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Grupo Bimbo of Mexico, Latin America’s second-largest food company in terms of revenue, is one of a club of emerging market food companies that are diversifying into developed markets in search of upmarket brands to swallow.

Bringing in some $13.7bn in revenue (about 219bn pesos) from sales of sliced bread and carb-fuelled treats in 2015, Grupo Bimbo is a sizeable presence even compared to its more established Anglo-Saxon peers, such as Premier Foods in the UK and US-based General Mills.

In fact, the Mexican baker’s revenues are 12 times those of Premier and General Mills — at $1.1bn and $1.2bn respectively in 2015.

Food companies tend to be the fastest-growing of the corporate giants in emerging markets and Grupo Bimbo has plenty of international counterparts. Brasil Foods (BRF) and JBS of Brazil are conglomerates whose main business is processed meat, with BRF specialising in halal-certified cuts. Thailand’s Charoen Pokphand focuses on fish and poultry. Indofood of Indonesia is famed for its instant noodles, while Turkey’s Yildiz Holding owns McVitie’s biscuits, Godiva chocolates and Jacob’s crackers.

These five food companies — four of them listed, while the privately-held Yildiz controls publicly traded companies — between them generated about $79bn in annual revenues during 2015, four times more than US heavyweight Kraft Heinz (with $18.3bn).

Their competitive advantage is the low cost of production at home combined with an extensive distribution network. But they have compounded these benefits by snapping up brands abroad. Back in 1945, Grupo Bimbo’s baked goods were delivered to corner shops in Mexico City by five trucks. In 2015, the group serviced 2m points of sale across 22 countries.

Cheaper lines of credit available to emerging markets corporates over the past decade have facilitated this voracious spending spree.

Grupo Bimbo has added 40 brands to its portfolio in the past 10 years, while BRF has acquired 13 additional businesses in the past two. The average interest rate on cash borrowed to secure Grupo Bimbo’s acquisitions, 4.4 per cent, is historically low.

“Bimbo has a very good record of balancing their level of debt, gradually paying off their loans before borrowing to buy something new,” says Rogelio González, part of the Mexico corporate ratings team at Fitch, the rating agency.


Brands Grupo Bimbo has acquired in past 10 years

However, these companies are not immune to rising levels of debt in emerging markets and the falling price of commodities.

In Brazil, for example, record-high corn prices in 2016 are forcing poultry processors to close plants and making pork producers slaughter animals they cannot afford to feed. BRF, the world’s largest poultry exporter, and beef exporter JBS raised local prices for the second time this year to try to contain feed costs.

“The price of drumsticks in the supermarket is 5 reals [$1.40] a kilogramme: that barely pays for water to produce the meat,” Mario Lanznaster, president of Aurora Alimentos, Brazil’s third-largest pork and poultry processor, told local press in June.

What sets Grupo Bimbo apart and maintains its investment grade status, according to Filipe Alves da Silva, senior Latam adviser at Indosuez, a Switzerland-based wealth manager, is that 53 per cent of its total revenues derive from its North American operations. “They sell bread in dollars and buy ingredients in dollars . . . so their growth margins have been remarkably stable,” he says.


Brands Brasil Foods has acquired in the past two years

Grupo Bimbo runs 89 production plants north of the US border. Recent additions to the group’s portfolio include Canada Bread and Sara Lee’s North American bakery business. Should the deal go through, in the second half of 2016, Panrico in Spain and Portugal will be a further acquisition.

Thanks to diversification, only 35 per cent of Grupo Bimbo’s total revenue comes from Mexico, where the currency has fallen about 6.5 per cent against the dollar since the start of the year, making the Mexican peso the worst performing emerging market currency against the dollar in 2016. Revenues at Grupo Bimbo in the first quarter of 2016 rose 13.2 per cent over the same period last year to 56.64bn pesos, above market expectations.

For Yildiz, buoyant sales from its confectionery segment (of about $4.5bn last year) have led to consolidation of its confectionery operations into a new UK-based company named Pladis.

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