Grupo Bimbo case notes PDF

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Grupo Bimbo: CAGE Framework Nonmarket strategies; how to influence women to buy packaged bread, nonmarket behaviors US: leverage high Hispanic population, nostalgia; diversification into other types of foods Brazil: Make Grupo Bimbo the world leader in the baking industry U.S. market recently became profitable How to expand to China? Competitors: Interstate Baking Corporation – only in US, bankruptcy, long term decline in demand Sara Lee – baking and food service products, restructuring, sale of branded apparel business, only competed with Groupo Bimbo in US, many new products George Watson – Canadian company, baking/dairy, profits rose (largest fresh bakery narket share in US at 22% vs. Bimbo’s 10%), whole grain square bagels, Flowers Food – 10% market share too, focus on baked goods, favorable pricing, no operations outside US, well managed, Panrico SA – 250+ products, began in Barcelona, facilities in Spain, Portugal (also China, Greece) lost money through restructuring, renewed focus on domestic market and Portugal, reduced emphasis on international expansion (acquisitions), investment in technologies 70% of sales came from Mexico, tradition, Mexico’s first machine for mass producing bolillo breads, innocent, childlike, soft brand image worked in Mexico, wrapped in clear cellophane to highlight freshness, Servitje became CEO in 1997 (2001 Brazilian acquisition, US acquisitions in 97/2001, one of the first few Latin American consumer products companies in China in 2006) Human capital, technology development, conservatively managed company, 100+ local brands, multi decade investment to reach scale/flexibility of 5000 products Series of US acquisition in the 80s, 4th largest baker in US, struggled to reach profitability (supermarket buyers used power to dictate lower prices and return unsold bread to producer unsold inventory = 14% in US, 7% in Mex), high pressure from supermarkets to meet diverse needs; price premium in Hispanic bread market wasn’t enough to deliver financial results for US, certain brands significantly less profitable (management wanted broad portfolio for varying segments); negotiating power of union truckers and workers, increased costs of wages/benefits (competitors had non unionized workers), wanted to switch to independent operator conversion, limited success,

Consumption patterns in South America varied by region, cultural HR differences, (language, greater focus on fresh not manufactured bread), Mex consumption of manufactured bread was 4-5 times higher than South America, higher price competition, limited brand recognition, aimed at mom/pop stores in areas that were dominated by hypermarkets increased sweet good production, merged distribution system of bread/sweet goods, higher percentage of individual operators (lost control of relationship w/ mom/pop stores) Purchased food processing center in China in 2006, 2 years of research, taste tests by Chinese immigrants in Mexico; improving manufacturing productivity in Beijing plant, distribution via bicycles, customize products for different markets, needed to recalibrate prices (left a mess by previous company)

Protecting past vs seeking challenges to put Latin America on global business map, constant reflection, open to change, 1.

Why is Grupo Bimbo much less profitable in Brazil and the US than in its home market of Mexico? Like many companies entering a new market, Mexico-based Grupo Bimbo, too, initially struggled in its attempts to expand to the US and Brazil. Varying industry conditions and changing consumer demands offer a partial explanation for sub par profits in these two countries. Grupo Bimbo was consistently the highest bread revenue company in Mexico, with $927.9 million in revenues in 2004. While Grupo Bimbo was the highest grossing bread company in Brazil, its 2004 revenues were $136.6 million, significantly less than Mexico. Moreover, Brazil had to compete with Brazil’s massive artisan bread market, which brought in $7852.9 million in revenue for 2004. In the US, Grupo Bimbo generated $630.6 million in revenues in 2004, a marginal portion of the market share compared to bigger competitors like George Weston, Interstate Bakeries, and Sara Lee. Additionally, consumption patterns varied greatly between the countries, forcing Grupo Bimbo to offer a wide range of products to satisfy US supermarkets, and place a greater emphasis on sweet goods in the Brazilian market. Industry conditions varied by country Changing consumer demands/more demanding, low manufacturer pricing power (low carb diets), higher ingredient costs Adapted more whole grain products

2.

How would you propose to address the challenges that Grupo Bimbo faces in Brazil? Be specific about which actions you would take and which problems those actions would solve.

In entering Brazil, Grupo Bimbo faced a host of challenges including HR issues, less consumption of manufactured bread, higher price competition, and limited brand recognition, among other problems. Addressing the administrative distance would help alleviate some of the HR issues. Grupo Bimbo should require management to go through a cross-cultural training program, perhaps in a webinar format, to highlight the differences in managing teams in Mexico versus Brazil, and how to change management styles to ensure employees are performing their best. Grupo Bimbo should also invest resources in truly understanding consumer tastes and shopping habits in the Brazilian market. Through focus groups, and surveys, customers can help identify exactly what products Brazilians are seeking, and the ways in which they consume products. Because there is such an emphasis on artisan bread, Grupo Bimbo needs to highlight the freshness, and convenience of processed bread perhaps through an extensive marketing campaign that would simultaneous show the benefits of Grupo Bimbo’s products, and raise brand recognition. 3.

Should Grupo Bimbo be going to China? Why, or why not? If Grupo Bimbo continues its expansion in China, what (if anything) would you change about their strategy there? Grupo Bimbo did their research before entering the Chinese market, and it makes sense to continue expanding in China. Although the CAGE framework highlights the food industry as one that is highly sensitive to cultural, and administrative differences, early sales data shows promise for expansion of packaged bread in China. China’s baked goods market grew more than 50 percent from 2000 to 2005 ($4457.89 million to $6982.40 million), and there is growing willingness among Chinese customers to try new products. Moreover, Grupo Bimbo purchased a company with a strong existing portfolio, and distribution network. As China’s infrastructure continues to improve, Grupo Bimbo will only become more successful. Additionally, there is strong potential for growth, as Grupo Bimbo is one of the first Latin American consumer product companies with both a production and sales presence, providing it with a greater advantage in a industry that is highly fragmented in China (no one brand controls more than 2 percent of the market). In order to continue to grow and remain successful, Grupo Bimbo should place an emphasis on fixing cost structure to recalibrate prices. Group Bimbo needs a combination of low prices, and fierce marketing initiatives to raise awareness to brand, and establish loyalty. In addition to marketing to students, as they have, Grupo Bimbo should expand its promotional efforts to families, and adults. They should also introduce the tortilla to the Chinese market sooner rather than later to provide a distinguishing factor, and ideally capture a greater percentage of the baked goods market. $7.5 billion market, but highly fragmented (no one brand controlled more than 2%). Groupo Bimbo:

Profitability issues in Brazil and US  differences in scale, cost control, consumer willingness to pay, retailer buying power, industry concentration, skills/capabilities needed for success C: Different taste profiles, bread consumption patterns, Brand recognition A: Differences in ability to control costs G: large distance, short shelf life, foreign direct investment E: big markets, different distribution channels, different scale/infrastructure, insufficient demand, fragmented vs. concentrated industry Brazil: low value for packaged bread, Mexican brands don’t resonate, HR issues, power of hypermarkets, fragmented bread market US: power of unions, domination of mass retailers, fragmented industry Industry conditions varied by country Changing consumer demands/more demanding, low manufacturer pricing power (low carb diets), higher ingredient costs Adaptedmore whole grain products Nonmarket strategies; how to influence women to buy packaged bread, nonmarket behaviors US: leverage high Hispanic population, nostalgia; diversification into other types of foods HR issues Less consumption of manufactured bread Higher price competition Limited brand recognition Lack of market in China Cultural, administrative differences too high...