December 1, 2005
by Steve Berne and Josh Sosland
Gruma Corp. rode a wave of torrid growth in demand for Mexican foods in the 1980s and 1990s. In 2002, new leadership at the company decided to step back and identify realistic objectives for the rest of the decade.
But rather than accept that the US market had matured and that growth would be slower than the 8 to 9% annual rate achieved in the preceding two decades, the company’s new president and c.e.o. Jairo Senise and his management team reached the opposite conclusion.
Adopting a 5-point strategy for accelerating growth, Mr. Senise notched up the company’s expectations and targeted a doubling of sales to $2 billion in six years, equating to 12.3% annual growth rate.
Halfway through this 6-year period, Gruma is well on its way to reaching its objective. “Actually, it looks as though we’re going to achieve our goal in five years,” Mr. Senise said.
In recognition of this phenomenal growth, achieved during a very difficult period for grain-based foods, Mission Foods has been named “2006 Baker of the Year” by Sosland Publishing Co.
Irving, TX-based Gruma Corp. is now the largest division of Gruma S.A. de C.V., its parent company based in Monterrey, Mexico. The US businesses of Gruma account for 50% of the corporation’s total sales.
The award is not the only way Gruma Corp.’s achievements have been recognized. Effective Jan. 1, 2006, Mr. Senise was elevated by the Board of Directors of the parent company, Gruma S.A., to president and c.e.o., succeeding the company’s founder, Roberto Gonzalez, who will remain as Chairman. A NEW VISION. In every aspect of Gruma’s business, from management to manufacturing, changes have been strategically made to accommodate the growth the company has achieved and has planned for its future. For instance, Mission recently hired Juan Fernando Roche as president of Mission Foods. Mr. Roche spent several years at Nabisco before joining Gruma at the end of January.
“This is the first time the company has had a person solely responsible for that portion of the company for the past decade,” Mr. Senise said. “The company is growing so quickly it would not be fair if the division did not have its own leadership.” Also new to the executive management team as of January is Leon Zlotnik, vice-president, US logistics and supply chain. His previous experience with Avon Products Inc. and its 450,000 associates and plethora of SKUs prepared him well for Mission’s similar complexity of logistics with the added caveat of limited shelf life products.
Although Gruma’s presence in the US dates back less than 30 years, the current management team has a number of executives who have been with the company less than 10 years. A review of the company’s top leadership resumes offers insight into the company’s objective of continuing to build the equity of its principal brands, Mission and Guerrero. The company’s top executives have spent time at General Mills, Best Foods, Nabisco, Avon Products, Frito-Lay, Procter & Gamble, Nestle and ConAgra Foods.
“When I started with the company in 2002, one of the first things I did was visit the retired historian of Gruma who had boxes with files and papers relating to its history,” Mr. Senise recalled. “Learning about the past helped me shape the direction of the future. Ultimately, our business is built on five building blocks: consumer focus and customer service; product and service quality; innovation; organization effectiveness; and perfect execution.”
THE PAYOFF. While the past two years have been difficult in general for the baking industry because of Atkins and low-carb, Gruma experienced record years of growth. “We maintained volume growth in all areas, searching for new products, new applications, new markets, new customers and new ways to serve existing customers,” Mr. Senise added.
Rather than viewing the Hispanic or even Mexican market as homogenous, Mission Foods, the tortilla production arm of Gruma, achieved growth by identifying demographics of regional consumers in Mexico and identifying US consumers who originated from these regions. For example, consumers in northern Mexico near Monterrey prefer fluffier tortillas and a mix of corn and wheat tortillas. By contrast, Mexicans in southern regions prefer thick corn tortillas.
“In product and brand support, we use all the available tools to sell and market our products,” said David Garrett, vice-president, marketing . “We pay attention in building the equity of our brands through promotions and media support.”
The company is quite complex with operations not only in the US but also Europe and now Asia, all under the Gruma US banner. Gruma S.A., its parent company, oversees activities of Gruma Corp. USA, with its Mission Foods US, Azteca Milling, Mission Europe and Gruma Italy divisions.
The company operates tortilla plants in Coventry, UK, and Roermond, The Netherlands, and a corn processing facility in Ceggia, Italy. The company recently announced the creation of the Gruma Asia/Oceania Division and named Juan Gonzalez Moreno as president. It also recently began construction of a state-of-the-art tortilla plant in Shanghai China, which will be operational by September.
“Interest in China began with food service companies making inroads to this region,” noted Robert Smith, senior vice-president and general manager, food service. “Currently, we are producing in California and exporting to Asia, which is proving too costly.”
Mr. Senise added that consumers there are looking for something new and Western, and the fast food restaurants have been very successful. “Our products tagged along and became part of the success,” he said. “Multinational snack companies introduced tortilla chips to foreign markets, which also helped initiate interest.”
Sales for Gruma overseas have matched growth rates in the US, with European sales rising from $12.2 million in 2002 to more than $66 million in 2005.Sales break down to more than one-third in the UK, followed by The Netherlands, Spain and Germany, and smaller percentages in Norway, France and other EU countries. “In 2002, you would hardly see any sandwiches sold in London using tortillas,” Mr. Senise said. “Now, more than 30% of all cold sandwiches sold in that city for midday meals are sold as wraps.”
Much of the future growth of tortillas across Europe will come from the food service sector where international cuisine continues to be a strong draw. Eastern European and Middle East familiarity with flat bread also help substantiate Mission products and create acceptance, according to Mr. Senise.
Company research indicates that tastes vary between countries. In Western Europe, chips are growing fast, and corn tortillas are not as popular as wheat. In Italy, corn masa flour is big as are polenta and flakes produced from hominy grits.
BACK HOME.Within the US, Gruma has grown more consistently than the overall US economy. Operational expansion in the US has not slowed down since 2002,even as the company placed a greater focus on its activities abroad. Locations where Gruma had operations in 2002 largely formed a horseshoe shape along the West Coast, southern US and the southern portions of the East Coast.
While strategically located to serve many Hispanic communities, the plant and distribution center configuration left Mission with vastly under-tapped markets in the Plains States as well as the Northeast. Its only plant not situated on a coastal or border state was a Pueblo, CO, tortilla manufacturing facility. Geographically, the company’s products are distributed to only one-half of the US, although recent inroads in the Kansas City, Minneapolis and upper East Coast markets are changing the look of the map.
The company took major steps toward filling in its geographic gaps with the completion last fall of a state-of-the-art tortilla plant in Mountain Top, PA, (see Baking & Snack, Page 41) and acquisition of the tortilla and chip operations of CHS, Inc., a farmer cooperative based in Inver Grove Heights, MN, which included three facilities.
An additional tortilla plant was acquired in Las Vegas, NV, and distribution centers now operate in Beltsville, MD; Kansas City, KS; Omaha, NE; and Boise, ID, as well as several others in states where the company already operated, such as Texas and California.
Tortillas are delivered to retail customers through approximately 1,800 independent direct store delivery routes who also have the ability to carry other products, except for our company routes in Southern California. Mr. Senise estimated that 85% of Mission sales are handled by the DSD system with the remaining 15% warehoused in the Northeast, its newest distribution area. The company is currently exploring distribution methods into that region, and with the new Pennsylvania plant, routes may be added or revised.
With accelerated growth, Mission aggressively added capacity to its various tortilla plants. In 2005 alone, the company commissioned 25 new lines, according to Guillermo Gonzalez, senior vice-president, manufacturing.
In addition to expanding its physical assets, Gruma restructured its business map from three regions (West, Central and East) in 2002 to four in 2003, five in 2004 and six (Northwest, Southwest, North Central, South Central, Northeast and Southeast) in 2005. “By redefining into smaller sales regions, we are able to spend more time servicing current customers and go after new customers,” Mr. Senise said. “This has been a huge success for new growth areas.”
In addition to geographic focus, Gruma has sequentially emphasized various product categories in recent years to spur growth. For example, the company dubbed 2003 as its “year of the corn tortilla,” unfurling a new process innovation the company said offers improved taste and texture. Sales of corn tortillas climbed 26% that year.
The following year was the “year of the wheat tortilla,” and the company witnessed 14% growth in wheat tortilla sales compared with the prior year. “We ran many consumer panels to determine the good and the bad aspects of our wheat tortillas,” Mr. Senise said. “Our findings indicated that our products were already rated as one of the best in the category. However, that didn’t stop us from looking for ways to improve. We came to realize that because our customers were regionalized, we must regionalize as well by selling the right tortilla — thicker, thinner, more elastic — in the right region.”
The company’s 2004 double-digit growth occurred at the same time sales of baked foods as a category decreased 3%.
In 2005, the focus was on chips and other fried products. This strategy centered on new products and new packaging that portrayed a more authentic look and taste. “We added more than seven new product lines and multiple SKUs,” said Mike Crane, vicepresident , retail sales. “These new products required new packaging technologies including flow wrappers, robotics and ‘brown bag’ fillers. Our most recent forecast was for 11% growth in chip sales — in a category that isn’t growing.”
NOW AND THE FUTURE. Mission declared 2006 the “year of healthy products.” The company introduced a multigrain tortilla that is a whole-grain product made from seven grains (wheat, rye, barley, oats, triticale, corn and rice). The multigrain tortillas are offered in fajita and wrap sizes. A 49-g tortilla has 140 Cal and 5 g of dietary fiber.
The company also debuted a “heart healthy” tortilla that includes omega-3 fatty acids. It is available in flour and wholewheat varieties. In addition, Mission is looking to launch a baked corn tostada, and the company’s entire line is now trans fat free.
Par-baked flour tortillas are being introduced to food service in a whole-grain variety. “As one of the market leaders, we have a responsibility to have a presence in all emerging trends,” Mr. Senise said. “We don’t expect these products to surpass current offerings, but if this is what consumers are interested in purchasing, and it is part of the health and wellness trend, then we will be there with our products.”
One of Gruma’s goals is to be part of every meal whether as a breakfast burrito, peanut-butter-and-jelly tortilla roll-up or a quesadilla for dinner or snack. Even dessert is in the realm of the company’s portfolio.
“In a way, we promote family togetherness because meals with tortillas can be individualized by each member of the family,” Mr. Senise stated.“They are fun, customizable, quick and easy. The Internet has been very useful in introducing new ideas to consumers and food service vendors.”
“From their neutral flavor to the growing trend of fusion foods, tortillas accommodate today’s eating habits,” Mr. Garrett added.
FOLLOWING CUSTOMERS. Vertical integration has been a part of Gruma’s strategy since the company entered the American market in 1977. All corn flour used by Mission is supplied by Gruma’s affiliate, Azteca Milling. Azteca Milling’s first corn mill was built in Edinburg, TX, in the early 1980s. Since then, additional corn milling plants have been added in CA, TX, KY and IN, which was recently expanded with the installation of a third corn processing unit.
While Gruma is an important global flour miller, the company has no US wheat flour milling capacity and purchases flour from three different suppliers, Mr. Senise noted.
Another part of its vertical integration includes a sister company, Tecnomaíz, which handles most of the equipment design, engineering and fabrication for the Mission plants. The company also operates lines from other equipment manufacturers. New processing lines added last year bring the total number of lines to more than 170.
Mission’s growth is powerfully fueled by one of the most compelling demographic trends of our time — the growth of the US Hispanic population. The US Hispanic market increased 85% between 1990 and 2003, from 21.9 million to 40.5 million, according to the US Census Bureau. Today, more than one in eight people in the US are of Hispanic origin.
Also in 2003, the US Hispanic population became the country’s largest minority group. Hispanics represent 13.8% of the US population and a $580 billion economy. The nation’s Hispanic population reached 41.3 million as of July 1, 2004, according to national estimates. Hispanics accounted for about one-half the national population growth of 2.9 million between July 1, 2003, and July 1, 2004. and the Hispanic growth rate of 3.6% was more than three times the total population growth rate.
Still, accurately tracking this group as it moves into new geographic regions would be difficult under any circumstances. “We track Mexican immigration by staying in close contact with various organizations that provide services to this community,” Mr. Senise said.
“This has major market potential for tortillas, but such consumers look for a more authentic version that reminds them of home,” he continued . “We have Guerrero brand products with the slogan of ‘little piece of Mexico.’ These are Mexicandesigned products for Mexican immigrants, and sales have been good.”
GROWING EQUITY. Food service has opened new frontiers for the company, and R&D is a major contributor to that success. “We established relationships with universities and researchers to determine eating habits and purchasing trends,” Mr. Smith said. “Future growth will come from new products, new regions and markets as well as continued enhancement to product quality and efficiency of operations.”
But growth has come from all sectors during the past four years — food service and retail, geographical and international, generic growth and new products. Growth also comes from improved quality and operational efficiency.
“The market for tortillas is huge with plenty of room for regional players, and there are many out there,” Mr. Crane said. “Consider the fact that the industry is estimated to be more than $6 billion strong. An increase of only 1% represents a major impact on our business.”
Gruma’s strategy on acquisitions includes maintaining and supporting the acquired brands as brand loyalty is important to consumers.
To boost its relationship with retailers, Mission began to calendarize its marketing plans a year in advance detailing what it will do in promotional and media spending and the timing of new product launches. For its largest retail and food service customers, the company established a national account group.
Food service branding is not as important as retail for the brand and company equity. “Most of our customers do not place tortilla brands on menus, but it is the service, support, consistency and quality that they value above all else,” Mr. Smith noted. “We are proud to be able to work through our R&D department for formula adaptation to specific restaurant needs.” Mission is recognized as the No. 1 partner in R&D applications, according to Mr. Senise. Nearly one-half of the Top 100 restaurant chains work with Mission products.
Flavored tortillas are still by far the fastest growing segment, although not as large in volume as regular tortillas, according to Mr. Smith. The company offers 14 different flavors for food service. Further penetration will be in mainstream menus and nontraditional branched-out applications. “This is where our non-organic growth will come from,” he said. “Alternatives to bread or unique applications on menus generate interest and growth.”
OPERATIONS AND LOGISTICS. To enhance efficiency within its plants, Mission launched a major initiative to cut its packaging costs, Mr. Senise reported. “Currently, 70% of the company’s workforce is engaged in some aspect of the packaging function, whether it’s bagging, putting packages in trays, palletizing or moving pallets to the warehouse,” Mr. Gonzalez added. “We want to bring the number to 50%.”
The need for improvements is driven by the mounting variety of packaging configurations offered by Mission as well as the rising costs of labor. “This isn’t about getting rid of employees,” Mr. Gonzalez said. “We are growing and will continue to expand our workforce. This is about using our people more effectively.”
The packaging initiative will take three to five years to complete, Mr. Gonzalez added. The company has nearly 180 packaging lines, and improvements include adopting PLC and servo-motor control among other technologies. While market pressures demand this change, it will be a big challenge because most equipment innovations are concentrated in the larger market of bread and much less for tortillas.
“There is a lot of technical research applied to the bread industry ,” Mr. Gonzalez said. “There is not so much applied to tortillas, and we are working with suppliers, including Doboy, Bosch and Fuji-Formost, in addition to Tecnomaíz, to improve packaging efficiency.”
Plant rationalization is another project to improve efficiency. Mr. Senise said this objective does not mean plants will be closed. On the contrary, it is a project to assure product is shipped from plants at the lowest distribution cost. “For example, we spent many years shipping tortillas to Minneapolis from Pueblo,” Mr. Senise said. “That is a trip of more than 1,000 miles. Obviously, our New Brighton plant is better situated to supply Minneapolis. Shifting service areas will continue as markets develop.
“By no means are we looking to shut down any plants,” he continued. “In fact, the opposite has been and will be the trend, and we are ready to redeploy assets as needed.”
While extended shelf life is another way the company looked to improve its economics, balancing this objective with one to reduce preservatives is a challenge. “The company has dabbled with modified atmosphere packaging and oxygen scavenging among other approaches,” Mr. Gonzalez said.
“Our target is to be as pure and fresh as possible,” Mr. Senise added, “and that means locating production plants as close to our markets as possible. With the recent acquisition of a plant in the Bay Area in California and Las Vegas, NV, the three CHS facilities and the new plant in Mountain Top, PA, that gives us 19 tortilla manufacturing facilities in the US and an additional 26 distribution centers.” Geographic coverage is beginning to transform from a horseshoe to a “W” as the company moves up the center of the country.
“When we enter a market, logistics are critical to success,” Mr. Zlotnik said. “Decisions on when to invest in new distribution centers, routes and new production plants are determined by the breakeven point, and this is not a simple formula. It is fluid and changes depending on the market conditions. Oil prices have greatly affected total distribution equation and strategy.”
Part of his job is to anticipate growth and demand in regional markets . Working with operations, executive managers determine sources of products, amount of capacity, existing plants, new lines, new plants and so forth. For Mission Foods, distribution is now looked upon as an asset, not a need.“If distribution is used correctly, we can increase operating margins drastically,” Mr. Zlotnik noted. “Transportation used to be a small cost in the overall product cost. Now it is sill increasing due to the cost of fuel. Considering our volume, this is significant.”
USING ALL ITS RESOURCES. As a Mexican company operating in the US, Gruma works hard to blend cultures effectively both in how it goes to market and in how it preserves a good working environment at its headquarters and plants. As might be expected, the company’s workforce is far more diversified than is typical for US companies. Its top management group is split about 50:50 between Hispanics and non-Hispanics. The Hispanics include executives who hail from Mexico, Brazil and Venezuela.
“We stress respect for all cultures and a true belief in people,” said Miguel Trejo, senior vice-president, human resources. “The results are mutual loyalty, cultural integration, multinational workforce and a focus on global business.”
International ventures allow the company to share knowledge across the globe. The company expects to use internal sources to teach, integrate and start up many of its foreign operations. Assignments can be temporary or permanent and are considered promotions for its managers. “We provide training all the time to ensure sufficient knowledge is available to take over when opportunities arise overseas,” Mr. Trejo said.“Part of the corporate lifestyle of an international company requires flexibility and mobility. It also promotes diversity and crossfertilization.”
The company maintains a global open-door policy with everyone having a single goal of success.
An Internet-based performance management program incorporates leadership, competence, employee reviews, goals and objectives. “During the year, employees can check on their progress and make adjustments to activities or behaviors,” Mr. Trejo noted. “It is confidential, and milestones can be recorded when they happen instead of trying to recollect such points at an annual review.”
“The Company aligns everyone to a single set of corporate objectives,” Mr. Trejo said. “It provides open communication of goals and gives employees a sense of ownership and impact on company growth.”
Curricular programs of leadership training, conflict management, cul- tural diversity, regulatory differences on employee treatment based on US vs. EU are all available to managers.
EYE ON EFFICIENCY. Regarding operations, the company continuously improves itself in design, product quality and plant productivity.
“We have focused on using better building materials as well as improved engineering and design of floors, walls, sanitation and even utilities,” Mr. Gonzalez said. “The new plant at Mountain Top is an excellent example of this.” Some acquisitions are a tougher task to bring up to Mission standards in equipment, process parameters and use of basic assets and efficiencies to provide our consumers the quality product they expect at the lowest price possible, he added.
Manufacturing directives call for automating some tasks beginning with packaging. “We try to be everything to everybody, and that requires flexibility mainly in packaging,” Mr. Gonzalez said. “Different flavors, shapes, sizes, package counts, recipes, allergen issues — bigger plants make it easier because you can have dedicated lines.”
Mission considers most of its plants (70%) small compared with its megaplants in California. “The other 30% of our plants produce close to 70% of our total production,” Mr. Gonzalez noted. “We tailor plant capacities to areas they serve. Two plants (Rancho Cucamonga and Olympic in City of Industry, CA) annually produce 300 million lb. Production from the plants in the Southwest region represents nearly half of our capacity.”
Product consistency is key to operations. Servo systems in packaging help, but the process must be streamlined from the beginning — from flour to press to cooking to counting to stacking and packaging. Mission uses Dipix quality systems, SAP for inventory control and is now deploying handheld computer tracking with bar codes and RFID.
“In the past few years, the company invested a lot of money on capital investments,” Mr. Gonzalez said. “In 2005, Tecnomaíz produced 25 new lines for us, and the same is expected this year and during 2007. That division just ramped up additional fabrication capabilities.”
It should now come to no surprise the dominance Mission Foods displayed as we evaluated companies for the Baker of the Year award. From its phenomenal growth to its management structure and global strategies, the company will continue to share its products with an increasingly diverse audience.