Grupo Bimbo

INDUSTRY COMPETITION - Highly fragmented and competitive industry structure, with different players in different countries

DEMAND PATTERNS - Consumption habits heavily influenced by cultural legacy, demographics, tastes, fashion (e.g. low-carb diets in the US), and price sensitivity

DISTRIBUTION NETWORK S - Retailers bargaining power and location, country geography , transportation infrastructure, as well as labor relations affect distribution chain and costs

ADMINISTRATION - Regulatory frameworks vary widely among countries for labor relations, new business registration, bankruptcy filing

Bimbo’s globalization challenges

Grupo Bimbo entered the Brazilian market wrongfully assuming it was similar to the Mexican one:◦ Overall bread consumption is much lower in Brazil than in

Mexico; more specifically, industrial bread consumption in Brazil is three times less than in Mexico (2.5 kg per capita in Brazil v. 7.5 in Mexico, in 2006, data from Exhibit 4)

◦ European immigrants in South America have maintained a tradition of artisanal fresh bread – « Artisanal bread is king » (A. Diaz, Head of Grupo Bimbo , Central and South America Division)

◦ Taste for sweet goods differs from Mexico: Brazilians prefer pound cakes, cereal bars and products with milk cream, whereas Mexicans like strawberry jelly filling

◦ Intense competition and relatively low demand push prices down: industrial bread can be sold at only $ 1.50 per Kg in Brazil v. $1.90 in Mexico

◦ Unsuitable distribution strategy, targeting small shops, whereas 70% of sales happens in hypermarkets.

◦ Mexican brand names are not meaningful to Brazilians; subtle language barriers exist among Latin American countries.

Mistakes in BRAZIL….

« If you want to be in South America, you have to be in Brazil » (A. Diaz, Head of Grupo Bimbo , Central and South America Division)

Strategic leader Contributor

Black Hole Implement

Although hardly profitable, Brazil is a « must » market for a group that wants to have a presence in South America.

Control costs with a new distribution strategy adapted to the local market structure (as already initiated, deal directly with large retailers and use independent operators to supply small retailers)

Improve revenue by offering new, different products, better suited to local taste, particularly in the promising confectionary sector, a growing market although still representing only 65% of Mexican sales in 2006 (based on data in Exhibit 5))

Make Brazil a knowledge and innovation « lab » for the group.

Use sound market research, instead of blind guessing….

…. and ways to recover.

Strategic leader Contributor

Black Hole Implement

Strategic importance of local environment

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In The U.S. Market, Bimbo’s strategy is resulting in a “Contributor” position, because of the strong importance of the local environment, specifically in terms of pricing for their product as well as their lack of bargaining power on the distribution side.Their competence in terms of operations is affected by the unionized truckers on which they have too limited power.

U.S. MARKET CHALLENGES

Culture: consumption patterns are strongly related to Diet

trends “Low Carb” movement well being / healthy lifestyle are general trends

influencing many other industries as well as competitors (Nestle’s new goal: health & foods)

Bimbo focuses on Hispanic immigrants segment (emotional ties)

Administrative: Distribution = biggest challenge: Bargaining power of large retailers: o Pricing dictated lower priceso Supply patterns: Full shelves

requirements even if not in line with consumption

o Buy back agreementso Timing delivery

Supply management: Conflicting goals of unionized

truckers and large retailers (Wall Mart)

Bimbo’s U.S. MARKET CHALLENGES CAGE analysis

• Geographic – position of the U.S. is an advantage in

proximity– as well as market demand similarities

• Economy:o Price premium not applicable in the

USo Labor costs:

• Insurance • Unionized labor

Rationalize product portfolio to better meet customer demands◦ Better targeted products: Taste/ needs: well being productsStrategic decision response to the “Low-Carb” and Diet trends: “pull”

marketing strategy in terms of product specification needs form the market, the Health trend is undeniable

◦ Technological improvement may allow freshness and new dietary requirements.

Earn the price premium:◦ Improve product quality to justify premium pricing

Unionized truckers - can’t change the operational model therefore, communicate on Corporate Social Responsibility and employee empowerment.

U.S. Market: recommendations

Strength OpportunitiesAdapt to Lessons learned: Have lessons learned of entering the new market (Brazil, US, etc…)

Distribution: Have a well-established distribution network

Prone to adaptability: -Able to understand the Chinese consumers’ needs through past experiences & in-depth research (focus group)- Able to adapt to Chinese culture (“Learning the Chinese way”)

Technology advancement:

- Increase product shelf life and production process

- Increase productivity

Strong market position: Acquired a Chinese company that has strong market share (55% & 35% market share for Beijing)

Product Advancement: Able to capitalize on making new products with local recipes & capitalize on acquired company’s existing local products

Marketing & promotional strategy: Able to successful implement promotional strategies based on adaptability (successful in store promotion, university road shows, product samples, etc…)

Negotiation Ability: Has the opportunity to gain more market power in hyper market chain

Strong employee involvement: - Motivated to learn

Big market: Able to generate large revenues from the large Chinese population

Increased consumer health awareness: Consumers switch to low carb diets

Fast-growing & developing bread market Source: http://www.franchiseek.com/Market_Trends_Bread_China_0505.htm

Yes, go CHINA!

Weaknesses Threats

Loss in revenues: Continue operating sales loss of ≈ $1 Million despite high sales

China market is highly fragmented

Pricing & segmentation strategy: Implemented pricing & segmentation strategy were not managed properly by prior owners

Local & international competitors:-Competitors also have networks, factories and expertise in marketing and production - 84% is still small artisanal and other shops (may have price competition)

Improper cost structure strategy Maintenance: Product quality with the production standard in the factory

Diverse consumer demand & taste: in different provinces (e.g. Sichuan likes spicy, Shanghai likes buns, etc…)Government support & policies:The changes in law or the support in local companies

Yes, go CHINA!

Strategic leader Contributor

Black Hole Implement

Bimbo in ChinaStrategic importance of local environment

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Decision to enter ChinaHigh

Mid

Low

Strategic Fit Organizational Development

Low Operational Performance

Management Discipline Performance

Continue their current strategies:◦ Adaptability: Constant improvement &

advancement of existing & new products to meet local needs

◦ Continue effective promotional campaigns◦ Maintaining standards and improvement

of technology to be ahead of its competitors (e.g. longer shelf life)

◦ Continue to build good relationship with hyper market chains & government connections

Educate more customers on health-related issues and western-style products

Find socially responsible solutions for return products

Recommendations for China

Thank you for your attention!