Gruma to continue ‘acquisition’ growth model

From simple beginnings as the world’s first industrial corn flour production facility, Gruma has grown to be a global business. Targeted acquisitions have accelerated market access. The company is expecting a number of challenges in 2012 – grain price volatility and maintaining consumption levels – but, says Gruma’s chairman, these should be seen only as opportunities


Growing wild in Mexico’s Central Balsas River Valley is the biological ancestor of what has become one of the most important feed grains in the world. Anthropologists believe that Balsas Teosinte, a large wild grass, was first domesticated nearly 10,000 years ago; and the ground seeds, known as maize or corn, became an essential dietary ingredient for local people.

Due to its nutritional value – maize is rich in vitamins A, C and E, carbohydrates, essential minerals, dietary fibre and calories – cultivation and use of the grain spread rapidly through the indigenous cultures of Central, South and North America. In around 1500 CE it was first introduced to Africa, where it has become one of that continent’s dominant food crops, and its movement to Europe has been tracked through several routes during the 16th and 17th centuries. Today, in addition to being used for livestock feed and the production of both edible and industrial oil products, maize is an important staple food for well over one billion people globally.

Having introduced the world to this important foodstuff, Mexico is also home to the leading company in the production, marketing, distribution and sale of corn flour and tortillas (flatbread) globally. Gruma, based in Monterrey, Mexico, is also an important player in wheat flour and baked products such as wraps, pita bread, naan, chapatti, pizza bases and chips, among others. It has 98 production facilities and is present in 105 countries in the Americas, Europe, Asia and Oceania, under the global Mission and Maseca brands.

The maize challenge
Although maize contains many important dietary requirements, it is deficient in free niacin and some essential amino acids. A diet based almost exclusively on maize, as is often found among poor populations throughout the world, can lead to deficiency diseases such as pellagra (vitamin B3 deficiency) or kwashiorkor (insufficient protein, particularly in children), both of which can be fatal.

We may never know how they understood this problem or found a solution, but there is evidence that ancient peoples in Mesoamerica used a process called nixtamalisation to overcome the dietary deficiencies in maize as early as 1200-1500 BCE. The process involves cooking and soaking the whole grain in an alkaline solution before further preparation as fresh or dried meal. The chemical changes that take place during this process render the niacin content of the grain bio-available, improve the balance of amino acids, and increase the amount of calcium, iron, copper and zinc available.

Nixtamalisation also significantly reduces the possibility of the grain being infected with deadly mycotoxins.

The nixtamalisation process spread through the indigenous cultures of the Americas along with the cultivation of maize, although it did not accompany the grain to Europe and Africa, where several outbreaks of pellagra and kwashiorkor have been experienced. In Mexico, every household would process its daily grain using this method before pounding it to make flour or dough, even though the work was both labour- and energy-intensive.

This was still the case in the early 1940s, the beginning of Mexico’s economic miracle, when Roberto González Barrera discovered a rustic machine for grinding dry-cooked corn to be made into tortillas. “I was on a business trip to Reynosa, Tamaulipas when I saw this machine,” he recalls. “I looked at it for quite some time, and realised that it would be a hit product. This was an industry that wasn’t developed in Mexico, and it badly needed to be modernised.” González Barrera founded his company, Molinos Azteca, S.A. de C.V. (later Grupo Maseca, then Gruma) in 1949 when he built the world’s first industrial production facility for corn flour.

From those humble beginnings, the company has grown into a global food business, driven by the consistent vision of its founder, now Chairman, González Barrera: “Supporting those who have less, implementing environmentally-friendly processes, reinvesting profits, creating jobs, paying good salaries, favouring its personnel training and progress, and fostering continuous business growth, has been Gruma’s entrepreneurial philosophy since its foundation over 60 years ago,” he says.

Corn is now the number one grain grown around the world, due to its use as a foodstuff, feedstuff, industrial compound and bio-fuel.

It is not, however, an environmentally-friendly crop. A paper produced for the Global Development and Environment Institute states that the environmental costs of large-scale production of corn include high chemical use, water pollution due to runoff, unsustainable water use for irrigation, soil erosion and biodiversity loss.

By 2010, just 10 percent of global corn production was used for food, seed and industrial purposes; but as the leading processor of corn flour and corn-based food products, Gruma has placed environmental issues at the heart of its business. The company’s innovations in the nixtamalisation process transformed the artisan method that had existed since Pre-Hispanic times into a more efficient and environmentally-friendly industrial system.

Already, the Gruma technology has produced the following ecological advantages over traditional methods:
– Energy consumption: The Gruma process allows for 40 to 55 percent gas savings compared to cooking corn in the traditional process. Given the large production volumes involved, these savings amount to meeting the annual energy needs of approximately one million people.
– Water consumption: The Gruma corn flour technology allows for 67 percent reduction in water consumption, which would be sufficient for the annual supply of drinking water to a city of 162,500 inhabitants.
– Gas emissions: The Gruma technology allows for the reduction of greenhouse effect emissions into the atmosphere equal to the CO2 emissions of 49,000 new model vehicles driving two hours a day, for one year, at a speed of 80km an hour.
– Solid waste discharge reduction: The current Gruma process drastically reduces domestic drainage and sewerage problems, as a consequence of the elimination of 83 percent of all solid wastes. This amounts to the annual sanitary wastes of a city of 5.08 million inhabitants.
– Waste water discharge: The Gruma technology reduces waste water discharge by 70 percent. At the Evansville, Indiana plant alone, waste water discharges have been reduced by 88 percent, which amounts to 2,310 cubic metres a day, a volume that would supply potable water to a town of 16,500 inhabitants.

Acknowledging the importance of continued efforts to minimise environmental impact, Chairman González Barrera comments, “Every year, we seek to obtain higher yields in our world production processes, with less energy and water consumption, as well as less toxic emission impact on the environment.”

Continued research
Work on improving the production process and reducing its impact on the environment is mainly carried out in the company’s central research facilities in Monterrey, Mexico. The team includes PhDs in nutrition and equipment engineering, and is supported by local research groups in each of the four key market regions where Gruma is active.

One of the main areas of continuing research, of course, is on developing high efficiency processing equipment for wheat and corn flour production that will combine lower operating costs with environmental sustainability. Robotic automation is one key area that is being considered for its ability to sustainably increase efficiencies in the production process. Following years of constant improvement, Gruma’s tortilla machines now produce up to 1,200 corn or 400 wheat tortillas per minute, which compares favourably to the 30 to 50 per minute production rates achieved by traditional machines in Mexico.

Careful attention also goes into developing products that suit the health needs and changing tastes of consumers. In the 1990s, Gruma pioneered a process for enriching whole white corn flour to increase its vitamin and mineral content. As a result, corn tortillas offer a healthy alternative to white bread. They are sugar free; low in total and saturated fats, cholesterol and sodium; high in calcium, magnesium, potassium, phosphorus and fibre; and with added essential vitamins and minerals.

Building on this work, Gruma has developed a range of healthy products to meet specific needs, such as the Mission Foods Life Balance line in the US, which has less fat and sodium, but increased calcium and vitamins; the Mission Wholegrain Wraps developed for the health-conscious Australian market; the Mission trans-fat and preservative-free baked tostadas for the market in Central America; and a range of gluten-free White Corn Tortillas and Deli-Style Corn Chips for consumers who suffer with gluten intolerance.

Considerable work also goes into developing new corn- and flatbread-based products to suit regional and developing tastes. Corn flour and tortillas, the company’s main products for over 50 years, continue to enjoy market growth as population movements and the spread of fast food chains like Taco Bell introduce Mexican cuisine to new regions around the world. In 2010, after 10 years of lobbying by Mexico’s National Institute of Anthropology and History, and the Conservatory of Mexican Gastronómica Culture, with the support of Gruma, traditional Mexican cuisine became the first in the world to be considered ‘Intangible Cultural Heritage’ by UNESCO, further stimulating world interest.

Gruma has adapted the convenience of the traditional Mexican tortilla to wheat-based flatbreads, which combine easily with most global cuisines; from salads to sushi, curries to sweets. This allows them to place their products in two different aisles in retail stores: their wheat portfolio including wraps, wheat tortillas and other flatbreads go in the bakery aisle, and their Mexican portfolio of corn tortillas, tostadas and tex-mex kits can be found in the ethnic food section.

For the research team, the challenge is to further adapt the company’s corn and wheat products to suit the unique tastes of local cuisines in its many markets. They do this by incorporating different herbs, spices and other ingredients into the product. For example, wraps have been developed for the British market that include Moroccan spices, sun dried tomatoes and basil, and a new breakfast bread was launched recently with added cranberry and orange. In Australia the company offers a healthy line of wraps, including a Garden Spinach and Herb product, and another variation with rosemary and oregano has been developed for Costa Rica.

“It is important to mention that part of our success is that we have been working together for the last few years with the fast food chains, such as Kentucky Fried Chicken and McDonalds, to develop new options in their menus based on our products,” says González Barrera. “As an example, McDonalds is now launching a special promotion with our new Spinach Wrap in their Asian market.”

Social responsibility
In the 1940s, average life expectancy in Mexico was 40 years. The economy was largely agrarian-based, with the rural poor depending on self-subsistence agriculture, self-employment and non-agricultural cottage industry activities. The government’s so-called ‘Mexico Miracle’ was intended to lift many of these people out of the poverty trap by bringing them into urban areas where industrial jobs were being created; but with a population of over 26 million, it was a huge task.

For Roberto González Barrera, the discovery of the grinding machine and building of the first industrial corn processing plant was the beginning of his own journey to help the world’s poorest. “Poverty is a great teacher, a great university,” he says. “It used to speak to me with a lot of respect. That is why philanthropy is fundamental, because having known poverty at that level, I am very much aware about helping the neediest.”

As part of this commitment, he started the Gruma Foundation to channel support to people in need, through cash and in-kind donations, in a systematic and professional manner. The most recent Gruma Foundation programme donates a children’s nutritional supplement, called Nutre-Fácil Maseca (which translates as ‘Maseca nourishes easily’) to help fight malnutrition in children between one and five years of age.

Nutre-Fácil Maseca, containing corn flour, oat flour, rice flour and soy flour, is an easy-to prepare instant product, which significantly contributes to the daily recommended intake of energy, fibre, protein, vitamins and minerals for children. Since 2010, 10,000 Mexican children suffering from high levels of malnutrition have benefitted from this daily food supplement, of which more than four million packets have been distributed.

On the international scene, Gruma participates in several social responsibility programmes. Through its US subsidiary, Mission Foods, Gruma participated in the Share Our Strength’s No Kid Hungry Campaign, a national movement to fight hunger in that country. The company has also taken part in the Terra Cycle global movement which seeks to eliminate the problem of litter by sending out teams of volunteers to collect discarded product packaging.

The company is also quick to respond when natural disasters strike, donating products to affected areas where people need access to easy sources of nutrition and food energy. In Mexico, Gruma operates a fleet of mobile tortilla factories called ‘Tortimoviles,’ with enough capacity to process 90kg an hour, the equivalent of 2.1 tonnes of hot tortillas per day. These mobile units are self-sufficient for water and energy requirements, and can therefore operate in the most hostile conditions, ensuring that victims have three meals of hot tortillas each day.

Another example of Gruma’s work in disaster areas is in Venezuela, where, through its affiliate Monaca, the company delivered more than 55,000kg of food to aid centres for distribution to victims of the torrential 2010 rains. “As a responsible corporation, Gruma will continue collaborating for a better future, and working in support of sustainability in all the regions of the world where it operates,” says González Barrera.

Going global
From its simple beginnings as the world’s first industrial corn flour production facility, Gruma has grown to be a truly global business whose 20,000 employees worldwide generate annual turnover of nearly $4bn. The story of how it achieved this growth parallels the spread of its basic ingredient: corn.

Just as knowledge about the cultivation and use of corn travelled with indigenous cultures through Central America and then into both South and North American tribes, Gruma’s growth has followed corn consumption into these market areas. Initially, the company expanded through Central America and into Venezuela, where the corn consumption tradition was similar to that of Mexico. In 1973 the government of Costa Rica invited Gruma to build a plant in that country, and it continued with an organic growth strategy of building its own corn flour plants throughout Central America, while in Venezuela Gruma began a programme of acquisition.

Gruma’s international expansion was then driven by Hispanic population growth in North America. In 1900, when the population of the US was 76 million, there were already an estimated 500,000 Hispanic economic immigrants in the country. Starting in the early 1970s the Hispanic contingent became the fastest-growing population segment in the US, and forecasts by the Census Bureau anticipate that by 2050 around 25 percent of the US population will be of Hispanic descent. As the number of migrants and their descendants increase, so does the demand for tortillas.

In 1977 Gruma decided to acquire its first tortilla company in Los Angeles, California. The company then began an aggressive growth strategy which consisted of vertically integrating into corn flour production and expanding its tortilla footprint nationwide.

Today, Gruma is the market leader in the US with six corn flour mills, 19 tortilla plants and a national distribution system. The preferred overall growth strategy in the US has been organic, with approximately 20 to 30 percent of growth coming from acquisitions.

After its initial success abroad, Gruma started a global expansion initiative in the beginning of the new millennium. Gruma’s core business continues to be corn flour, wheat flour and value-added products such as tortillas, flatbreads (including wraps), and snacks (mainly corn chips) based on these grains. Country selection in Europe, Asia and Oceania is driven by the availability of raw materials (corn) and ready market access to major consumption centres.

Gruma’s relatively new dry corn milling operations, which are based in Italy, Ukraine and Turkey, cater to snack, beer and cereal producers in Europe, the Middle East and Africa. On the other hand, flatbread and chip manufacturing operations based in the UK, Holland, China, Australia and Russia (the most recent acquisition), are strategically located near these products’ largest consumption centres. The growth strategy in these countries has been mainly through acquisition in order to accelerate market access.

Crises provide opportunities
The global economic downturn has had a limited effect on Gruma sales, which continued to grow until 2011. The company, however, is conscious of the need for continued vigilance. “Crises provide growth opportunities,” the chairman says.

In 2012, Gruma is expecting to face various challenges, but anticipated its strategic business approach would allow it to move forward with great success. It was already aware of some of the problems it would encounter and took steps to be prepared. Grain price volatility; maintaining consumption levels – mainly in the US; and utilising optimal flow generation to maintain a healthy financial structure were all concerns.

The company announced the purchase of all the corn it needed to cover its production requirements in the US – the market with the greatest grain price volatility impact – at the beginning of the year. Having addressed that situation, it could then offer a competitive price strategy and continue growing in the tortilla market. As a result, its share price has outperformed the market during the year.

So with its core values of proximity to raw materials and markets, integrity and accountability, nourishment of consumers and the business, and excellence in all they do, the Gruma team is proud of its achievements. Its strategy for the future is rooted in its strong brands and will remain strongly based in its core products of corn and wheat flour, tortillas and flatbreads. It will, however, continue to evolve its products in line with consumer preferences and trends. Company analysts and enthusiastic foodies can expect to see more organic products, sauces and ready-to-eat kits being introduced in the near future.

As its motto says, Gruma nourishes the heart of Mexico and the world.