Analisis Bimbo

Grupo Bimbo: Growth and Social Responsibility The most important thing in a firm is its people, because investors give what they have, but people give what they are. — Lorenzo Servitje, Grupo Bimbo founding partner By 2008, Grupo Bimbo was the leading baking company in the Americas and one of the largest in the world. It had annual sales of over $7. 4 billion, more than 100 brands and more than 97,000 worldwide associates—as Bimbo liked to call its employees. It manufactured more than 5,000 SKUs (stock keeping units) from 83 plants located in Mexico, the United States, Central and South America, Europe and Asia. Bimbo distributed its products to more than 1 million sales outlets in 18 countries. Each of these points of sale was visited by more than 36,000 route salespersons. Its products ranged from sliced bread, buns, cookies, snack cakes, pastries, sweet baked goods, packaged food, tortillas, salted snacks, confectionary goods and goat milk sweet or â€Å"cajeta,† among other products. Bimbo was the largest Latin American-based food company and the second largest bread company in the world. For eight years in a row, Bimbo had been honored with the Socially Responsible Enterprise Award from CEMEFI, the Mexican Center for Philanthropy. Moreover, Grupo Bimbo was ranked in the 9th position of the Reputation Institute for best corporate reputation in the world. 1 The next Mexican ranked firms in the study were Grupo Modelo and Cemex in the 112th and 119th spot, respectively. Grupo Bimbo had set ambitious growth objectives beyond 2010. It wanted to become the world leader in the baking industry and one of the best food companies in the world. In order to achieve those objectives, it had embarked on an aggressive program of acquisitions in overseas markets, starting with the United States across the border, and going all the way to China. Even as we pursue an ambitious growth agenda, we cannot forget our core values and who we are as a company,† stated Don Lorenzo Servitje, the now retired 90 year old founder of the company. As Figure 1 shows, Bimbo captured its core values along the seven attributes of passion, profitability, effectiveness, team work, trust, quality, with the â€Å"person† coming at the ce nter. Under its second CEO, Roberto Servitje (now chairman of the board) and its current CEO, Daniel Servitje, the company had grown spectacularly and gained an international footprint. See Exhibit 1 for its revenue growth. â€Å"Yes, indeed we have grown ur business, not at the cost of our responsibility to society, but because of our investments in it. Going forward, however, we are a far more complex company than the one founded and 1to ensure that our values and strategy are in alignment,† asserted Daniel Servitje. Figure 1 Source: Grupo Bimbo. (In the figure above, the expression â€Å"efforts and illusions† under â€Å"profitability† is best interpreted as â€Å"efforts and aspirations. †) Mexico By 2008 Mexico was the second most populated country in Latin America (behind Brazil) with 105. 7 million inhabitants, 76% of them living in urban areas. In 2007 Mexico’s Gross Domestic Product (GDP) was $893. 4 billion –-the second largest in Latin America behind Brazil’s GDP of $1,286. 7 billion but ahead of Argentina’s $262. 3 billion, Venezuela’s $228. 1 billion and Colombia’s 2 Instituto Nacional de Estadistica, Geografia e Informatica, INEGI, www. inegi. gob, last viewed August 11, 2008. 2 Grupo Bimbo: Growth and Social Responsibility 509-025 $172 billion. Mexico was the 14th largest economy in the World. 3 Mexico’s GDP per head in 2007 was $8,219. However, Mexico was a country of contrasts: the lowest 20% of the population accounted for only 3. % of total income and the Gini coefficient was 0. 508. 4 Forty percent of Mexico’s population was considered poor, and 18% lived in extreme poverty. 5 Due to deficiencies in the public education system, the unskilled and low skilled labor pool was large and around 40% to 60% of the workforce worked in the informal sector. Mexico was ruled for 71 years by one single party, the Partido Revolucionario Insitucional, or PRI. The PRI led Mexico through a stabilizing development from 1958 to 1971 where the country industrialized and GDP grew at annual rates of 6%. From the 1970’s to the end of the 1980’s the PRI policies became very nationalistic and interventionist. This period was characterized by high inflation rates and frequent financial crises, where GDP plummeted, real incomes dropped, with high external debt and soaring interest rates. During this period, Mexico’s economy was heavily dependent on oil exports. In the 1990’s the PRI embraced free market and liberalization policies that included privatization of hundreds of state-owned firms, trade liberalization that culminated in the North American Free Trade Agreement, NAFTA, in 1994, and deregulation of various industries. After NAFTA, Mexico’s economy diversified and changed from being dependent on oil exports to manufactured goods exported mainly to the United States. After the Tequila crisis that started in 1994—where GDP plummeted 6. 2% in real terms and inflation rose above 52%—the PRI was historically defeated in the year 2000, and since then two presidents from the Partido Accion Nacional (PAN) had been in power: President Fox from year 2000 to 2006 and Felipe Calderon—who by 2008 was in his second year of presidency. Despite high hopes for President Fox’s administration, his political effectiveness was severely hindered by a divided congress, and economic reforms that were needed to improve the competitiveness of the country, such as fiscal and energy reforms, were not able to pass through Congress. Felipe Calderon, at his second year of term, faced similar obstacles. He proved to be a better negotiator than President Fox. His administration had been able to pass pension reform and a mild fiscal reform. However, one of the most important reforms needed for boosting Mexico’s competitiveness and growth—energy reform—had not been able to pass. High energy costs—along with high labor costs—were limiting Mexico’s ability to compete with other exporting countries such as China. Strengthening of fiscal and monetary policies since the end of the last century had translated into macroeconomic stability but growth was not catching up with the country’s needs. Average annual growth rates since year 2000 had been 3%, insufficient to alleviate poverty and reduce inequality. 6 Constraints for growth were high-cost labor and energy inputs, a weak non-oil tax base, continued dependence on US markets for exports, weak skill base and a shallow credit market. Calderon was struggling to pass the energy reform but it was hard to boost growth given high input costs and Mexico’s dependence on the slowing US economy. 3 World development indicators database, World Bank, July 2008, www. worldbank. org last viewed August 12, 2008. 4 Source: World development indicators, www. worldbank. org, last viewed 8/13/2008 and Mexico Country Profile, Economist Intelligence Unit. A high Gini coefficient indicates a high level of income inequality, 0 corresponds to perfect equality and 1 to perfect inequality with one person having all the income. Worldwide Gini coefficients range from 0. 49 in Japan to 0. 707 in Namibia (www. wikipidia. org last viewed 8/13/2008). 5 Mexico Country Brief, World Bank, www. worldbank. org, last viewed August 13, 2008. 6 Source: Banco de Mexico, www. banxico. gob, last viewed August 13, 2008. 3 509-025 Grupo Bimbo: Growth and Social Responsibility Grupo Bimbo: History The Servitje family started doing business in the baki ng industry early in the 20th century. When Lorenzo Servitje was 18 years old, his father—who had a well-known bakery called El Molino—died from a stroke. Lorenzo had to leave behind his accounting career in order to attend to his father’s bakery. On taking over, Lorenzo wanted to make the bakery something bigger and more ambitious. He wished to start a bread production and distribution business. On December 2, 1945, Bimbo was founded. It had five founding shareholders, all family members: Lorenzo Servitje and his younger brother Roberto Servitje among them. The logo, the Bimbo bear, was drawn by the wife of one of the founders. Bimbo started with only one brand, 38 workers, and 10 trucks to deliver the bread made in one plant in Mexico City. The first products were white boxed bread and toasted white bread. The production process was completely manual and rudimentary. Bimbo bread was quickly accepted by Mexico’s households because it was packed in transparent cellophane paper—instead of the traditional wax paper—which kept it fresh and also because its quality was easily seen. Another key to Bimbo’s success was its huge publicity campaign in newspapers, radio and the movies. Never before had so much been paid to publicize bread. 7 In the next few years, Bimbo quickly incorporated more products into its product line, such as whole wheat bread, sweet breads, cakes and sweet loafs. Its distribution network, however, only reached Mexico City and cities nearby. To reach other cities, Bimbo expanded its distribution system in a way similar to how newspapers were distributed at the time. By 1956, Bimbo had commissioned its first plant outside Mexico City. Having successfully built the company from scratch, in 1963, Don Lorenzo Servitje took on the role of CEO of Grupo Bimbo and his brother, Roberto Servitje, became CEO of Bimbo breads division. Over the next 15 years, the two brothers rapidly grew Bimbo’s sales to $425 million and 16,125 associates. At the beginning of the 1970’s, Bimbo opened the largest bread factory in Mexico and Latin America and one of the 10 largest factories in the world. In this factory, bread production was completely automatic. The factory produced one-and-half, big boxed bread, per second, which was completely unprecedented in Latin America. In 1979, Lorenzo Servitje handed over Grupo Bimbo’s presidency to his brother Roberto and he assumed the chairmanship of the board. In 1980, Bimbo went public with 15% of its stock in the Mexican stock exchange. The company was then valued at $12. 5 million dollars. The successful IPO gave the company confidence to expand into the United States. Bimbo sent its first trucks with bread to the U. S. to explore the possibility of catering to a burgeoning population of Hispanic consumers just north of its border. Satisfied with the existence of demand for its products, in 1987 Bimbo started to distribute products in Houston and Los Angeles. By the end of the decade, Bimbo had expanded to Central and Latin America as well. In 1997, Daniel Servitje, Lorenzo’s son, at the age of 39 with an MBA from Stanford University, became CEO of the group and continued to lead Bimbo’s internationalization effort through important acquisitions. Roberto Servitje took on the chairman’s position and Lorenzo stepped down from all formal positions. Daniel Servitje continued with the growth strategy of his predecessors, and in the year 2000, Grupo Bimbo expanded to Europe by acquiring two plants –one in Austria and the other in the Czech Republic- and in 2001 it expanded into Brazil. See Exhibits 2 and 3 for the company’s historical financial performance, and regional indicators. By 2007, the company had a sales turnover of Ps 72,294 million (or $6. 65 billion) and a net 7 â€Å"Bimbo: A 60-year History of Believe and Create† Source: www. rupobimbo. com. mx/admin/content/uploaded/Historia% 20Grupo%20Bimbo. pdf. Last viewed: July 8th, 2008. 4 Grupo Bimbo: Growth and Social Responsibility 509-025 profit of Ps 3,914 million (or $360 million). 8 Of its total sales, 67% were in Mexico, 22% in the U. S, and 11% from twelve Latin American countries. While Roberto Servitje at age 80 served as the chairman of t he board, Lorenzo Servitje at age 90 was still active in its social responsibility affairs. Products and Brands Through the years, Bimbo grew in its bread production and also added many new products and brands. With nearly 5,000 items in its portfolio, and the nearly 100 new products being added every year, the company offered something for every taste and every occasion. Many of these additions came through acquisitions of different firms and brands. Its Bimbo bread division was undoubtedly the flagship of the company, accounting for nearly 50% of all its revenues. Of its main brands, Marinela produced all sweet breads, buns and cakes. Its star product was the â€Å"gansito† or â€Å"little duck,† which was a cake filled with marmalade and covered with chocolate. By 1975, one million â€Å"gansitos† were sold daily. Barcel started off by producing candies, but by 1977 it had begun to produce a wide range of salted snacks. Production of candies was transferred to a new firm called Ricolino. By 2007, Bimbo dominated the market in the packaged bread segment in Mexico. In the salty snack category, Barcel was second to its main competitor Sabritas, owned by PepsiCo. Other important brands were Tia Rosa, which produced specialty sweet breads and flour tortillas, Milpa Real, which produced corn tortillas and Lonchibon, which made ready-to-eat food and snacks. Most of Bimbo’s internationalizations efforts were carried out through local acquisitions. Bimbo looked to acquire firms in regions and segments that provided a platform for growth. It also looked for strong brands that were complementary to its existing portfolio of products and brands, and also provided opportunities that could enable Bimbo to scale up and achieve cost savings. Exhibit 4 provides a summary overview of its various brands, the associated product lines, and their country of operation. Sales and Distribution System Bimbo had one of the largest and most complex distribution networks in the country—second only to Coca-Cola. With time, Bimbo’s distribution system had become more sophisticated and larger but qualitatively, it was essentially the same as when Bimbo started 63 years ago—products were delivered fresh directly from Bimbo depots to the retail store, there were no intermediaries in between. Bimbo products were distributed in to three different channels: supermarkets, convenience stores and through what was called the detail channel to mom pop stores (MPs). The importance of the detail channel was diminishing as MPs found it harder every day to compete with expanding supermarket chains and convenience stores that offered other services such as ready-to-eat food. In the last 10 years, the supermarket chains had grown considerably and the traditional MP channel was losing share (see Exhibit 5). Convenience stores especially, were showing strong growth as they expanded into suburban and rural areas. Moreover, large chain retailers such as Wal-Mart and Chedraui were offering banking services to their customers, thus making it harder for MPs to compete. The total grocery retail market in Mexico was estimated at $125 billion in 2007. 9 8 Foreign exchange as of December 28, 2007 was 10. 8662. Source: Diario Oficial de la Federacion. www. dof. gob. mx. Last viewed July 3rd 2008. 9 â€Å"Retailing Mexico: Country Market Insight,† Euromonitor International, May 2008 and â€Å"Top 5 Retailers in Mexico,† Planet Retail, September 2008. 5 509-025 Grupo Bimbo: Growth and Social Responsibility All Bimbo products—from all brands and from all plants—were taken to depots from where they were distributed to all channels. In Mexico, around 40% of Bimbo’s total workforce consisted of route-sales associates. Its flagship brand, Bimbo bread, was distributed in large trucks serving metropolitan cities and towns. The rest of the brands were distributed in smaller trucks by independent sales forces. The distribution system was highly programmed. A handheld computer contained all the information on customers, their average orders, product assortments, and their detail route. That information was synchronized with Bimbo’s server at the end of each day. Mexico has nearly 1 million sales outlets, of which Bimbo reached nearly 750,000. Salesmen arrived at the depot around 6:30a. m. to load their trucks. Thanks to the handheld, they knew which products to load depending on the routes they were assigned that day. Trucks were randomly inspected to cross-check the information in the handheld with the actual physical stock in the truck. Salesmen started their routes around 7:00a. m. At each sales point, salesmen delivered products that they booked and took back products before their â€Å"shelf life† had expired. This practice was necessary to insure that consumers had access to fresh product in the market at all times. All sales information was entered into the handheld for control of daily sales. At the end of their route, salespeople returned to their appropriate depots, where stocks were checked and the recalled products were readied to be sent to an â€Å"expendio† or discount store. Salespeople had sales’ goals that they could attain through increasing sales in each store or increasing the number of clients in their â€Å"route. † Daily wages to salesmen consisted of a base salary plus commission, which was a percentage of their daily sales. Commission, on average, was more than double the base salary. On average, a Bimbo salesperson earned slightly more salary than the one usually offered by food industry for similar positions. The traditional or detail channel was the most important channel for Bimbo because it represented its largest source of sales. Bimbo supervisors were always trying to encourage their team to expand their sales points to include nontraditional outlets such as gas stations, beauty parlors, internet cafes, among others. A large fraction of low-income people, who lived in rural areas or small towns, depended on the traditional MPs to buy their groceries. 0 See Exhibit 6 for a view of three semi-urban outlets. MPs usually sold at higher prices than supermarkets but lower than convenience stores. Most MPs had a very close relationship with their clients who often relied on the credit given by the store owner for their purchases. Most of the time customers cleared their accounts by pay day. Such credit was usually not offered by convenience stores or supermarkets. In spite of its service levels, the traditional channel was slowly disappearing. It was becoming increasingly difficult for the small MPs to compete with convenience stores and supermarkets. Their stores were smaller, the product range more limited, and the layout and management of the stores less professional. MPs had to pay for most of their inventory in cash. They received almost no credit from suppliers—some distributors such as Coca Cola, Sabritas (PepsiCo. ), had only recently started to offer credit to MPs. Moreover, because their purchase volumes were relatively smaller, they received no quantity-discounts such as those offered to convenience stores and supermarkets. As a response to the needs of the MPs but also as a way of maintaining Bimbo’s most important channel, in 2004 Bimbo initiated a bold new program called â€Å"Pesito. † 10 From field visits, the case writers estimated their size to be about 250 to 500 square feet. The owners reported average daily sales of between $200 and $450, of which sodas, juice and water accounted for 50%, food-30%, and tobacco-20%. Larger stores also carried cleaning and some health and beauty products. Some carried beer. Margins varied widely by product, averaging about 20%. 6 Grupo Bimbo: Growth and Social Responsibility 09-025 Pesito During the course of their daily route selling, salesmen offered credit on purchases of Bimbo products. Store owners wanting the credit paid a flat fee of 2 pesos (20 cents) regardless of the size of the order placed. The sales person entered the credit information on to his handheld so the record of each credit could be uploaded into Bimbo’s central system once the sales person ended his daily route. At the next visit to the store—which could be anytime between two days to one week, the store owner had to pay the credit to the sales person. The sales person would then give the store owner a receipt, which was printed from the handheld and the transaction was closed. If the store owner was unable to repay the credit, for a payment of 2 pesos the credit could be rolled over, but no new transactions would be made. Many Bimbo clients recognized that â€Å"Pesito† was a way to increase their income, without having to invest in inventory, helping them to grow their business. Consequently the default rate was very low. Bimbo had different sales forces for different brands, thus there were separate Pesito programs for each brand. For example, a store could have outstanding credit with Bimbo, Marinela, Tia Rosa and Barcel. The store would appear in the Pesito accounts under four different identifiers. There were limits to the amount of credit that a sales person could give per client, in most cases the equivalent of one week’s order; and then there were overall limits per route as well. Through steady efforts by Grupo Bimbo’s route sales people, approximately 350,000 of the small store owners participated in the Pesito program and paid on time, and Bimbo’s goal was to further increase that in the coming years. Microfinance for Store Owners Don Lorenzo Servitje had, among many other of his social concerns, the idea of helping the poor through micro credits. Don Lorenzo was particularly interested in the MPs store owners because, through Bimbo, he had noticed how they lived day by day solely with the income from their store. They had no health or life insurance and Don Lorenzo noticed how many times MPs had to close due to sickness or death in the family. Store owners also had no access to the formal financial system so they had to rely on money lenders, especially to make capital improvements in the store. They seldom had resources to invest in their store to make it more productive or more attractive to customers for example by installing new equipment, refrigerators, meat cutters, or a PC to access the internet. Thus in 1994, Bimbo started an alliance with Fincomun, a microcredit institution with the goal of providing further financial services to its MP clients. The loan process with Fincomun was simple. A Bimbo salesperson could recommend a client to Fincomun. Bimbo salespeople knew their clients quite well, their business model, their cash flow, and their credit reputation. If the client accepted the offered credit, Fincomun agents visited the store and gave them a check that could be cashed at a bank. If the Bimbo sales person assisted in the follow-on collection, they were paid a small fee for the effort. Only a very small proportion of Bimbo’s clients, however, were Fincomun customers (less than 5%). By June 2008, Fincomun also offered Life and Hospitalization insurance and had 400 clients in the pilot stage of the insurance program. History of Bimbo’s Corporate Social Responsibility From its very beginnings, Bimbo prided itself on its commitment to social causes and Mexico’s development. In 1954, not even 10 years after its founding, Bimbo opened a school for workers’ 7 509-025 Grupo Bimbo: Growth and Social Responsibility children. Since then, a percentage of Bimbo’s pre-tax profits were earmarked for social and educational causes. â€Å"I wanted to dedicate myself to something more than just making cakes and bread. I aspired to serve others,† Don Lorenzo was reputed to have said in a newspaper interview. 11 Even in hard times, Bimbo had avoided firing people and reducing the CSR budget. Roberto Servitje used to say, â€Å"Entrepreneurs are meant to create and grow, not to destroy. Over time, Bimbo’s portfolio of CSR programs had grown both in size and in sophistication. At the beginning, the programs were more geared internally, toward Bimbo’s associates. Over time, they expanded externally as well. Bimbo’s CSR programs were divided into a matrix (for a detailed description of programs see Exhibit 7). Daniel Servitje asser ted, â€Å"Our CSR programs are divided into six categories that overlap with each other. We have internal and external programs, and then we have economic, social and environmental programs. When Bimbo was founded, CSR was neither structured nor formal. It was something that we did because we believed in it; because the values of social awareness were embedded in all of us since we were children. † Martha Eugenia Hernandez, head of institutional relations and CSR and who had been at Bimbo since 1981, recalled â€Å"Don Lorenzo used to say, ‘Your left hand should never know what your right hand is giving. ’ And that was the philosophy behind CSR at that time; it was low key. † Roberto Perez Gomez, head of labor relations and a 20-year-old veteran of the company added, â€Å"With Don Lorenzo, Bimbo was a small and privately held firm; contact with associates was very personal. Even though Bimbo has grown rapidly and is now a public company, the social responsibility philosophy is still the same. Contact with associates is still personal. Daniel Servitje visits each plant every year and has annual meetings with associates of different areas. † The company’s CSR budget was determined as a percentage of its profits. This percentage was decided by a CSR committee comprised of five members of the board. The committee also decided which programs to support and to what amount. The profit percentage varied from year to year, and was determined independently for each country. Bimbo’s CSR programs were divided into four areas of commitment: Employees or Associates, Health, Environment, and the Community. Associates Since the beginning, one of our greatest concerns was our relationship with associates. We wanted people to work happily, we wanted them to identify with the company and we wanted them to be respected, having a non instrumental view of people; we wanted relations with personnel to be harmonious and cordial. With the years, the view of a highly productive firm that could also be a profoundly humane company consolidated. Profit sharing with our associates was higher than that required by law and many of our associates purchased shares with their monthly savings. 12 (Don Lorenzo Servitje13) 11 â€Å"Lorenzo Servitje: Sonar y Realizar,† Reforma, Club section, May 16, 2008. 12 Legal profit sharing in Mexico was 10%. Profit sharing in Bimbo was linked to productivity and could go from 11% to 13. 5% of profits depending on the results of the company. Source: Company information. 13 â€Å"Bimbo: A 60-Year History of Believe and Create. † Source: www. grupobimbo. com. mx/admin/content/uploaded/ Historia%20Grupo%20Bimbo. pdf. Last viewed: July 8th, 2008. 8 Grupo Bimbo: Growth and Social Responsibility 509-025 In 2005, Bimbo hired a Canadian company to analyze Bimbo’s competitive advantages. They concluded, â€Å"We have analyzed their technology. They have the best in the world. They are leaders in the markets where they are present and have a great distribution network. However, what strikes us the most is that people are committed far beyond what is normally seen in other companies. People identify with the company. We see all workers, at all levels, seeking to give the best in them. That is what truly makes them special. 14 Bimbo was rated one of Mexico’s best places to work during the last eight years. In September 2008, Grupo Bimbo as a whole had more than 97,000 associates, of which around 60,000 worked in the baking division in Mexico. Around 25% of them were international associates and 13% were women. Right from the beginning, Bimbo’s top management did not merely perceive t heir associates as a labor resource, but rather as people who were partners in Bimbo’s mission to create value. They were treated with care, and provided opportunities to grow and learn and advance their quality of life. Grow and innovate was the motto driving Bimbo’s relationship with its associates. Javier Millan, head of Human Relations, put it simply: â€Å"Our competitive advantage lies within our values, outstanding among which is the person. Viewing a person as an individual is the small difference that makes all the difference. Once they are treated that way people get involved, they become interested in the company’s objectives. † Bimbo’s programs for its associates were divided into two areas of support: economic or development. Within economic benefits, Bimbo had health assistance, support for home improvement, and help with wills and deeds. It strongly encouraged long-term retirement savings among its associates. Roberto Servitje said: â€Å"What you truly gain is what you save and invest. † Under personal development, Bimbo offered its associates various courses that covered much more than just training for the workplace. Many courses addressed personal development opportunities such as, improving communication skills, raising healthy families, and so on. There were also educational offerings that enabled associates to complete a high school program, online and on-site English proficiency courses, and a mandatory course on how businesses work and contribute to the economy (to see a description of Bimbo’s programs for its associates, see Exhibit 8). Roberto Servitje said, â€Å"The firm is what its people are, and the people are what their leaders are. † From among the many benefits provided to associates, the health and education offerings were highly valued. Mexico’s public health system was known to be inefficient. It often took long hours to be seen by a doctor and receive treatment, and many visits to the doctor before one could see a specialist. Moreover, few people had access to preventive medicine. Bimbo tried to bridge the gap by providing free complete medical exams to all associates over 40, once a year preventive medical exams for cardiovascular illnesses at Bimbo facilities and follow-up checkups for those identified as needing further monitoring and care. All Bimbo associates were covered by the Mexican government’s health plan, to which Bimbo made a contribution, as did the associates through payroll deduction. In order to enable its associates circumvent the poor system of public care, Bimbo made available its facilities for the government to operate its clinics. Because of their location most of these operated as exclusive clinics for Bimbo employees. Moreover because these clinics were on Bimbo premises, the company was able to offer better infrastructure than what would normally be available to such clinics. 14 â€Å"In Grupo Bimbo, People Make the Difference,† presentation given by Javier Millan, head of Human Relations, 2007. 9 509-025 Grupo Bimbo: Growth and Social Responsibility Health and Nutrition Within Organization for Economic Cooperation and Development countries (OECD), Mexico had the dubious reputation of being second in obesity rankings after the United States. 15 Recent studies16 showed that obesity in Mexico within the total population had increased during the last 60 years, but that this growth had accelerated at an alarming pace in the last 20 years. Obesity growth rates accelerated 10% to 20% in children, 30% to 40% in adolescents, and 60% to 70% in adults. The increase in obesity was most worrying in children (see Exhibit 9). The same study linked the reasons for the increase in childhood obesity to changes in eating habits, to diets high in calories, refined carbohydrates and sodas, and decrease in consumption of fruits and vegetables. This same study stated that the increase in obesity was also related to a decrease in physical activity. In Mexico, the obesity risk for children 9 to 16 years old increased 16% for each hour that they watched TV or played videogames. On average, Mexican children watched TV or played videogames 4. 1 to 6. 3 hours daily. 7 To counter the varied causes of obesity, in 2007 Bimbo launched a health program called Committed to Your Health. The program had many different components roughly divided into five areas: improving product healthiness, education in health and nutrition, promotion of physical activity, research, and being an exemplary firm in terms of health and nutrition (for details of the programs see Exhibit 10). The company published Nutrinotas, which reached 1 milli on print and online subscribers, and distributed sports and nutrition materials for 21,000 students. As part of its efforts to promote physical activity, the company staged a nationwide soccer tournament for children, Futbolito Bimbo Stars. In 2007, 46,000 children aged 9 to 12 participated in the program and the winning team travelled to Venezuela for the America’s Cup soccer tournament. In 2008, more than 50,000 children attended, winning a trip to Disney World. In its 2007 annual report, the company affirmed its commitment to health: The millions of people who enjoy our products each day count on them for quality, consistency and taste. The success lies in staying attuned to consumer tastes and trends. That means enhancing the nutritional value of our products and introducing new, healthy options. In this regard we follow the guidelines of the World Health Organization on reducing fat, salt and sugar content, and decreasing portion sizes†¦We are also innovating by adding functional ingredients to numerous products, for example, to lower cholesterol or enhance mineral absorption. We have created a range of products with less than 100 calories each; and just as importantly, we are investing in mass-market educational campaigns to encourage active, healthy lifestyles. In order to create the necessary research and development infrastructure, Grupo Bimbo had built four Innovation and Nutrition Institutes (‘Institutos de Investigacion y Nutricion de Grupo Bimbo’), two of them located in Mexico, one in the United States and one in South America. 15 World Health Organization, www. who. org last viewed July 8, 2008. 16 â€Å"Obesidad Infantil,† Instituto Nacional de Salud Publica, Nov. 2006. www. insp. mx/Portal/Centros/ciss/nls/boletines/ PME_14. pdf. Last viewed July 7, 2008. 17 â€Å"Obesidad Infantil,† Instituto Nacional de Salud Publica, Nov. 2006. www. insp. x/Portal/Centros/ciss/nls/boletines/ â€Å"PME_14. pdf. Last viewed July 7, 2008. 10 Grupo Bimbo: Growth and Social Responsibility 509-025 Environment Bimbo’s programs in terms of environment protection were divided into five areas: emission reduction, saving water, saving energy, solid waste management and CSR on environmental matters through an institution dedicated to forest conservation and reforestation called â€Å"Reforestamos Mexico. † In the words of Martha Eugenia Hernandez, â€Å"we want to be a Green Company, both inside and outside. † See Exhibit 11 for the impact of its natural resource conservation effort. In 1998, Mexico suffered extensive fires in its forests; Mexico lost 800,000 hectares of forests. The government invited companies to participate in recovering lost forests. Bimbo responded speedily. Its associates raised money, and each peso donated by them was matched by Bimbo. As a result of the company’s (and its associates’) efforts, 1 million trees were planted and 8 natural areas were targeted for improvement. After that impressive achievement Bimbo’s directors decided to extend their commitment to Mexico’s forests on a more permanent basis. As a result, in 2002 Bimbo created a non-profit organization dedicated to protecting the forests and trees of Mexico and named it â€Å"Reforestamos Mexico. † The administrative costs of Reforestamos Mexico was entirely borne by Bimbo, while the costs of the various projects were shared by Bimbo and other firms such as Wal-Mart, Banco Santander, Hewlett Packard, as well as individual donors. Twenty percent of Bimbo’s saving from energy conservation was used to fund Reforestamos Mexico. All Reforestamos’ employees, including the director, were independent. Its director, Ernesto Herrera, had worked for Bimbo prior to this appointment and was passionately committed to its mission. â€Å"I have worked for the environment for 10 years. For me, Reforestamos Mexico has been a dream-cometrue. I work in something that I passionately care about, and in one of the most committed companies in the world. I envision Reforestamos Mexico expanding into Latin America and working along with some of America’s most important environmental NGOs. † From the 27 people that constituted Reforestamos Mexico’s advisory board, only 3 worked for Bimbo. In addition to its Reforestamos Mexico activities, in August 2008, Grupo Bimbo announced that it had begun the use of degradable polyethylene packaging for its products, which made it the first Mexican company to use a 100% environment-friendly material. Ramon Rivera, Operations Director of Grupo Bimbo, commented, â€Å"the products packaged in degradable wrapping preserve their freshness and all of their characteristics exactly the same as those using traditional wrapping, and therefore consumers can have total confidence that the product will continue to be exactly the same. With the technology known as â€Å"d2w,† the degradation of the plastic began as soon as its useful life was over and the plastic discarded. The plastic was programmed to be consumed by bacteria and fungi in the soil, through an additive that reduced its molecular structure. This process of degradation would take a maximum period of 3-to-5 years, in comparison to the normal process that could take as lo ng as 100 to 400 years. 18 Community Bimbo was acutely aware of its close linkages to the community, and therefore had instituted various programs in support. It worked jointly with the National Development Bank for the small and micro enterprise (Nacional Financiera or NAFIN) to help its suppliers with working capital needs. Bimbo also supported many educational programs for both its suppliers and its store owners. For suppliers, Bimbo provided a course that helped them improve their business skills. The topics included cost reduction, quality improvement, and tracking operations online. For store owners, 18 Grupo Bimbo Incorporates Degradable Packaging 100% Environment Friendly, http://www. grupobimbo. com. mx/ salaprensa/index. php? fuseaction=home. oletinlangID=2bolID=212. 11 509-025 Grupo Bimbo: Growth and Social Responsibility Bimbo developed a course jointly with local universities called â€Å"the store-owner university† or â€Å"la Universidad del tendero. † This course covered basic management tools such as accounting, marketing, customer service, operations planning and control, and some basic computer skills among other things. By June 2008, Bimbo had delivered 38 classes to almost 1,000 store owners. In 2007 and 2008, through Televisa Foundation, an institution that sought the development of children and young people of Mexico, Grupo Bimbo istributed 550,000 copies of a Values Calendar and Teacher’s Support Guide, to almost all Mexican elementary schools. Each year the company invited 1 million children to visit its many plants and learn about the food industry. The company had long been a supporter of the Papalote Museo del Nino (children’s museum), providing the funding support for a school program for children from low-income communities to visit the museum. Over 4,500 children visited the museum every year as part of the program. In addition the company directly supported Crisol, an elementary school for low-income children. In addition, Grupo Bimbo supported the activities of the Mexican Foundation for Rural Development (â€Å"Fundacion Mexicana para el Desarrollo Rural†), an organization with more than 40 years of experience that promoted the development of the agricultural sector, and low-income rural families. The company also supported the Center for Integrated Development of the Countryside, A. C. , (â€Å"Centro para el Desarrollo Integral del Campo, A. C. †), which benefited one of the poorest populations of Mexico in the Nayar zone. In a similar vein, the company supported various development programs for indigenous communities in areas such as health, nutrition, and education, through workshops coordinated by Foundation Mazahua Region (â€Å"Patronato Pro Zona Mazahua†) benefiting more than 20,000 people from the Mazahua area of northwestern Mexico State. All-in-all, Bimbo supported many different projects and organizations (for a list of institutions supported by Bimbo, see Exhibit 12), leading Martha Eugenia Hernandez to conclude, â€Å"We have lots of requests for help and we would love to help everyone. We want to be Santa Claus but we just cannot! It is hard to say no, but it is hard to say yes to everything. † Going Forward There was no question in Daniel Servitje’s mind that the internationalization of Bimbo’s business was important for its growth strategy. In addition to increasing Bimbo’s presence in markets such as the United States or Latin America, he also wanted to penetrate markets where Bimbo was not present or where it was just entering, such as China. An important challenge was to improve international profitability, which was lagging behind Mexico’s operations. But the leadership position it had gained in the domestic market and indeed in many markets of Latin America was something that Daniel Servitje did not want to lose sight of. He recalled the passion and commitment with which his predecessors, his father Lorenzo Servitje, and then his uncle, Roberto Servitje, had led the company. They were able to blend the company’s strategy development and its mission and values. He wondered what he could do for an encore. Bimbo was undoubtedly one of the most respected companies in Mexico. How should he go about continuing the tradition in Mexico and rest of the markets it had entered? 2 Grupo Bimbo: Growth and Social Responsibility 509-025 Exhibit 1 Historical Bimbo Sales 800 700 600 500 400 300 200 100 0 1980 82 84 86 88 1990 92 94 96 98 2000 02 04 06 2008 Historical Bimbo Sales (1980 =100) Source: Company information. Exhibit 2 Consolidated Income Statement (million dollars) 1980 426 225 201 150 51 (4) 1 47 24 24 0. 4 23 12. 3% 9. 1% 1997 2,302 1,123 1,179 966 214 11 (14) 211 90 121 5 126 10. 3% 7. 3% 2000 3,279 1,435 1,844 1,506 338 (8) (13) 317 130 187 5 192 12. 0% 7. 5% 2006 5,851 2,724 3,127 2,588 539 (27) 12 524 194 330 3 333 15. 6% 8. % 2007 6,653 3,138 3,515 2,926 590 (22) (36) 537 177 366 6 360 14. 0% 8. 7% USD MM Net sales Cost of sales Gross profit Operating expenses Operating income Integral financial result Other income or expenses, net Income before income taxes Income tax expense Net income before participation in partner companies Equity in income of associated companies Net income ROE ROA Source: Grupo Bimbo, 1980, 1998, 2000 and 2007 Annual report, www. grupobimbo. com, last viewed June 5th, 2008. 13 509-025 Grupo Bimbo: Growth and Social Responsibility Exhibit 3 Financial Information by Region (million dollars) Mexico 1998 NET SALES OPERATING INCOME EBITDA 1,923 266 338 Mexico 2000 NET SALES OPERATING INCOME EBITDA 2,431 356 443 Mexico 2006 NET SALES OPERATING INCOME EBITDA 4,110 510 634 Mexico 2007 NET SALES OPERATING INCOME EBITDA 4,575 542 686 USA 364 11 23 USA 599 (9) 12 USA 1,399 21 52 USA 1,524 19 51 Latam 238 (32) (14) Latam 249 (9) 9 Latam 490 4 25 Latam 699 25 55 Total 2,524 245 348 Total 3,279 338 463 Total 5,851 539 714 Total 6,653 590 796 Source: Grupo Bimbo, 1980, 1998, 2000 and 2007 Annual report, www. grupobimbo. com, last viewed June 5, 2008. 14 509-025 -15- Exhibit 4 Bimbo’s Products and Brands Division Bimbo Mexico Mexico United States Argentina, Brazil, Chile, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela China Barcel Bimbo Bakeries USA Bimbo Latin America Bimbo Asia Country Mexico Brands Bimbo, Marinela, Tia Rosa, Wonder, Milpa Real, Suandy Lara, Lonchibon, Gaby, El Globo, among others Barcel, Ricolino, Coronado, La Corona, among others Oroweat, Mrs Baird’s, Bimbo, Entenmann’s*, Thomas*, Tia Rosa, Marinela, Francisco, Old Country, Boboli*, Weber’s*, among others Bimbo, Marinela, Plus Vita, Pullman, Ideal, Holsum, Trigoro, PyC, Bontrigo, Cena, Fuchs, among others. Bimbo Source: Grupo Bimbo 2007 Annual Report. www. grupobimbo. com, last viewed Sept. 9, 2008. * Under license. Example of products 509-025 Grupo Bimbo: Growth and Social Responsibility Exhibit 5 Grocery Retailers Market Share 1999 Wal-Mart Safeway Soriana OXXO Comercial Mexicana Gigante Carrefour Chedraui Costco Casa Ley Comextra 7-Eleven HEB Comercial VH Almacenes Zaragoza Casa Chapa Controladora y administradora de pastelerias Grandes superficies de Mexico Others ( Mostly â€Å"Mom Pops†) Total 0. 8 1. 4 0. 5 0. 2 0. 2 0. 3 0. 2 0. 2 0. 1 0. 9 78. 8 100. 0 6. 6 1. 5 2 1 2 2. 4 0. 9 002 6. 1 3 1. 2 2. 6 3. 2 0. 9 2 0. 6 0. 3 0. 3 0. 3 0. 2 0. 2 0. 1 0. 9 78. 1 100. 0 2004 10. 2 4. 7 2. 6 3. 4 3 1 1. 9 0. 6 0. 3 0. 3 0. 3 0. 2 0. 2 0. 1 0. 9 70. 4 100. 0 2005 11. 5 4. 8 2. 9 3. 4 2. 6 1. 5 1. 8 0. 6 0. 3 0. 3 0. 3 0. 2 0. 2 0. 1 69. 4 100. 0 2006 12. 7 5. 2 4 3. 5 2. 4 2. 1 1. 7 0. 8 0. 5 0. 3 0. 3 0. 2 0. 2 0. 1 66. 1 100. 0 2007 14. 6 5. 7 4. 5 3. 6 2. 4 2. 2 1. 8 1 0. 5 0 . 3 0. 3 0. 2 0. 2 0. 1 62. 7 100. 0 Source: Retailing Mexico, Country market insight, Euromonitor International, May 08 and Retail planet. 16 Grupo Bimbo: Growth and Social Responsibility 509-025 Exhibit 6 Views of Semi-Urban MPs Source: Casewriters. 17 509-025 Grupo Bimbo: Growth and Social Responsibility Exhibit 7 Bimbo’s CSR Programs Source: Company information. 18 Grupo Bimbo: Growth and Social Responsibility 509-025 Exhibit 8 †¢ Bimbo’s Programs for its Associates †¢ Development benefits: ! Development courses for associates o Personal development course: 3 day course on meditation on oneself and life. The topics ranged from ones ideals, work as a means of personal development and community contribution, the company, health and spirituality, role in society, among others. Leadership course for bosses where the motto was: The firm is what its people are and the people are what its boss is. o What is a firm: one day course on the firm? Topics were savings, investment, work, CSR and profits. The firm was explored so that associates would learn the need to have profit and how in a successful firm everyone benefited. o Family integration workshops for associates and their spouses ! Education courses: o Open schooling to associates so that they could finish middle and high school. Online English proficiency courses and on-site English courses o Support for elementary to masters education for associates in Mexico and the United States o Intensive mandatory training course on driving for all sales personnel. o Many production associates wanted to become sales people because wages were higher. Bimbo offered training in sales and driving to production associates so that they could become sales people. o Bimbo offered, in some of its production facilities, summer camps for associates’ children during the summer vacations. ! Savings: Voluntary saving program where 1 to 2% of associates’ wages were kept for a long term etirement savings program. Economic assistance: ! Health: o Bimbo organized a health week where social security came to Bimbo to do preventive medicine tests on associates such as sugar level tests, cholester ol, blood pressure, among other things. o Associates that came out bad in any of the tests were given follow-up checks up throughout the year. o Bimbo had mandatory health checks for associates over 40. o In case of severe health problem, Bimbo helped by putting pressure into the social security system so that the associate got adequate treatment. Bimbo also got private labs to make specialized tests to associates at very low prices. ! Home improvement: o Bimbo organized a home improvement fair through the Mexican institute for home equipment, IMEVI, so that associates could get home improvement credits and better prices on home improvement materials. ! Wills and deeds: o Bimbo got associates special prices with public notaries so that they could regularize their land or home by making deeds as well as wills. Bimbo also helped associates by allowing them to pay for their will or deeds procedures in a monthly basis instead of in a lump sum. Nutritionist and doctor in Bimbo offices to help associates keeping a healthier diet. Company information. Source: 19 509-025 Grupo Bimbo: Growth and Social Responsibility Exhibit 9 Obesity and Overweight Prevalence in Mexican Children 1999 5. 3% 5. 9% 1999 18. 6% 2006 9. 4% 8. 7% 2006 26. 0% % Change 77. 0% 47. 0% % Change 39. 7% Obesity in children 5 to 11 year olds Boys Girls Overweight and obesity in children 5 to 11 year olds Boys and girls Source: Compiled by casewriters using data from Encuesta Nacional de Salud y Nutricion 2006, Instituto Nacional para la Salud Publica, http://www. nsp. mx/ensanut/resultados_ensanut. pdf, last viewed July 7, 2008. Exhibit 10 †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ Health programs in Bimbo Social marketing campaign advocating 30 minutes of daily exercise through television commercials, billboards, radio announcements and packaging. Futbolito Bimbo Stars Tournament: Bimbo invited 46,000 children to a soccer tournament where they were given information on the need for physical activity and healthy diet. Mail and e-mail distribution of nutrinotas, an information brochure on health and nutrition, to more than 1 million people annually. Distribution of posters promoting good nutrition in 21,000 public and private schools. Distribution of the book â€Å"Living a Healthy Lifestyle† to all Bimbo’s associates throughout the world and to MPs owners. Elimination of transfats from its products. Reduced portion sizes and created products with only 100 calories Decreased fat, sugar and salt in 8% of all Bimbo’s product portfolio Fortified products with iron that was five times easier to absorb. The Public Health National Institute, in its Nutrition and Health 2006 census showed that children in Southern Mexico had an important iron deficiency. Bimbo developed products that appealed to children and met 20% of their daily iron needs Created a new bread that helped reduce cholesterol Participated in the Alliance of the Heart with Pfizer and Lala where 200,000 people were diagnosed and tested, at no cost, for cardiovascular diseases based on indicators such as cholesterol, glucose and blood pressure levels. Bimbo also made efforts to be an exemplary firm by giving talks to associates on health and nutrition, providing nutritionists for consults, having healthy menus in its cafeterias and recommendations to have physical activity in the workplace. Bimbo gave founding to many health organizations such as The Mexican Foundation for Health (FUNSALUD), The APAC foundation –providing rehabilitation for people with cerebral palsy, the Ronald McDonald Children’s Foundation –supporting programs that directly improve the health and well-being of children around the world, the Juvenile Diabetes Research Fund, the March of Dimes –health education for pregnant women and promotion of folic acid supplements in bread and the Mexican Red Cross. Company information. †¢ †¢ †¢ †¢ Source: 20 Grupo Bimbo: Growth and Social Responsibility 509-025 Exhibit 11 †¢ Impact of Natural Resource Conservation at Bimbo Since 2003, Bimbo decreased its vehicle fleet fuel by 3. 6 million litters and increased their average kilometer per liter by 15% by improved carburetion technology engines and fuel types Since year 2000, Bimbo decreased its energy index per ton produced by 13% and the thermal energy index per ton produced by 34%. Since year 2000 Bimbo had saved 194 million liters of water or 23% of its consumption by water treatment, installing water-treatment systems in plants, collecting water from rain, among other things. By 2008 Bimbo was recycling 85% of their solid wastes through recycling policies. †¢ †¢ †¢ Source: Company information. 21 509-025 Grupo Bimbo: Growth and Social Responsibility Exhibit 12 Organizations and Institutions Supported by Bimbo, among others †¢ Educational Institutions: o Instituto Tecnologico de Estudios Superiores de Monterrey (ITESEM) o Escuela Bancaria y Comercial (EBC) o Universidad de Monterrey (UDEM) o Universidad Nacional Autonoma de Mexico (UNAM) o Instituto de Fomento e Investigacion Educativa (IFIE) Other foundations or institutions: o Televisa foundation o UNICEF o Junior League Mexico City o Papalote Children Museum: from the Support given to the museum, in 2007 4,500 children from public schools and 30,000 children from marginalized communities visited the museum o Fundacion Pro Empleo Productivo o Impulsa o Fundacion Mexicana para el Desarrollo Rural o Patronato Pro-zona Mazahua o Fundacion Tarahumara o Fundacion CIE o Amigos del Museo de Arte Popular: which benefits more than 8 million Mexican artisans Relief efforts: o After the 2007 floods, Bimbo made a campaign to help associates that were damaged by the flood. Over 33,000 associates donated and donations were matched by Bimbo. o In the United States, Bim bo contributed to food drives for the tornado victims in Texas and Kansas International foundations: o Project leaders of the 21st Century (Colombia) o National Park Foundation (United States) o Toys for tots (United States) o United Way (United States) o Junior Achievement (United States) o Institute of the Americas (United States) o Amigos de las Americas (United States) o Young Women Association (YWCA) †¢ †¢ †¢ Source: Social Responsibility Report 2007, Grupo Bimbo. 22