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

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

Calzado Insurgentes Sur 86
Culiacán, Sinaloa 80300
Mexico
Telephone: (52) (667) 759-2600
Fax: (52) (667) 723-0123
Web site: http://www.sukarne.com.mx

Private Company
Founded: 1969 as Ganadería Integral Vizur
Employees: 2,764
Sales: MXN 6.41 billion ($588.61 million) (2005)
NAIC: 112112 Cattle Feedlots; 311610 Animal (Except Poultry) Slaughtering; 311612 Meat Processed from Carcasses; 311613 Rendering and Meat Byproduct Processing; 421470 Meat and Meat Products Merchant Wholesalers; 445210 Meat Markets; 551112 Offices of Other Holding Companies

Grupo Viz, S.A. de C.V., is a holding company that, through its subsidiaries, buys and raises beef cattle in feedlots, slaughters them, and cuts and packs the carcasses for sale to supermarkets and other customers in Mexico and the United States. It also sells meat byproducts, such as fats and oils. Grupo Viz is Mexico's largest company engaged in producing, processing, and selling beef and, in terms of annual revenue, the nation's sixth largest food company.

CATTLE RAISER AND BEEF PRODUCER: 1969–93

The company got its start in 1969 in Culiacán, Sinaloa, which remains the location of the company headquarters. It began operations as a feedlot and meat processor named Ganadería Integral Vizur. Its proprietors were José Isabel Vizcarra Rodríguez and his wife, María Calderón de Vizcarra. They lifted themselves from poverty and were able to send their son Jesús to the best schools in Culiacán. He first sold marbles to his rich playmates and, at age 12, began buying and selling cattle. By age 17, Jesús Vizcarra Calderón was coordinating the sale of 1,500 head of cattle each month. He took over leadership of the family business in 1979, at the age of 19. He studied agronomy for one year but left school because of his business responsibilities.

Under the direction of Vizcarra Calderón, the company undertook a vertical integration of its activities in 1980, positioning itself in the sale of foraging grains as well as feeding and slaughtering cattle and processing beef. Grasas y Proteínas de Sinaloa was founded in 1985 as a processor of byproducts of animal origin. The following year Productores y Distribuidores de Cueros was founded to sell hides, and Industria Pecuaria de Sinaloa was created to process the ingredients used to enrich the grains fed to cattle. Ganadería Integral El Centinela, Alimentos Balanceados La Aurora, Servicios Agroindustriales de Mexicali, and Agroindustrias y Servicios de Sinaloa, all involved in the production and sale of animal feed, were founded in 1988. By this time Vizcarra Calderón's business activities had expanded throughout northwestern Mexico.

In 1991 Vizcarra's group formed Graposín, a processor of animal-derived products based in Tijuana, and in 1993 it founded Vizcarnes, for the sale of beef dressed and shipped in boxes. The following year, Prodicarnes was formed for the same purpose as Vizcarnes, and Agrovizión Integradora del Noroeste was founded as a company to provide materials and services for the agricultural sector. But Vizcarra had taken his Grupo Viz too far too fast. To meet the debts incurred in its expansion, the company sold a quarter-share of its business in 1993 to Focir, a rural investment trust.

RAISING THE STAKES: 1997–2003

By 1997, however, Grupo Viz was ready to look for new conquests. Early that year it acquired the farming and ranching division of Valores Corporativos, which consisted of the Sukarne cattle feedlots and meat packing plants of Escobedo, Nuevo León. This purchase allowed Grupo Viz to process 25,000 heads of cattle there as well as 25,000 in Mexicali and 22,000 in Culiacán at any one time, while also managing another 250,000 calves. The group, active in six states and Mexico City, consisted of 12 companies, each following strict models of organization and operation. Expenses were kept under control by subcontracting activities.

Grupo Viz bought calves from ranchers, paying them 70 percent of market value immediately. It also bought cotton, wheat, corn, sorghum, and hay from farmers to feed the calves as they grew into cattle. By 1997 the group was buying one-fourth of the farm and livestock output of Baja California. It had formed agricultural associations with farmers producing 300,000 metric tons of grains and forage a year on 5,000 hectares (about 12,500 acres) of land in northwest Mexico. Other contractors handled the transport and packing of meat. Grupo Viz, which had annual sales of $170 million in 1996, had the capacity to slaughter and process 225,000 cattle a year.

Grupo Viz's method of bringing beef to its customers started with purchasing calves less than a year in age and between 330 and 440 pounds in weight. They were then fed vitamin- and mineral-rich grains for between four and six months; when they reached 1,000 pounds, they were slaughtered. Although traditional free range, grass fed cattle were less expensive to raise, the turnover was much slower, since these animals were not ready to be slaughtered until they reached four years of age. By the mid-1990s Grupo Viz handled about 35 percent of all the cattle in Mexico that were raised in feedlots.

At the end of 1997 Focir's share of Grupo Viz passed to the Baring Mexico Private Equity Fund and the Darby Emerging Markets Fund. Other nonfamily shareholders were Roberto Tarriba Haza, Sergio Morales Biancarte, and Jesús Aguilar Padilla. By 1999 Grupo Viz was responsible for 6 to 8 percent of Mexico's production of beef cattle and had a presence in every part of the country. It was especially prominent in the supermarket outlets of Controladora Comercial Mexicana, S.A. de C.V., representing 13 percent of the chain's sales. Grupo Viz reaped 45 percent of its sales from supermarkets and the rest from its own subsidiaries and other distributors.

Grupo Viz began exporting beef to the United States by 1995. In early 1997 it was the only Mexican company exporting grain fed beef to the United States, sending 200 metric tons a month of finely cut beef to the California kosher market, and thereby earning $500,000 a month. In 1999, when exports to the United States accounted for 5 percent of the group's total sales, it sold boned beef there at a price roughly one-third lower than that charged by its U.S. competitors.

KEY DATES

1969:: The company gets its start as a cattle feedlot and meat processor.
1979:: Jesús Vizcarra Calderón assumes leadership of the family business.
1988:: Four related businesses involved in the production and sale of animal feed are founded.
1993:: Grupo Viz sells one-fourth of its shares to cover debts incurred in its expansion.
1997:: Grupo Viz buys the SuKarne chain of feedlots and meat packing plants.
1999:: The group accounts for about 7 percent of Mexico's production of beef cattle.
2001:: Grupo Viz's sales represent 8 percent of the Mexican market for beef.
2005:: The group opens its fourth feedlot and processing complex.

Besides attractive prices, which were based on the group's lower labor costs, Grupo Viz could provide its customers, according to Vizcarra Calderón, superior handiwork that lent beef an almost artisanal finish. Traditionally, meat was supplied to supermarkets in the form of carcasses or in boxes of large cuts, which the store's butchers divided into smaller cuts for sale to the public. By 2002 Grupo Viz was doing this job, meeting health and quality standards established by the U.S. Department of Agriculture as well as meeting ISO-9002 certification. The meat inventory was refrigerated in accordance with a "just in time" system of delivery, and beef cuts were packed in controlled atmosphere cases in order to extend shelf life from three to nine days.

Grupo Viz's efforts in this regard were needed to counter U.S. inroads into Mexico's beef markets. By the 1980s Mexican cattle ranchers were being driven out of business because of a variety of ills, including a shortage of credit and a scarcity of water. By 1988, there was a significant increase in not only cattle but also beef carcasses entering Mexico. In the 1990s, demand for fresh and frozen cuts of beef replaced previous demand for livestock and carcasses. As these packed cuts became attractive to supermarket chains in some of Mexico's largest cities, the supermarket chains, relieved of the need to have their own butchers cut meat, reduced their orders for carcasses to the slaughterhouses and prime beef packers.

By 2002 Grupo Viz, the major producer, processor, and distributor of beef cattle in Mexico, was processing 300,000 cattle a year. It had a system of direct distribution to more than 30 cities in the north and center of the country. Its 2001 sales of $287 million represented 8 percent of the national market for beef, almost eight times more than any individual competitor and four times higher than any regional cattle raising association. Besides supermarkets, the group supplied, by means of its distribution centers and refrigerated trucks, a variety of small customers, including butcher shops and restaurants. It was also experimenting with technology to improve efficiency, such as hydroponic cultivation of high-protein forage and the use of cattle dung as fertilizer. The group's meat production came to 140,000 metric tons in 2003.

At least partly because of the North American Free Trade Association (NAFTA), U.S. cattle—and U.S. beef—were making major inroads into the Mexican market. Vizcarra Calderón, who for a period headed Mexico's National Agricultural and Livestock Council, estimated in 2002 that the nation's farmers and ranchers had suffered losses estimated at $10 billion because of NAFTA's adverse effect on the production of grains and meat. His own group was contributing to the problem, however, since it had become the third largest Mexican importer of cattle. This trend was halted in 2003 by the appearance of mad cow disease in the United States and Canada. North American exports of beef to Mexico, which had represented 25 percent of the total beef supply, were banned for two months and were then resumed only for boned beef.

CONTINUING TO EVOLVE: 2004–06

During 2004 Grupo Viz's sales grew 37 percent, to $480 million, and its share of the national market for beef in Mexico to almost 14 percent. The company had begun opening small local shops selling beef under the SuKarne name. Sales also included byproducts such as blood, bones, and some internal organs processed for use in animal feed. In addition, Grupo Viz was selling imported pork and chicken. By design, supermarkets accounted for only about one-third of sales. The group's own distribution centers and trucks supplied smaller customers such as restaurants, butcher shops, and its own SuKarne stores, which were seen as a growth area. Value added products accounted for 12 percent of Grupo Viz's sales in 2005, compared to only 2 percent in 2001.

In 2005, Grupo Viz was supplying 5,000 direct customers. Exports accounted for 8 percent of its sales, chiefly to the United States but also, for the first time, to Japan and South Korea, as well as to Central America. Most of the goods shipped to the United States were distributed by U.S. Food Services, Inc., and Sysco Corp. In 2005, Grupo Viz opened a fourth, $50 million cattle feedlot and processing plant in the state of Michoacán. Smaller sums were invested to build a hamburger processing plant in Monterrey and expand the three older cattle feedlots. Some $16 million was allotted for a plant to produce cooked products in Culiacán. Grupo Viz was also planning to increase the number of its truck routes from 83 to 166 and the number of its points of sale from 48 to 68.

Despite its success, Grupo Viz continued to face major challenges, particularly the desire of the Baring and Darby funds to sell their shares. This was made difficult because of fears of potential investors that mad cow disease might spread to Mexico. Credit analysts argued that the company was too dependent on a single product, that its principal customers weren't signed to long-term contracts, and that its profit margins were insufficient to finance necessary investments in technology. Grupo Viz's management was thinking of buying out its minority partners itself, using lines of credit available. Another possibility was to go public and sell shares on the Mexico City stock exchange, but no decision had been made as of 2006.

Although remaining president of the company, Vizcarra Calderón had turned over management of Grupo Viz to Arnulfo Ortiz Chámez in 2003 in order to become a member of Mexico's Congress, where he served as president of the Commission on Water Resources. He became Sinaloa's secretary of economic development in 2005.

Robert Halasz

PRINCIPAL SUBSIDIARIES

Ganadería Integral Monarca, S.A. de C.V.; Ganadería Integral Vizur, S.A. de C.V.; Grupo Viz Comercial, S.A. de C.V.; Grupo Viz Pecuario, S.A. de C.V.; Rendimientos Proteicos, S.A. de C.V.; Sukarne, S.A. de C.V.; Sukarne Producción, S.A. de C.V.; Vizcattle Corporation, Inc. (United States).