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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 Nestl. 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

Improving income levels drive consumers to become more lifestyle focused,
and the faster pace of life is making ready-to-eat and prepared foods more a
ccepted. Western style baked items, including breads, cakes, pastries and de
sserts, are becoming popular daily items as Chinese are exposed through tra
vel and media, not to mention the influence of Starbucks which has become
a very popular brand to middle and upper class in metropolitan cities.

COMPETITION: ...and your enemies closer

The bakery industry is highly fragmented due to its
requirement of product freshness, meaning baked products cant be
delivered too far from where its 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, Maxims
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 1960s 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 Chinas 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 companys 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 2000s 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 Bimbos bread and
baked goods together at home.
TASTE: Adapt or Die

Bimbos 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, , (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 i n-
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. Bimbos Chinese name 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 Ta 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
By:
Rufino De La Rosa
Ellen Li
Jorge Ramiro Vitthal





Michael Wood
Tolis Paschalis