Industrias Bachoco, S.A. de C.V. History

Company Perspectives:

Our Mission: To be a high-performance company, within the context of NAFTA, that sells products of animal origin and that strives to satisfy the needs of customers, employees and shareholders while giving back to the community in a meaningful way. Key Dates:

Key Dates:

1952:

The company is founded in Ciudad Obregon, Sonora.

1971:

Bachoco establishes its first poultry operation, in Culiacan, Sinaloa.

1974:

A second processing plant opens in Celaya, Guanajuato.

1992:

Bachoco moves corporate headquarters to Celaya.

1994:

The company acquires its third and fourth processing plants.

1997:

Industrias Bachoco becomes a public corporation by selling stock.

1999:

The company acquires Grupo Campi, S.A. de C.V., Mexico's fourth largest poultry producer.

Company History:

Industrias Bachoco, S.A. de C.V. is a holding company whose Bachoco, S.A. de C.V. is Mexico's leading poultry producer and one of the world's top ten chicken producers. As a vertically integrated producer, Bachoco has operations that include preparing feed, breeding, hatching, and growing chickens, and processing, packaging, and distributing chicken products. The company also produces eggs and swine. It transports and sells its products to both wholesalers and retailers. Industrias Bachoco has more than 600 facilities, including breeding and growing farms, feed plants, processing plants, and cold-storage facilities and warehouses.

First the Egg, Then the Chicken: 1952-88

Henry Robinson Bours emigrated from Holland to Mexico at the beginning of the 20th century. Alfonso, Javier, Enrique, and Juan--sons of Henry's eldest son, Alfonso--were residents of Ciudad Obregon, Sonora, engaged, in the 1940s, in various businesses, such as wheat and sorghum cultivation, the production of fertilizers, and the sale of automobiles and agricultural machinery. Business was poor, however, and one Friday afternoon the only way that Enrique could meet his payroll was because his wife suddenly provided an unexpected cache of savings accumulated by selling eggs to the neighbors from the family's corral of chickens. This seemed like such a good idea that the Robinson brothers decided to add egg production to their roster of businesses. (Of their four farms at the end of the 1940s, the most important was near Navojoa, in an area called by the Indians bachoco, meaning 'place where water passes.')

At an early point in Bachoco's history the Robinson brothers made a decision to specialize in brown eggs, which have no nutritional value superior to white ones but command a price premium from Mexican shoppers. By the mid-1960s egg production had become the main family business, and by the 1970s the brothers had withdrawn from the others to give their full intention to this endeavor. In time the state of Sonora became too small a market for Bachoco and also insufficient for its feed requirements, particularly sorghum and corn, and so the company opened a plant in Los Mochis, Sinaloa. In 1971 the Robinsons opened their first poultry operation, in Culiacan, Sinaloa. Three years later they extended their operations from northern to central Mexico by opening a second poultry processing plant in Celaya, Guanajuato. By about 1977 Bachoco's chicken sales had outstripped its egg sales.

By the mid-1970s it was clear that Mexican chicken growers and egg producers were unlikely to survive unless they consolidated and thereby achieved economies of scale. Chicken producers, according to the president of the National Union of Poultry Cultivators, were paying higher prices for feed while constrained by the federal government from passing on their costs of production. In addition, he said, poor-quality chickens and eggs were being smuggled into the country from California and Texas and sold at very low prices. During the ensuing years the union tried, without success, to persuade the government to limit American imports of chicken. The government, however, favored a level of imports sufficient to keep chicken prices from rising significantly and, therefore, to keep the product affordable for Mexico's poor. (A 1997 Wall Street Journal article said that despite growing incomes and chicken's low price relative to other meats, per-capita poultry consumption in Mexico historically had been less than a third of U.S. consumption and only about half of consumption in the rest of Latin America.)

Bachoco proved to be one of the survivors of the shakeout. According to Enrique Robinson, the company's chairman of the board, one reason was that the enterprise was careful not to take on more debt than it could handle. In this way it had the resources to acquire other producers when they fell into difficulties. In addition, he had noted that aviculture moved in cycles, with high prices stimulating production to the point where the inevitable surplus resulted in a drop in prices. Bachoco's response was to hold back production until prices recovered. Interviewed for the Mexican business magazine Expansion in 1994, Robinson described the company as, by tradition, 'extremely conservative, its shareholders preferring to use its own cash flow for growth' rather than to borrow funds.

By 1988 Bachoco was Mexico's leading producer of chicken, with more than ten percent of the production reported that year by the 52 members of the producers' union. The company was also first in chicken purchases, however, with more than ten percent of the total reported. Only 14 percent of its chicken sales came from its own breeding farms; the rest were from chickens produced by other growers and sold to Bachoco. Nevertheless, by 1992 the company owned 159 farms and rented 63 more, with an inventory of six million hens derived from the Hisex stock imported from Holland.

Still Growing in the 1990s

Bachoco was planning to make its initial public offering in 1992, but its performance that year was not satisfactory. Although sales rose by ten percent, net profit fell by 52 percent, mainly because of higher prices for its raw materials, particularly imported ones. The company's debts rose to 47 percent of its capital. As a result, Bachoco reorganized its operations to reduce its production and administrative costs. One of these measures was to move corporate headquarters from Ciudad Obregon to Celaya. 'Given that the major part of the business is in the center of the country,' Robinson (who did not make the move) explained to Expansion, 'there arrived a moment in which there wasn't much sentiment to have our offices so isolated from our principal markets and centers of operation. In addition, this has allowed our executives to make more contact with the market, which allows them to react faster.' He added, 'We have succeeded, with the same resources, to augment our production substantially. This has resulted in a very important reduction in our expenses.' One example he cited was an increase in the speed of the Celaya plant's production line from 8,520 to 9,300 chickens an hour.

Bachoco's reorganization was a resounding success. In 1992 it reported net sales of 1.05 billion new pesos (about $338.1 million) and net income of 39.4 million new pesos (about $12.7 million). These totals grew the following year to 1.22 billion new pesos (about $387.3 million) and 184.8 million new pesos (about $58.7 million). The company's debt fell to 27 percent of its capital. The nearly fivefold increase in profits opened some eyes and rated the company a cover story in Expansion, which put Bachoco in first place on its list of the ten top enterprises of the year. Robinson told the magazine, 'The goals that we have, as in all businesses, are to be more efficient, to utilize our assets better, to lower our production costs, to better our systems of distribution, to reach all corners of the country with a better product.'

Industrias Bachoco processed and sold almost 165 million chickens in 1993, an increase of about ten percent over the previous year. Chickens represented 73.5 percent of the company's total sales and 20 percent of the national market. It was particularly strong in the nation's northwestern and north-central states, plus the Federal District (Mexico City). As Robinson forecast, the company in 1994 acquired a third processing plant in Tecamachalco, Puebla, to establish a presence in southern and eastern Mexico and challenge Univasa, one of its main rivals. A fourth processing plant was acquired in Lagos de Moreno, Jalisco. Egg production accounted for 17 percent of the company's sales (and made it the nation's second-ranking producer) but was considered a secondary opportunity for growth by the company because Mexican per-capita consumption of eggs was already higher than the U.S. figure. 'The principal opportunity is chicken,' Robinson told Expansion. 'We are seeing a very important increment in its consumption per person, given that continually, by the efficiency achieved in its production, it can be provided to the consumer at prices ever more accessible. This is not the case for the consumption of red meat, which in some places has fallen and in others remains static.' The company's three percent share of the national swine market made it one of Mexico's most important producers, however. Bachoco also was distributing to supermarkets frozen chicken and turkey sausage that was being imported but sold under the Bachoco name.

The capital flight of late 1994 that led to a drastic devaluation of the peso before the end of the year and a consequent severe recession in 1995 resulted in a sharp drop in chicken prices and consumption. This marked a crucial moment in the consolidation of the industry, with big producers such as Bachoco augmenting their share of the market by purchasing smaller producers. By 1998 the company held 21 percent of the market. Industrias Bachoco made its initial public offering in 1997, selling about one-sixth of its outstanding shares, both on the Mexican stock exchange and on the New York Stock Exchange, in the form of American depositary receipts. After selling shareholders received their proceeds, the company's management retained more than $40 million to expand production and thus meet the challenge of U.S.-based rivals such as Tyson Foods Inc., the world's biggest chicken processor, and Pilgrim's Pride Corp., Mexico's second-ranking broiler producer. 'Our strategy is to increase market share through opportunities rising from the continuing consolidation of the industry,' Enrique Robinson told Joel Millman of the Wall Street Journal. 'We will continue to evaluate possible acquisitions.'

Working in Industrias Bachoco's favor was a growth in Mexico's chicken consumption that was outstripping even its rapidly growing population and by 1998 constituted a market exceeding $3 billion a year. In spite of the growth of U.S. competition, Mexico remained the world's fifth largest producer of chicken and the fourth largest of eggs. In addition, Bachoco increased its volume of chicken sold by more than 55 percent from 1995 to 1999, compared with an increase of 18 percent in overall Mexican chicken production during this period. Millman reported, however, that 'many marginal producers already have been picked off' and that the remaining producers 'would have a hard time duplicating a formula that fueled farm growth in the U.S.: raising birds by independent contractors. That frees producers from tying up capital and management talent and has proved successful in places like Brazil and Thailand. It is almost unheard-of in Mexico.' By the terms of the North American Free Trade Association (NAFTA), duties on imported poultry products began to fall in 1999 and were due to end entirely in 2003, thereby enhancing opportunities for increased sales by Bachoco's U.S. competitors.

Bachoco in 1999-2000

In 1999 Bachoco sold some 415,700 metric tons of chicken (about 254.8 million chickens), a 17 percent increase over the previous year and about 23 percent of all Mexican chicken production. Sales of chicken products accounted for 87.5 percent of the company's net sales of 5.64 billion pesos ($595.2 million). Bachoco was the third largest producer of table eggs in Mexico, with a total of 67,500 metric tons, or about 88.4 million dozen eggs, and 3.7 percent of the market. Eggs accounted for nine percent of the company's net sales. Sales of swine, which Bachoco was selling on the hoof to meat packers for the production of pork products, came to 9,500 metric tons and accounted for nearly two percent of net sales. The remaining portion of net sales was made of miscellaneous poultry-related products. Net income came to 813.7 million pesos ($85.8 million).

During the year Industrias Bachoco maintained 87 chicken-breeding farms, 306 broiler grow-out farms, 15 egg incubation plants, 52 egg production farms, a swine-breeding farm, ten swine grow-out farms, and eight feed plants. The company believed itself to be the largest producer of animal feed in Mexico. Bachoco maintained processing plants in Celaya, Culiacan, Lagos de Moreno, and Tecamachalco, and 42 cold-storage facilities and warehouses. From there the goods were sent to wholesale distributors, supermarkets, and food service operations. Of Bachoco's chicken production, some 64 percent consisted of rotisserie chickens, which went directly to retailers, and public market chickens, which generally had no wrapping or identification and were sent to wholesalers. Another 20.5 percent consisted of supermarket broiler chickens (plus chicken parts and eggs) distributed to retailers and wholesale clubs. Nine percent consisted of live chickens shipped primarily to wholesalers.

Shortly before the end of 1999, Industrias Bachoco purchased Grupo Campi, S.A. de C.V., Mexico's fourth largest chicken producer, for 1.21 billion pesos ($126.59 million). This brought the consolidated company's share of Mexican chicken production to 31 percent and its share of egg production to six percent. The number of chicken-breeding farms increased to 111, the broiler grow-out farms to 439, and the egg incubation plants to 17. At the end of the year Bachoco's debt was 1.98 billion pesos ($206.92 million), of which 92 percent was in U.S. dollars. This figure represented an increase of more than 200 percent and a rise in the ratio of net debt to capital from 11 to 28 percent. Short-term liabilities grew by 147 percent in terms of foreign exchange. Industrias Bachoco's 1999 sales and income figures were, in constant prices, inferior to those of 1997 and 1998. The company blamed this result on an oversupply of goods in the Mexican market, leading to a fall of prices. According to Tendencias, a Mexican periodical, imports from the United States totaled 218,000 metric tons, far exceeding the quota of 64,000 established by NAFTA. For the first nine months of 2000, Industrias Bachoco reported an increase of 2.6 percent in sales over the same period in 1999, before taking into consideration the Campi acquisition.

Bachoco, S.A. de C.V. accounted for 99.99 percent of Industrias Bachoco's consolidated revenues in 1999. Induba, S.A. de C.V. was established in 1999 to hold investments in other companies. There were eight other consolidated operating subsidiaries. Enrique Robinson Bours was still chairman of the board in 1999. Family trusts owned 84 percent of the parent company's shares.

Principal Subsidiaries: Bachoco, S.A. de C.V.; Induba., S.A. de C.V.

Principal Competitors: Pilgrim's Pride Corporation; Tyson Foods Inc.; Univasa.

Further Reading:

• 'Un asunto muy cacareado,' Expansion, March 3, 1982, pp. 32-33.
• 'Elevo Bachoco sus ventas 49%, pese a la competencia,' El Financiero, December 14, 2000, p. 32.
• 'Jose Eduardo Robinson Bours,' Expansion, June 10, 1992, p. 64.
• Leon Leon, Maria Josephina, Situacion actual de la avicultura produccion de carne, Mexico City: Instituto Technologico Autonomo de Mexico, 1990.
• Manley, C. Conrad, 'Mexican Poultrymen Face Difficult Problems,' Journal of Commerce, May 6, 1975, p. 7.
• Millman, Joel, 'Mexican Poultry Processor Girds for Foreigners,' Wall Street Journal, September 19, 1997, p. A8.
• Monjaras Moreno, Jorge A., 'El huevo o la gallina?,' Expansion, July 6, 1994, pp. 35, 38-41.
• 'Piedras en el camino de avicultores,' El Financiero, December 29, 2000, p. 19.
• Ramirez Tamayo, Zacarias, 'Un pollo de pelea,' Expansion, March 11, 1998, pp. 17+

Source: International Directory of Company Histories, Vol. 39. St. James Press, 2001.