Grupo Industrial Lala, S.A. de C.V.

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Grupo Industrial Lala, S.A. de C.V.

Av. Lázaro Cárdenas 185
Gómez Palacio, Durango 35070
Mexico
Telephone: (52) (871) 7500101
Fax: (52) (871) 7500209
Web site: http://www.lala.com.mx

Private Company
Founded: 1949 as Unión de Productores de Crédito de Leche de Torreón
Employees: 24,000
Sales: $2.2 billion (2005)
NAIC: 112120 Milk Processing; 311511 Fluid Milk Manufacturing; 311512 Creamery Butter Manufacturing; 311513 Cheese Manufacturing; 551112 Offices of Other Holding Companies

Grupo Industrial Lala, S.A. de C.V., is Mexico's leading producer of fluid milk. Organized both horizontally and vertically, it is a holding company that embraces many enterprises, including a credit union and cooperatives. Lala maintains eight pasteurization plants located in the most important population centers of Mexico and the widest refrigerated distribution network in the nation. Lala also makes and sells butter, cheese, yogurt, and fruit juices. Its advanced technology includes artificial insemination, enriched feed for cattle, veterinary services, laboratories, and chemical and pharmaceutical materials.

PROVIDING BETTER MILK FOR MEXICO: 1949–99

Lala was founded in 1949 in Comarca Lagunera, also called La Laguna (hence the Lala name), and this region remains its principal production area. Located in eastern Durango and western Coahuila states, the region is fertile but hot and dry, requiring irrigation from rivers and underground aquifers. Cotton growing, once the chief agricultural activity, was abandoned, due to low prices, in favor of dairy farming. Green Revolution scientific and technical advances, and capital—including public and foreign funds—enabled Lagunera to develop the infrastructure required to become Mexico's leading dairy farming region. Pasteurization of milk, beginning in 1950, defeated the scourge of brucellosis (undulant fever), and the import of Holstein cows greatly fostered productivity.

Originally Lala was a cooperative credit union for milk producers in Comarca Lagunera who needed to pool their resources to obtain financing for the necessary infrastructure. The Unión de Crédito de Productores de Leche de Torreón was established in 1949 and transformed into the Unión de Crédito Industrial y Agropecuario de La Laguna, S.A. de C.V., in 1975. This enterprise began pasteurizing milk in 1950 and installing automatic milking machines in 1955. The growth of a modern dairy industry required a number of specialized enterprises, including those providing irrigation technology, veterinary services, and equipment and materials, generally imported, including fertilizers, seeds, semen, and antimicrobial products. It involved development of artificial insemination and transplant of embryos, the introduction of enriched feed to supple-ment alfalfa and corn silage, the use of chemicals and pharmaceuticals, automatic milking machines, farm machinery, milk processing equipment, cold tanks, and the bettering of conditions for the care and management of cattle. At the same time, it required vertical integration ranging from forage production to distribution and commercialization of the end products. By 1996 Lala's producers had a combined herd of 128,218 cows producing an average of 8,239 liters each per year.

Lácteos Laguna was founded in 1966 to exploit the market in central Mexico, beginning with Mexico City. A pasteurization plant was acquired in Acapulco in 1972 to serve cities in the states of Guerrero and Michoacán. Another plant opened in Mexico City in 1976 and in Monterrey in 1978. Lala Derivados Lácteos was founded in 1982–83 for the production and marketing of cheese and yogurt products. Lala Productos Químicos was established in 1983 to meet strict hygienic standards by employing detergents, disinfectant products, and germicides. In time, this unit diversified its production with veterinary medicines and household cleaning products. Pasteurizadora Lala del Norte was created in 1986 to sell Lala's products along the Mexican frontier with the United States, and Ultra Lala was established in the same year to produce ultrapasteurized milk in antiseptic containers that did not require refrigeration and had a shelf life of more than three months. A Durango pasteurization plant was acquired in 1992.

The federal government controlled pasteurized milk prices in Mexico from 1974 to 1989, and all controls did not end until 1996. While the dairy industry chafed at restrictions on the prices it could charge, it also received considerable subsidies in the form of below market credit and electricity rates. Nevertheless, it maintained during the 1990s that it needed help to compensate for the high cost of cattle feed (70 percent of total costs) and competition from subsidized farmers in the United States and Europe. "The government has to support the milk industry in Mexico," Jesús Raúl Villareal González, Lala's chairman of the board, told James Blears for an article in Business Mexico. Villareal, who was also head of Mexico's Milk Producers Association, added, "It's like the tortilla or frijoles [beans], part of the basic diet."

As of 1996, Lala was one of six Mexican enterprises that dominated pasteurized milk production. The industry was experiencing a shakeout in which companies were finding it hard to control costs and compete unless, like Lala, they were engaged in every area of production and services. Lala's extensive network of companies included Envases Especializados de la Laguna, S.A. de C.V. In 1998 this liquid packaging firm formed a joint venture with Elopak, a Norwegian company. Lala and Elopak shared ownership and operating control of the new company, Envases Elopak, S.A. de C.V. Also in the late 1990s, Lala added more new products, including various new yogurt flavors.

LALA IN THE 21ST CENTURY

In 2000 Grupo Industrial Lala consisted of 23 companies employing 10,500 people, and it controlled 26 percent of the fluid milk market in Mexico. Lala Transportadora was running 62 tank trailers to collect raw milk each day from the 220 dairy farms supplying the enterprise. These farms were owned by individual Lala stockholders. "You have to be a stockholder to supply milk to Lala; suppliers are the company's only stockholders," a Lala executive told Foss Farrar for an article in Bulk Transporter. The tank trailers delivered the milk to Lala Enfriadora, the company's headquarters and consolidation point for raw milk in Gómez Palacio. It was also the location of Lala's central laboratory, where the quality of the milk was tested before pasteurization. Another facility in Gómez Palacio housed a fleet of heavy-duty tractors and trailers, various work and repair stations, and a parts warehouse. Lala was selling its products to supermarkets, small grocery stores, and such food service accounts as McDonald's restaurants, to whom it provided private label cheese. It was also exporting ultrapasteurized milk and some other products to El Salvador, Guatemala, and Honduras.

KEY DATES

1949:: Founding of the enterprise, in Torreón, Coahuila.
1966:: Lácteos Lala is founded to exploit the market in central Mexico.
A subsidiary is founded for the production and marketing of cheese and yogurt products.
1986:: Ultra Lala is established to produce ultrapasteurized milk.
1996:: Lala's producers have a combined herd of 128,218 cows.
2000:: Some 220 dairy farmers, all Lala stockholders, are providing the enterprise with milk.
2004:: Lala purchases Parmalat Finanzieria's Mexican subsidiary.
2005:: Mexico's president, Vicente Fox, dedicates a new Lala plant.

Under Lala's chairman of the board, Eduardo Tricio, the company embarked in 2002 on a campaign to convince Mexicans to drink more milk, with the goal of raising the annual consumption per capita 50 percent, to the level of Argentina and Brazil. Using billboards and posters, Lala increased its advertising expenses threefold. The basic idea, as expressed by the company's marketing director, was to transform a traditional commodity into something more than a basic product, using colorful and modern images. The concept involved enlisting the support of young mothers looking for aid in the rearing of their children.

Grupo Industrial Lala purchased the milk and cheese operations of Grupo Latinlac, which was in receivership, in 2003 for MXN 802 million (about $75 million). Lala thereby added the milk brands Nutrileche, Mileche, and Plenilac, plus many local brands, to its own resources, raising the company's share of the milk drunk in Mexico to 28 percent. The purchase also included two cheese-making plants and the cheese brand Los Volcanes.

Financially troubled Parmalat Finanziara SpA, one of the world's largest producers of dairy products, sold its Mexican operation to Lala in 2004. The acquisition included a plant in Lagos de Moreno, Jalisco, three distribution centers, land, buildings, machinery, and inventory, but not the operation's debts, and it helped raise Lala fluid milk market share to 40 percent (and 48 percent in 2005).

At the same time, however, Lala reversed course, deciding that emphasizing milk sales was no longer good business because of the small profit margin per unit. The company could not even count on maintaining its volume, since many Mexicans continued to drink milk without any sanitation control, and Liconsa, a government-supported agency, was selling 1 million liters annually of powdered milk to the poor at a subsidized price. The new corporate viewpoint was that in any case milk had become a mature market and that for growth Lala had to look to specialized dairy products, which were increasing faster in sales than milk and yielding larger profit margins. These so-called functional products included not only yogurt and cheese but also oils—laced with omega-3 fatty acids—and even chewing gums that whitened the teeth and contained calcium.

A 2002 study by the World Health Organization reported that next to the United States, Mexico was the world leader in obesity. For Lala and other dairy products providers, this indicated a large market for healthy products to combat the medical problems of overweight people, such as diabetes and cardiovascular and digestive difficulties.

In early 2004 Lala began heavy advertising on television shows of its line of yogurts, under the slogan "The yogurt made from good milk." It was soon buried under competition from firms that stressed specialized ingredients and benefits such as fiber. Even so, Lala's volume of yogurt sales tripled during the year as another slogan seemed to question the quality of its rivals' yogurt: "Where did the milk from the other yogurts come from?" As a result, Lala rose from fifth to an estimated second place in liquid yogurt sales, trailing only Danone de México, S.A. de C.V. Yogurt was a rapidly growing market—one that grew 120 percent in both volume and revenue in 2004, according to one study. In early 2005 President Vicente Fox inaugurated a new $50-million Lala yogurt factory in Irapuato, Guanajuato, where Danone already had a presence. By the middle of the year the plant was rolling out the Lala Vive line, containing fiber, with the aim of targeting young women. Lala's yogurt portfolio also included Bio 4, with bacteria to improve the intestinal microclimate and carbohydrates and calcium.

Lala had 21 plants, including 3 for dairy product derivatives. With a fleet of more than 3,500 trucks and 128 distribution centers, it was visiting more than 200,000 clients daily, selling almost 4 million liters of milk and thousands of tons of diverse dairy products each day.

The company was offering four kinds of whole milk: Premium, Light, Semi, and Entera, and three kinds of specialized milk: Fácil Digestión, Desarrollo, and Silecta Plus. There were also two kinds of formulated milk products—Nutri Leche and Mileche—and four kinds of what the company called saborizada —Choco, Yomi, Licuado, and Shot. Lala's six cheeses were Parela, Oaxaca, Chichuahua, Manchego, Crema, and Americana. Its three butters were Untable Entera, Untable Light, and En Barra. Its yogurts were Batido, Para Beber, Natural, Licuado, Light, Yomi, Bio 4, and Petit Suisse. Lala also had a line of soft drinks enriched with Vitamin C.