Mr. Hernández-Pons, my first question. Being the market leader in the food and beverage field, what do you consider were the most important events to comply with this responsibility?
Quality would be the first. We have a motto called "Confidence" (Confianza) and we are very confident of what we do. The quality of our products, our people and the way we work together is one of the main reasons for our strengths. We have been partners with American companies for more than 54 years. In 1947 with five thousand Dollars, we started our first Joint Venture with McCormick & Co. We had ventures as distributors with Campbells Soups, Kimberly Clark, Unilever and we decided not to distribute other brands because they wanted to upgrade themselves with our own brands. We were tired of being distributors for them since we did not benefit by it.
My father gave the company the brand name "HERDEZ" and he and my uncle went to visit Mr. Clemente Jaques to buy his Company. He wanted Five Million, my father and my uncle said yes, but when he said Dollars, they thanked him and started packing their own products. In 1962 my father began the distribution of food products, our own as well as McCormick's. In 1969, we decided not to distribute for anyone else. We then acquired the Doña María products, a mole paste, Miel Carlota, a honey brand, and Bufalo a hot sauce brand. We signed two joint ventures with Hormel Foods, one in the USA and the other in Mexico. They manufacture the products in the USA and we sell them and distribute them here in Mexico and vice versa (with hot sauce, peppers, nopales, etc.). It is a 50-50 joint venture, both ways, the same as McCormick & Co.
You mentioned the most important strategic alliances of Grupo Herdez. Have there been any significant changes with the free trade agreement with Europe?
Yes, the first change we have seen is that we now have the opportunity to trade with the EU. When the agreement started, we decided to conduct business in Europe. We hired a General Manager in Barcelona and on October 7, 2000 opened an office. The first country where we want to establish a strong distribution is England. It has 600 Mexican restaurants, in London alone.
Mr. Emilio Mahuad, International VP: I would like to add something to Enrique's reply. As a result of this free trade agreement with the EU, we were preparing ourselves before it was signed, we were already in talks with big companies in Europe in search of strategic alliances.
Besides what Mr. Mahuad said, we have been doing business with Europe for 5 or 6 years. We import many products from Spain, Greece and Italy. We represented a Spanish tuna company called Calvo for five years before we began producing our own tuna and sardines. That was before 1994, when the were many products being imported into Mexico. In 1995 with the devaluation, we couldn't continue with the business. Now the opportunity arises once again, with the dollar being strong in Europe. We are looking forward to joint ventures with European companies on a two way basis. We have very good relations with Italian companies and as I mentioned, Calvo in Spain.
Mr. Mahuad: We have also been selling to different countries. The purpose of our business in Europe is based on long-term planning.
What we want to do is find a company similar to Herdez in Europe and sign a joint venture for it to distribute in the Old Continent and us to distribute for them here.
Mr. Mahuad: Also with El Corte Inglés, we sell in Europe, but that is not the only thing we want to do there. We had talks with Hazelwood, a British-Dutch company, and they were interested in trading with us and being our main distributors, sending our products from England to the Netherlands, Austria, Belgium, etc. We have a customer in the Czech Republic and Slovakia and in Kasachstan we also sell our Bufalo brand sauces.
Grupo Herdez currently produces around 500 products. Do you plan to place any new products on the market during the remainder of this year?
Of course. Every business needs growth and new products. Our strategies are to gain new markets both in Mexico and overseas. We have a very strong food service sales organization. We have been focusing on the USA; 85% of our exports go there. We currently export to Europe, Central and South America and in the near future to Asia, which is an interesting market for us because of the similarity of the condiments used. We have been talking about doing things together, with our partner with the US (Hormel) who already has facilities in China.
My father used to say that one of his grandsons would move to Asia to set up operations, A market in which we are very interested. If we can sell one can of salsa to each person living in that area, we would be selling 1200 million cans of sauce. That is how important Asia is to us. Further American companies are already selling the so-called Tex-Mex products in England and we want to focus on working together and selling real Mexican food. We want the Mex-Mex food to participate against the Tex-Mex foods, and then focus on other markets that have already been developed, like Asia or example, in Korea they have a paste very similar to our mole and they enjoy spicy foods.
Would you agree that the NAFTA was the beginning with the present being the free trade agreement with Europe and the future would be to conclude similar FTA with Asian countries?
Yes, a hundred percent. I think that Asia is a very important market and we have to focus on it. I'm not saying that Central and South America aren't important but the Asian market is more interesting. The volume in Central and South America is small, compared to the market that we could have in Asia. It is just a question of selling the right products at the right time.
You mentioned already some of your most successful products. Which do you expect to be the main products you will export to the Pacific Area?
We are obviously looking forward to selling own brands: Herdez, Doña María, Bufalo and Carlota focusing on products such as salsas, peppers, mole, nopales etc, but we are also willing to compete against some other products like juices and nectars. We have talked to our partners in the USA, in terms of selling McCormick de Mexico products in other parts of the world (mayonnaise, jellies, teas and mexican spices). McCormick in Mexico is such a good business that we've proven to our partners that the Mexican company constitutes between 25% to 30% of their international income. We could not do it before because of the joint agreements we had, but now that we are successfully placing our products among the Mexican population in the USA, we have proven to them that we can sell products to other countries as well. For example, we are beginning to sell to Venezuela and we are looking at Argentina and Chile.
You have competitors such as Hellman's, Del Monte, Kraft, La Costeña, do you expect these competitors to be the main competitors in such markets as Asia and if so, would your strategy to face this competition be any different to the one you follow in Mexico?
I think that the competition is there, but in order
for us, as Mexicans, to keep on growing, we have
to establish alliances. We have to focus on not
trying to compete against the giants from all around
the world, but to become giants ourselves. We have
to look for more international alliances and if
one of our competitors wants to participate with
us, we are open. If someone wants to buy, we are
not for sale but we are open to a joint venture
agreement. |
Mr. Mahuad: There is a very special situation on this subject that I would like to point out because it's important to consider it: we go to international markets and we find our Mexican competitors but we also find competitors from the country itself and from the rest of the world. For instance, Old El Paso belongs to a very large company in the UK. They own Burger King, Hagen Daaz and they bought all the patents from a company in Arizona. They started in 1997 with Mexican red salsa spending £3 million in advertising that product only; in 1999, they spent £9 behind that product.
What are the percentages of the brand names you have mentioned and what proportions of the company's sales are carried out in the Mexican and foreign market?
In mayonnaise in Mexico we have 65% of the market. In mole, we have 70%. In jams, 50% percent and spices 40% of the market. In Mexican salsas, we have around 60% of the market in cans and 80% of the market in jars. All together we have around 50% of the salsa market. In jalapeño peppers, La Costeña is the leader; they have at least 70% of the market. The funny thing is that, for example, when you ask the customer "What is Herdez?" they answer: "They sell Jalapeño Peppers".
A popular Mexican saying goes "Don't try to teach Herdez how to make chili peppers."
We are very happy and proud that everybody knows of Herdez. We are also very proud that we are the leaders in the vegetable juice category, we have 68% of the market and continue to grow.
Before we discontinued the Campbells distribution, we were selling 1.3 million cases, primarily soups. They said that they had a plant to produce 2 million cases and that we should sell their production and that we should sell to the Mom and Pop stores, the same as Mayonnaise. They also said that we should sell soup at 6 or 8 pesos. We would put the products on the shelves but they would sit there until we picked them up.
When they took over the distribution, the next year they only sold 700 thousand cases. It's not easy, you have to have the know-how and the know-who.
What would be the figures you expect for the year 2000?
We had our first national convention in May where we projected 440 million dollars in sales for this year. We expect to sell 880 million dollars in the year 2010. We are currently selling around 30 million cases and we expect to sell 60 million cases by the year 2010. How will we do that, by investing in new facilities, new products, new markets, globalization, partnerships, you name it. We have the ISO 9000 certification in two of our plants, two of our distribution centers (we have 11 so we are working on an approval on a plant by plant basis). We are also working under a new administrative culture called EVA (Economic Value Added). We started the program this year by looking at similar companies around the world. We are very satisfied to be growing as fast as the market grows around the world and having the global culture and benefits that other international companies have. The highest benefit of a company in the bench marking comparison was Campbell's with on 8.2 return and McCormick de Mexico with a 9.5 return.
Operating profit in the second quarter was up to 115% vs. the same period a year ago. Did you expect such good results in the first two quarters?
Not really, the first quarter was fantastic. In spite of the strong competition that we have in Mexico, we had a great second quarter. The main reason was to focus on our inventories and the cost of our products (raw and packaging materials) and accounts receivable.
Mr. Mahuad: It's not only a matter of purchasing raw materials, we are also exporting raw materials to other countries. Such as dehydrated products, which come out of one of our plants located in the central part of Mexico. We are currently exporting to Italy and Japan.
We send guayabas to Asia. We also export jalapeño and dried peppers, guayabas, nopales and pineapples. Regarding pineapples, we used to produce 25 tons per hectar and now we are producing 100 tons per hectar in our own fields.
You plan to invest 18 million dollars in modernization this year, the installation of new production lines and systems and research and development. How will this money be divided between the parts?
In a period of ten years, we are planning to invest 350 million dollars. I cannot at this point specify in what areas, but we are looking at areas such as automation, alliances, new products, computer systems, B2B, B2C, etc. It can be said that the Europeans have an advantage, but Mexico is growing very fast. We are preparing ourselves to compete against the global markets.
We acquired a plant in Chiapas for Tuna processing as well as different types of seafood such as shrimp, squid and fish (packed). We produce around 40 different products, but mainly tuna based products, which we sell all over the world.
What Presidente Zedillo has done in the past 6 years has been successful and with the new administration, we know we are going to continue to grow, which is important to our expansion plans.
What will be the main challenges the new administration under Vicente Fox will face?
I think he will do very well. He wants to continue with the globalization plans initiated by the Zedillo administration, establishing Mexico as a world player in the international markets.
Finally, Mexico is looking forward to improving the trade relations with countries from Asia, what does Grupo Herdez expect from the markets in Asia?
I don't know when, but if we are efficient in Europe, maybe by the year 2001 wewill be there. It is easy to say it but we need to increase production. We have to invest in machinery and equipment and why not, maybe acquire a Company or formalize a Joint Venture in Asia, which would be a faster way of growing.
Mr. Mahuad: It is a challenge, one has to be prepared, we are preparing ourselves for the future.
Con Toda Confianza es "HERDEZ" |
Grupo Herdez 