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Daniel Servitje in Milling and Baking News

20 Jul 2012

If we want to be an international company, it is important for us to be in Europe.

Daniel Servitje, Chief Executive Officer of Grupo Bimbo

Daniel Servitje Interview
Source: Milling & Baking News

Servitje says global reach only a part of Bimbo’s ambitions

Even as major food processing companies worldwide place an ever increasing emphasis on achieving a global reach, the trend toward internationalization mostly has eluded the wholesale baking industry. Among major U.S. baking companies, few have any presence beyond the nation’s borders. The principal exception is Grupo Bimbo S.A.B. de C.V., Mexico’s largest baking company and now the largest baker in the United States.

Grupo Bimbo today has a presence in 19 countries, operating 153 baking plants, marketing 103 brands, and 10,000 stock-keeping units. Its products may be found at more than 2 million different points of sale, representing markets serving roughly 1.5 billion consumers. During the 1990s, Grupo Bimbo made no secret of its ambitions to be the largest baking company in the United States, but as that objective became reality the company has shifted its focus. In recent years Grupo Bimbo adopted what it calls Vision 2015 with a stated mission that does not deal with scale but instead seeks for the company to become the “best baking company in the world and a leader in the food industry.”

This shift was evident in a recent interview with Daniel Servitje, the company’s 53 years old chief executive officer, conducted at the Mexico City headquarters. When asked why Grupo Bimbo has chosen to venture internationally when other bakers worldwide had not, Mr. Servitje insisted his company has no magical advantage or know-how allowing it to venture into markets other bakers avoid. To the contrary, he insisted Grupo Bimbo in so many ways is exactly like other baking companies and has not had an easy time in any of the new international markets where it has established a presence. Becoming the world’s best baking company will be hard earned and will require patience, Mr. Servitje said.

“We aren’t better than anyone else,” he said. “We are bakers. We started from a humble, small business. The difference in our case is that there is a great deal of patience on the board and among shareholders about what we should be doing with the company. So we are where we are right now because the shareholders have been willing to let the company grow as much as the company can grow. Mr. Servitje explained that “shareholders apparently take a back seat in terms of allocations of funds.”

He continued, “That has allowed Grupo Bimbo for many years to keep growing. We have had more or less 10% sales CAGR (compounded annual growth rate) in real terms for the past five years. That reflects a high reinvestment policy, low dividend policy. It allows us to grow beyond our borders. At the end of the day it has been very good for shareholders. The company they own is certainly much larger, even with the ups and downs we have experienced. If you measure return on investment, we’ve come out positively overall, even if there are times we have not produced great short-term results.”

Even though Grupo Bimbo continues to pursue a global expansion strategy as part of its strategic objective to become the world’s best baking company, Mr. Servitje said it has not lost sight of basic truisms about baking, versus other segments of the food business. “It is true,” he said. “that baking is a local business. That’s why we need to be careful about how we manage our businesses and rely on regional and local teams empowered to make decisions. It varies by country. In some countries we have more authority pushed even to the city level. From the Grupo Bimbo view, most of the marketing decisions are local. In that sense we have to be careful not to manage from the top. But we also have developed a breadth of knowledge in many different baking categories that allows the local businesses to gain from being part of Grupo Bimbo. They are able to gain knowledge and take advantage of eyes of many different people around the world, spotting trends and opportunities for growth in our business.“We have strong culture that I believe is a strength of ours. We try to share our culture with our teams in the different companies that are integrated into Bimbo. We focus on the industry.”Bringing that strong culture and stability to companies Grupo Bimbo acquires sets it apart from many players in the baking industry over the last several years, Mr. Servitje said.

“Baking has been for many U.S. companies an industry the parent company did not expect to be operating in,” he said. “So in many cases of companies we acquire we have been the fifth, sixth or seventh parent. We tell them now this is a safe harbor. It’s motivating because people understand we are a committed parent. It’s another reason we believe we add value to the U.S. or other countries.”

The fact Grupo Bimbo believes it has resources to help enhance how its global operations do business should not be construed to mean its headquarters is the only source on best practices, Mr. Servitje said.

“I don’t think it’s a one-way view, Grupo Bimbo out,” he said. “It’s a two-way interaction. We want to learn as much as we can from the various businesses and see what could be applied elsewhere. I want to avoid the ‘not invented here’ syndrome or being very selective in applying best practices. We give awards to plants that have adopted best practices.”

For his part, Mr. Servitje has been with the company for longer than 30 years on a full-time basis.

Even earlier, while in school, Mr. Servitje worked at baking plants during the summer. He spent another summer in a Dallas plant of Campbell Taggart Associated Bakeries, Inc.

“I recently went back there again,” he said. “It’s a Sara Lee plant now. There was a relationship. We knew the c.e.o. because of the business in Spain (see related story on Page 24). I even worked in Spain for a few weeks when I was a young teenager.”

The full-time work at Grupo Bimbo began after Mr. Servitje graduated from Stanford University in the United States with an M.B.A. “I got back into the business, first in the northwest part in Hermosillo, the farthest reach of G.B. at that time. My interest has been more on the sales side.

“I like the plants and the operations, but I enjoy more being at the market, visiting customers and with our sales teams and marketing teams. I like traveling to our new businesses, which are quite enriching, the challenges we face, and we face a lot, and the opportunities which are considerable.”

If Mr. Servitje expressed a personal bias in favor of marketing versus operations, he also described himself as someone more grounded in tactical details than strategy.

“I do like to think strategically, and I believe I do, but I also believe we need to submerge into details of the business,” he said. “Otherwise you lose perspective and become framed in things that are not reality. I once had the experience of interviewing Jack Welch, the former General Electric chief executive, for four hours. He made the point that in business, anchoring in reality is key. That’s why sometimes I can be very specific about the details of the business. That’s how you can understand strategy. That’s also the way you can understand what it is the people on the front lines need from you.”

While Grupo Bimbo was established by a group including his father Lorenzo, Mr. Servitje said the expression “family business” would at best be an oversimplification as a descriptor of the company.

“This is not necessarily a family business,” he said. “From day one in 1945, this business was formed by four partners with equal shares. A few months later, Roberto Servitje, brother of my father, joined the company. He was c.e.o. of the company and has been chairman now for the past 18 years. It always has been a partnership. Many of the founding families are participating on the board. We have been a public company for more than 30 years. It is a company with a larger percentage of stock in firm hands of different families. Some are now in the second generation or third generation.”

Just as Mr. Servitje takes a modest attitude toward becoming the world’s largest baking company, he tempers his optimism with the blunt realities that the industry in which his company competes is a very challenging one. As a result, the company operates with a “take nothing for granted” attitude, even in Mexico where Grupo Bimbo’s baked goods market share is commanding.

“What I say frequently is the higher you go the more it hurts if you fall,” he said. “The heights we have reached are due to the great work of all of the associates of Grupo Bimbo. but we must be wary of our future and the things we do. We can’t take anything for granted.” MBN

— L. Joshua Sosland

Following the interview, Mr. Servitje brought his guests to say hello to his father, Lorenzo Servitje, left. The elder Mr. Servitje helped establish the company in 1945 and was its chief executive officer for many years. Nearly 20 years after his retirement in 1994, Lorenzo Servitje continues to come into the office regularly.

Bimbo gains important footholds in Europe, Asias

Against the background of its transformational acquisition of the North American Sara Lee fresh baking business, Grupo Bimbo S.A.B. de C.V. did a second transaction that received far less attention — the late 2011 acquisition of the Sara Lee Corp. and Bimbo baking business in Spain and Portugal for about $154 million. Together with its move into China in recent years, the purchase offers insights into Grupo Bimbo’s approach to growth beyond the Americas.

The transaction in Spain was no shock given Grupo Bimbo’s historical ties to the business, its position as the world’s largest baking company and because Sara Lee had telegraphed a willingness to sell the struggling Iberian business. Still, Daniel Servitje, chief executive officer of Grupo Bimbo, said the acquisition was not a foregone conclusion.

“We looked at that opportunity for many years,” he said. “The baking business in Spain was a company that was established (in 1964) by one of our founding shareholders, Jaime Jorba.”

Not only did he establish the business in Spain, Mr. Jorba consciously tried to replicate the business model of Bimbo’s Mexican business, using the same brand name, symbols and philosophy. During the 1970s, the business was sold to Campbell Taggart Associated Bakeries, the company that after an acquisition (by Anheuser- Busch) and a spin off (into The Earth grains Co.) was acquired in 2001 by Sara Lee.“We didn’t do the transaction with Sara Lee at first,” Mr. Servitje said. “We took a very detached look at the business. It was not until around a year afterward. We hadn’t finished the transaction with Sara Lee due to the D.O.J. (Department of Justice) analysis, and that’s when we agreed to take a second look when Sara Lee said they would sell the unit.”

“If we want to be an international company, having a foot in Europe is important for us” –Daniel Servitje Grupo Bimbo S.A.B. de C.V. According to filings with the Securities and Exchange Commission, Sara Lee had taken a $400 million charge against the Spanish baking business before the Bimbo acquisition, and wrote off another $371 million in losses afterward. So clearly the business had not been thriving. Still, Mr. Servitje said several positives were identified when Bimbo chose to take it over, generating considerable enthusiasm about long-term prospects.

“We presented a financial case to the board,” he said. “Yes, the brand helps. It allows us to reunite our largest brand on a global basis. We found there are opportunities to add value in Spain and Portugal and get new ideas from the Spanish team for other markets. It’s a terrific team, open to learning new things.

“We’ve always invested with a long-term perspective in each market. Spain is in a tough spot right now. We are committed and believe we will create economic value in the coming years. It will not be profitable from day one.” The business includes more than 1,900 employees, seven production facilities and more than 800 distribution routes. “It will be good for us to have a direct look at the European market,” Mr. Servitje said. “If we want to be an international company, having a foot in Europe is important for us.” Among the 1.5 billion consumers Grupo Bimbo believes it serves globally with its products, per capita consumption of wheat-based foods varies widely, Mr. Servitje said, pointing to China as a market in which per capita consumption of baked foods remains quite modest. Grupo Bimbo first entered China five or six years ago after exploring several opportunities in Asia, looking to gain a position where growth was most ripe. After looking at several countries in South Asia the company settled on China. In China, Grupo Bimbo has made a few acquisitions and has enjoyed good growth.?“We are basically a Beijing and northern China baker,” Mr. Servitje said. “We certainly aren’t serving the entire nation. We bake some long shelf life items and some fresh products. The population is about 100 million in our market, but with a tiny per capita. Overall, the Chinese market is very small on a per capita basis in our industry compared with others. Second, we’re small in our industry. We’re not the leading baker in China.?“We spend time learning and adapting. It’s a tough market. It’s a market where you have to come out with a lot of innovation. You see others coming out with similar products and different products than yours all the time. I would say we believe this is a great opportunity for us to keep learning and expanding our capabilities to be an international company.We are in the middle of the road there.”

A glimpse of Azcapotzalco

The Milling & Baking News interview of Daniel Servitje, the chief executive officer of Grupo Bimbo S.A.B. de C.V., was preceded by a half-day tour of Bimbo’s baking complex at Azcapotzalco, which is an area in the northwest part of Mexico City. Dating to 1972, the facility represented a “quantum leap” forward by the company when it opened, said Rosalio Rodriguez, Grupo Bimbo chief of operations. Today, Azcapotzalco is far from the company’s newest plant and in certain regards may be viewed as a typical or middle of the road facility, important ways the company works to keep its facilities up to date.

Azcapotzalco is one of 29 Bimbo bakeries sprinkled through Mexico (the company operates another 13 Barcel snack and El Globo pastry facilities). Of the 29 plants, 5 are located in the company’s Metropolitan region around Mexico City.

The Azcapotzalco complex covers a large area totaling 54 acres, featuring two separate baking plants. The larger of the plants, the Bimbo facility, occupies 27 acres, while the smaller, a Marinela sweet goods plant, takes up 16 acres.

Emblematic of change at the company, a water treatment plant recently was installed on the Azcapotzalco property. Across Mexico, water systems at Grupo Bimbo plants allow the company to reuse 70% of treated water in activities such as irrigation and vehicle washing. The complex also features a package recycling center where waste is classified, quantified and separated. The effort started in 2010 allows Bimbo in Mexico to reduce waste by 14% and recycle about 80% of all packaging waste generated. ?Also consistent with change is success the company has achieved in moving toward just-in-time shipment of raw materials.

“Average inventories were more than twice as large 10 years ago,” Mr. Rodriguez noted.

The company’s commitment to the environment is evident in ways other than the water treatment and recycling center at the plant. The facility was built with skylights so that work spaces are naturally lit whenever possible (lights are installed but are turned off most of the time).

“We were one of the first companies to begin using oxo degradable films, with 3, 5 or 7 year degradation, not 100 years, in snacks, cookies, cakes and bread,” Mr. Rodriguez said. “That’s a big change. We’re also working to optimize the size of the package to diminish waste.”

The entire Azcapotzalco property is landscaped with large green spaces, including an 11-acre, pristinely maintained soccer field in the center of the property, separating and surrounding the two baking plants. The plant is a resource for physical activity and recreation for the Azcapotzalco workforce and also is used by area youth for outreach programs. And while a sense of team spirit is cultivated across the entire company and throughout Grupo Bimbo, a friendly rivalry also exists between informal teams created from the Bimbo and Marinela plants.

All Bimbo’s 29 plants feature soccer fields, but the Azcapotzalco complex has a unique feature housing the official Grupo Bimbo historical archive and museum. Displays include actual baking equipment (still in working order) from the original plant, photos capturing the company history and even the desks of the company’s founders. One framed document features the 1943 notes of these men as they tried to select a name for the company. Considerations included Pan Azteca, Sabrosoy and Pan Rex. According to the resident historian the name Bimbo was a creation of the founders, looking to conjure a playful image by combining the words Bingo (based on the game) and Bambi (based on the popular Disney movie, released a year earlier). The complex also has a collection of Bimbo delivery vehicles on display, new and old, from all over the world.

Wastewater treatment is a fairly new addition at Azcapotzalco, Mr. Rodriguez said, calling it an important part of the company’s commitment to the environment.

“The treatment systems that we have installed consist principally in three stages, the first consist in the use of physic and physiochemical methods to remove sedimentable and suspend solids,” he said. “The second stage consists of a biological method where the dissolved solids are removed. And finally the third stage is one in which specialized filters and disinfection methods give the last treatment to water taking away the final impurities providing a water quality to use in irrigation and to wash vehicles.”