Grupo Bimbo’s Further Expansion in International Markets via Acquisition

 

Mexico’s Grupo Bimbo is the first emerging market company to join the rankings of the global top 10 packaged food players. Although market consolidation in the wake of global scale acquisitions, such as that of Kraft/Cadbury or Mars/Wrigley, contributed to the rise in its ranking, Bimbo posted a 15% CAGR over the 2006-2011 period. Growth was also driven by its significant level of international market expansion through the purchase of developed market assets. The company has just announced that it is to acquire Sara Lee’s fresh bakery business in Spain and Portugal, subject to regulatory approval, while it has also established a presence in the US by purchasing the fresh bakery business of Weston Foods in early 2009.

A foothold in Europe but limited growth prospects in Spanish bakery

With the integration of Sara Lee’s bakery business in Spain, Bimbo will become the second largest player in the category with retail value sales of US$510 million, based on 2010 data. In Portugal, the division’s current sales are a more modest US$27 million.

Bakery products in Spain is expected to post a modest 1% CAGR over the 2011-2016 period compared to over a 2% CAGR in Bimbo’s domestic market of Mexico. Even in absolute retail value terms, the bakery products market in Mexico is expected to gain US$3.4 billion over the same period, while Spain’s is set to expand by just US$440 million. Therefore, the company’s target market for expansion is neither outstanding in terms of growth rate nor absolute value gains in comparison to its domestic market. However, what Bimbo will gain is the established brand portfolio of the second largest player in the industry and seven manufacturing facilities in Spain. It will also gain a good foothold in Europe to achieve further internationalisation of the company and its brand stable and potential further entry into larger, more attractive Western bakery markets, such as the UK.

The acquisition of Weston Foods’ US fresh bakery arm in early 2009 was also part of this strategy to enter new and affluent developed markets. However, the difference was in scale. Although the US is also expected to grow at as low a rate as Spain, its sheer size means that absolute value expansion is predicted to be US$2.8 billion over the 2011-2016 period.

The purchase of Weston Foods’ division marked a notable milestone in the rollout of a major strategy – expansion in international markets. As part of the Weston deal, the company has obtained a coast-to-coast presence and a number of major brands, including Arnold, Brownberry, Entenmann’s, Stroehmann and Thomas. Growth in the US will allow Bimbo to pursue improved margins and reduce its reliance on Mexico. However, competition will be fierce.

Bimbo would benefit from further investment in China

Grupo Bimbo also made a small-scale acquisition targeting other emerging markets when back in 2006 it purchased China’s Beijing Panrico for €9.2 million. It has established a small growth platform in the Chinese bakery products markets, generating some US$35 million in retail value terms in 2010.

However, further investment in Chinese baked goods, and bread in particular, offers potential for Bimbo to establish its global category credentials. The Chinese bakery products market is expected to grow by a 7% CAGR over 2011-2016, and gain US$7.9 billion in absolute retail value terms.

The bread market is highly fragmented in China, although it has witnessed some consolidation in recent years as rapid economic growth has attracted rising levels of foreign investment. Private label has been another notable growth area.

Driving this growth is the rising profile of major foreign food retailers, which are increasing their offer of the format, as well as rising demand in secondary cities and rural areas where the availability of fresh bread is limited.

Bimbo has the advantage of an existing platform, although despite its number six position its value share is minor (less than 1% in 2008). Acquisition-led growth and the expansion of its manufacturing capabilities would put the company in a more advantageous position to exploit growth opportunities. However, following the acquisitions of Sara Lee and Weston Foods, there may be a question over financing.

Bimbo needs to intensify its market internationalisation activities

In packaged foods, there are a number of well-performing emerging market players seeking international expansion via the purchase of new assets in affluent and advanced markets, despite their expected lower growth rates. For example, earlier in 2011, Brazilian company JBS SA emerged as a potential bidder for Sara Lee while a number of emerging market conglomerates have been purchasing global brands to access new developed markets; for example, Turkey’s Yildiz Holding expanded in the US via the purchase of Godiva, the premium chocolate confectionery brand.

Going forward, Bimbo will need to intensify its expansion activities through acquisitions in order to remain globally competitive and consolidate its position among the top 10 largest global packaged food companies. Although new assets in large mature markets will add substantial scale to its operations and help improve profit margins, the company should also continue to evaluate the potential of dynamic and large emerging markets and categories.