by Greg Thain
However, Bimbo’s breakthrough deal was to acquire the Sara Lee brand for bakery products in the US and selected overseas markets along with regional US brands such as Heiner’s and Rainbo. These cost nearly $1 billion. Sara Lee kept its frozen desserts and meat products businesses under the same name. The Sara Lee business came with 13,000 employees, 41 plants and 4,800 distribution routes. Bimbo planned to invest $1 billion into this infrastructure, over the next five years, to improve manufacturing and distribution efficiencies.
This deal meant that Mexico now accounted for less than half of the company’s sales. The US now constituted 40%, and Latin America 14%, of the total sales of 133 billion Pesos (around $13 billion.) The international business now looked as follows:
RegionCategoriesBrands
USABreads, BagelsSara Lee, Mrs Baird’s,
Earthgrains, Heiner’s
Central AmericaBreads, Pastries,Bimbo, Marinela, Monarcha
Latin AmericaBreads, CookiesPullman, PlusVita, Nutrella, Fargo
AsiaBreadsBimbo
EuropeBreads, SnacksBimbo
How Are They Structured?
Grupo Bimbo has always believed in keeping organisational matters as simple as possible. Indeed, after being founded, eighteen years passed before it had a head office structure at all. By 1991 the Wall Street Journal described Grupo Bimbo as a pillar of conservatism, with neither corporate offices nor annual report, but unlimited ambitions. Two years later the company was reorganised on a divisional basis. Eight divisions were each run as a semi-autonomous subsidiary. They included an International Division and Altex, a division servicing the other seven with raw materials, machinery, supplies and services (some of which they also sold to external companies). During 2000 Bimbo spun off the flour mills and processed jellies units which formed the bulk of the Altex division. However the new Grupo Altex agreed to continue supplying Grupo Bimbo.
Today the company is organised into two divisions: Baked Goods, which is further subdivided, and Salty Snacks and Confectionery which are organised under one company, Barcel S.A. de C.V. The latter operates exclusively in Mex, where the company is number two in both salty snacks and confectionery. The baked goods division is organised regionally as follows:
· Mexico – Number one in packaged baked goods, cookies and crackers, and pastries.
· United States – Number one in premium breads, muffins, Hispanic brands.
· Central and South America – Number one in packaged baked goods in fourteen countries.
· Portugal & Spain – Number one in packaged baked goods.
· Asia – Number one in packaged baked goods in Beijing and Tianjing.
What Have They Done Recently?
Over recent years, Grupo Bimbo has had two major priorities: to make and integrate acquisitions and to re-engineer their product range towards a health and wellness agenda. Through the above acquisitions and strong organic growth in Mexico (where it averaged just under 10% in 2011 and 2012), company sales increased by 14% in 2011 and nearly 30% in 2012. At 64 billion pesos, the US is now Grupo Bimbo’s single largest market. They are four times larger than just four years earlier: the company now had 75 production facilities there.
The process of integrating major acquisitions brought about a rethinking of the company’s growth strategy. Grupo Bimbo defined its strategic priorities as follows:
· Innovation and deep consumer understanding
· Creating deep connections with consumers
· Creating value for customers
· Building efficiency and scale to achieve a low-cost operation
The significant change reflected in these priorities is that, until quite recently, numbers 3 and 4 would have been 1 and 2, while the latter might not even have made the list.
The key to delivering these priorities is the R&D platform. This is built upon six innovation and nutrition institutes: two are located in Mexico, three in the US and one in Brazil. Their remit is to develop products that are innovative, healthy and of the highest quality (using new technologies that enable the company to act like the industry leader that it now is). The first stage, completed in 2011, was to define a company-wide, consumer-focused innovation process, named the Grupo Bimbo Model. The second stage was to develop a points rating system to categorize all the company’s SKUs into one of four ratings: healthy, better, good, and indulgent. Innovation plans would then target the launch of two products, in the better and healthy ratings, in each brand/region every year. The brand renovation agenda aimed either to move products up a rating or to increase the average score. Actions to date have focused on re-engineering the existing product range: specifically reducing levels of sodium, sugar and fat, and/or increasing the fibre content. In 2011 the company went for low hanging fruit. It improved the nutritional profiles of the 700 products, which it was easiest to do. They eliminated nearly 10,000 tons of sugar, 3,600 tons of salt and 1,300 tons of fat. In 2012 the focus shifted to working on the biggest brands in each category: here the challenge to maintain taste appeal was more crucial. On the fibre task, Grupo Bimbo won an award from the Whole Grains Council for the introduction in 2011 of forty-two new whole grain products, each bearing the seal of the Council.
Aside from implementing a consumer-driven strategy and beginning to re-engineer their product range, Grupo Bimbo returned to the acquisition trail in 2013. They paid $31.9 million for the purchase of the Beefsteak brand of rye breads, acquired as part of the Hostess Brands bankruptcy proceedings. Beefsteak is one of the largest volume selling brands of rye bread in the United States. Its strong, established presence in the Midwest and Mid-Atlantic regions offered BBU a significant opportunity for national expansion, given its much strengthened distribution capabilities.
What is Their DNA?
There is no secret formula in a bank vault. Nor is there an army of PhDs in laboratories. Grupo Bimbo’s success is based on a superior business model for the bread and sweet treats industry, relentlessly and consistently applied over time and geography. They are an extremely focused company who have, for the most part, stuck to what they do best. They put their efforts into doing it better, and in more places.
Summary
Thanks to the major acquisitions, plus some minor ones, Grupo Bimbo more than doubled its size between 2008 and 2012: from a turnover of 82 billion pesos to 173 billion ($13.1 billion). It has 103 brands consisting of over 8,000 products produced in 156 factories, sold in 19 countries by 127,000 associates and delivered to over 2 million points of distribution by a vast fleet of over 50,000 trucks. Interestingly, it is almost exactly the same business model first envisioned by the founders in the early 1940s, a mass-market packaged bread business reliant on a superior distribution system. They were going to get fresh product into pretty much every store in the land. With few if any transformative acquisition opportunities left in the Americas, it will be interesting to see what Grupo Bimbo does to expand its footholds in the European single market and in China.
The founders deserve tremendous credit for envisioning and creating a superior business model in the fresh bread business. The company is fully deserving of its status as the world’s most successful bakery company. Reflecting its colossal size and status, Grupo Bimbo is now undergoing its most dramatic transformation since being founded. They need to change from being a sales-led company, dependent on its best-in-class delivery systems, to a marketing-led company. Here the product range has to do more of the heavy lifting to drive growth. Grupo Bimbo is at a crossroads, and we shall watch its progress with great interest.
Taiwan
Uni-President Enterprises Corporation
Where Did They Come From?
Kao Ching-yuen was born into poverty in Syuejia, a small town in the south of Taiwan. He worked as a labourer on leaving school, and joined Taiwan Spinning, a textile company, in 1954. During a stay of twelve years he rose into the managerial ranks. Seeing opportunities in the emerging industrialisation of Taiwan, in 1967 he joined forces with an
acquaintance, Wu Hsiu-Chi, to set up a flour mill and an animal feed factory. From the very beginning, Uni-President was run with Wu Hsiu-Chi’s philosophy of Three Good and One Fairness: good quality, good credibility, good services, and a fair price.
Within three years, annual sales of Uni-President Animal Feed exceeded 20,000 tons. The company invested in food for humans with the launch of Tong Yi Noodles. Aiming to open a new plant every year, the next, in 1971, was a cooking oil and fats factory. At this point the company consisted of four divisions: Flour, Food Products, Animal Feed, and Oil and Grease. Each factory was equipped with the latest mass production manufacturing equipment.
How Did They Evolve?
By now the Taiwanese economy was growing rapidly, with a consequent surge in consumer spending power. Uni-President’s goal was not to be confined to its existing product fields, but to get into those higher added-value consumer markets it saw as having potential. So in 1974 the company launched a range of canned beverages. They followed up by taking over a dairy company and set up its own dairy division. Always alert to the latest technologies, the company was the first in Taiwan to offer its milk and juice products in Tetra-Pak packaging for increased freshness and shelf life.
Having got into the production of baked goods and confectionery, Uni-President ventured much further afield in 1979. It signed a deal with America’s Southland Corporation to bring its 7-Eleven retail concept to Taiwan: they opened fourteen stores in the first year. Uni-President, never shy about seeking alliances, also signed a bottling deal with PepsiCo and in 1981 became the General Electric Company’s distributor in Taiwan for semi-conductors. They expanded their food and beverage businesses with a host of new product launches into categories such as coffee, sports drinks and soy sauce.
Uni-President was now well on the way to becoming a consumer goods/retail/industrial conglomerate, with a diverse range of initiatives and activities. In 1985 alone, they launched such delights as Tong Yi Imperial Sausage and Tong Yi Pickled Cabbage and Duck and won numerous awards for new products and advertising. In addition, the company became the Taiwanese distributor for Meiji’s high protein milk powder; placed over 1,000 vending machines, and opened Taiwan’s first branch of Kentucky Fried Chicken along with the hundredth branch of 7-Eleven. Distribution rights for Budweiser beer soon followed, as did moves into meat and shrimp processing, infant formula and a chain of bakery stores. By the end of the 1980s, Uni-President was Taiwan’s leading food manufacturer.
How Did They Build the Modern Business?
At this point, it becomes almost impossible to keep track of the number and spread of developments. Uni-President was by now a sprawling, but still tightly managed $1 billion turnover conglomerate, seemingly active on all fronts. If it wasn’t the grand opening of the 300th franchise bakery or the 500th 7-Eleven, it was the launch into a new product category, such as dog food or the importation of fresh tulips from Holland.
Nevertheless fundamental changes were afoot regarding the company’s investment in science and technology, which it increasingly saw as the way forward. In 1993 the company invented a process for the manufacture of low-cholesterol refined lard and its Kikkoman brand soy sauce manufacturing facility was rated the best of its kind in the country. No product category seemed off limits, from drinkable yoghurt to aquarium food via the Starbucks licence for Taiwan.
Uni-President in the twenty-first century was uniquely positioned to benefit from its vertical integration - from flour-mills to retailing via its distribution companies - and its horizontal integration into dozens of categories. There was no emerging trend the company did not have its eye on. They instigated online shopping and delivery for the 7-Eleven chain. This now had 2,000 branches and was the subject of a perpetual licensing agreement with Uni-President. In 2001 the company established its Life Sciences Research centre. This focused on the development of health and wellness food options from a unique combination of health foods, traditional Chinese herbs and genetic technology. An early output was the development of technology for extracting chicken essence through hydrolysis, and a host of patents of immune system enhancement products.
In 2004, Uni-President instituted a brand management system throughout the company. Its pivot towards being more consumer-driven and health-focused led to a garnering of a multitude of National Healthy Product certifications. A year later, on the fortieth anniversary of the company’s founding, it received the award of Most Admired Company in Taiwan for the eleventh year in a row.
Their R&D team came up with proprietary manufacturing technology for instant noodles and Taiwan’s first low temperature Pasteurised milk. The logistics arm got into the running of department stores and building a shopping mall. Next, a joint venture was signed to bring the British retailer Marks & Spencer to Taiwan. But Uni-President’s success, stunning though it had been, was not just restricted to Taiwan.
The International Dimension
Uni-President’s first international venture came only five years after the company’s foundation, with the building of an instant noodles factory in Thailand. Just three years later the company expanded into the US, building a similar noodles factory in Los Angeles. During the 1980s the company established a process in which they built a sufficient scale of export business in markets, before then localising production. In Australia, the lead product line was tomato paste, launched in 1984. The US venture was expanded two years later with the importation of canned fruit juices. This presence was dramatically increased in 1990 with the $335 million acquisition of America’s third-largest cookie manufacturer, Wyndham Foods. Wyndham had 8,000 employees, eight baking plants across the country and the iconic Girl Scout Cookies business.
Further investments in Indonesia, Thailand, Vietnam and the Philippines followed, before Uni-President made its first venture into mainland China in 1992. While beginning as usual with noodles, Uni-President thought big from the start with its China operation. It analysed each region in depth - for consumer income trends, purchasing power, spending preferences and growth categories - before deciding in which categories to invest. The company rolled out along the coast (taking advantage of special economic development districts), while also venturing inland by building factories in population centres along the Yangtse River. Just three years after entering the market, Uni-President opened its seventeenth Chinese factory, importing the latest Taiwanese and Japanese noodle-making equipment. By 2000, the company’s Chinese operations had moved into profit. Its first R&D centre on the Chinese mainland was opened a year later and by 2012, fifty-one of Uni-President’s four hundred subsidiaries were operating in China. These ranged from seventeen food businesses to running the Starbucks franchise. The company is currently building factories in the second- and third-tier cities with the aim of having a food factory in every significant population centre. Elsewhere, Uni-President is currently evaluating its entry strategy for the Indian market, along with the pan-Indian ocean market for shrimp. It has thriving export markets in over thirty countries on five continents.
How Are They Structured?
Good question. With over 400 subsidiaries covering a very wide range of products, services and activities, a notable feature of the company is its multi-dimensional management approach. One level below the total company, there are what Uni-President calls ‘sub-conglomerates’. These group together subsidiaries based on their characteristics and the nature of their operations: food manufacturing, logistics, retailing and investment.
Within food manufacturing, there are six groups:
· Dairy and beverage group: This was the largest group in 2008, accounting for 38% of total sales, primarily in Taiwan, and covers a wide range of products from fresh milk to tea and bottled water.
· Provisions group: The second-largest at 35% of 2008 sales, this was the first “virtual company” to be set up in Uni-President. I was established in 2001 to manage the five core businesses of foodstuffs, animal feed, flour, edible oils and aquatic products on a global basis.
Its current agenda is to increase an international reach, implement regional production and marketing, increase the differentiation of the product range, and diversify marketing across more media
· Instant food group: This manages the noodles business on a global basis. It accounts for 10% of sales, and the key markets are Taiwan, South East Asia, China and the United States. There are exports to over 30 other countries. The group essentially uses two brands: Tong Yi Mein in Chinese-speaking countries and Unif elsewhere
· General food group: A bit of a mixed bag with four divisions: Meat Products, Sauces and Seasonings, Frozen Prepared foods, and Ice cream. These account for 8% of sales
· Consumer health group: This is the newest and smallest of the groups, contributing 7% of sales. It was established in 2003 to bring together bakery, health products – split into longevity and preventative products - and the organic products division (which was established in 1999 to sell a combination of internally developed products and many overseas brands on licence)