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The checkout kings

Rodrigo Amaral is a freelance journalist based in the UK.

When a feud between two brothers ripped retailing firm Soriana apart, it seemed unlikely that the family, and business, would survive. But, as the second-generation CEO tells Rodrigo Amaral, rejecting the term "family business" led to the firm's, and the family's, success

With 235 hypermarkets and smaller stores in 112 Mexican cities and a plan to open another 60 within a year, Organización Soriana has firmly established itself as the largest retailer in Mexico behind another family business, US-based Wal-Mart. But the road to success has not been easy. The founding family has had to face overwhelming competition from retailing giants, but it was the internal struggles that could have ruined everything.

The early 1990s were a time of great change for Mexican companies. The signature of the North American Free Trade Agreement (NAFTA) with the US and Canada brought with it the promise of freer access to the wealthy markets north of the Rio Grande. But it also opened the country to the firepower of some highly capitalised, efficient and aggressive American companies eager to carve a space for themselves in Mexico's huge consumer market. Retailers constituted one of the industries doomed to face the toughest newcomers. In 1991, even before NAFTA was formally signed, Wal-Mart had acquired a stake at Cifra, Mexico's largest retail group, and a few years afterwards would turn its participation in the company into a controlling one. The arrival of the most ferocious of predator capitalist companies put local players on their guard, and it would be harsh to condemn any of them for feeling a little dispirited about their future.

One particular Mexican group, however, decided to take up the challenge posed by the new economic environment – which would bring to the country not only Wal-Mart, but also HEB, 7Eleven and other heavy hitters – to polish its act and, in the process, to promote reconciliation. Soriana, a chain of hypermarkets based in the northern city of Monterrey and owned by the Martín family, faced a dilemma as it devised a way to keep its ground against the fresh arrivals. The company knew that it didn't have the financial muscle to pursue growth with the vigour required to make further inroads in the market. The forging of an alliance presented itself as the optimal solution to the problem, and contacts were made with the likes of France's Carrefour. But in the end, Soriana decided to merge with another Mexican group – Sorimex, a hypermarket chain, and which belonged to a different branch of the same Martín family.

A family divided
It was about time, one could say. For over a decade, the Martíns had been divided into two rival companies that provided basically the same kind of services and products to Mexican consumers. Their involvement with large-scale retail had begun in 1968, when brothers Francisco and António Martín Borque opened their first store, which was named after the Spanish province of Soría where the family came from. They were based in Torreón, a vibrant city in the north of the country, and were not exactly newcomers to the business world. The merchant tradition of the family stretched back to 1905, when they set up a fabric factory in cotton-rich Torreón. Forays into wholesale and other activities followed in the next half-century until Francisco and António decided to take advantage of the growing popularity of self-service retail stores that had trickled down from the US to Mexico.

The two brothers worked hard to consolidate their business and in the 1970s it expanded to other cities and towns in Coauhila and neighbouring states, including the regional powerhouse, Monterrey, the capital of Nueva León. But in 1986 Francisco and António had a falling-out that proved insurmountable, and the brothers ended up severing relations. The company was split in two, with Francisco marching out with the Soriana brand and, among other assets, eight stores in Monterrey. António kept the Torreón-based stores and went on with his businesses under the flag of Sorimex. Both chains progressed well and in the late 1980s the two went public while remaining under the control of the respective branches of the Martín family. But the opening of the Mexican economy to US- and Canadian-based companies forced them to re-evaluate their situations.

"In 1994 competition was getting harder and harder," recalls Ricardo Martín Bringas, Francisco's son, who is the current CEO of the Soriana group. Any retailer who has seen a Wal-Mart store open in the neighbourhood knows the score all too well. With a huge financial warchest and unequalled bargaining power with providers, Wal-Mart manages to keep many prices lower than the competition, and customers duly comply by flocking there in large numbers. So the new threat provided the economic reasoning for the Martíns to put their old differences aside, rebuild their bridges and come together again. "The decision was above all an economic one," Martín says. "We concluded that the best partners for us at that moment were Sorimex, as we knew their stores, their management team, and there were several synergy gains to be made by joining forces."

A new brand of business
But, if sentimental reasons were not the main drive behind the re-merger, they didn't constitute a hurdle to the process either. "My father and my uncle were brothers, and when the business broke up, they separated from each other not only as businessmen, but also as brothers. Changing that situation was part of the final goal as well, and it was achieved," Martín remarks. However, there remained the question of how to prevent disagreements between the new generations destroying the good job done by bringing the two sides together. One can say that the solution devised by the Martíns was a courageous one for a family-owned company. After all, it comprised of taking the word "family" out of the equation.
 
"We made an agreement that the family would not run the company," Martín recalls. "Members of the family would remain as shareholders and would stay on the board, but wouldn't meddle with day-to-day management. Only one of us would be directly involved, taking the top executive job." That chosen one was Martín, then 34 years old and the youngest of Francisco's eight children, who has been the CEO of Soriana ever since. His brother, Francisco, is non-executive chairman of the group, and most of the people who sit on the company's board boast Martín as one of their surnames (Martín Bringas if from Francisco's side; Martín Soberón if from António's). But, apart from the CEO, no other member of the family is calling the shots in the group's day-by-day operations. They were freed to pursue other interests, which include travel agencies, farms, and printing companies.
 
"Obviously each family has its own characteristics, and some will adopt different ways of relating to their businesses," Martín reflects, talking about the whole process of redefining the role of the numerous Martíns within the group. "The most important thing is to adopt a management model that allows the business to develop and grow independently of the decisions of the members of the family that owns it." The trauma of the previous break-up seems to have acted as an extra motivator for the acceptance of the new arrangement. According to Martín, those who were excluded from the management of the group promptly warmed to the idea at the time. And he sees no reason for them to regret the idea today.
 
At the time of the reunion, Organización Soriana emerged as the fourth largest self-service retail group in Mexico, with over 40 stores distributed mostly in the north of the country. Thirteen years later, despite facing the toughest of competition, the firm has climbed to second in the ranking, multiplying the number of stores by almost six and making considerable forays inside Central and Southern Mexico. By the end of 2006 Soriana was present in 112 cities, employing more than 60,000 people in 235 stores and Martín's plan is to reach 400 stores by 2010. The fortune of the family, who owns most of the capital, has been estimated at more than $3.2 billion. "To take the family out of the business was a good decision," he stresses.

What the future holds
Soriana is still a long way from Wal-Mart, which has around 900 stores in Mexico and a share of the market that has been estimated at more than half. But the Monterrey-based group has been adapting its way of doing business in order to consolidate its position as Wal-Mart's main Mexican competitor. An important decision, for instance, was taken in 2001, when new models of stores started being implemented to reach new market niches. Up until then, Soriana had concentrated in hypermarkets, whose efficiency for a long time was at the root of the group's success. "Our hypermarkets have always given us an advantage over our competitors, as we operate a model that is very agile and cost-efficient," he says.

 "But there came a moment when we realised that our growth potential had been reduced, because we were widely stretched around the country." The solution to this conundrum was to target markets untouched by the group thus far: middle and lower-middle income brackets, as well as small urban centres where a hypermarket would be an excessive proposition. Now, for instance, Soriana also has smaller stores to serve such markets, as well as warehouse clubs – a retail store in which customers pay annual membership fees in order to shop, not too different from the Sam's Clubs made globally famous by Wal-Mart.

The diversification of store models has been followed by an attempt to tap into the market of Mexico City, the country's capital – a difficult place to do business, not the least because the competition has already been firmly established there. Martín sees the process of consolidating the presence of Soriana in the capital as a gradual one, to be pursued over a number of years. "We already have 20 stores in Mexico City, and we are happy with the results we've collected so far," he says. "But it will take us two or three years to consolidate our position there."

A further development in the group's business has been the diversification of activities, investing in other areas, but emphasising those that complement the company's current services. The first segment being explored is banking, as Soriana has joined forces with financial services group Banamex to offer bank services in hundreds of its stores. "Our main goal with the new bank is to provide credit facilities to our customers," Martín points out.

Another project already being developed is the building of wind power plants by 2009, but the objective in this case is even closer to the main business, as the power plants will be used to provide energy to Soriana's stores. "What we want to achieve is to make an alternative power source available to our stores, as the only option we have today is to rely on the provision of energy by government companies," he remarks. "Producing our own power will generate savings, as energy constitutes the second highest cost item in our business, second only to personnel."

Many people consider the most impressive feature of Soriana's rapid growth to be the fact that the company funds expansion with its own money – the reluctance of the company in contracting debt is legendary in Mexican business circles. Soriana also enjoys a reputation of not wanting to get involved with foreign partners, but Martín stresses that such postures can change, if the continuing growth of the group so requires. He mentions, for instance, that for a long time organic growth was the only way to develop the business that was to Soriana's taste, but now the group doesn't discard the possibility of making acquisitions.

Another apparently obvious direction for stretching Soriana's range is the sizeable Mexican community in the US, a market already being courted by Mexican companies in other industries. Martín says Soriana has not closed its eyes to such a possibility, but any move north of the Rio Grande will have to wait for a while. "It's a goal we have, but not in the short term. First we want to consolidate our position in Mexico, where there are still plenty of opportunities," he says.

Martín believes Mexico has been through a process of political consolidation, and now is striving to consolidate its democracy. He sees this fact as an important development as, in his opinion, politics have, in the past, put a brake on the country's economic development. "I expect good years ahead, particularly if Mexico makes the necessary reforms to our economy in sectors like tax, energy and labour," he concludes.

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