Bimbo case study

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REV: OCTOBER 10, 2008

JORDAN SIEGEL

Grupo Bimbo
Introduction
In early 2007 Daniel Servitje, CEO of Mexico-based Grupo Bimbo, sat at his desk eating one of many sweet bread products his company produced and which he had learned to love while working in one of the family owned plants as a boy. He looked out his window toward a growing business district just outside of MexicoCity, and wondered how far he could take his dream of one day leading the premier baking company in the world in terms of both size and quality. He had recently told a group of business students interested in Latin America that “our company might have a funnysounding name in English, but it is an icon brand in Latin America and is starting to become one in the U.S. too.”1 He thought about whether itmade sense to become one of the first Latin American consumer product companies in any industry to set up a large production business in China and try to dominate the emerging Chinese consumer market for industrial-made breads and sweet goods. He also thought about his company’s decade-long attempt to become both large and highly profitable in the U.S. market. The U.S. business, through a series ofoperational improvements, had only recently become profitable. He wondered what further strategic changes were needed to become highly profitable in the world’s largest bread market. How to make these two global strategy initiatives succeed in the U.S. and China were the focus as he sought to implement his company’s Vision 2010—to make Grupo Bimbo the world leader in the baking industry.Baking Industry
Industry conditions for the baking industry varied significantly by country. In Mexico, Grupo Bimbo enjoyed a strong market position in a growing market but, as seen in Exhibit 1, most other markets in which it participated were highly competitive, and in many markets the consumer demand for white and wheat bread was disappointing compared with Mexico and the U.S. The U.S. market wasparticularly fragmented, and consequently, a recent Bear Stearns report argued that the baking producers were being stymied by a combination of changing consumer demand patterns and low manufacturer pricing power for bread products.2 The industry had been hurt by the advent of low-carbohydrate and related diets in the U.S., which, while not as popular in 2007 as a few years earlier, were stillcausing some reduction in total U.S. consumer demand for bread products. One of the challenges for the industry was the advent of diets that made people avoid both trans fats and carbohydrates. In response, Grupo Bimbo led the industry in eliminating trans fats and using more whole grains in its products. The industry was also seeing higher ingredient costs, since corn in____________________________________________________________

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Professor Jordan Siegel prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2007, 2008 President and Fellows of Harvard College. Toorder copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without thepermission of Harvard Business School.

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Grupo Bimbo

particular was seeing price increases due to alternative uses in ethanol, and since energy costs, health-care costs, labor costs, packaging costs, and other raw material prices for wheat and sugar had each increased over time.3 In some U.S. states, the producer could recover from these increased input costs through a modest amount of...