Grupo Herdez, S.A. de C.V.

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Grupo Herdez, S.A. de C.V.

215 Monte Pelvoux
Mexico City, D.F. 11000
Mexico
Telephone: (525) 201-5655
Fax: (525) 576-6929
Web site: http://www.grupoherdez.com.mx

Public Company
Incorporated: 1923 as Compañia Comercial Herdez, S.A.
Employees: 4,000
Sales: 3.23 billion pesos ($337.87 million) (1998)
Stock Exchanges: Mexico City
Ticker Symbol: HERDEZ B
NAIC: 311421 Fruit and Vegetable Canning; 311423 Dried and Dehydrated Food Manufacturing; 311711 Seafood Canning; 31193 Flavoring Syrup and Concentrate Manufacturing; 311492 Spice and Extract Manufacturing; 32562 Toilet Preparation Manufacturing; 42247 Meat and Meat Product Wholesalers; 42249 Other Grocery and Related Products Wholesalers

Grupo Herdez, S.A. de C.V. is the holding company for a group of Mexican subsidiaries engaged in the manufacture, distribution, sale, and import/export of food products, including canned fish, fruits, juices, vegetables, and condiments. Herdez is Mexico’s principal canning company and also manufactures, distributes, and sells toiletries, cosmetics, and other personal-hygiene products. Herdez’s products were being sold in 25 countries in 1999.

Manufacturer and Distributor: 1914-82

The enterprise that became Grupo Herdez was founded in 1914 in Monterrey, Mexico. In 1923, the food distributor adopted the name Compañia Comercial Herdez S.A. and moved its headquarters from Monterrey to Mexico City. By 1929, the company’s line of accounts included the international favorite Quaker Oats oatmeal. The company had also become involved in the packaging of brand name kitchen utensils and some cosmetics products.

Ignacio Hernandez del Castillo, sales director since 1929, purchased the company in 1941 and assumed the presidency. Among the products the company was distributing at this time were Carter’s liver pills, a tonic known as Ner-Vita, Forhan toothpaste, and Zonite, an antiseptic mouthwash.

Under Castillo’s management, however, the company began to broaden the scope of its product line, bringing more popular American products to Mexico. The year 1945 marked an important development for the company as it began distributing the line of McCormick & Co. spice products in Mexico as well as some General Foods Corp. products, including Maxwell House and Sanka coffees, Log Cabin syrup, Jell-o, and Kool Aid. To help organize its stock and transportation, the company opened distribution centers in Guadalajara, Merida, and Monterrey that year.

In 1947 Herdez teamed with McCormick de Mexico, S.A. de C.V., to manufacture some products—mustard, mayonnaise, and marmalade—as well as to distribute the U.S.-manufactured products in Mexico. The company opened more distribution centers in Guadalajara, San Luis Potosi, Tijuana, and Torreon in 1956. Herdez began producing its own line of canned goods in 1961, including salmon and tuna, tomato juice and puree, chiles, and vegetable salad. Herdez was still acting as distributor of U.S. personal-care products, including (in 1968) Dial soap and Hind’s cream. That year it acquired Productos Marpe, S.A., producer of Doña Maria food products in San Luis Potosi.

In 1970 Herdez, with a partner firm, formed Armour de Mexico, which later became Arpons S.A. de C.V. For many years this company would produce some of the more popular Armour Co. products that had originated in the United States—Jergens products, Brylcream, and Scott Emulsion—with distribution overseen by Herdez. The Armour plant also began producing Dial soap in 1973. In that year Herdez opened a research facility in Los Robles, Veracruz, and began distributing Campbell soups.

Hernandez del Castillo died in 1972 and was replaced as head of Herdez by Ignacio Hernandez Pons. When Pons died shortly thereafter, in 1976, his role was filled by his son, Enrique Hernandez Pons. A new Doña Maria plant was opened in San Luis Potosi in 1981. The company was reincorporated as Herdez, S.A. de C.V. the following year.

Expansion in the 1990s

Herdez acquired full control of Armour de Mexico in 1988 and purchased a share in Miel Carlota, S.A. de C.V., a producer of honey, in 1989, acquiring the remainder in 1994. In 1991 the firm became a public company under the name Grupo Herdez, S.A. de C.V. In that year the firm had revenues of 770.86 million new pesos ($255.59 million). Its net earnings came to 95.37 million pesos ($31.62 million). Also that year, the company began sponsoring a CART-race competition team.

By this time Grupo Herdez held 80 percent of the Mexican market for prepared mole, a popular Mexican sauce made from chocolate and chiles. The company also held 30 percent of the market for canned fruits and 20 percent for canned vegetables. In October 1991 the company also opened a second Ensanada, Baja California, plant—the first was built in 1987—processing chiles, salsa, onions, and other foods only a short drive from its distribution center in La Jolla, California.

Although exports to the United States comprised only four percent of sales at the time, a Herdez executive saw great possibilities for expansion. “Americans haven’t even tasted real Mexican food yet,” he told Matt Moffett of the Wall Street Journal. Grupo Herdez opened a new plant in San Luis Potosi for McCormick teas, spices, food colorings, mustard, and mayonnaise in 1992. The following year it acquired three new distribution centers in Chihuahua, Puebla, and Tijuana, and it purchased Grupo Bufalo, S.A. de C.V., a producer of salsa and packager of olives, capers, and cherries.

The collapse of the peso in late 1994 resulted in both opportunities and challenges for Grupo Herdez. Although exports to the United States became cheaper, about 60 percent of the company’s costs—for cans, cartons, and jars, for example— had to be paid in increasingly expensive U.S. dollars. Herdez’s profits fell, but the company remained in the black and in early 1996 formed Herdez Corp., a U.S. joint venture, with Hormel Foods Corp. Hormel’s grocery-products division began distributing Grupo Herdez’s salsas, refried beans, mole, and other products under the Herdez, Bufalo, and Doña Maria names, as Mexican food became increasingly popular in the United States. In 1995 a Mexican joint venture had begun distributing Hormel’s spam, chile, stew, deviled ham, Vienna sausage, and other meat products in Mexico

Grupo Herdez purchased a 40-percent share of Champinones los Altos, a mushroom processor, in 1995. By this time Herdez was distributing soy sauces and marinades for the Japanese firm of Kikkoman. The following year Herdez completed the acquisition of Alimentos Deshidratados de Bajio, S.A. de C.V., a company producing dried foods and herbs. At the close of 1996 Herdez acquired Yavaros Industrial, S.A. de C.V. This company had seafood and tomato-paste plants, plus a sardineboat fleet to which Herdez subsequently added two tuna boats, reducing its own costs for procuring seafoods by 30 percent.

Grupo Herdez also acquired another seafood processing and packaging company, Pescado de Chiapas, S.A. de C.V., in 1997, and renamed it Herdez Chiapas. The parent company began marketing shares of stock on the U.S. over-the-counter market that year. Herdez also launched a line of seven types of juices and eight kinds of nectars in 1997. The following year Grupo Herdez introduced a Soften line of creams, deodorants, soaps, and other personal-care products, adding it to the existing Tami and Pons lines. The Doña Maria line included at this time desserts, mole, beans, salsa, and a pumpkin-seed-flavored stew called pipian.

In late 1999 Herdez announced that it would begin producing consomme with the acquisition of a company named Apel. Also that year, the joint venture with Hormel introduced four dry-sausage products: pepperoni, hot pepperoni, Italian salami, and Genoa salami, as well as three new flavors of Spam spread—mushroom, jalapeno, and red peppers.

In addition to its Mexico City headquarters, Grupo Herdez was maintaining offices in Ensenada, San Luis Potosi, and Veracruz in 1998. There were 12 plants in eight Mexican cities, warehouses in 17 cities, and distribution centers in nine cities. The company was also active in agricultural research, seeking, for example, to perfect various species of chiles. Herdez had recently acquired a guava-tree plantation in the state of Zacatecas for research purposes and was supplying pineapple farmers in Veracruz with tractors and irrigation equipment. “Poor productivity in the countryside was the major limitation to our sales growth,” Hernandez Pons had earlier told Moffett.

Company Perspectives:

Grupo Herdez’s mission is to continue being the leaders in the market of food products by maintaining a real rate of growth, by continuously improving quality, productivity and the profitability of our organization, our people and our products.

Key Dates:

1914:: Hernandez-family firm is founded in Monterrey.
1947:: Herdez begins making McCormick & Co. products.
1961:: Herdez begins producing canned foods.
1993:: Purchase of Grupo Bufalo expands Herdez’s line.
1996:: Hormel Foods Corp. begins U.S. marketing of Herdez goods.
1997:: Herdez has acquired two seafood-processing companies.

Established in 1992, the Herdez Foundation took as its focus the investigation and promotion of Mexican cuisine. Funding was extended to the National Autonomous University of Mexico for research on this subject dating from the pre-Columbian era to the present. The foundation moved into its own building in Mexico City, complete with a library for students and scholars, in 1996.

The program entitled Herdez Viva Mexico! was established during this time to sponsor Mexican athletes engaged in international sporting competitions.

Grupo Herdez’s revenues grew from 2.53 billion pesos ($319.44 million) in 1997 to 3.23 billion pesos ($353.39 million) in 1998. Exports accounted for six percent of the latter, with sales to the United States comprising 81 percent of that total. Net earnings, however, fell from 208.34 million pesos ($26.3 million) to 148.51 million pesos ($16.25 million), which the company attributed to unfavorable exchange rates. Herdez’s total debt was 1.08 billion pesos ($118.16 million) at the end of 1998, of which 39 percent was long-term.

Principal Subsidiaries

Alimentos Deshidratados de Bajio, S.A. de C.V.; Almacenadora Harpons, S.A. de C.V.; Champinones los Altos, S. de R.L. de C.V. (40%); Grupo Bufalo, S.A. de C.V.; Herdez, S.A. de C.V.; Herdez Corp. (United States; 50%); Hormel Alimentos, S.A. de C.V. (50%); McCormick de Mexico, S.A. de C.V. (50%); Miel Carlota, S.A. de C.V.; Yavaros Industrial, S.A. de C.V.