Organizatión Soriana, S.A. de C.V.

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Organizatión Soriana, S.A. de C.V.

Alejandro de Rodas 3102-A
Monterrey, Nuevo Leon 64610
Mexico
Telephone: (528) 329-9000
Fax: (528) 329-9127
Web site: http://www.soriana.com.mx

Public Company
Incorporated: 1971
Employees: 23,730
Sales: 20.65 billion pesos ($2.15 billion) (1999)
Stock Exchanges: Mexico City
Ticker Symbol: SORIANA
NAIC: 445299 Warehouse Clubs & Superstores; 44511 Supermarkets & Other Grocery Stores; 5551112 Offices of Other Holding Companies

Organización Soriana, S.A. de C.V. is the holding company for one of the largest self-service retail chains in Mexico, with 89 stores in operation at the end of 1999 in 20 states. Groceries, liquor, fruit, fish, meat products, vegetables, bread, pastries, and tortillas account for about two-thirds of sales, but Soriana also sells general merchandise, including such family and home products as clothing, hardware, personal- and health-care products, pharmaceutical products, electronic goods, and stationery. Soriana’s strategy is mainly aimed at serving the middle- and low-income population in urban zones through a flexible store format that combines timely availability of food products with household products and basic services for the family at the same location.

A Family Enterprise Begins in 1905

The history of Soriana may be traced to the 1905 establishment of a fabric store in Torreon, in the state of Coahuila, in northern Mexico. Some 150 miles west of Monterrey, the Torreon area was long a center for cotton farming, while the city was founded in 1888, springing up around the crossing of two major railroads. The manufacture and sale of textiles became a natural extension of the cotton trade in the area.

By the 1930s Pedro Martin, and his sons Francisco Martin Borque and Armando Martin Borgue, expanded the scope of the retail outlet, offering wholesale goods to much of the area. Together, they traveled the Durango, Chihuahua, and Sonora mountain ranges of northern Mexico, providing village retailers with textiles and other wares.

By the mid-1950s, the wholesale trade activities had been discontinued and the enterprise consisted of a self-service store in Torreon. This soon developed into a chain of Soriana discount stores. The discount retail format was becoming widely popular in Mexico and the United States during the 1950s and 1960s; successful businesses could offer household goods and clothing at up to 20 percent below manufacturers suggested retail, while their department store counterparts were marking up prices by as much as 40 percent. Under these conditions, the Soriana concept grew.

In 1968, brothers Francisco and Armando opened the first Soriana hypermarket in Torreon. This store—larger than a supermarket and carrying general merchandise as well as groceries—would become the cornerstone of a Soriana chain. Moreover, this Soriana hypermarket predated the first hypermarket of chief competitor Aurrera S.A. (later known as Cifra) by several years.

A Modern Corporation: 1970s-90s

Soriana began to accelerate its growth in 1971, and for this purpose the business was incorporated, with consequent centralization of its administration. Another hypermarket was opened in Monterrey in 1974, and company headquarters were moved from Torreon to Monterrey in 1989. The chain of events that led to the founding brothers leaving the Soriana management team is unclear; in a 1991 Wall Street Journal article, Matt Moffett remarked that the year before “the chief executive officer and majority stockholder bumped himself upstairs, effectively removing members of the founding family from day-to-day management.” At the time, however, Francisco Martin Borque remained as Honorary Chairman, while Armando Martin Borque remained on the board of directors. Ricardo Martin Bringas was director general (chief executive officer) of Soriana, while Francisco J. Martin Bringas served as chairman. Members of the Martin family, in fact, made up the majority of the company’s board and would become majority stockholders when the company went public.

Net sales were reported at 1.83 billion new pesos ($606.76 million) in 1991, while net income reached 90.02 million new pesos ($29.85 million). By this time, Soriana was Mexico’s fifth-largest retailer, and while its overall sales were considerably less than those of Cifra and other top retailers, Soriana maintained a dominant presence in northern Mexico. The company went public during this period, with shares trading on the Bolsa in Mexico City.

Management moved quickly to modernize the Soriana operations, installing automatic price scanners at its checkout lines as well as satellites to help facilitate credit card purchases. Investors were apparently impressed with the aggressive moves of Soriana management; the company’s stock rose in value almost 30 percent in 1991. In 1992 Organización Soriana was operating 21 commercial centers, including discount department stores, supermarkets, and hypermarkets, in nine northern Mexican cities in four states.

The Mid-1990s and Beyond

Corporate reorganizations characterized much of the mid-1990s, as subsidiaries were merged and spun off to create a leaner, more efficient organization. At the beginning of 1993 the company incorporated three real-estate subsidiaries. The following year it completed a merger with Grupo Sorimex and Organización de Recursos Financieros. Also that year, subsidiary Soriana Sultana was merged with Soriana del Nazas, the organization’s 15-unit hypermarket chain. Soriana del Nazas included a U.S. subsidiary, Gemso Corp., which was handling credit, receiving, warehousing, and shipping for the Mexican operation. Upon merging, Gemso was integrated with Soriana Sultana’s U.S. credit, shipping, and warehousing firm MB International Corp.

Organización Soriana grew rapidly in the mid-1990s. There were 48 stores by the end of 1994. During the next three years the company opened six stores per year on the average. The rate of return grew even more dramatically. In 1994 net profits came to 4.6 percent of sales, but in 1995 that figure shot up to 8.8 percent, a ratio that was virtually maintained over the course of the next three years. Similarly, return on equity increased from 5.9 percent in 1994 to 16.9 percent in 1995, and in 1998 this ratio reached 17.9 percent. The number of stores reached 65 in 1997. Net sales came to 13.89 billion pesos ($1.75 billion), up from 8.53 billion pesos ($1.12 billion), in 1996, and net earnings were 1.16 billion pesos ($146.46 million), up from 725.24 million pesos ($94.86 million).

These sterling results were the fruit of a conservative, bottom-line strategy. Organización Soriana began this period with the advantage of having its operations in Mexico’s most affluent area, the four Mexican states bordering the United States, which because of their proximity were benefiting more than most from the newly established North American Free Trade Agreement. The company was controlling its costs by sticking to a no-frills warehouse-type format, buying in bulk and selling at price margins only slightly above cost. Moreover, Soriana remained almost debt-free while its rivals borrowed heavily to expand throughout Mexico.

When the value of the peso fell sharply in late 1994, Soriana had no large dollar debt to service. Buyers flocked over the Rio Grande to spend their dollars on Mexican goods that had suddenly become cheaper. The cheap peso also brought many more foreign manufacturers to the border areas where Soriana’s stores were concentrated, adding about $1 billion to payrolls in the region between 1995 and 1998. In Ciudad Juarez, Joel Millman of the Wall Street Journal wrote in 1998, “Hundreds of Soriana cash registers bang away practically nonstop from 8 a.m., when workers get off the overnight shift at nearby assembly plants, to almost midnight, when the stores shut down.”

Organización Soriana was also a technological leader in its field. In 1996 the company began installing computer-based point-of-sale register systems in its large-format Hipermart stores, which had an average of 35 checkout lanes. This system ran a Windows software program placed in more than half the stores by late 1998. It enabled the chain to gather highly specific data to help store managers make inventory and staffing decisions as well as to interface sales data in real time with corporate systems such as inventory control and accounting.

By 1998 Organización Soriana, now Mexico’s fourth-largest publicly listed supermarket operator, was being recognized as the nation’s best-performing retail chain. The number of its stores reached 76 in 13 states that year, with a total of 629,500 square meters (6.78 million square feet) of selling space. These outlets were in states as distant from Soriana’s base as Jalisco in west-central Mexico; Aguascalientes, Guanajuato, Queretaro, San Luis Potosi, and Tlaxcala in central Mexico; and Veracruz in eastern Mexico. In order to achieve economies of scale, the company was pursuing a strategy of building new stores in consolidated geographic blocks, supported by its distribution network and electronic communications systems. Net sales reached 16.31 billion pesos ($1.78 billion) in 1998, and net income 2.27 billion pesos ($248.36 million), both record highs.

Company Perspectives:

Soriana’s mission is to retail basic products and services for the family and home at a fair price-quality ratio, and thus help our customers make the most of their family income; to maintain a leading position in the markets in which the Company operates through the use of state-of-the-art technology and quality service, focusing on the customers’ needs; to implement optimum financial strategies, allowing us to give added value to our operations and achieve high profitability and continuous growth; to foment stable and mutually beneficial relationships with suppliers and employees, and to contribute in this way to the communities in which we participate.

Organización Soriana’s expansion continued with 13 new stores in 1999, including outlets in the cities of Guadalajara and Puebla and the chain’s first presence in the states of Colima, Hidalgo, Michoacan, Puebla, Sinaloa, Sonora, and Tabasco. Total selling space reached 750,711 square meters (8.08 million square feet). The company had a market value of $2.1 billion in mid-1998, and the Martin family held an 80 percent stake in the business.

Organización Soriana completed installation of point-of-sale terminals equipped with a specialized computer program to enable the creation of customer databases, thereby allowing the company to identify purchasing habits and preferences. New products were being introduced to the firm’s private-label line of goods. There was a Soriana credit card, a consumer credit program, and a bank debit card for use with welfare-system programs. The Mexico City warehouse was expanded and modernized in 1999, and the Guadalajara distribution center was expanded. Construction began of a new general goods and grocery supply and distribution center in the Monterrey metropolitan area. Soriana had a fleet of 103 trucks and 154 refrigerated trailer boxes.

These developments were all part of a four-year, $400-million program that included expansion of stores and warehouses and new technology. For 2000, the plan called for expenditure of 1.76 billion pesos to open 11 stores, modernize existing ones, and acquire land for still more outlets. The first new store scheduled to open in 2000 was to be in Leon, followed by two in Monterrey and one in Gomez Palacio, Durango.

Principal Subsidiaries

Centros Comerciales Soriana, S.A. de C.V.; Tiendas de Descuentos Sultana, S.A. de C.V.

Principal Competitors

Wal-Mart de Mexico S.A. de C.V.; Controladora Comercial Mexicana, S.A. de C.V.; Grupo Gigante, S.A. de C.V.

Key Dates:

1905:: Soriana is founded as a Torreon fabric store.
1968:: The first Soriana hypermarket, in Torreon, opens.
1992:: Soriana has 21 stores in nine cities and four Mexican states.
1994:: The Soriana chain has grown to 48 stores.
1998:: Soriana is the fourth-largest publicly listed Mexican supermarket operator.
1999:: Soriana has 89 stores in 20 Mexican states.