Gruma makes tortilla ‘to-do’ list

by Eric Schroeder
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MEXICO CITY — The elimination of hundreds of stock-keeping units over the past year has allowed Gruma S.A.B. de C.V. to improve its service in the stores it serves, said Raul Cavazos, chief financial officer, in a Feb. 27 conference call with analysts to discuss fiscal 2013 results.

“We are promoting our brand,” Mr. Cavazos said, adding that Gruma’s efforts have sparked competition in the U.S. tortilla market, increasing the likelihood that the category may see volume increases in the year ahead. Gruma also is leaning on innovation.

“We launched last year a new formula for wheat and corn tortillas,” Mr. Cavazos said. “The soft tortillas for both have been very well accepted by the consumers, and they are (choosing) our products (more) than the products of our competitors. That also is one of the drivers for growth. And even if we decrease or we eliminate s.k.u.s, we have been keeping our shelf space in any store.”

Gruma’s tortilla efforts extend beyond the retail shelf, and Mr. Cavazos indicated the company’s food service business is doing “quite well.”

“We have a strong relationship with our main clients, and we are developing those products that they are increasing the volumes,” he said. “And we are increasing for the year food service volumes in that space. We already have orders, and we are developing some products. We are working quite close with our clients in order to have these new products for them. And they are quite grateful for us on that in the food service. That’s going to be maybe one of the main drivers for growth on our volumes.”

Gruma has a number of investments planned for the next few years, and Mr. Cavazos shed light on those projects during the conference call. Specifically, he mentioned new plants in Russia, Malaysia and Mexico.

“Russia is doing quite well,” he said. “We’ve been going at a 45% path during the last six quarters. We have not had any additional capacity there.”

He said the company has been supporting sales in Russia from another outlet, but costs, particularly as they related to transportation expenses, have been high. The Russia plant is expected to begin operations this year, he said.

In Malaysia, Gruma no longer has the operation capacity to supply the demand for tortillas, he said. The company has shifted some production to its Shanghai plant, but it hopes to have the new facility in Malaysia operational by 2015.

Gruma has plans in place for two plants in Mexico. One will be an additional production unit at its site in Mexicali

“Mexicali is a city quite close to Los Angeles,” Mr. Cavazos said. “Los Angeles is doing quite well in terms of tortilla, the tortilla business. And what we are doing basically is to orient all the production capacity of this production unit, will be just to support Gruma Corp. in the southwest region, which also of course it’s going to be more efficient for us and lower expenses to build this production unit, instead of increasing the production capacity in Madera, Calif., in the California plant. And it’s going to be more profitable on a consolidated basis doing that.”

Gruma also plans to build a couple small facilities for tortillas and tostadas in Tijuana and Monterrey.

“What we are doing basically in all the plants in which we are producing tostada and taco shells, we will move those production lines to this plant in Tijuana as well as in Monterrey,” Mr. Cavazos said. “We will produce those products here in Mexico and we will support Gruma Corp. with all these products. And in Gruma Corp., we are making space to add additional bread lines to produce wheat tortilla, which is more profitable, and we will increase production capacity without any additional important amount or CapEx.”

In total, Gruma expects the full amount of capital expenditure spending in 2014 to be about $165 million, Mr. Cavazos said.

“We cannot go back to the past in terms of acquisitions and in terms of building of plants and in terms of what we want to do,” he explained. “We want to be smart in our investment. What we are basically doing with all our operators is we have a cost for this CapEx, and they will come to the corporate offices to say their projects. If they sell, they will be financed. If not, it will be for some other. That’s the way we are doing on that in order to improve the results of these investments.”
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