Essay on Grupo Bimbo PDF

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Grupo Bimbo Case Study...

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GRUPO BIMBO CASE STUDY ANALYSIS Analysis of GRUPO BIMBO’s cross-border marketing related situation and recommendations about future marketing related action

I.

Introduction

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II. Background

4

III. Alternatives

4

A. Brazil

4

B. USA

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C. China

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IV. Proposed Solution

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V. Recommendations

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VI. Exhibits

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I. Introduction This analysis focuses on the case study on GRUPO BIMBO (GB) written by Jordan Siegel and published by Harvard Business School on August 29, 2009. After being founded in 1918 in Mexico, Group Bimbo has come a long way to become one of the largest baking companies in the world. With the lack of growth opportunities in its native market of Mexico GB decided to enter the North American and South American market where it faced a lot of hardship in terms of operating losses initially and only recently has managed to achieve marginal operating profits in the US and Brazil. Their global strategy consists of growth by acquisition through which GB already has successfully acquired 100 popular brands. More recently GB has been looking into growth opportunities in China and has already applied their global strategy by acquiring the smaller local company Panrico. For the future the main difficulty lies within the vastness of their ventures and the regional differences of each area which require distinct strategic directions. The strategy of foreign direct investment by acquisitions holds both advantages and disadvantages. One the one side it makes for an easier entry into a foreign market as acquiring a wellestablished existing brand inside another country serves as a jumpstart as it is quicker to execute than greenfield investments. It also requires much less effort to just acquire the employees, distribution network and brand loyalty altogether. In the best case companies believe that they can drastically improve the efficiency of the entity they buy buy applying their corporate philosophy and using their best practice methods. On the other side acquisitions can carry far more risk than other entry methods in foreign markets as they require a big upfront investment with limited information available about the company that is acquired. For GB in particular being in the food industry this means that obviously the consumer taste will vary from one country to another and thus with each global acquisition and with each conquering

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of a new country GB has to formulate a new product portfolio and marketing strategy that fits the local taste.

II. Background In Mexico GB is the clear market leader with a market share of 90% with a favorable reputation among consumers as well as potential employees. Due to the limited growth potential in Mexico GB has to continually expand to new markets in order to meet their goal of becoming one of the five largest bakers in the world. While pursuing these goals four main challenges can be identified that need to be overcome before this goal can be met. These challenges are industry competition, demand patterns, distribution networks and administration. The industry competition is highly fragmented in almost all markets outside of Mexico which causes a competitive industry structure with a lot of different players in each country. The demand patterns pose a problem as the consumption habits are heavily influenced by cultural factors, demographics, tastes, trends and price sensitivity. Apart from that the distribution networks require successful negotiations with retailers as they hold the bargaining power and power of location. The distribution chain and costs also depend on the country’s geography, the labour relations and what kind of transportation infrastructure can be implemented. Lastly the administration might be a difficult hurdle to overcome as regulatory frameworks of labour regulations, new business registration and bankruptcy filing vary largely from country to country.

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III. Alternatives A. Brazil In order to evaluate what possible potential Brazil holds that could contribute towards meeting the goals of GB one has to consider the mistakes that were made in the past. Overall one can say that GB chose the wrong approach of entering the Brazilian market as it considered it very similar to the Mexican one. This has proven to be wrong on multiple levels for example when considering the overall bread consumption which three times less than in Mexico (2,5 kg of industrial bread consumed in Brazil vs. 7,5 kg in Mexico, data from exhibit #4 of case study). Additionally European immigrants have maintained a high availability and tradition of fresh artisanal bread, which is considered superior in quality over industrial bread with even Alberto Díaz, the head of GB’s division for Central and South America, saying that “artisanal bread is king“. Apart from that the taste of Brazilians is simply different from that of Mexicans as Brazilians prefer pound cakes and the likes while Mexicans prefer strawberry jelly filling. Furthermore the intense competition combined with the relatively low demand just causes a price pressure and keeps prices down. While industrial bread can be sold at $1.90 per kg in Mexico it can be sold for only $1.50 in per kg in Mexico. Another big misstep the wrongly chosen distribution strategy. Instead of focusing on small shops as retail outlets large hypermarkets where 70% of sales happen in Brazil should have been selected. Lastly the Mexican brand names were not yet established in Brazil and thus brand affinity with Grupo Bimbo’s products was not given. Overall the competence of the local organization just has proven to be insufficient while the strategic importance of the local environment was strongly underestimated (see Exhibit #3). From these current issues that they are facing it is clear that they hurried to enter into that market without doing their homework beforehand. Nevertheless Brazil is a “must“

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market for a group that wants to have presence in South America according to Alberto Diaz and thus measures should be taken to recover from the initial mistakes.

B. USA Although the US is one of the countries with the highest bread consumption per capita the country has not welcomed GB as warmly as they had hoped. New more healthy dietary trends as well as problems with labour unions caused revenues to stagnate and thus GB only has been able to take the strategic role of a contributor (see exhibit #4). Considering their growth by acquisitions approach GB planned to duplicate their best practices from their Mexico operations so that they reduce the costs and improve the profit margins. However, the major issue with this strategy in the US was that every time GB enters a new market like this they are confronted with a huge amount of management complications which increases their costs. Solving the problems with unionized work force was just one of the bigger issues in the US. Another major threat in the US is the strong relations between consumption patterns and dietary trends. The recent “Low Carb“ movement in particular has shown how big of an influence a more healthy lifestyle can have on the consumption quantity. This combined with the loss of the ability to dictate a margin as the growing concentration of grocery store buyers abuse their market power to dictate lower prices caused the North American ventures to have a hard time being profitable.

C. China China has a highly fragmented bread industry where a company like GB with the right strategy, could prime itself to being the market share leader. It is a clear cut market that in a lot of ways looks like the perfect market for expansion. It is large and fast growing, has a similar and attractive structure as Mexico (see exhibit #6) and so far has not one big company that has acquired a big market share which

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could give GB some form of pioneer advantage over other multi-nationals that want to invest in China in the future. Although the GDP per capita with 7500$ is lower than the one of Mexico with 14000$ it is with 10% faster growing compared to Mexico’s 5,5%. China undoubtedly holds great potential not only because of its enormous number of people that live there but also because of its similarity in industry structure with a large number of mom-and-pop stores and a fragmented distribution network. Furthermore the processes used in production are far from best practice and thus offer a big potential for increasing efficiency and productivity. As a bonus even the cute bear logo appeals to Chinese consumer’s aesthetics, creating options for very effective marketing campaigns.

IV. Proposed Solution As visible in the SWOT analysis in exhibit #1 the value proposition of GRUPO BIMBO and business model is to acquire an already existing company in a new market, apply their best practice processes and their expertise in building a distribution network in order to benefit from economies of scale which spreads the high fixed costs of large plants. This way the best practices that GB has innovated in Mexico are used to streamline the plants across the globe while maintaining localization to reduce the costs and increase the margin steadily. These recommendations will also help GRUPO BIMBO focus on its weakness in terms of lack of experience in handling unions, lack of its experience in China and its aggressive entry into South American market. Through this more profitable approach value will not only be maximized for shareholders but also for GRUPO BIMBO employees as for example in the USA they will have the opportunity to earn more and experience better growth as IOs. Furthermore it will add value for consumers as supermarkets and other large scale consumers will be able to have their demand met in terms of

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flexibility and on time delivery through which the end user will benefit as he gets the demanded product based on their region and also in terms of quality. Based on this the proposed solution is pretty simple: keep doing what you are doing best. In South America GB should try to expand as much as possible but not before making sure that the acquisitions they have run smoothly and are profitable. The same goes for America although America holds a bigger potential for artificial growth through future acquisitions and of all the countries should be prioritized also because of the quantity of the bread consumption. China is the most difficult investment GB has to handle and only time will show what the right approach consists of. For now no large acquisition should be considered but the focus should lie on the consistent expansion of the Panrico enterprise.

V. Recommendations Thec ur r ents t r at egyofi nor gani cgr owt ht hr oughac qui s i t i onsmak esmuc hs ens ewhen t heai mi sf as t ergr owt hbutGRUPO BI MBOmus tr eal l yi nv es tmor et i mei nanal yz i ngt he ac qui si t i onfi r s tt hant heygener al l ydobef or emak i ngt hei nv es t ment . Spec i fi c al l yf orBr az i l t hemeas ur esc oul dcons i s tofbutar enotl i mi t edt oaex t endedcont r olof c os t sf eat ur i nganewdi s t r i but i ons t r at egyt hati smor eadapt edt ot hel ocal mar k ets t r uc t ur eof Br az i l .Thi sdi r ec tappr oac hofl ar ger et ai l er shaspar t l ybeeni ni t i at edbuts houl dbeex t ended andal sobecombi nedwi t ht heus eofi ndependentoper at or swhos uppl ys mal l ers t or es .I n addi t i ont ot hatt hepr oduc tpor t f ol i os houl dbeex t endedwi t hpr oduct st hatbet t ers ui tt hel oc al t as t eofBr az i l i ans .Forex ampl et hec onf ect i onar ys ect ors howst obeav er ypr omi s i nggr owi ng mar k etal t houghi ts t i l l onl yr epr es ent s65% oft heMex i c anv ol umei n2006( Ex hi bi t#5i nt he c as es t udy ) .Thi swayt her ev enuecoul dbei nc r eas eddr amat i cal l y .Fi nal l yal l dec i s i onss houl d bebas edonbet t ermar k etr es ear c hi ns t eadofgues s i ngandbas i ngy ourdec i s i onmak i ngon

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pas tex per i enc e.Thi swayBr az i l c oul dser v easai nnov at i onl abf ormanyot herpar t sofLat i n Amer i c a. I nor dert oov er c omet hepr obl emsment i onedf ort heUSandmak et hegr owt hbyac qui s i t i on appr oac hwor kaf ewmeas ur esar eneces s ar yt obet ak enmos tofwhi c hc oul dhav ebeen av oi dedwi t hbet t erpr epar at i on.Fi r s t l yt hepr oduc tpor t f ol i oneedst or at i onal i z edt obet t ers ui t t hec us t omerdemands .Thi si nc l udest heex t ens i onoft heheal t hor i ent edOr oweatl i neaswel l ast hec ut t i ngofot hernotpr ofi t abl epr oduc tl i nes .Thef oc usoft hepr oduc tpor t f ol i os houl dl i eon a“ wel lbei ngpr oduc t s “whi c hi st heonl ypos s i bl eans werandt hemos tpr omi s i ngs t r at egi c dec i s i oni nr es pons et ot he“ LowCar b”andDi ett r ends .Thi sc oul dbeac hi ev edwi t ha“ pul l ” mar k et i ngs t r at egyast her equi r edpr oducts pec i fi c at i onneededar eobv i ousandt hemar k i ng s t r at egyt husc anbeai medt owar dst hatpar t i c ul art ar getgr oupv er ywel l .Ont opoft hatGB c oul dus ei t ss t r ongr es ear c handdev el opmentt opus ht ec hnol ogi cal i mpr ov ement st hatwoul d al l owf ort hemas spr oduct i onofpr oduc t st hatar ef r es herandmeett henewdi et ar ydemandsof t hec us t omerbet t er .Sec ondl yt hepr i c epr emi um needst obeear nedbackagai n.The pr ofi t abi l i t yc al c ul at i onsdependont hef ac tt hatt hepr i c epr emi um c anbeappl i edot her wi s et he oper at i onswi l lnev erbepr ofi t abl e .I nor dert oac hi ev et hatt hepr oductqual i t ys houl dbe i nc r eas eds omuc hort hev al uepr opos i t i onoft hepr oduc ts houl dbeadj us t edi nawayt hatt he pr i cepr emi um i sac t ual l yj us t i fi ed.Fi nal l yt her ei st hepr obl em wi t ht heuni oni z edwor kf or c e.As t hi si sanoper at i onal modelt hatc annotbechangeds oeas i l yt hec ompanys houl dr at her c onc ent r at eonc ommuni c at i ngt hei rCor por at eSoci alRes pons i bi l i t yt hr oughempl oy ee empower mentwhi c hwoul di nc r eas eeffic i enc yt hr oughmot i v at i on.Ov er al l t her api dgr owt hof t heLat i nAmer i c anpopul at i oni nt heUSAent ai l sahugepot ent i al f ormas si v eex pans i onand s houl dbeaddr es s edwi t har at heraggr ess i v eac qui s i t i ons t r at egyov ert hec our s eoft henext y ear s . Concer ni ngt hei rendeav or si nChi naGBfi r s tofal l hast omak es ur et hatt hec ur r entac qui s i t i on i smadepr ofi t abl ebyi nc r eas i ngpr oduc t i v i t yandeffic i enc ywhi c hcanbeac hi ev edt hr ough

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appl y i ngk nowhowandbes tpr ac t i c emet hodsus edi nMe xi c anpl ant s .Secondl yGBs houl dnot r us hf orf ur t heri nv es t ment sbutl ear ns t epbys t epbycons i st ent l yev al uat i ngwhati ss ucc es s f ul andwhati snotandadaptacc or di ngl y .Wi t ht hes i mi l ar i t yt ot heMex i c anmar k eti nmi ndan ex pans i onl i k ei nMex i c os houl dbet hegoal .Sl owl ybr oadent hedi s t r i but edc i r c l ear oundBei j i ng andi nt r oducenewpr oduc t st hatar emor es ui t abl ef orChi nesec us t omer sbyf or mi nganal l i ance wi t has mal l ert r adi t i onalChi nes eBak er yt hati smor ek nowl edgeabl eaboutt hec onsumer pr ef er enc esoft hemar k et .Ot herr ec ommendat i onsar et hes ameasf orot hermar k et sast hey c onc er nt hec or ebus i nes smodelofGB.Mai nt ai ns t andar di z at i onandi mpr ov ementof t ec hnol ogyt obeaheadofcompet i t or s .Thi si ses pec i al l yi mpor t anti nChi naast heChi nes e c ons umerhi ghl yv al uesqual i t y ,s hel fl i f eandf r es hnes s .I ft heyc anac hi ev et hesuper i or i t yof t hei rpr oduct sandc anc ommuni cat ei ts uc c es s f ul l yt heywoul dhav eauni quec us t omerv al ue pr opos i t i ont hatwoul ds ett hem apar tf r om t hei rcompet i t or s .I naddi t i ont ot hatGBneedst o c ont i nuet obui l dgoodr el at i onshi pswi t hhy per mar k etc hai nsandgov er nmentc onnec t i ons .

Exhibit #1: SWOT Analysis Grupo Bimbo General

Strength

Weakness

•strong brand reputation for Latin Americans •diverse product and brand portfolio - deep understanding of consumers and brands •Market leader in Mexico •human resource pool in Mexico •strong focus on research and development of new products and processes •strong financial position •operating expertise and efficiency in Mexico •turnaround of American and Brazilian operations •strong position in Beijing after Panrico acquisition

•lack of experience how to deal with labour unions •bad preparation before market entry in South American markets •strong reliability on the performance of the acquired brands •partially underperforming product lines (Fast Food in USA) •unexperienced in Chinese market conditions •short expiration date of products

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Exhibit #1: SWOT Analysis Grupo Bimbo General

Opportunity

Threat

•growing Latin American population in the US •38% market share in Beijing with Panrico •expansion of hypermarkets in Latin America •benefits of independent operator conversion •absence of labour unions in China and South America •technological advances: production processes or prolonging of shelf-life of products

•increasing competition in USA, China and South America •change in consumer behavior dietary trends •domination of super markets in the US •unionized work force and local labour unions - threat of strikes •lower per capita consumption of bread products outside of Mexico

VI. Exhibits Ex hi bi t#2:CAGEFr amewor kGRUPO BI MBO f orChi na Cultural Distance

Administrativ e Distance

Geographic Distance

Economic Distance

External Distance

•different languages •different tastes and needs of consumers •different business culture

•government support and policies to support local companies

•different •huge work geographic style/ethics distance •higher labor •different costs (labour infrastructur unions, e health care approaches etc.) (bike vs. truck) •different time zones

Internal Distance

•individual tastes that need to be addressed specifically

•no labour unions •not a lot of labour regulations

•large country by area

•big markets with strongly increasing GDP per capita

Ex hi bi t#3:Rol ef orNat i onal Subsi di ar i esofGr upoBi mboi nBr azi l

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12

Strategic Importance of Local Environment High Low

High

Strategic leaders

Contributor

Black Hole

Implementor

Competence of Local Organization

Low

Strategic Importance of Local Environment High Low

High

Strategic leaders

Contributor

Black Hole

Implementor

Competence of Local Organization

Low

13

Ex hi bi t#4:Rol ef orNat i onal Subsi di ar i esofGr upoBi mboi nUSA

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Strategic Importance of Local Environment High Low

High

Strategic leaders

Contributor

Black Hole

Implementor

Competence of Local Organization

Low

Ex hi bi t#6:Por t er ’ s5For cesAnal y s i s :Mar k etAt t r act i v enes sf orI ndust r i al Br eadi nChi na

Pot ent i alent r ant s: •eas yt oent erbutf as t gr owi ngmar k etgi v esr oom f orent r ant s

BuyerPower :

I ndust r ycompet i t or s:

•l ar geamountofmomand- •manys mal l compet i t or s pops t or es •f r agment edmar k et •c ompar abl et oMex i co •f as tgr owi ngmar k et dec r eas esc ompet i t i on

Suppl i erPower : •nopr obl emswi t h di s t r i but i ons t aff •compar abl et oMex i can mar k et

Subst i t ut es: •f ewerpr obl emswi t h ar t i s anal br ead •butsubs t i t ut esi not herf ood pr oduct s •butbi gpot ent i aldue...