Man of the year: Leading Mexico's Global

Brazilian CEOs get all the attention but a quiet Mexican manager obsessive about quality has created a true global champion. Bimbo CEO Daniel Servitje is our Man of the Year.

by James Crombie

After last year’s multiple beatings, Mexico has fallen out of favor with investors. Former corporate favorites like Cemex were pushed over the edge by poor liability management and explosive derivatives bets, while the sovereign suffered recession, swine flu and drug wars.

However, one corporate name continues to shine, churning out a recession-proof staple product while building its empire into strategic new markets. Mexico-based multinational baker Grupo Bimbo has its dogged and down-to-earth CEO Daniel Servitje to thank for its steady rise. Servitje is the first Mexican corporate leader to win the coveted LatinFinance Man of the Year prize.

"He’s really grown Bimbo into the premier global baker," says Palden Namgyal, senior managing director at Atlas Advisors, which advised Bimbo on the late 2008 purchase of Weston Foods’ Eastern US assets. "They are probably the closest thing to a global champion that exists in Mexico," adds Namgyal, who has been working with Bimbo for 15 years.

"It’s a very serious and competent competitor," says Carlos Piedrahita, CEO of Colombia’s Grupo Nacional de Chocolates, which competes with Bimbo and also has a joint venture in Colombia. "As partners, they are excellent," he adds.

Servitje, aged 50, is described as serious, ethical and consistent, as well as respecting of all the different cultures he deals with. He is also obsessive about the quality of his company’s baked goods and their distribution. This is essential in such a high execution business, where the product has to be fresh and widely available.

Bimbo produces over 5,000 products. They are distributed to more than 1.8 million points of sale through one of the most extensive direct distribution networks in the world, with more than 39,000 routes and over 100,000 employees.

Bankers who have worked with Servitje describe him going on regular market trips, where he will appraise the quality of goods on shelves and immediately chase up any shortcomings, even during meetings.

"It’s an industry that is very local, but Bimbo has managed to internationalize it," says Namgyal. "What’s remarkable is that it’s in both emerging as well as developed markets," he adds. The banker notes that Servitje manages to get best out of Bimbo, even when operating in a very different culture like China.


Managing Strong Growth

Servitje became Bimbo CEO in 1997, 10 years after joining a firm that he used to intern for during summers under his father Lorenzo Servitje, who co-founded Bimbo in 1945 and retired as chairman in 1994. He studied business administration at Universidad Iberoamericana and in 1987 obtained an MBA from Stanford.

Since Servitje took the helm, Bimbo has become a market leader in the Americas and one of the largest baking companies in the world, with annual sales of nearly $9 billion. It has 99 plants and 600 distribution centers strategically located in 17 countries throughout the Americas and Asia. It has been very acquisitive of small family-run companies with promising brands, led by Servitje’s knowledge of the business. He is praised for being a great brand manager.

Bimbo’s main product lines include sliced bread, buns, cookies, snack cakes, English muffins, bagels, pre-packaged foods, tortillas, salted snacks and confectionery products. They are sold via more than 150 brands such as Marinela, Barcel, Ricolino, Oroweat, Arnold, Mrs Baird’s, Thomas’, Entenmann’s, Plus Vita, Pullman and Nutrella.


Issuer for Tough Markets

Servitje is viewed as thoughtful and reflective, and is well-respected by bankers. He comes across as a man who is hands on and likes to get things done. Wall Street lauds him for his sincerity, and Servitje’s word is very much his bond.

"Daniel is a sincere family man, very interested in his colleagues and in keeping his word," says Piedrahita. "He spends a lot of time on his business and gets very involved at all levels."

"They have excellent credibility with the bankers," says a New York-based senior banker who has worked with Bimbo. "If you’re going to do a transaction in tough markets, these are the people you are going to do it with," he adds.

This reputation was particularly important at the height of the 2008 international financial crisis, when he pulled off an audacious and transformational acquisition which it would have been much easier to revisit after waiting six months. Bimbo saw the opportunity to expand through the acquisition of Weston Foods’ Eastern US distribution assets, including several household confectionery and bread names.

Despite the extreme turbulence of early December 2008, Bimbo raised a $2.3 billion loan to clinch the acquisition. And its takeouts were textbook examples of acquisition financing.

"We were at a time when the sky was falling but he himself convinced the board and everyone supported him," says Namgyal.

Servitje is also noted to be committed to the long term future of the brand, and will not do just any deal, no matter how lucrative. An M&A banker who declines to be identified describes a very attractive purchase opportunity he originated that would have matched Bimbo’s existing distribution. However, when the sector was mentioned – cigarettes – Servitje made it very clear that he was not interested, no matter what the return.

"Daniel says the product is inconsistent with Bimbo philosophy, they are very family oriented," says the banker, who describes this approach as "ethical, unusual and refreshing."

For bankers, this year looks like yielding little in the capital markets from Bimbo, which intends to use its strong cashflow to finance growth. However, in M&A, Bimbo remains focused on the Americas and analysts say it may look to pick up assets discarded by Kraft following its purchase of Cadbury.


Innovating in Commoditized Markets

Bimbo is viewed as having innovated in an area that was once commoditized, playing up its health and green credentials, including biodegradable plastic and mobile marketing. As such, Servitje has reinvigorated a category – bread and snacks – that contains a number of stale operators, like Hostess in the US, say analysts.

"They are reintroducing bread in terms of innovation, even in the US market and creating brands in a sector which has in a large part been commoditized," says Namgyal. This is highlighted by a differentiated portfolio in the US, including Arnold multigrain bread, which focuses on health, as well as innovations like thins, he adds.

In building an international network for Bimbo, Servitje is described as thoughtful and strategic, not trying to fill in gaps on the globe for the sake of it. Strength in each market sets it apart from other large Mexican companies. "Cemex has competitors and peers. I don’t think Bimbo really does," says Namgyal.

In sum, Servitje is viewed as being very comfortable with the CEO job and very much in charge of a company that is doing well. But he has not always had it easy, and Bimbo has lived some tough times in Mexico. "He’s stuck it through some challenging times. In his first foray into the US, the company struggled a bit," says Namgyal. Nonetheless, Servitje knows the lines of business, he knows the countries and he knows the competition. And it appears he has little time for much else. Servitje says that when he is not running Bimbo, he tries to spend most of his time with the family. He also likes to travel, mountain bike, and read as much as he can.
"Other than spend time with his family, I think he’d rather walk the stores," says Namgyal, when asked about Servitje’s hobbies.


Focus on Cost and Innovation

Bimbo CEO Daniel Servitje spoke exclusively to LatinFinance mid-February about his plans for the company. Following are the highlights.


LF: Where is the biggest opportunity right now?
DS: We are still facing a very competitive market. Our customers and consumers are very sensitive and we are now in a deflationary period in some of our markets. We need to ensure that we have the right mix of products and service strategies.

LF: What is the vision for Bimbo in the 2010-2015 period?
DS: We became the largest baker in the world through [the 2008 Weston] acquisition. Now we need to work hard and intelligently to become the best in our field. We will continue to reinvest a substantial portion of our profits back into the business, through a combination of process improvements, organic growth and acquisitions, while improving our financial position.

LF: How will you realize it?
DS: We need to continue to better understand our consumers, and align ourselves with our customers in the different distribution channels. We need to simplify our business model in order to improve local accountability and empowerment to make the right decisions faster. We must lower our costs base in order to generate competitive advantages across different categories. And, since we are mostly a branded company, we need to make sure that our innovation pipeline and marketing strategies fit the needs and desires of the different customers and consumers in the regions in which we operate.

LF: What are the biggest risks to execution?
DS: The integration plans in the US, which need to be carefully executed, and a commodity outlook that will remain volatile in the coming years.

LF: What is the financing plan for 2010 and how do you propose to
achieve it? DS: Grupo Bimbo has always been a strong cash flow generator, and since our latest acquisition in the US, our generation has strengthened significantly. As a result, for 2010, we expect to finance growth with our own resources.

LF: How do you intend to reduce leverage?
DS: With the company’s own cash flow generation. As originally planned since our latest acquisition in the US, we intend to achieve a leverage ratio, measured by total debt to Ebitda, of 2.0x this year.

LF: In which other countries would you like to operate?
DS: We are still focused in the Americas and enlarging our presence in other emerging markets like China. In the short to medium term, we will still be focused in the region.

LF: What new product areas is Bimbo pursuing? DS: We are mostly oriented to the baking and snacks categories, but we are focusing more resources in how we can bring more health oriented products in these categories.

LF: How do you manage to maintain such strong relationships with your bankers?
DS: We have always been aware of the importance of maintaining long-term relationships with our financial partners. As a result, we keep close attention to the transparency and consistency of our business with them.

LF: What is your outlook for the Mexican economy this year?
DS: We are expecting the Mexican economy to grow in the 3.5%-4.0% range, mostly as a rebound from last Latin Finance year’s deep fall. We have a strong advantage now, as we are the only economy in the Americas and other emerging markets that has devalued its currency and kept inflation low. I’m sure that there are very interesting opportunities to attract direct foreign investments, specifically in the Nafta market. On the other hand, we need to move faster as a country in changing the laws and regulations that are blocking our potential to grow at faster rates. There is still not a consensus among political forces to embrace globalism and make us a more competitive country.

LF: How can the Mexican economy modernize?
DS: Focusing on structural reforms and strengthening the rule of law, transparency, accountability, effectiveness and efficiency in public institutions.