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Can Bimbo Cook in the U.S.?


In Mexico, there's no local brand as ubiquitous as Bimbo. Sliced bread, cakes, and snacks from the 56-year-old baker, known for its pudgy white teddy-bear logo, are delivered daily nationwide, from the Sonora desert to the Chiapas jungle, courtesy of a fleet of 27,000 trucks. Executives at the Mexico City company estimate that its army of deliverymen makes the equivalent of dozens of trips around the earth each day.

But Bimbo's reach extends well beyond Mexico's borders. On Jan. 22, it plunked down $610 million for the Western U.S. division of Canada's George Weston Ltd. The deal gives Bimbo five bakeries and the rights to the Oroweat, Entenmann's, Thomas' English Muffins, and Boboli brands everywhere except in Canada and east of the Mississippi River. The share of Bimbo's sales that comes from the U.S. will rise to 30% from 17%. "This is a perfect fit for us," says Grupo Bimbo Chief Financial Officer Guillermo Quiroz. It also builds on a $1.1 billion 12-year international expansion drive that has taken Bimbo into 16 countries from Chile to the Czech Republic, elevating it to the rank of No. 3 baker worldwide. Bimbo had an estimated profit of $188 million in 2001 on sales of $3.8 billion.

With a virtual monopoly at home, Bimbo has little choice but to look abroad for new avenues of growth. Yet even admirers of this Mexican blue chip wonder whether it has what it takes to succeed north of the Rio Grande. With the notable exception of cement maker Cemex, few Mexican companies have managed to turn a profit in the ultracompetitive U.S. Vitro tried to crack the American glass-container market with its purchase of Anchor Hocking in 1989, but it threw in the towel seven years later. Grupo Carso, a leading conglomerate, is struggling to turn around troubled computer retailer CompUSA Inc., which it bought in 2000. Bimbo has had a spotty record with its prior U.S. investments, too. Mrs. Baird's Bakeries, the Texas-based operation it acquired in 1998 for $300 million, is still in the red, and its collection of bakeries in California are just starting to break even. "The company doesn't have a good track record of enhancing shareholder value through overseas acquisitions," says Deutsche Banc Alex. Brown Inc. food analyst Joaqu?n L?pez-D?riga. Indeed, while overall sales have climbed as a result of such purchases, profit margins are being squeezed (charts).

So why aren't Bimbo's shareholders howling? Because there aren't that many of them. Bimbo spent $500 million last year on a share-buyback program that left just 15% of shares actively traded. The company, which is controlled and run by the Servitje family, didn't even have an investor-relations department until Quiroz came on board three years ago after a career in Mexico's airline and banking businesses. Quiroz says Chief Executive Daniel Servitje Montull is committed to making Bimbo a more open company, paving the way for a possible New York Stock Exchange listing within two or three years.

Bimbo's executives claim they've learned their lessons from past acquisitions. They're spending $50 million on a companywide information-management system from Oracle Corp. They've also hired consulting firm Bain & Co. to convert the George Weston operation to the Bimbo way of doing business in just 100 days. That's in stark contrast with the slow pace of integration of Mrs. Baird's, where management dragged its feet in introducing Bimbo's manufacturing and purchasing schemes. "Bimbo was timid on the Texas takeover," says Quiroz, though he credits Bimbo's four years in the U.S. with helping the company overcome the inferiority complex he says Mexicans have suffered from the time of the Spanish conquest.

With the Weston deal, Bimbo now boasts a roster of well-known American brands and a ready-built distribution network. Entenmann's, for example, is No. 1 in its market segment nationwide, but it still has plenty of room to grow in the western half of the country, where it is not as well known. It also gives the company access to a market estimated at 120 million consumers, 20% of whom are Hispanic, allowing the company to expand the reach of its existing bread and tortilla manufacturing facilities in Texas and California. "The Hispanic market is definitely an opportunity, and they're in a better position to exploit it today than before," says L?pez-D?riga. But can Bimbo peddle Entenmann's cookies as well as its jelly-filled Gansitos sweets? U.S. shoppers are about to find out. By Geri Smith in Mexico City


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