McKinsey Quarterly-The making of an emerging-market champion-Video Interview

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The making of an emerging-market champion

The CEO of Mexico’s Grupo Bimbo reflects on the growth path
of one of the world’s biggest packaged-goods companies.

Few companies from emerging markets have grown into successful multinational
enterprises. One business that has is the packaged-goods company Grupo Bimbo. Founded in Mexico in 1945 by Lorenzo Servitje, the publicly traded company now holds the title of the world’s largest baker, with sales exceeding $10 billion in 2010. Just over half of those sales came from outside its home market—namely China; many Latin American countries, including Argentina and Brazil; and the United States. The company trades under several well-known brands, including Entenmann’s and Thomas’ in the United States, and the ubiquitous Bimbo brand in Latin America.
Servitje’s son, Daniel Servitje, took over as CEO in 1997. Since then, Grupo Bimbo sales have more than quintupled, markedly due to its growing geographic footprint and improved profitability. A few big acquisitions under Servitje have also made Grupo Bimbo the largest baker in the United States—most recently, it purchased the fresh-baked-goods unit of Sara
Lee, which is still awaiting regulatory approval, as of early August 2011.
In this interview with McKinsey’s Alejandro Diaz, Servitje discusses the differences in business philosophy between his company and multinationals from developed markets; the challenges of executing mergers and acquisitions; the state of the Latin American consumer; and the increasing attention that Group Bimbo is paying to health and nutrition issues.

The emerging-market difference

So what do we bring as the Latino, or emerging-market champion, to the established order? I would say that we’re coming probably from, or looking at things from a different perspective—a little bit, probably more humble, more focused on the economic uncertainties of our countries.
We suffered a lot of devaluations and economic crisis in the ’80s and ’90s that I would say are still part of our baggage, when we analyze the situation in many countries. And sometimes we take a longer view of things, and we’re probably not as focused on what’s happening at the quarter, and basing our decisions on that circumstance. We still have a disorientation of a family business, in a sense—and we see things with a longer time
perspective, and base our decisions, a little bit, with a larger horizon of time. That allows us to view things probably with a very different perspective from the ones that we see from many multinationals of developed countries.
When we entered the market in Latin America, we thought that there were a lot of similarities to our culture, and our business system. Some things worked out very well, and many of them were disasters. So what we got from the board was a willingness to keep on investing in the business and maintain the business as a viable entity, with new additions of
capital. For many years—in Mexico, the same thing happened, on our snack business—we lost money for more than ten years. We kept on building our base and gaining a little bit more knowledge of the business, and scaling up our company until we turned it around.
And now it’s a very viable business.

We have always tried to understand the market on a regional basis. It might be one or two cities, but given the nature of our industry, we cannot travel with bread long distances. That
forces us to have this view of very localized markets, and trying to fine-tune the needs.
That happens with bread, but we also see it here in Mexico with tortillas. We have probably ten different types of tortilla alternatives, based on the original preference of our consumers.

How we grow

With many other companies, our growth path has gone through organic growth and acquisitions. I would say that in our case, we’re probably split evenly. On the M&A side, I would say that we started probably 15–20 years ago, and every acquisition we treated as a different project.
Lessons learned? Labor is not necessarily—even though we speak Spanish and we understand, sort of, the culture—the labor rules and the complexities of each market can get us to a very different place.
Let me tell you a little bit of our history in the US. I went to open routes in [Los Angeles], in the Hispanic side of LA. We kept on pursuing the Hispanic consumer market for many years, until there was an opportunities to start acquiring businesses in the larger general
market—started originally in Texas, California, and then we kept on doing a couple of large acquisitions. So over time, I would say that we became more intimate with the US market.
In Brazil, we started doing business probably around 15 years ago. From a sort of relatively small acquisition, we have kept on adding different businesses. We’re now the leading players in the baking field in Brazil, and our challenge is to find the right model to penetrate the traditional “mom and pop” segment, which is quite different from what we find in other Latin American countries.
In China, it’s a different ballgame. We’ve been able to sort of replicate our business model.
I was surprised. I thought it was going to be much more complicated for a Latin American company to develop its business in China, and surprisingly it has been not as difficult. The challenge in China: at the end of the day, to find ways to develop the bread market as a category.
But certainly we have a lot of food on our plate. I would say specifically in the upcoming acquisitions in the US, and how we’re going to integrate the Sara Lee baking business in the coming months. So we continue to explore alternatives but our focus in the coming years will be mostly in the Americas.

Today’s Latin American consumer market

The consumers in Latin America, I would say, are changing. They are becoming more affluent, they are more informed, they are still shopping at both ends of the trade—modern trade hypermarkets, as well as at the same time buying still some of their goods in the typical, traditional mom-and-pop stores.
In our case, we see that the distribution strength is critical to maintain our leadership position and our knowledge of the consumer and the customer. Relationships are key.
Consumers are looking for value, but they do prefer also branded products in many cases.
So what we are trying to do, and do in many places, is really segment our product portfolio in the different channels.
The products that we sell in the Wal-Marts in these countries are very different from the ones that we sell to the mom-and-pop stores in Guatemala. In some cases, from a price
perspective, products do vary a lot. We would offer larger quantities in the modern trade, probably sometimes even at a discount, to what you would find in a smaller bag of cookies in these outlets in Guatemala.

Responding to health concerns

The consumer in Latin American and Mexico is much more aware of the health and nutrition concerns than probably five or ten years ago. On one hand, yes, consumers are looking towards having healthier eating habits, but on the other hand, convenience plays a key role in our in our industry.
We do a lot of reformulation, trying to take out fat, salt, add more fiber, or reduce sugars, and on the other hand, also develop new products that feed, you know, a more nutritious profile. In Mexico, we have a lot of sweet snacks, and what we have done is to provide a set of micronutrients and nutrients, such as iron, and vitamins.
But what we found was that in the southern part of the country, malnutrition was something that, especially with kids, something that we could even help—adding more micronutrition, nutrients.
In some instances, we have to reformulate our products in order to have less energy, and in others we have to add more iron or vitamins to help the junkets to have the necessary ingredients for those years.
We have, as a food industry, a part to play in this problem. What we have done is really to engage with nine other companies on a global basis, with the World Health Organization.
And we’ve tried to engage the WHO and develop a set of criteria on our role in making this a better world.

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