Banking on Baking

November 1, 2007
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Banking on Baking
By Dan Malovany

Bimbo Bakeries focuses on creating a perfect balance of profitability, growth and service to ensure its financial strength and to reinforce its position as one of the premier players in the market.
One little letter can often make all of the difference in the world. Just ask Reynaldo Reyna.
A graduate of the University of Pennsylvania’s Wharton School with a master’s degree in research and finance, banking was in his blood. He spent the first decade after graduating working for U.S. financial institutions such as a regional bank that was purchased by Wells Fargo and an insurance company owned by Warren Buffett’s Berkshire Hathaway.
In the early 1990s, when Mexico was privatizing its banking system, Reyna returned to his homeland to work at one of the largest financial institutions in the country.
That was until Grupo Bimbo recruited him. Specifically, Daniel Servitje, the company’s current CEO, asked the young financial whiz to oversee the installation of Bimbo’s enterprise resource planning system (ERPs) and other financial controls that would allow Mexico’s largest baker — and the world’s second largest baking company — to monitor its sales and operations in real time.
“It was a total change going from banker to baker,” Reyna says. However, he adds, “I used to work with dough, and I continue to work with dough.”
Reyna notes that Grupo Bimbo gave him an opportunity to work in a bigger pond, namely the food industry, as opposed to strictly the financial sector. Today, as president of Bimbo Bakeries USA, he oversees a $1.4 billion annual business with 13 plants and 7,000 employees.
The Fort Worth, Texas-based company produces a full line of bread, rolls, buns, bagels, tortillas and sweet goods branded under such powerhouse names as Oroweat, Mrs Baird’s, Bimbo, Marinela, Tia Rosa, Boboli and Entenmann’s.
The bulk of its products are sold in states west of the Mississippi River, but an increasing amount of business comes from Bimbo baked goods and Marinela sweet goods sold in largely Hispanic communities across the nation.
In cases such as in Chicago, the company partners with a local wholesale bakery to co-pack short-shelf white bread under the Bimbo brand, which is distributed on Bimbo-operated route trucks. However, its longer shelf life sweet goods are produced in Mexico and then transported to the United States before being redistributed to retailers.
These Mexican brands, along with the Oroweat line, account for 60% of the company’s growth. It’s easy to see why sales of Bimbo and Marinela baked goods are expanding along with the growth of the Mexican population in the United States, while Oroweat is riding health and wellness trend.
Reyna observes that Bimbo’s Mexican branded products are rising at a double-digit rate, or at about the same pace as the Mexican population is growing in the United States. In fact, he adds, roughly 9% of today’s U.S. population is Mexican, which has nearly $450 billion in purchasing power annually.
Because most Mexican consumers grew up eating Bimbo and Marinela baked goods, Reyna notes, they have an emotional, if not deeply loyal attachment to the brands. For them, Bimbo is synonymous with white bread, and Marinela’s Gansito is the Twinkie of Mexico. In fact, the Gansito, or the little goose, is so popular that is recognized by more than 90% of Mexican children, according to one study. This year, the company celebrated the Gansito’s 50th anniversary of being sold in Mexico.
Bimbo Bakeries USA knows how to leverage this attachment to its brands because it can tap into its parent company’s knowledge base and extensive product offerings, Reyna explains. Earlier this year, for instance, the company introduced colchones, a traditional bread roll with an orange flavor that’s a staple in the Mexican diet and can be eaten with any meal occasion. The product is sold under the Bimbo brand.
“That’s a product that I ate as a child,” Reyna notes.
Historically, the Oroweat line has long been a leading brand along the West Coast with such top-selling varieties as 100% Whole Wheat, Seven Grain, Oatnut, Country Potato and Country Butter bread. Since acquiring the business five years, Bimbo Bakeries USA has continued to tweak Oroweat’s portfolio to better tie into the health and wellness mega-trend.
To strengthen the brand’s position in that segment, for instance, the company recently rolled out Oroweat Double Fiber made with Whole Grains, Whole Grain & Flax with Omega 3 and Whole Grain & Oat with cholesterol-lowering CoroWise plant sterols. Last month, it introduced an all-natural 100% Whole Grain & Honey bread with a full day’s worth — or 48 g. — of whole grains in two slices. The latest addition to Oroweat Whole Grain line also does not contain high-fructose corn syrup, which is a major concern for consumers living in the Northwest.
Moreover, earlier this year, Bimbo Bakeries took the top four varieties in its Oroweat line and created Mini Loaves with 11 slices, compared to 18 in a regular-sized loaf.
“This is geared toward empty nesters and single people who spend less money,” Reyna says.
Consumers also can buy Oroweat buns in four packs instead of the convention 8-count bags to minimize waste and provide more options on the shelf. If one family member prefers whole wheat while another likes potato rolls, parents can mix and match more easily by buying multiple varieties of four packs.
When it comes to the company’s products, Reyna likes the cards in his hands.
“We are lucky because of the brands we have,” he notes. “Relative to other companies, we do have a portfolio of brands that are geared toward different demographics. Our portfolio is something that we can offer to our private label or retail partners that no other company has.”
Striking a Balance
New products, along with a positive sales mix and strong volumes with national retail chains, combined to spark an 8% sales increase for the company’s U.S. operations in fiscal 2006, ended Dec. 31. Operating profit doubled to more than $17 million last year.
This year, revenues are tracking ahead of last year, and operating profit has increased significantly, despite surging fuel and energy costs and soaring commodity prices that have adversely impacted the baking industry as a whole. These numbers represent a substantial improvement from when Reyna took over the job four years ago.
Back then, Reyna recalls, “The financial results were the worst. We lost $40 million.”
From a historical perspective, he stresses, Bimbo Bakeries USA’s dismal performance in 2003 could be contributed to a number of factors, including its meteoric rise to become one of the United States’ largest bakeries in such a short time.
In 1998, he notes, Bimbo Bakeries was a mid-size player in the industry with U.S. sales of about $100 million. Following the acquisition of Mrs Baird’s Bakeries that year, the operation jumped to $600 million overnight in annual sales.
In 2002, the company doubled again in size — or 12 times the revenues that it had four years before — when it bought the Oroweat business from George Weston Ltd. during a wave of industry consolidation. That purchase included rights to manufacturer and sell Entenmann’s sweet goods and Boboli products west of the Mississippi River.
To top it off, this hardly was a typical period of integration for Bimbo Bakeries. During that period, in one fell swoop, Bimbo Bakeries switched 1,000 company-owned routes that distributed Mrs Baird’s products to an independent distributor system, which was no small feat under any circumstances.
To put all the pieces together, Reyna was named as the new chief of its unwieldy U.S. business in 2003.
“My job was to make it one company,” he recalls. “At that time, it was a collection of companies.”
In many ways, Reyna is the right man for the job. Throughout his financial career, he had been involved in restructuring companies during the merger-and-acquisition mania during the early 1990s. Then, upon returning to Mexico and its banking system, Reyna earned his stripes in crisis management during the country’s financial meltdown in 1994 and 1995.
As Bimbo Bakeries’ top executive, Reyna has developed a back-to-basics strategy he calls “trinity,” which is based on a balance of profitability, growth and service.
Often, Reyna notes, these three elements can be contradictory or conflicting objectives. Growth for growth sake, he notes, doesn’t necessarily into profitability. If a line is running at capacity, for instance, it should be reflected in the bottom line. If it’s not, that’s telling Reyna that the company’s allocation of resources is not properly balanced. Maybe the bakery is producing too many low-priced products, he suggests, and needs adjust its product mix to sell a greater amount of higher margin branded items.
Likewise, Reyna examined the Bimbo’s sales and distribution system. If the company wasn’t making a profit in a specific geographic market, he says, it had to determine whether staying in that market was simply an expense or an investment that can translate into profit in the long run.
“Here, the devil is in the details,” he says.
To validate these decision-making processes, Bimbo Bakeries installed ERP and other rigorous financial controls, similar to what Reyna oversaw with the parent company in Mexico City a few years back. The goal was to move toward fact-based, decision-making process and away from running the company based on gut feelings or simply because the bakery had always been done that way in the past.
At the same time that it was making these internal changes, Bimbo Bakeries was changing its organization in more ways than one. Previously, its Mrs Baird’s Bakeries’ group had been located in headquarters adjacent to its Fort Worth bakery, while its Oroweat team made its home in Beaverton, Ore. The decentralized business had been structured like a collection of regional bakeries.
In 2005, the company centralized its operations when it opened its 30,000-sq.-ft. headquarters, which now houses 100 of its top managers.
The centralized structure, he adds, expedites the decision-making process and clearly defines the chain of command.
Today, the sales team has been restructured around regional and national accounts that work with retailers to provide category management, market insights and customer support.
“We’re centered around our customers to support them and add more value in the process,” Reyna explains. “I think the one word is that we’re ‘focused.’”
The centralized structure also allows for cross-functional teams such as sales and operations to work together to solve problems and create more opportunity, he adds.
Those opportunities have come in a number of areas. In addition to new products and rolling out its Mexican offerings nationally, Bimbo Bakeries has been expanding its stalwart Mrs Baird’s brand in geographic territories adjacent to its core market. During the past few years, the company has moved into the Jackson, Miss.; Topeka, Kan., and Kansas City markets, and further into Oklahoma.
To strengthen its Oroweat brand, the company has rolled out several major promotions such as becoming the official bread of the Pac-10 Conference. This includes an Oroweat VIP Rose Bowl Experience for two, including air, accommodations, a tale-gate party and tickets to the parade and game.
Earlier this year, Oroweat held its Healthy People-Healthy Plant initiative to support the nation’s National Parks through the National Park Foundation. The goal was to marry the Oroweat brand against a healthy lifestyle and caring for the natural environment.
With the emphasis squarely on the bottom line, the numbers now tell the whole story. The company went from losing millions to making millions.
“We have continued to improve the profitability to move on that, but is the profitability the way it should be today?” Reyna asks. “We still have a way to go.”
After years of wholesale changes in the organization, the numbers also show that Bimbo Bakeries USA is hitting its stride and is positioned to become only stronger in the market going forward.
For Reyna, that’s something the company can take to the bank. SF&WB
At a Glance
Company: Bimbo Bakeries USA
Headquarters: Fort Worth, Texas
President: Roberto Reyna
Annual Sales: More than $1.4 billion
Products: Bread, rolls, buns, English muffins, tortillas, tortilla chips, sweet goods
Brands: Oroweat, Bimbo, Mrs Baird’s, Tia Rosa, Marinela, Entenmann’s, Boboli
No. of Plants: 13
No. of Employees: 7,000
Parent Company: Grupo Bimbo
Headquarters: Mexico City
Chairman & CEO: Daniel Servitje-Montull
Annual Sales: $5.88 billion
Web site: www.GrupoBimbo.com
Bimbo Interested in Buying Interstate
Grupo Bimbo, the Mexico City-based parent of Bimbo Bakeries USA, has confirmed that it is planning to conduct due diligence on Interstate Bakeries Corp., the producer of baked sweet goods sold under Wonder, Hostess and other brand names. At press time, Grupo Bimbo noted that its moving ahead on a plan would be contingent on several further factors, including the satisfactory completion of the due diligence process and the approval of the reorganization plan by the court and creditors.
Grupo Bimbo has hired the Blackstone Group as its financial advisor and Cleary Gottlieb Steen & Hamilton L.L.P. as its legal advisor. The company’s U.S. division is partnering with Yucaipa Cos., a Los Angeles-based investment firm, and the International Brotherhood of Teamsters in its efforts to explore the purchase of Interstate Bakeries.
Earlier this month, the Bankruptcy Court in Kansas City, Mo., approved IBC’s reorganization plan to exit Chapter 11, which set the stage for the company to be auctioned. Previously, IBC thwarted the Yucaipa-Bimbo coalition’s efforts to get the necessary information to conduct due diligence. However, the parties agreed to allow Yucaipa and Bimbo to view the books.
Although the court also approved a financing agreement that would allow IBC to exit Chapter 11 on its own, the company has yet to secure concessions from the Teamsters, which indicated that it opposed Interstate’s reorganization and would rather go through liquidation than return to the bargaining table. If IBC is put up for sale, the auction currently is scheduled to be completed in January 2008.

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