|Spanish emigration and the setting-up of a great company in Mexico: Bimbo, 1903-2008
Javier Moreno -Lázaro
University of Valladolid (Spain)
Dr. Javier Moreno-Lazaro is a Professor of Economic History at the University of Valladolid (Spain). He undertook postgraduate studies at Saint Anthony’s College, University of Oxford (United Kingdom). He was a visiting professor at the Universidad Autónoma Nacional de México between 2006 and 2008 and gave lectures and ran Masters courses on the History of Companies in several Universities in that country. His latest publications center on the history of the Mexican cookie industry (Historia Mexicana, 2009) and on the creation and internationalization of the Spanish meat industry (Investigaciones de Historia Económica, 2009).
Facultad de Ciencias Económicas y Empresariales
Valle de Esgueva, 6
This article revises the development of Bimbo from its creation in 1944 up to the crisis that started in 2008, as well as the first steps taken by its promoters on their arrival in Mexico from Spain. The objective is to clarify the causes of the worldwide success of this company that was born in an emerging economy under hostile conditions. The theory proposed in this article is that this success is due to several factors: the organizing techniques used, the policy of growth through vertical integration, the good relationship with trade unions, its economies of range and a correct and patient internationalization strategy. Furthermore, the article reveals the role Mexican businessmen played in the spread of American managerial innovations to Spain since 1960.
Grupo Bimbo is probably the greatest achievement in Mexican Business History. In 2008, Grupo Bimbo, then the second-largest bread manufacturer in the world (after Kraft) and the biggest Latin American food company, had over 91,000 employees in its 57 factories and distributed its products in 18 countries1.
The success of this company is almost prodigious if we bear in mind the limited access to technology that Mexico has had, obviously a much more delayed access than in other countries, the financial difficulties of the internal market and the not-always-permissive political environment.
This article intends to clarify how such vertiginous growth was possible by a company in only one generation. Thus, the theory put forward here is that the company’s organizational configuration was a decisive factor. The policy of growth through vertical integration applied since its very creation, a Board able to make managerial changes compatible with the company’s family structure and a structuring of industrial relations that guaranteed absolute calm throughout its entire history were all enough to combat the drawbacks previously mentioned.
The setting up of Grupo Bimbo was the result of the determination of a family of Spanish emigrants that arrived in Mexico before the outbreak of the Revolution. Its history clarifies the relationship between the foreign minorities and the Latin America entrepreneurial spirit. At the same time, this story also clarifies an aspect which is not less relevant: The birth of great companies in emerging economies, something which Bimbo exemplifies better than many.
Thus, this article proposes a revision of Mexican Business History and to some degree Spanish Business History also, with Bimbo as the main focus. The text does not limit itself to an historical narration of the development of Grupo Bimbo, but also covers the first entrepreneurial steps taken by the founding family since their settling in Mexico, because without such steps the creation of this enterprise would not have been possible.
THE MEXICAN DREAM OF A CATALONIAN FAMILY, 1903-1943
Around the year 1900, Juan Servitje arrived in Barcelona. He was born in March 1885 in a small Catalonian town called Ódena to modest, working-class parents. He worked there in a canteen until he saved up enough money to buy a ticket to Mexico and thereby avoided doing his military service, which was then obligatory in Spain. Finally, in 1903 he disembarked in Veracruz.
Servitje started working in Mexico City in a bakery called “La Flor de Mexico”, a tearoom and restaurant which had been set up by his uncle José Torrallardona in 19052. He spent almost eight years of his life working there and at the same time he was integrated into the small colony of Spanish emigrants in Mexico City, among whom these Catalonians (specializing in baking and large-scale trading businesses) stood out because of their dynamism. However, Servitje did not seem to resign himself to his condition as an employee and was not happy either with the possibilities that Mexico had offered him. Restless as he was and with a great business sense (although not so much luck), he emigrated to Argentina in 1909, where he worked in a bakery in Buenos Aires3. From there he returned in 1912 without even a peso and once again became part of the staff of “La Flor de Mexico”. In 1914, he married Josefina Sendra, Torrellardona’s niece, who had settled down in Mexico that same year4.
Convinced that his future was not to be limited to the counter of a bakery, a few months after his wedding he left the business to sign up for Nestlé. Servitje used the earnings obtained there to set up a glove business which he never even got to inaugurate since the ship which transported the merchandise from Europe sank on the way5.
Overcoming this new setback, and having been financially strengthened through short deals in the sale of timber, Servitje became a partner of the Catalonian baker Juan Balcells, with the aim of exploiting a bakery6. However, in 1918 an opportunity came up which Servitje thought would be much more attractive: the profit from a patent for a mechanical dough kneader, invented by the Spanish resident Pachuca Pedro Poo, from whom he bought the rights for 25,000 pesos7. Servitje and Balcells made an agreement with a group of bakers of the same nationality to set up the Compañía Higiénica Múltiple Poo Elaboradora de Pan, with a capital of 350,000 pesos, to sell and distribute the device on a large scale8.
The business, both in Mexico and in Spain, where the machine was also presented, was a complete failure, due in part to the opposition of workers to its use9. However, during a trip to the United States in December 1918 with the aim of selling the machine, at least Servitje managed to become the representative of Gillette in Mexico, which offered the family some affluence10. Nevertheless, the Catalonian squandered most if the income by investing in disastrous mining ventures. Servitje had to return briefly to Spain in 1922 to look for help from his family11. He returned to Mexico a year later to run an import company called Servitje, Jorba y compañía, which went bankrupt a few months later.
Following this eventful entrepreneurial experience, in 1926 Servitje had to become an employee of Pan Ideal, a company that baked sliced bread and was owned by Pablo Díez, the founder of the Cervecería Modelo beer company, another of the great business contributions the Spanish made to Mexico12. Servitje did not stay for long. In 1928, along with another two Catalonian investors, Bonet and Tinoco, colleagues of his at “La Flor de Mexico”, he set up the El Molino bakery, control of which he took over in 193513. By that time he already rivaled with the most reputable establishment in the city, El Globo, owned by the Italian Taconi and which had opened in 1884.
Having overcome those financial difficulties, Josefina Sendra decided to travel to Spain for a short stay in Catalonia along with her children in April 193614. The outbreak of the Civil War surprised her during her summer retreat and, threatened by anarchists, Servitje’s wife had to hastily leave Barcelona along with her brother Jaime15.
Adversity seemed to torment the family. On 15th December 1936, Juan Servitje passed away and Josefina, a woman with a great business flare who had looked after the family during the most difficult moments by setting up a guesthouse, saw to the management of El Molino with the help of her son Lorenzo, who had to simultaneously work in the bakery, continue his studies in accounting and work as a representative of pharmaceutical products. Jaime Sendra, following a brief period as a baker for the Mexican Navy, also became involved in the company.
The outbreak of World War II brought with it wonderful business opportunities for Mexican entrepreneurs, opportunities which the family knew well how to take advantage of. In 1939, the perceptive Lorenzo Servitje, along with his childhood friend José Trinidad Mata, set up Servitje y Mata16. His brother-in-law, Jaime Jorba, also participated in the business17. The company reached quite a large turnover due to its exports to the United States of fruit and elaborated food products, precisely to attend to the needs of U.S. troops. Metal was also exported. In fact, in 1943 Servitje set up a small metallurgical plant in Mexico City, with links to the Zinc y Plomo, S.A. company18
Lorenzo Servitje used part of his dividends to improve the technical processes of “El Molino”, which at the time was under the able management of Alfonso Velasco (1904), son of the founder of Pan Ideal and who had undergone training at the American Institute of Baking in Kansas and had been hired to work for El Molino in 194119. During those exceptional years, the family business offered admirable income due to an increase in the consumption of baked foods by the growing middle classes, favored by the changes in the distribution of income caused by the conflict situation.
THE BIRTH OF THE BIMBO BAKERY, 1944-1952
In 1944, the partners of Servitje y Mata and “El Molino” decided to set up a sliced bread factory. The only initial objective they had with this investment was to supply raw material for the preparation of the sandwiches sold at El Molino, since that supplied by Pan Ideal was found wanting. However, as the project set up by Alfonso Velasco and Lorenzo Servitje grew, the aspirations of the founders also grew20.
Servitje himself chose the trademark of the company, Bimbo, as well as the logo, the well-known teddy bear dressed as a baker21. In October 1944, the Panificadora Bimbo, S.A. company was set up, with an initial company capital of 300,000 pesos22. As was common practice among the Spanish community, the promoters satisfied their financing needs by making use of family and nationality ties. José Torrallardona, then owner of the Ansiera Hotel in Monterrey and who had tutored the first entrepreneurial steps taken by Jorba, Sendra and Servitje in Mexico, supported this initiative and offered part of the resources needed to set it up23. The rest of the financing was obtained by the family from a loan granted by the Banco de la Propiedad, in hands of fellow countrymen24. Lorenzo Servitje’s father-in-law, the Spanish match manufacturer Ramón Montull, offered the lands in Mexico City where the factory would be built25.
On 2nd December 1945 the bakery was inaugurated, with two second-hand continuous ovens purchased in the United States and with some 34 employees. A short while later, a third oven was installed and, in 1947, a second bakery was built next to the first one. As early as 1952, the third and forth plants were built.
The statutes clearly indicated the role of each partner. José Torrallardona was President of the Board of Directors, in recognition of the favors made for the family. However, this was an honorary post since the management was in the hands of Lorenzo Servitje. Alfonso Velasco was responsible for production and Jaime Jorba was in charge of sales, with the collaboration of Roberto Servitje, Lorenzo’s brother, who had just completed his studies at the Jesuit School in Quebec. Both of them traveled around the city carrying out surveys of retailers and checking out sales possibilities, a statistical exercise never before carried out by a Mexican company. As early as 1950, Francisco Plancarte was appointed General Manager26. Jaime Sendra distanced himself from the direct management of the company and took on a purely advisory role in order to help out his sister at “El Molino” along with the youngest of the Servitje family, Fernando27.
The short-term results exceeded even the greatest expectations of the founders (Figure 1). In just a few months, Bimbo practically did away with the competition. During the first three years, they gathered up a reserve of 300,000 pesos. In December 1948, the partners decided to multiply the company’s capital by ten28. By then, there were over 700 employees despite the difficulties in promoting the product which was still not well-known, the hostility of bakers who refused to sell the product on their premises and the tax obstacles that forced the Servitje family to ask for the mediation of the President Mateo Alemán in 1949.
Figure 1: Figure 1. BIMBO’S PROFITABILITY, 1947-2008 (indicated as a percentage of assets)
Source: AGB, informes financieros y Archivo de la Bolsa Mexicana de Valores, balances of Grupo Bimbo.
The economic juncture at which it was born partly explains the vertiginous growth of the company. Bimbo started its activities at a time of great bread scarcity in Mexico City, due to the market cartel imposed by Spanish bakers who had grouped together in what they called Departamento Especializado de Panificación, breaking the Anti-Monopoly Law established by Lázaro Cárdenas in 193429. President Ávila Camacho had to give in to price increases, thereby leading to a range of union protests30.
In the midst of such scarcity and due to the fact that, since 1941, sliced bread was not regulated by law, Bimbo could offer its products at a reasonable price and in smaller fractions, which led to an important increase in its income, due to high demand elasticity. This strategy contributed to a reduction in the price of commodities in Mexico City, to the relief of the Federal Government. Ávila Camacho helped Bimbo due to the contribution it had made in avoiding possible public order conflicts by subsidizing the purchasing of flour and granting it the franchise to import foreign machinery.
An important part of the success of the new company was due to the quality of the bread. Velasco took special care of the fermentation process in order to guarantee its freshness and to avoid it becoming prematurely moldy, which was what happened to Pan Ideal’s bread. Velasco created a team of engineers and chemists for this purpose, among whom were Mario Aguilar, Vicente Milke and Fernando Boullosa among others, all trained in the United States like him. Bimbo was distributed in cellophane instead of the waxed paper used by the competition, which allowed the consumer to see the product31.
Panificadora Bimbo initially manufactured three types of bread, adjusting to the strong segmentation of the Mexican market (in 1950, little more than half the Mexican population ate white bread). One of those products, “pan negro” [black bread], made from a mixture of wheat and rye flours, intended to satisfy the demand of the popular classes which had been unattended up to then. The company quickly expanded its offer with the elaboration of plum cakes from 1947 onwards and of bread rolls (1952).
The company vertically integrated its distribution with the purchase of ten trucks32. Those responsible for delivery included former milkmen and salesmen who were conveniently trained. The appearance of the first supermarket chains, particularly Sumesa, considerably reduced the cost of sales33.
Sales were organized through a detailed plan elaborated in July 1944 which assigned a specific market segment to each product and distinguished between direct and indirect suppliers (train and airline companies, hotels, canteens, beer manufacturers and racetracks) as well as groups (hospitals and asylums)34. In 1948, a second plan was approved which set the objectives to “improve the texture, wrapping and freshness” (points I and II), the “exhibition” (III), “stock control” (IV), “good service and special treatment” (V), “skilful and effective advertising”, “placing of the product in the trucks to avoid them becoming squashed or damaged” (VI)” and “a careful increase in the number of customers”.
Panificadora Bimbo used newspaper salesmen to distribute its bread in localities around Mexico City. In 1947, it opened its first “external routes”, run directly by the company in Tuxpan, Poza Rica, Toluca, Pachuca and Puebla. In 1949, in this last locality it set up its first agency, which was followed by those established in Veracruz and Tampico. In 1952, Roberto Servitje designed the organization of road transport inspired by the system used by the U.S. Army35. The return trips were to be made on the same day36. All vehicles had a tachometer installed (invented by the company) and none of them were allowed to have a radio installed.
Product promotion was undertaken by the company called Publicidad Continental using advertisements in press and on radio. Bimbo was a pioneer in the use of promotional gifts in its packaging since 1951. Lorenzo Servitje discovered the value of marketing and he became one of its committed enthusiasts and the greatest defender of its use among Mexican businessmen37.
Panificación Bimbo paid for these investments through its own resources, a strategy which was linked to the Catalonian business culture from which its founders had emerged. The company enjoyed great liquidity since it demanded its clients pay 80% of the product price in cash, upon delivery of the merchandise. The partners agreed on a highly prudent dividend policy: they rarely exceeded 10% in spite of the plentiful profits made. Only in 1951 did they have to apply for a mortgage from the Banco Internacional to acquire raw materials, fuel and to pay salaries38.
Finally, the arrangement of industrial relations based on a singular symbiosis of Christian humanism and Fordism, which could be adjusted to the rigidity of the Mexican labor market guaranteed calm during moments of specially difficult labor conflicts in the sector, particularly between 1944 and 194739. Its salaries tripled the average in the sector40. The company did away with promotion due to time worked in the company in order to include productivity bonuses. Through the inclusion of the measure in its statutes, 8% of company profits always had to be used for welfare projects. Lorenzo Servitje even set up a savings bank for his employees41. The relationship between management and the company representative of the Confederación de Trabajadores Mexicanos (CTM) -the pro-government trade union-, Rodolfo Martínez Moreno, were particularly cordial.
Despite the promising results obtained by Panificadora Bimbo, the Servitje family did not abandon “El Molino”. In 1951, the business was turned into an incorporated company, owned by Servitje’s widow and children and with a starting capital of 300,000 Pesos42. They then had three bakeries spread out around Mexico City.