Servitje looking for 'seamless' B.B.U. with Sara Lee integration

by Josh Sosland
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A “seamless company” both internally and in its interactions with customers, an “enriched culture” consistent with its corporate parent and a position as a low-cost operator are all elements of Daniel Servitje’s expectations for Bimbo Bakeries USA within three years. The chief executive of Grupo Bimbo S.A.B. de C.V., offered this vision and additional ambitions for B.B.U. as part of a wide ranging interview conducted with Milling & Baking News at Grupo Bimbo headquarters in Mexico City.

The interview was prompted by Grupo Bimbo’s acquisition of the North American fresh bakery business of Sara Lee Corp. First announced in November 2010, the acquisition was completed in November 2011. Bimbo continues working toward completing certain divestitures required as part of the regulatory approval process.

With the Sara Lee transaction, B.B.U. operates over 70 baking plants in 31 states with 13,000 sales routes (before divestitures). With a workforce numbering almost 28,000, the U.S. company’s annual sales will total $5.8 billion (pro forma). By purchasing Sara Lee, which operated 41 baking plants and 4,100 routes when the acquisition was first announced, B.B.U. confirmed its position as the largest baking company in the United States by a wide margin. Flowers Foods, Inc., the nation’s second largest wholesale baker, operates 41 baking plants and has annual sales of $2.6 billion (excluding Flowers’ recently announced acquisition of Lepage Bakeries, Inc., which adds three plants and annual sales of $166 million).

Commenting on plans announced to invest heavily in the company’s U.S. baking infrastructure, Mr. Servitje described Bimbo as taking necessary actions in commercial baking that have been held back for years by lagging industry economics.

“Gary (Prince, president of B.B.U.) from day one declared we intended to invest $1 billion in the next five years to renew manufacturing assets and strengthen our distribution capability,” Mr. Servitje said. “The reason is quite simple. The U.S. baking industry has many plants that are 40, 50, 60 or 70 years old. You can’t do much about them, because you can’t support much of these assets’ renewal. We see opportunities to focus on new priorities that can bring higher payback. We know we need to focus on becoming a low-cost baker because customers and consumers demand it more than ever.”

While committed to the billion-dollar spend, Mr. Servitje said Bimbo has no plans to mindlessly plunk the dollars into a series of new plants. To the contrary, he spelled out a thoughtful process aimed at maximizing returns.

“Our plans are not the same every-where,” he said. “In some instances it will be a new plant. In others, it will be better utilizing existing assets. In others, it’s replacing ovens. It’s an entire gamut of possibilities, which we won’t address automatically. We will analyze thoroughly, project-by-project.”

Asked about Bimbo’s aspirations five years into the future and beyond, Mr. Servitje redirected the question to the company’s current strategic objective (dating from 2010) to become “the best baking company in the world” by 2015. He said there is no confusion within the company that being the world’s largest baker equates to the world’s best baker.

“To become that, we need to change a lot of things within our company,” he said. “We may be the largest, but more important than size is our aspiration to understand our consumers better than anyone else and align with our customers so they see we provide the best value. We must be proactive — a company that does not rest on its laurels as it drives toward the forefront of its industry. That’s a huge challenge. I don’t know whether we will complete that vision within three years, but if not we will be working on it beyond 2015.

“I hope by 2015 we are through with the integration of Sara Lee, and our company is seamless to our customers and ourselves. Also, that we have a single information technology system and an enriched culture, which is common to all of Bimbo. And, that we are a low-cost operator striving to provide the best value for customers.”

In contrast to its purchases of Mrs Baird’s and the U.S. baking businesses of George Weston Ltd., B.B.U., in acquiring the Sara Lee business, was not purchasing a highly profitable business. To the contrary, Sara Lee had struggled for a decade trying to bring the fresh baking business to a satisfactory level of profitability. The chronic difficulties Sara Lee experienced were reflected in the $709 million price for the baking business, much less than the $2.5 billion paid by Bimbo in the 2009 purchase of the baked foods business of Weston.

Bimbo financial results in the United States have been erratic over the last 15 years, a marked contrast to operations in Mexico where profit margins have been consistent and wide. The U.S. situation will change, Mr. Servitje said with confidence, predicting gains for the company in terms of margins and market share.

“It will come as part of this in-vestment,” he said. “Definitely. Be-coming the best company means you are good at all parts of the value chain.

“We want to be larger than today. We don’t know by how much. It isn’t an industry of high growth. It’s no growth in some years. We want to be efficient. We also believe the opportunities are huge in places where we are in our infancy. Growth is a major priority.”

Among the paths to growth in the United States seen by Grupo Bimbo is a broadening of its portfolio of brands, an objective enhanced by the Sara Lee acquisition, Mr. Servitje said.

“That’s why we have launched Sara Lee in the Northeast U.S.,” he said. “We also will take advantage of the Sara Lee distribution system’s strengths to provide service for B.B.U. brands in markets that have not had these products.

“Growth will also come with dedicated leadership at the local level, the ability to spot opportunities and by having national and large regional retailers served consistently by our teams. basis by our teams.”

Bimbo’s U.S. start was in tortillas (see related story on Page 24), and even today the company is not limiting its U.S. business to baked foods. In Mexico, the company goes head to head with PepsiCo, Inc. in the salty snack business (sold mostly under Bimbo’s Barcel brand) and also is a manufacturer of cookies (Marinela) and confectionery products (Ricolino).

Many Bimbo products are sold in the United States through Bimbo’s Barcel USA division, headquartered in Dallas.

“It’s mostly focused on the Hispanic segment,” Mr. Servitje said. “We’re reaching out and developing products to cover more segments as well.”

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