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Bachoco | Bachoco products have a wide national coverage in Mexico.
on December 30, 2014
INTERNATIONAL COMPANY PROFILE

Why Bachoco is a poultry producer in expansion

Multiproteins, international markets and financial discipline have been Bachoco’s success factors.

With 62 years of industry experience, Bachoco is a vertically integrated poultry company, a leading broiler producer in Mexico, with a 35 percent market share in the chicken market there. It is the sixth largest world chicken producer with operations both in Mexico and the U.S. Bachoco owns O.K. Industries, Fort Smith, Arkansas, the 15th largest chicken producer in the U.S.

In 2013, Industrias Bachoco SAB de CV reported sales slightly higher than US$3 billion. It employs more than 24,000 people.

Bachoco has production centers throughout Mexico, plus the O.K. Industries operations in Arkansas and Oklahoma. There are 64 distribution centers, more than a thousand farms scattered throughout Mexico, plus 24 hatcheries and 20 feed mills, among others. Currently, it produces 11 million chickens a week in Mexico and 3 million in the U.S.

Background

The company was founded in 1952 by the Robinson Bours family. Four brothers founded the operation in Ciudad Obregon, Sonora, a state in northwest Mexico, a very distant city from the largest markets in the country.

Bachoco grew and by 1963 had expanded beyond the Mexican state of Sonora. While the company’s business model and management changed over the years, there has always been a clear vision: to be a national player, “to generate values in people and give them confidence,” said Rodolfo Ramos, CEO of Bachoco.

From producing eggs to a complete integration

From 1952 to 1971, Bachoco produced only commercial eggs. But by 1971, the company had begun producing broilers, live chickens, for markets in the neighboring state of Sinaloa.

One of the most important steps was taken in 1974, when the Celaya, Guanajuato, Mexico, operation started, because the company got closer to main market of Mexico City. By 1993, it became the corporate office. By then, the company served geographical markets with about 30 percent of the national population.

Referring to the company’s growth and the evolution of its business model, Mr. Ramos said, “We are not dedicated solely to produce; we are dedicated to transform, to trade and innovate, to provide service to our customers."

Financial discipline

Many poultry companies in Mexico have fallen by the wayside for lack of financial discipline, and Mr. Ramos noted that Bachoco has charted a disciplined course: “We are a public company. We publish our results. The balance through the years that we have quoted on the stock exchange has been very healthy.”

Until 1986, grains and soybean meal marketing in Mexico were regulated by the government. “It was very convenient, because the poultry farmer only had to pay for the grains and take it. Working capital invested was only that ... and hens and chickens always had feed to eat,” explained Ramos.

But in 1986, the Mexican government discontinued that regulation, which meant producers were exposed to greater risk. And, at the same time, the economic situation at the time was one of “super-indebtedness” – the standard of the Latin American countries. To import grains, businesses resorted to loans from the Commodity Credit Corporation (CCC). The Mexican government extended these credits for up to six months, which had some unintended consequences. Poultry farmers began to grow haphazardly, as a result of not paying cash for the grain.

“Then, they started spending money that was not theirs,” Ramos explained. Cash flow problems began for some producers who were not able to cope with their liabilities. Many firms became undercapitalized after having expanded using a credit that was not intended for growth.

“Companies that could take advantage of it were disciplined. But, the ones that made financial business with that money, along with the 1993-1994 crisis, caused the well-known ‘Tequila Effect,’” he recalls.

Bachoco has been a very orderly company. “This thing of financial discipline is very important. It is one of the important factors in this industry, because we are in a cash flow industry,” he said.

Going public

In 1997, Bachoco made its first public offering on the stock market, both on the Mexican Stock Exchange and The New York Stock Exchange.

Why go public? In 1993, when shifting the corporate headquarters to Celaya, the Robinson Bours family left the company operating positions and created a board of administration with 12 family members and three external members. And to complete the institutionalization, they took the company public.

Why wait from 1993 to 1997 to go public? “Because when we wanted to go public in 1994 was when the collapse of the Mexican Stock Exchange came. We did it in 1997, when market conditions had already changed,” explained Ramos. It was really a very good year, as shares were placed very well and the cycle of being a public company was completed. Financial international rules governing the company gave greater transparency.

“But above all, the company has a value known for all – listed companies are not divisible,” if a succession problem arises, he noted.

Expanding operations

In 1993, operations in Puebla began and 1994 in the West, in the Mexican states of Jalisco and Aguascalientes. By 1999, the opportunity to buy the chicken operation of Campi (Univasa) – a company in the Yucatan – arose. At the time, Campi was the third largest producer in the country.

Thus, the company began to participate in the feed sales business to customers outside the integration. In addition, they built a feed and pet food plant, a growing market that has yielded the expected results.

With the acquisition of Campi, in 2001, growth occurred in the Isthmus of Tehuantepec, Veracruz and Morelos regions. The company built more farms in these areas.

The market for proteins

Bachoco acquired companies involved in the market of live chicken, but since 1984, has participated in the market of processed chicken for supermarkets. It also has processed what in Mexico is called the “public market” type chicken, for the Mexico City market. Since 1990, with the establishment of the plant in Celaya, the company has participated in supermarkets, rotisserie and public markets. The rotisserie chicken market has been the fastest-growing segment in recent years in the country. “That has really been the ‘fast food’ Mexican-style,” said Ramos.

In 2002, the company started operations in north-central Mexico, in Torreon, Coahuila, with eggs and chicken.
By 2007, marketing of other proteins started, with the acquisition of Mezquital del Oro, a turkey producer in the state of Sonora. Mexico is not a major turkey producer because of the proximity to U.S. and the seasonality of the product. Bachoco also acquired the Libra Group, a Monterrey-based company dedicated to beef value-added products.

Bachoco is a pork producer – the animals are sold live, without processing. But the company also bought a pork value-added processing plant in Monterrey, Nuevo León, in northeast Mexico. To complete national coverage, in 2011, the company bought an operation in Baja California Sur.

The success of producing in the USA

In 2011, Bachoco crossed the border to go to the USA. When the North American Free Trade Agreement with the U.S. and Canada was signed in 1993, many thought the national poultry industry would end. “We like challenges. I think that we poultry producers have a gene that accelerates adrenaline in us when we face challenges like this,” proudly says Ramos.

As of 2003, Mexico imposes no tariffs on whole chicken or parts, although there was a safeguard for chicken leg quarters, valid until 2008.

“We entered the U.S. at a time when the industry was in crisis.” However, it has always been a very good operation for Bachoco. “We have come to know much of the international market. We are where we wanted to export and we are encouraged to grow.”

In 2013, Bachoco grew a little more in the U.S., mainly in production of fertile eggs. When Mexico was affected by the H7N3 avian influenza outbreak in 2012 and 2013, “we produced fertile eggs across the Rio Grande.” And so, in 2013 and 2014, years of crisis for the domestic industry, Bachoco grew. Thus, the company has gained market share in times of crisis. Although Bachoco birds in the central part of the country were affected by the virus, the big problem became an opportunity.

From the headquarters

In the three years since Rodolfo Ramos has been CEO of the company, he has changed the structure, granting more responsibility to people.

The corporate offices in Celaya use to handle all the country operations, but changes in strategic leadership were carried out. “Operations are responsible for the daily issues. This is also achieved by having the necessary talent. The general managers of business units manage commercialization, production, business operation,” he said.
“It is very important to train people and make them comply with the best practices,” he said.

The company established a commercial management and supply chain model that is now almost fully implemented in the 64 sales and distribution centers throughout the country.

“There are about 800 routes in all these centers where we are getting closer to the consumer's plate. It is one of the strengths that enabled us to openly compete with markets, such as the U.S.,” he said.

Ramos adds: “In times of crisis, instead of backing off, we've gone forward. I think it’s about attitude. If we have the talent, with financial discipline, with the focus on production efficiency and above all, now more than ever, with customer focus.”

Bachoco has survived a series of challenges posed by conditions such as trade liberalization and avian influenza. Mexico is open to third countries, with quotas until 2015. “We are competing globally and our interest, as part of our strategies, is to start participating in other proteins, and other geographical areas, as well."

Beyond chickens and eggs

Although the company was founded as an egg producer, currently 80 percent of the Bachoco sales are broilers and only 9 percent of turnover is from commercial eggs. “We are not the largest egg producer, but we are the ones selling virtually everything with brand recognition,” Ramos said.

The company has three further processing plants, forming a triangle that spans the country in Culiacan, Sinaloa; Mérida, Yucatán; and Monterrey, Nuevo León. It manufactures turkey and beef products, nuggets, ground turkey, hamburgers, chicken strips, fully cooked products and wings, among others.

Future challenges

“It is not an easy task to sell 11 million chickens a week. It is a very dynamic industry, that needs attention during 365 days a year,” states the Bachoco CEO. The poultry industry is of high volatility, with great exposure to market commodities, such as grains.

Mexico has had animal health problems throughout its history. But, there is also the relationship and exposure to exchange rates, economic activity and its dependence on the U.S. economy, as well as competition from other producers, and imports of chicken and egg from the U.S. itself, which have grown at a rate of 1 percent to 2 percent per year. Today, after the avian influenza threat, Mexico imports about 12 percent of the country’s needs.

What opportunities are there? There’s steady growth. But, since Bachoco has a 35 percent market share in Mexico, trying to acquire a large competitor would be virtually impossible. Any merger that would increase the company’s market share to 50 percent would be questioned. Thus, Bachoco will continue its organic growth in the Mexico operations as well as in the U.S. But, the company’s executives are also thinking about acquisitions outside Mexico. In addition, they will be focusing on value-added products and other proteins and increasing export markets, with steady improvements in productivity.

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Financial discipline is one of the most important management factors in the poultry industry, says the CEO of Bachoco, Mr. Rodolfo Ramos.
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