October 23, 2014
By Patrick Clark
Consider the tortilla. Made from corn or flour, but essentially grain and water. Served fresh or deep fried. A delivery system for shredded pork, salsa verde, or the chicken and bacon McWrap. Tortillas have been a staple in Mexico for millennia. More recently, they’re devoured in the U.S. by the billions, no more exotic than a hamburger bun. Which begins to explain how Veronica Moreno, a Mexican immigrant with no high school education, came to run a multimillion-dollar corporation.
Moreno emigrated to the U.S. from the Mexican state of Coahuila in 1977. She was 21, newly married, and had no special expertise in food manufacturing. What she did have was the good sense to realize that the tortillas sold in American stores couldn’t match the taste and texture of the ones she made at home—and the good timing to launch a tortilla-making venture as America’s appetite for Mexican food was about to take off.
In 1988, Moreno opened a small factory in Atlanta, selling $10,000 worth of corn tortillas to walk-up customers and Mexican grocery stores that first year. Moreno projects that her company, Olé Mexican Foods, will hit $275 million in sales this year. It will produce 26 million tortillas. Every day. Laid flat, the daily output would stretch from New York City to Mexico City with 300 miles to spare, says Edgar Moreno, Veronica’s son, who handles marketing for the company. “I never imagined I was going to make so many tortillas,” his mother says.
The U.S. Hispanic population has almost tripled since Moreno sold her first tortilla, to 55 million last year from 19 million in 1988. The market growth was compounded as the tortilla became thoroughly assimilated to the American palate, in the form of chips, frozen burritos, and an option on fast-food menus for diners who want a sandwich without a carb-laden bun.
Olé Mexican Foods, which is in Norcross, Ga., wasn’t the only company to profit from the tortilla boom. There were 352 tortilla factories in the U.S. in 2012, according to the U.S. Census, up 46 percent from 1998. Sales have quadrupled—from $3 billion in 1997 to $12 billion last year, according to Jim Kabbani, chief executive of a trade group called the Tortilla Industry Council. (Flour tortilla sales edged corn by about $120 million.)
The first U.S. tortilla makers started out as bite-size operations catering to small pockets of Mexican immigrants. Olé was late to the market nationally but early for the region. Even today, the Southeast accounts for only 8 percent of U.S. tortilla sales, Kabbani says. At first, Moreno couldn’t qualify for bank loans, so the company grew slowly, reinvesting profits and expanding with the Hispanic population. Olé went from a local business to a regional one, distributing in Florida and the Carolinas, then got into selling uncooked tortilla chips to restaurants across the South. In 1996, Wal-Mart Stores (WMT) started stocking Olé’s La Banderita brand.
That homegrown playbook probably wouldn’t pay off today. A pair of Mexico-based tortilla giants—Grupo Bimbo (BIMBOA:MM), which sells Tia Rosa tortillas, and Gruma (GMK), which owns the Mission Foods brand—control 63 percent of the U.S. market, according to IBISWorld, a research firm. In the past decade, the industry has attracted sophisticated investors who backed family-owned businesses or launched new companies, looking for fast growth, Kabbani says. “You had investors who said: ‘Internet stocks have cooled down, so what’s the next hot thing?’”
For some, the answer was automation. Five workers using modern machinery can pump out 21,000 tortillas an hour, says Nate Fisher, an industry consultant who sold his Clearfield (Utah) tortilla maker, Don Julio Foods, to Tyson Foods (TSN) last year. (Tyson and other prepared food manufacturers are among the biggest tortilla manufacturers in the U.S.) Freshness matters, so success depends on moving massive amounts of grain to regional factories and trucking out large quantities of the finished product. That, plus the marketing muscle of billion-dollar corporations, makes it likely that “the industry is going to be dominated by a handful of giants,” Fisher says.
For now, Olé is big enough to keep up with the competition. Moreno says she’s laying the groundwork for new factories in Georgia and California. Her product line has expanded to include tortillas for health-conscious Americans, including some made with extra virgin olive oil, as well as a line of Mexican-style cheeses made at a plant in Tennessee. She employs 1,200 American workers (including her husband and two sons). She calls the jobs she created “payback” for the opportunity she received in this country. “Olé is my life,” she says. “When I see customers picking up my product, it means everything to me.”
Edgar, 28, remembers kicking a soccer ball around his mother’s factory when he was a child, waiting for his mom to finish work. He says the company’s success depended on the evolving tastes of all Americans. ”There were very few Hispanic markets in those days,” he says. “In the end, it wasn’t just piggybacking off Hispanic growth. It was the general market adopting Hispanic products as a staple.”
Source: Bloomberg Business