Just as the bread battle between Mexico’s Grupo Maseca (Gruma) and Grupo Bimbo seemed to be dying down, the mêlée for market share in the tortilla sector heated up. just-food.com’s Steve Lewis believes both companies are in it for the long haul, and asks: What will become of their smaller competitors?
After battering each other in the bread sector, leading Latin American bakers are squaring off on a new front: the tortilla market. Mexican multinationals Bimbo and Gruma channelled resources away from unprofitable sectors during 2001 and tortillas have become a core product for both.
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The Breddy/Bimbo bread war of 1998-2000 proved costly to both companies. The heavy investment in publicity and infrastructure was sustainable at a time when Mexico’s economy was growing at a 5% clip, but when consumption stagnated in 2001, Gruma was forced into retreat. Jose Maria Gonzalez, corporate director for Gruma, was quoted by El Norte newspaper as saying: “Gruma seeks to concentrate more on its core business, which is the manufacture of corn and flour tortillas and related products like tostadas and tortilla chips.”
Tortillas… the overlapping core
Both companies consider tortillas to be their core business, and over the next few years that sector will become the focal point of their struggle for market share. Bimbo management recently made it clear that expansion in the tortilla sector is a high corporate priority, both in Mexico and abroad. Bimbo’s assistant finance director, Luis Sampson, was quoted by El Norte as saying: “The company will pursue a strategy of concentrating on our core business- which consists of bread, tortillas, pastries, cookies, candies, chocolate, and snacks.”
Faced with a mature tortilla market in Mexico, future growth of both Gruma and Bimbo hinges on their ability to increase sales abroad. Bimbo is Gruma’s most formidable competitor in the tortilla sector, 
and competition for market share is heated on several fronts. The strongest market overlap between the two is in Central America, Mexico, and the Southwest US. Honduras and Nicaragua are home to two of Bimbo’s three Latin American (outside Mexico) distribution centres, while Gruma has a strong presence in El Salvador and Guatemala.
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By GlobalDataFrom a monetary standpoint, the key markets for Bimbo and Gruma are Mexico and the US. In Mexico, both companies benefit from nationwide tortilla distribution networks, supported by multi-million dollar budgets for publicity and distribution.
There are a few markets in which the two tortilla giants do not overlap – the most important of which being MERCOSUR (comprising Argentina, Brazil, Bolivia, Chile, Paraguay and Uruguay) and Northern Europe. Bimbo distributes its products in the MERCOSUR region via its Uruguayan distribution centre, and so far tortilla sales have taken a back seat to packaged bread and pastries.
Gruma’s tortilla plant in the UK meanwhile provides a strong position in the Northern European market. A recent Gruma corporate report said: “Reduced sales in some markets were offset by increased European sales, which rose 75% after the new plant opened in England.” Increased sales in Europe helped offset a 17% reduction in tortilla chip sales in the US following the StarLink genetically modified corn scare.
Shedding non-core lines
Unable to support its aggressive but very costly expansion campaign in the bread sector, Gruma is channelling resources back into the tortilla sector.
“We continue to lose money in the bread sector, but the losses are getting a lot smaller as a result of improved operating efficiency” |
In mid-October, Bimbo announced that it was considering selling off its 100% share in Mexican pasta companies Pastas Cora and Pastas Cora la Laguna. Bimbo’s Sampson was quoted as saying: “Pastas Cora is a very small company and it does not fit well into our main business objective.” Another motivation for shifting away from the pasta sector of course is that profit margins are slimmer than for tortillas.
Competition in the packaged tortilla sector intensified during 2001 as both companies cut back other product lines. The most heated struggle between the two giants is for supermarket shelf space in the packaged tortilla aisle. This is proving very damaging to local and regional brands that are struggling to hold their own against the muscle of the larger companies.
Winners and losers
Ultimately, Gruma and Bimbo may both come out as winners in the tortilla battle, especially in growth markets like the US and Latin America. The losers will be the local and regional contenders that lack the resources to expand their sales base.
Mexican 
supermarkets are becoming increasingly sophisticated in assigning shelf space to high-rotation products like tortillas. Many keep a detailed quarterly record of sales and profitability. Shelf space is allotted based on the results of the previous quarter, with the best sellers getting the largest amount of space. Smaller companies argue that this puts them in an impossible catch 22 situation; they cannot grow without more shelf space, but are locked out of that space for lack of growth.
Gruma and Bimbo have improved profitability by intensifying their core product focus. During the second quarter of this year, Gruma’s Mexican packaged tortilla and bread production company (Prodisa), reported an operating loss of about US$5.5m, down 34% year on year. During the same period, operating profits were in the range of US$29.5m, up 54% from the previous year.
Gruma management explained that improved performance was mainly attributable to gains in foreign operations, including Gruma Corporation (USA) and Gruma Centroamerica. By mid-year, US sales accounted for 43% of Gruma’s total, while Mexican sales accounted for another 27%. As the tortilla battle spills over into Europe, Central America, and the US, it will be increasingly difficult for smaller players to carve out a share of the tortilla market.
By Steve Lewis, just-food.com correspondent
To view related research reports, please follow the links below:- Savoury Snacks in Mexico (download) Mexico Savoury Snacks Market Profile (download) Food Distribution in Mexico to 2010: Strategies For Expansion And Entry |
