Grupo Corvi S.A. de C.V.

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Grupo Corvi S.A. de C.V.

Pico de Tolima Ste. 29
Mexico City, D.F. 14210
Mexico
Telephone: (52 55) 5628-5100
Fax: (52 55) 5628-1581
Web site: http://www.grupocorvi.com.mx

Public Company
Incorporated: 1979
Employees: 3,959
Sales: MXN 13.19 billion ($1.22 billion) (2006)
Stock Exchanges: Mexico City
Ticker Symbol: GCORVI
NAIC: 424110 General Line Grocery Merchant Wholesalers; 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 445120 Convenience Stores; 551112 Offices of Other Holding Companies

Grupo Corvi S.A. de C.V. is the holding company for Organización Sahuayo, S.A. de C.V., Mexico’s largest wholesale distributor of food and related basic products of mass consumption, delivering these principally to traditional grocery stores and neighborhood supermarkets, but also encompassing hotels, hospitals, industrial dining halls, pet stores, and animal pharmacies. These products include the company’s own proprietary brands. Corvi is also a retailer through Despensa del Hogar (Home Pantry), a supermarket chain found in heavily populated locations and devoted to high quality basic goods.

FOOD RETAILER AND WHOLESALER: 1940–95

The company dates back to 1940, when five Villaseñor Zepeda brothers, originally from Sahuayo, Michoacán, founded a store selling groceries and seeds in La Merced, a commercial area in central Mexico City that housed the busiest food market in Latin America. This store gave rise to Organización Sahuayo. In 1946 the company established Chocolates La Corona, a Mexico City factory producing chocolates and other sweets. This business grew in the 1970s to include new plants, one in Mexico City and the other in Guadalajara, and three distribution centers. Sahuayo also established its own distribution centers in this decade. Grupo Corvi was incorporated in 1979 and, in the next decade, became the holding company for the existing enterprises.

During the 1980s Corvi opened new seven distribution centers in distinct parts of the country and, in 1983, consolidated its presence in Mexico City’s wholesale food market. During the 1990s Sahuayo established many more branches, opening 15 new distribution centers in various parts of Mexico. La Corona built its fourth plant, in Toluca, México, in 1990. Corvi also launched a chain of specialized self-service stores named Superpack, opening the first of these stores in Mexico City in 1990. It also opened, in 1992, the first of a chain of direct-sales stalls named Serviexpress. There were four of these shops at the end of 1995.

EXPANDING PUBLIC COMPANY: 1996–2003

Grupo Corvi became a public company in 1996, when it offered 23.65 percent of its shares of common stock on the Mexico City exchange. Sahuayo used some of the proceeds to continue its expansion, opening five new branches in Toluca and the capitals of four other states: Tuxtla Gutiérrez (Chiapas); Durango (Durango); Tepic (Nyarit); and Aguascalientes (Aguascalientes). In 1997 Sahuayo opened branches in Tapachula, Chiapas, and La Paz, the capital of Baja California Sur, and in 1998 it opened three more branches in state capitals: Chihuahua (Chihuahua); Hermosillo (Sonora); and Oaxaca (Oaxaca). Superpack opened a store in Villahermosa, the capital of Tabasco, in 1996, plus two more, in Mexico City and Guadalajara, in 1997, and five more in 1998, plus two more Serviexpress stands in Guadalajara and Puebla. Also in 1997, Corvi purchased Hervicor, S.A. de C.V. the holder of 77 percent of Superpack’s shares; the controlling share of Dairy Mart, S.A. de C.V., a chain of convenience stores; and Empacamex, S.A. de C.V., a company packing and selling grains and seeds. The purchase of Hervicor added MXN 14 million (about $1.75 million) to the MXN 98 million (about $12.74 million) that Corvi had spent to liquidate this company’s debts. Corvi sold Dairy Mart in 1999 and closed Empacamex in 2000.

Corvi sold half of Chocolates La Corona to Newbridge Latin America, LP, a U.S.-based private equity fund, in 1997 for $13.5 million. (Also participating in the transaction was U.S.-based candymaker Favorite Brands International Inc., which was expected to establish manufacturing, distribution, and licensing accords with Corvi.) The Corvi subsidiary previously named Empresas La Corona became Empresas Chocolates La Corona, S.A. de C.V. By this joint venture, which ranked third in its field in Mexico, Corvi sought to add to its international presence, given its goal, established two years earlier, to increase its exports. Corvi already was sending its goods to 14 countries.

In 2000 Organización Sahuayo became the exclusive wholesale distributor in Mexico of products sold under the Parmalat name. Parmalat Finanziaria S.p.A., an Italian-based firm, was the world leader in production and sale of ultra-high-temperature milk and held 12 percent of the liquid milk Mexican market in Tetra Pak containers. Sahuayo was operating 26 distribution centers in 22 states and the federal district (Mexico City). There were 14 Superpack and 7 Serviex-press units. La Corona’s four plants had installed capacity of 29,000 metric tons a year.

The following three years saw little more expansion, except for the opening of seven new Serviexpress units. Facing growing competition, Corvi hired a Spanish director general—the equivalent of chief executive—in 2003, the year its net profit fell by 71 percent from the previous year. The slide continued into 2004, with company sales in the second three months of the year 10 percent lower than in the same period of 2003.

Grupo Corvi was suffering from the radical transformation of the Mexican wholesale food sector in the early years of the 21st century. Traditional grocery stores relying on such companies as Organización Sahuayo were being displaced by large supermarkets such as the chain run by Wal-Mart de México, S.A. de C.V., which were making other arrangements. The remaining grocers were often gravitating to buyers’ clubs like that of Costco’s Price Club and Wal-Mart’s Sam’s Club in order to save money.

RESTRUCTURING: 2004–06

To restore its profitability to earlier levels, Corvi’s first step was to cut expenses by serving fewer small-scale customers. The firm continued its two-year-old practice of selecting products with a greater profit margin (food, drinks, sweets, personal care products) and greater demand, and by offering better prices and conditions of purchase. Sahuayo established a new chain named Superpack multiformato, converting three existing Superpacks to this format. At the end of 2004, there were 13 Superpack and 8 Superpack multiformato units. Corvi also saved money by laying off 850 workers and closing the La Corona plant in Guadalajara.

COMPANY PERSPECTIVES

Independently of their size, sales volume. commercial channel or location in the nation, we take care to give the best service to our customers, seeking always to satisfy their supply needs, with quality products, competitive prices, opportune delivery, and an extensive variety of disposable merchandise in such diverse packaging as boxes, half-boxes, and packages.

For a number of years Organización Sahuayo had been developing its own proprietary brands, with the aim of enhancing its line of products in areas of strong demand. In 2004 it introduced a number of products under its 5 Stars brand, including cleaning products for clothing and the home. Also that year, it opened Dulcepax, a new commercial format specializing in the supply of confectionary products, light snack foods, soft drinks, and smokers’ articles in bulk. The first units were in Mexico City and Guadalajara.

Grupo Corvi sold its half of Empresas Chocolates La Corona to Grupo Bimbo, S.A. de C.V., in 2005 for MXN 471 million ($43 million), which it applied to paying down part of its bank debt. Bimbo was the largest producer of bakery products in Latin America. Corvi also transferred to Sahuayo, in 2005, the 13 Superpack units, which became wholesale stalls and absorbed the similar Serviexpress units. (Superpack multiformo apparently disappeared.) Sahuayo had over 8,500 stockkeeping units in about 100 lines of merchandise. Also in 2005, Sahuayo completed the establishment of a centralized purchasing body for all its business units and initiated Macro Ventas, a four-times-a-year event where some 5,000 grocery retailers could receive special discounts, promotions, and raffle tickets and examine new products. In addition, it introduced Sahuayomanía, a program for frequent customers similar to that offered by Costco Wholesale Corporation.

Sahuayo’s most important initiative in 2005 was the introduction of the Despensa del Hogar chain. With Despensa del Hogar, Corvi had chosen to directly confront the retailers who were cutting Organización Sahuayo out of the supply chain. This new supermarket chain was composed of units located in areas of high commercial traffic in medium-sized cities. These were small, easily accessible, neighborhood stores of about 400 to 500 square meters (about 4,300 to 5,400 square feet). They were aimed principally at middle-income and low-middle-income housewives, offering, according to the company, name brand, high quality, basic products at popular prices. The number of Despensa del Hogar units—20 at the end of 2005—had grown to 57 in a dozen states by the end of May 2006. Since 2004, Superpack had begun to combine distribution with final sales like Sam’s Club, Price Club, and other members’ clubs, in order not to lose trade from small grocers.

Grupo Corvi had net profits of MXN 105.27 million ($9.66 million) on sales of MXN 13.28 billion ($1.22 billion) in 2005. Both figures were lower than those for 2004. However, the total debt of MXN 2.72 billion ($252.32 million) at the end of 2005 was also lower than that at the end of 2004. By 2006 the holding company felt confident enough of its future to announce its intention to open 1,000 self-service stores over the next five years, investing MXN 1.5 billion (about $138 million) for this purpose.

Organización Sahuayo, at the end of 2005, had 26 distribution centers in 23 Mexican states, holding over 3,500 different products in the categories of food, packaged seeds, personal care and hygiene, confectionary, soft drinks, snacks, products for the home, perfumes and other scents, clothing care, and over-the-counter medications. Its own proprietary brands included Villafrut canned peaches, Querubín and Kids disposable diapers, Marinero tuna and sardines, Valle Azul formula milk, Hidrovit spring water, Monarca toilet paper and paper napkins, Bingo jello, and La Luz del Mundo candles. In addition, the 5 Stars proprietary brand carried goods in 15 categories, including basic goods and cleaning products for the home and clothing care. Some 733 trucks, all Sahuayo’s own, were delivering goods to a monthly average of 37,700 customers over 3,800 commercial routes.

Of the five founding Villaseñor brothers, two were still alive in 2006. A second generation family member, Benjamin Villaseñor Costa, was chairman of the board of the firm. In addition to hiring a Spanish chief executive officer, he had added outsiders to the board. Descendants of Corvi’s founders owned 86 percent of the circulating shares of stock in 2005.

Robert Halasz

KEY DATES

1940:: Founding of the Mexico City grocery store that gives rise to Organización Sahuayo.
1946:: Organización Sahuayo establishes Chocolates La Corona, a Mexico City factory.
1979:: Incorporation of Grupo Corvi, which later becomes the holding company.
1990:: Grupo Corvi opens Superpack, a chain of self-service retail food stores.
1992:: The company launches Superexpress, a group of direct-sales wholesale food stalls.
1996:: Company goes public.
1997:: Corvi sells stake in Chocolates La Corona to a U.S.-based private equity fund.
2004:: As part of a plan to reduce debt, Corvi sells its remaining half of Chocolates La Corona.
2005:: Superpack absorbs Superexpress and switches to wholesale transactions; Corvi launches Despensa del Hogar, a supermarket retail chain.