dairy was the company a minor player. There, 10.6% represented the third largest share. The food services unit grew its sales to 62,000 customers while in the overseas markets the company grew by over 30% in South America and Eurasia and over 10% in the Far East and Middle East. The company capped off a fine year by investing over R100 million in a new technology centre. This brought together the 250-strong R&D teams.

  What Is Their DNA?

  Given a complete clean sweep of management and strategy in 1994 and the mega-merger with Sadia in 2009, it is fair to say that the BRF DNA is still evolving. A cause of their recent success must be the level of professionalism and dynamism they have brou
ght to a historically somewhat staid category. They are a match for anyone in the food business and a competitor to be feared.

  Summary

  With a 2012 turnover of over $13 billion, BRF is already a bigger company than some of the venerable first world leviathans covered earlier in this book. And they are growing faster than many. Their background and a substantial chunk of their existing business is in fresh and frozen meat and poultry. Yet, their shift into more branded categories is inexorable. Plus, it should not be forgotten that many of today’s brand giants, for example General Mills, started off in commodity-type areas and transitioned into branded portfolios over time. With their expertise, scale and cost advantage in meat production and processing, BRF have plenty of growth left in them.

  Mexico : Grupo Bimbo

  Where Did They Come From?

  Panificadora Bimbo started life (July 1945) already thinking big. Its founder, Lorenzo Servitje, had worked part-time in his father’s bakery, El Molino, since 1928. When the father died in 1937, Lorenzo abandoned his accountancy studies to join the business fulltime, working alongside his uncle, Jaime Sendra. However, running a bakery was never going to be enough. With a childhood friend, José T. Mata, Lorenzo established an import/export company and employed his cousin, Jaime Jorba as sales manager.

  Together, in 1943, these four began planning a mass market, packaged bread business; they would deliver freshly baked, wrapped bread to small stores. Jaime Jorba mapped out distribution routes in Mexico City. Lorenzo recruited a master baker. Alphonso Velasco was not only the son of the founder of Mexico’s first bread baking company but also a graduate of Chicago’s American Institute of Baking. Alphonso designed the factory and devised the recipes for four types of bread - large and small white loaves, rye bread and toasted bread – planned for the company’s launch. Lorenzo recruited 38 employees and hired five delivery vans.

  The final pieces of the puzzle were the company’s unique selling point and logo. The USP was that the bread would be cellophane-wrapped: a first in Mexico on this industrial scale. The logo was a bear cub made to look like a baker, drawn by Jaime Sendra’s artistic wife, and initially tried as a Christmas card. The Bimbo name had already been decided at an early planning stage, two years previously. The hygienically wrapped bread, enriched with milk and vitamins and delivered to the smallest of Mexico City’s local stores, was an immediate hit. The product range was soon increased to nine lines with the addition of a range of buns and pound cakes. Only four years after launch, the company expanded outside Mexico City. They opened a depot in the city of Puebla and by 1950 the company’s music-playing delivery vans were announcing the arrival of fresh bread in rural villages throughout Central Mexico.

  How Did They Evolve?

  In 1952 Bimbo began a decade of innovation. They introduced the Bimbollo and Medias Noches Bimbo hamburger and hot-dog buns, thus initiating a craving for American-style eating amongst Mexico’s young. This craze was compounded by the launch of Donas del Osito doughnuts, which became one of the company’s best sellers. By 1955 Bimbo had a fleet of over a hundred delivery trucks. To these was added a dedicated distribution network of customised Vespa scooters. They were known as Ganseras and distributed Bimbo’s new Gansito range of cellophane-wrapped cupcakes, the first to be produced on an industrial basis in Mexico.

  In 1964 Bimbo began to think internationally. (Perhaps they were prompted by one of their founders, Jaime Jorba, who returned to his native Spain in 1961. There he employed the same concept and also called it Bimbo). Aided by its newish plant in Monterrey (adjacent to the US border), Bimbo acquired the Mexican rights to the Sunbeam brand of bread from Quality Bakers of America. Further expansion across Mexico was Bimbo’s prime agenda during the 1960s and early 1970s. This culminated in the opening of Latin America’s largest bakery, which was also one of the ten largest in the world in 1972.

  Expansion into new categories was also taking place. Bimbo established a new division for confectionery in 1971 and launched jams and marmalades in 1973. This range sprang out of the supply of ingredients for the cupcakes. These newcomers were soon followed by ranges of sweet breads, salty snacks, tortillas and, in 1978, the Bubulubu brand of candies and chocolates.

  By the end of the decade, Bimbo had twelve plants and 15,000 employees with almost full coverage of the Mexican market. This prompted the company to offer 15% of its stock on the Mexican Stock Exchange in 1980. The fact that Bimbo’s expansion so far had been financed entirely without debt meant they survived the 1982 Mexican economic crisis relatively unscathed. It did slow their expansion plans, by delaying the opening of another major plant until 1987.

  How Did They Build The Modern Business?

  Grupo Bimbo approached global scale as an international business with two developments in the mid-1980s. First, they began shipping long-shelf-life cakes, under the Suandy brand name, into the southern United States. Then, they purchased the Wonder Bread brand, which took them into milling for the first time.

  By the late 1980s the company had a wide range of products organised under eight main brands:

  · Bread and Sponge Cakes - Bimbo (by now the generic name for packaged bread in Mexico), Sunbean, Suandy, Tia Rosa.

  · Cakes and Cookies – Miranela.

  · Confectionery – Ricolino.

  · Snacks – Barcel.

  · Jams – Carmel.

  With 25,000 employees and a contract to supply McDonald’s with hamburger buns, Bimbo was now a major Mexican company. Yet, it had little corporate structure and was still run as the personal fiefdom of the remaining founders. In 1991 it turned up the gas further. Bimbo launched a $400 million investment programme (again internally funded), to open new plants in ten more cities and upgrade several more. The secret of Bimbo’s success was its vast fleet of delivery trucks - now 11,000 and counting – which serviced over 200,000 family-run, stores which acco. These accounted for over three-quarters of its sales. The company was still short of its maximum potential in Mexico. All this success had been achieved despite the fact that only around 20% of the population bought packaged bread. Bimbo was the dominant player, with over 85% share, in a category that had much room for growth.

  Bimbo diversified further in 1993 with the acquisition of a 40% stake in Mexico’s leading ice cream company. These two companies later formed a joint venture with Unilever for Latin America. As in the early 1980s, Bimbo survived the 1994 Peso crisis relatively unscathed and the next year reported sales of over 10 billion Pesos ($1.5 billion) - Mexico accounted for 89% of this volume. They overhauled their Mexican direct-store delivery system by moving to a just-in-time process. Afterwards, the main thrust of Bimbo’s continued growth would come in the international arena.

  The International Dimension

  Although Jaime Jorba had set up another Bimbo in Spain in the early 1960s, that company ran completely independently from the original Mexican enterprise. It achieved a similar level of success, becoming Spain’s leading bread company before Jaime sold out to the American firm Campbell Taggart. Bimbo’s first international operation came in 1989 when it purchased a small bakery in Guatemala City. The company geared up for further expansion in Latin America when it set up Bimbo Argentina and a separate Latin America management structure. Companies in Chile, Venezuela and El Salvador all mirrored the development of Bimbo in Mexico: they launched a packaged bread business, delivered direct to store, and then progressively added to the product range,.

  By the early 1990s Bimbo had also greatly expanded its export business into the United States, reaching as far as New York, Chicago, Los Angeles and Miami. A joint venture with the Sara Lee Corporation was established to distribute Sara Lee products in Mexico. The same subsidiary, based in Texas, then entered the US tortilla market via an acquisition. By the end of 1994, Bimbo had a sizeable import operation into the US, with 23 products being delivered by over 100 trucks in California alone. The American tortilla business was a goldmine. The company sold more than quadruple the v
olume managed in Mexico, even though the Mexican market was many times larger. The difference was that in Mexico countless stores, making their own, offered competition, whereas in the US Bimbo had much more of a free run.

  In 1998 Bimbo sent a clear signal that it intended to become a serious US operator when it acquited the ninety-year-old Texan bakery, Mrs Baird’s. Bimbo moved its US headquarters from Carrollton, Texas, to Mrs Baird's head office in Fort Worth. There they created a newly enlarged division, Bimbo Bakeries USA. Bimbo wasted no time expanding Mrs Baird's. They moved into Oklahoma with eleven delivery routes in September of the same year, supported by television advertising and radio promotions. This was the first stage of an ambitious national expansion strategy. That strategy would get a huge boost in 2002 with the acquisition, for $610 million, of the Western US baking business, George Weston Limited, along with its Oroweat brand.

  Bimbo expanded its category participation in Mexico with its 2005 acquisition of the El Globo chain of pastry shops. They looked further afield in 2006, buying the Beijing Panrico Food Processing Center for 9.2 million euros. This subsidiary of Spanish company Panrico meant Bimbo got a company with 800 employees, one production plant and a wide portfolio of baked products. These were formulated and developed for the Chinese market, and had broad distribution in Beijing and Tianjin. In 2008, the company turned its attentions back to Latin America with the purchase of the Nutrella bakery in Brazil. This was merged with the Plus Vita and Pullman businesses, which were acquired there in 2001.

  In early 2009 however, Bimbo pivoted northwards once again. They secured the transformative acquisition of Weston Foods Inc., the only American bakery with a national presence. Purchased for $2.4 billion from George Weston Ltd., the acquisition made Bimbo the largest bakery in America, with 22 factories and 4,000 delivery trucks. Weston Foods had sales of over $2 billion from the Boboli, Brownberry, Entenmann's, Freihofer's, Stroehmann and Thomas' brands of breads, rolls, muffins and bagels. The acquisition was expected to help lift Bimbo’s total sales to $10 billion during 2009. Bimbo spent two years digesting the Weston purchase before making three international acquisitions in 2011. These made the company the largest bakery in the world. Bimbo Iberia, the largest in Spain and Portugal, was finally brought back into the fold while Argentina’s market-leading Fargo bakery business strengthened the company’s South American presence.