Interview with Grupo

Bimbo CEO ASIA

Bakery Industry

Analysis

Entering china

Adapt in China

GRUPO

BIMBO IN

CHINA

If you want to be in Asia

you have to be in China

WAY FORWARD

Jorge Zarate Lupercio is the CEO for Grupo Bimbo Asia Division since August 2006. Majored as a Biochemical Engineer at Tec-nologico de Monterrey, Mexico, he attended the Baking Science & Technology program at AIB, in U.S.A. and obtained his post-graduate in the Higher Management Program at Austral University in Argentina, Jorge further pursed his postgraduate degree in Strategic Marketing at Argentine Catholic University (UCA) and completed his MBA at EDDE also in Argentina.

BRIEFING

Grupo Bimbo

Being one of the pioneers who came to China seeking to

introduce a Mexican product into the Chinese market, what

were your first feelings about the country referring to food,

dealing with people, customs and language?

Without doubt the first feeling was to realize the great cultural

barrier between the two cultures; this barrier is not only the

language but also habits, perceptions and values of Chinese

consumers. Food is a vital element in Chinese culture; this is

extremely diverse, regional and traditional. The way people

treat foreigners is very friendly, perhaps it is one of the greatest

similarities with Mexico (family, friendship and cordiality).

What was the most important barrier that you had to over-

come in order to get used to live in this Asian country?

The cultural barrier, as I mentioned above, and from a group of

elements, without fear I would say the language, which by the

way, I have realized that once you learn the language, it helps

you to have a better understanding of traditions, ways of think-

ing and perceiving life by Chinese citizens.

What do you think has been the key of the success of Bimbo to in-

troduce the products to a market as competitive and complex as the

Chinese market?

For Bimbo the introduction of the product to the Chinese market has

been full of learning, unlearning, experiences, challenges, successes and

failures. I believe that we still have a long way to go and many things to

discover. However, within the great successes that Bimbo have had so

far include: The ability to adapt business models to local idiosyncrasies,

adapting our products to the local flavors, the logistic of distribution that

allows consumers to find products in different kinds of convenient stores

according to their time and form of consumption, the philosophy and

corporate culture of Bimbo based on universal values, focusing on re-

spect for each person. Respect has also been important pillar for people

to believe in us and help us create the company we want to be in the

future.

Jorge Zarate

CEO Asia Pacific

Grupo Bimbo

Each country is characterized by its unique flavors, talking

about introducing new products with a Mexican taste such

as Bimbo products, what adjustments were made to the

product in order for it to be accepted by Chinese consum-

ers?

There have been many. Since our products do not seek to posi-

tion as Mexican products for Chinese consumers. We are looking

forward to be the National Bread, the “mianshi“, (wheat deri-

vates), brand. Generally we use local flavors such as sweet

beans, spicy meat, and sweet fillings as strawberry, apple and

chocolate. A particularity between the two cultures is the de-

sired level of sweetness; Mexicans taste is used to sweeter prod-

ucts. Another remarkable thing is that Chinese do not like mixing

flavors like Mexicans do (for ex. sweet, sour and chocolate).

GRUPO BIMBO

Grupo Bimbo was established in Mexico City in 1945, and is considered today as one of the most important baker-

ies in the world due to its production volume, sales and brand positioning. The company is currently #4 among the

largest food corporations in the world, just behind Unilever, Kraft Foods and Nestlé. The company became the

world's largest bread manufacturing company in 2010 reporting $8.9 billion in sales

THE FINAL FRONTIER: Make some dough _ CHINA

COMPETITION: ...and your enemies closer

The bakery industry is highly fragmented due to its requirement of product freshness, meaning baked products can’t be

delivered too far from where it’s produced, given the requirement of

freshness. Therefore, there is uneven development of the industry in

various areas as well as subtle differences of consumers’ taste in

each province. Therefore, each area has its dominant bakery chains.

Meanwhile, high-end bakeries are eager to differentiate themselves

from competitors, and a focus of their strategy is on product quality

and innovation.

The lucrative business has attracted both foreign and domestic bak-

ery operators. While veteran chain stores, for example, Maxim’s

Group and Queens Cake Shops enjoy consumer loyalty, thanks to their consistently high product quality, upscale newcomers like

Bread Talk, Yamazaki are trying to gain market share by introduc-

ing innovative flavors, interesting product names, on-site baking, and

catchy store images.

VALUE OF CHINA

The bakery business is booming in wealthy China, especially in

large cities in the provinces of Guangdong and Fujian. Spe-

cifically, large China cities such as Guangzhou, Shenzhen,

Dongguan and Foshan are the big engines of higher end bak-

ery growth. Industry sources believe that the industry en-

joyed two-digit percentage annual growth in recent years,

despite unavailable official statistics.

CUSTOMERS: The Rich Buy Bread

Middle to high-income urban families and well-educated young generation are key con-sumers. Consumers of bakery products in China mostly consist of middle to high-income

urban families. Parents in this group of families are usually born in the 1960’s or later. Baked products, especially breads, with milk or yogurt, are regular breakfast items in such families, as they are considered more nutritious and convenient than the popular

Chinese style breakfast, such as congee (rice “gruel” or thick soup), rice noodle, steamed bun and Chinese fry bread.

Well-educated young urbanites, especially ladies, drive consumption of pricey items. High priced cakes and desserts, such as cheesecake, tiramisu and desserts featured with fresh

fruit or costly nuts, have become more popular in recent years, as this group of consum-ers enjoys such products as a symbol of westernized and healthy lifestyle. These consum-ers also buy pastries or cakes for gift giving or celebration.

BRIEFING

Bakery Industry

Traders categorize bakeries in general as:

1. High-end with large international

chains, high volume and high quality

2. Small chains that target high-end cus-tomers, have high quality, but low vol-

3. Small chains such as those located in supermarkets that have sizeable business, high volume, but not

necessarily high-end products

The RECENT GLOBAL FINANCIAL crisis and slow growth of China’s economy have had minimal impact on this fast growing industry, though sales of very pricey items ever slightly slowed. No adverse impact has been placed on those items at moderate or lower prices. Baking business investors tended to hold their expansion plans in 2008 given the uncertainty from the global eco-nomic crisis, but have reignited the investment in 2009 and 2010 as they believe the economy growth in China continues.

In March 2011, Bimbo group announced its intentions to continue to grow in China. Since entering in 2006, its sales

have tripled. Even though at present China sales account for less than 10% of Bimbo total sales, the company realizes

the great potential of the Chinese market and it is prepared to increase its investment. Its strategy will be to continue

to acquire small regional market players to expand geographically.

Bimbo In China

In the year 2005, Bimbo acquired a Spanish bakery company for a

price of 9.2 million euros. After operating for 1 year under the ac-

quired company’s brand, it changed the name to Bimbo.

BRIEFING

Entering China

BIMBO STRATEGY: Give them what they want

Cesar Cruz who was the Bimbo executive in-charge of the bimbo operation described the

challenge of starting up the brand in China: “The Chinese do not have a tradition of eat-

ing bread for breakfast. But the core product of Bimbo has long been bread, cake and

other bakeries. And its previous expansion has been in Europe and America, where bread

is a staple for consumers.” How did Bimbo tackle this challenge? By adapting their prod-

ucts to the local tastes. Bimbo stayed away from its traditional breads and developed

“rolling style breads” (janggu) at type of traditional Chinese bread with layers of beef as

well as different kinds of steamed buns.

LEASONS LEARNED: The Brazil Example

While entering the China market posed a new set of challenges, Bimbo

did not have to entirely re-invent the wheel. A few years earlier, Mex-

ico had entered the Brazilian market assuming that it would be a very

similar market from Mexico and used the similar marketing and prod-

uct development strategy it had used successfully in Mexico and other

neighbouring Central American countries. Bimbo quickly realized that

Brazil was a totally different market. For one thing, Brazilians bread

consumption was much lower than in Mexico. Bread consumption in

Brazil in the mid 2000’s was 2.5 kg per capita vs 7.5 for Mexico. This

quantity was more than 3 times less the amount. Another crucial mis-

take was to distribute the products through small grocery stores, which is the main channel

in Mexico. In Brazil large Hypermarkets accounted for more than 75% of sales for bread and

baked goods.

Bimbo was able to apply the lessons it learned from its expansion in to Latin America which

paved the way to a more successful entry. One such instance was with their advertisement

campaigns. In Latin America as in China, family meals play a crucial role in society. In Latin

America the advertisement always focused on showing families eating Bimbo’s bread and

baked goods together at home.

TASTE: Adapt or Die

Bimbo’s operations in China are focused on understanding the tastes and preferences

of Chinese consumers. Bimbo does not seek to position as Mexican products for Chi-

nese consumers but to be the National Bread, the “mianshi, 面食“, (wheat derivates),

brand. While traditional foods such as mantou and baozi (steamed buns) are still the

dominant staples, bread and its derivates are not part of the local diet and culture.

However, the Chinese consumers are open to adopt new things if those products sat-

isfy them in taste, quality and price. Over the last 4 years, Bimbo has succeeded in

developing its products catering to local taste. For example, Bimbo uses local flavors

such as sweet beans, spicy meat, and sweet fillings as strawberry, chocolate, red bean

paste, and even tropical ingredients such as coconut. Chinese are also not used to the

level of sweetness as Mexicans and therefore this was taken into consideration in the

production process. Chinese also do not like mixing flavors like Mexicans do (for

example mixing sweet, sour and chocolate in one product). Another remarkable thing

is that Chinese experts for Chinese market did not choose tortillas for the local mar-

ket but instead focusing on packaged breads, buns, croissants and sweet rolls.

Branding

The Bimbo bear is magical; the phenomenon created in other countries by this bear was no exception in China. The white bear in-

spires security, confidence, softness and kindness, achieving the creation of emotional connections with consumers, as it also creates

a bond with children, mothers and young people. Bimbo’s Chinese name 宾堡 means ‘guest castle’, carries auspicious meaning. BRIEFING

Adapt in China

Red Bean Sliced Bread

POINT A TO POINT B: Distribution & Logistics

Bimbo as a foreign company chose to enter into Chinese market through acquiring local company. The immediate

goal is to gain a better understanding of this vital market and develop appropriate growth strategies, while applying the

systems and processes that have proven successful in other core markets.

In 2006, it acquired Beijing Pan Rico Food Processing Center in China. Pan Rico specializes in baked goods in the

local markets of Beijing and Tianjing, with 108 urban distribution routes. Bimbo localized its distribution structure in

order to reach out to undeveloped area. To date, Bimbo China served a regional area of 40 million people with 4,000

point of sales. Its 186 routes are linked by a combination of trucks and bicycles. It also has a customized agreement

with large multinational hypermarket to reach out to a diverse group of customers.

Wasabi Chocolate Bars

Up to twenty different truck models have been used as Bimbo deliv-

ery trucks since the late 1930s. These include 1960s Ford vans,

1990s Chevrolet,Renault, Dodge and Nissan. Mercedes

Sprinter delivery vans are currently used. While Bimbo's vehicles

were beige by the 1950s, Wonder, Marinela, Barcel and Bimbo

trucks have been white since the 1960s, with Tía Rosa trucks re-

maining beige. Ricolino started using small leisure activity vehicles

A SUCCESS STORY: The Unique Chinese Way

Bimbo has developed a foothold in China, it has got over the initial hurdle that so

many western firms fall at: the issue of gaining the interest of the Chinese con-

sumer. By entering the market with products that were adapted to meet the

tastes and needs of the Chinese consumer, and developing an appropriate distri-

bution network, it has managed to enter in an efficient way. Bimbo made an initial

investment of 10 million USD in 2006, and it is already producing annual net reve-

nues of more than 10 million USD.

We believe the success Bimbo has achieved in China

can be attributed to the lessons learned from other

expansions – mostly notably Brazil. This resulted in

Bimbo making sure they understood the Chinese

consumers’ tastes and needs, and produced products

to meet these, rather than trying to sell what is

popular in Mexico.

Bimbo seems to have a good understanding of the Chinese marketplace; it has

created an expansion strategy based around buying existing bakeries in China.

This gives Bimbo the knowledge and the connections of the existing companies

and it also takes them out of the market: making the competition less fierce for

Bimbo.

The prospects for Bimbo in China look bright and any company interested in en-

tering into China, should take the lessons Bimbo learned, that you

need to adapt your operations and products to the unique Chinese way.

BRIEFING

Way Forward

The name "Bimbo"

Has no specific meaning in Spanish; thus, the name has not caused sig-

nificant uproar as it would in the United States, where the word "bimbo"

has a negative connotation. The official theory believes that the name

Bimbo, coined in 1945 when the company was rebranded from its previous

name, Super Pan S.A., is the mixing of the words "bingo" and "Bambi".

JUNE 2011