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
Com
pete
nce
of lo
cal o
rgan
izatio
n
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
Com
pete
nce
of lo
cal o
rgan
izatio
n
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!