case study - heb international supermarkets and the banco de alimentos de caritas de monterrey

SKE004

F E BR U A R Y 2 5 , 2 0 0 3

________________________________________________________________________________________________________________ This case was prepared by Professors Gerardo Lozano and Carlos Romero and Associate Researcher Loretta Serrano, all of Egade-Tec de Monterrey. SEKN cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2003 Egade-Tec de Monterrey. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means -electronic, mechanic, photocopying, recording or otherwise- without the permission of the above mentioned copyright holder institution. At the time this case was developed, SEKN membership consisted of AVINA, EGADE, Harvard Business School, INCAE, Pontificia Universidad Católica de Chile, Universidad de Los Andes, Universidad de San Andrés – Universidad Torcuato Di Tella – CEDES, and Univesidade de São Paulo.

G E R A R D O L O Z A N O

C A R L O S R O M E R O

L O R E T T A S E R R A N O

HEB International Supermarkets and the Banco de Alimentos de Caritas de Monterrey

The history of our Food Bank is divided in two… before and after HEB.

— Blanca Castillo, Caritas de Monterrey Food and Nutrition Services Assistant Manager.

The relationship between HEB (the Texas supermarket chain that began operating in Mexico in 1996) and the Banco de Alimentos de Caritas de Monterrey (BACM, Food Bank of Caritas Monterrey) dated back to early 1996, when Blanca Castillo, Caritas de Monterrey AC Food and Nutrition Services Assistant Manager and BACM director, spotted the ad announcing the arrival of the chain in Monterrey. She immediately thought HEB could become one of their donors, like several other local supermarket chains. At the time, she was far from envisioning that HEB would not only soon become the most important donor for the organization, but that it would significantly shape its operation.

In time, the two organizations developed an alliance, and HEB made important contributions to the BACM, not only in cash and kind, but also in facilities and operation systems. Until 2001, the alliance had led to the joint organization of several events such as the "Feast of Sharing," the "Tournament of Champions" and the "I’ll Eat Thanks to You" campaign. In turn, to support HEB’s geographical expansion in the northeast region of Mexico, the BACM had provided its experience for the creation of food banks wherever the supermarket chain opened new stores.

Traditionally, HEB had kept a low profile regarding its social and community work, but Norma Treviño, HEB Mexican Division Public Relations Manager, wondered if the time had come to strengthen HEB’s public relations program by publicizing what the chain was doing and had done in Mexico even before it started to operate there. From their arrival to the country, the company faced at some point the skepticism of civil organizations and neighbor communities about the benefits of building a supermarket in their areas. Some of these groups had publicly expressed their concerns. To

For the exclusive use of J. Leung, 2015.

This document is authorized for use only by Jody Leung in Doing Business in Mexico taught by Prof. JM Haces., at ITESM from January 2015 to May 2015.

SKE004 HEB Internacional Supermarkets and the Banco de Alimentos de Caritas de Monterrey

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publicize HEB´s community service, could help in improving the image before the different stakeholders and interest groups and also in expediting the store building process and the start-up of operations in areas where they were still not very well known. At the same time, the neighbor communities would be more open to welcome a new store knowing all the different benefits that it would bring along.

The public was not aware of HEB’s social programs or of its relationship with the BACM. After analyzing the possible benefits, Norma focused on elaborating a proposal for top management on how to incorporate HEB’s social responsibility activities to the chain’s public relations program.

HEB Stores

History

In 1905, Florence Butt opened a small grocery store in Kerrville, TX. The store did well, but it did not grow until one of her children, Howard Edward Butt (HEB), took over the family business upon his return from World War I. In 1928, H.E. Butt move d to the Rio Grande Valley in Texas and started expanding the business. He opened new stores and began to manufacture products. His innovative concept was to encourage one-stop shopping; consolidating a fish market, a butcher shop, a pharmacy, a florist, a bakery and other stores under one roof. Thus, grocery stores became supermarkets. Eventually, HEB established its headquarters in San Antonio, Texas. Since the creation of the chain, the Butt family had retained ownership of the business.

Organization

In 2001, HEB ranked 12th in sales within the supermarket industry in the United States. From the beginning, it contributed a percentage of its pre -tax earnings to worthwhile organizations in the cities it operated.

In 2001, the chain was organized in four operational divisions:

1. The largest was HEB Food & Drug, operating in the state of Texas. The combined stores (with multiple goods) ranged in size from 45,000 sq. ft. to 91,000 sq. ft.

2. HEB Pantry Food, based in Houston, TX. with smaller stores focused to offering great quality with lower costs

3. Central Market division focused on gourmet and fresh products. These stores were located in San Antonio, Austin, Dallas Forth Worth, Plano and Houston.

4. HEB Mexico Division, with headquarters in Monterrey City, Nuevo Leon, in northern Mexico. This division started operating in February 1997, and by late 2001, it had 17 stores in the states of Nuevo Leon, Coahuila and Tamaulipas. In addition, it planned to open three more stores during 2002 in different locations in the north of Mexico.

The initial stage in expansion plans included several stores in northeastern Mexico, as well as additional locations in Monterrey City metropolitan area. Stores carried around 35,000 different items, a mix of approximately 80% national products and 20% imported products.

Several reasons prompted HEB to expand its activities to Mexico, namely:



HEB Internacional Supermarkets and the Banco de Alimentos de Caritas de Monterrey SKE004

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• For years, border inhabitants had accounted for an important share of HEB customers. Though Monterrey was not in the border area, it was located approximately 120 miles from various crossings to the state of Texas.

• Mexico was expected to experience a significant medium and long-term sales and profits increase.

• Expansion to another country would drive the company to improve its overall performance through exposure to new ideas in a highly competitive market.

• A supply synergy funneling Mexican products to HEB Texas could result in improved product variety and cost reductions.

• A trade balance of imports and exports between Mexico and Texas could be achieved.

HEB Social Programs

As a grocery store with more than 20 million clients, HEB was clearly associated to the food industry and decided to use its skills to support communities where it operated. Thus, in 1983, HEB launched its Food Bank Assistance Program, which by 2001, had distributed over 150 million pounds of food products donated to 6,000 organizations through Food Banks (FBs) in U.S. and Mexico. In 2001, the company furthered its commitment and supported a total of 21 FBs, 14 in Texas and 7 in Mexico. However, the Food Bank Assistance Program was not the only kind of community support offered by the company. HEB’s Mexican Division focused its community efforts on five main objectives:

1. To eradicate hunger and malnutrition,

2. To improve child and teenage education in public schools,

3. To support charitable organizations that provided direct assistance to those in greatest need,

4. To promote regional culture and arts, and

5. To aid in natural disasters

In Monterrey, HEB entered into an alliance w ith the BACM, becoming its donor since the opening of its first store in the city. Furthermore, HEB participated in BACM’s new building construction project. It donated food from 1997 to 2001, contributing daily food supplies to more than 468 charitable organizations and poverty-stricken communities in Monterrey. These donations were channeled through the BACM, and although HEB was not BACM’s only donor, it was the main one. Thus, it assisted the BACM to face the daily challenge of covering staple food needs and increasing nutrition rates among needy children and old people from various institutions and communities in northeastern Mexico.

HEB also encouraged the creation and consolidation of other FBs, offering maintenance support to banks in the Mexican cities of Saltillo, Matamoros, Reynosa and Nuevo Laredo. It also agreed to provide them with in-kind donations and the equipment necessary to operate. In addition, HEB supported other social programs such as “Adopt a School,” a program in which, every year, an HEB store adopted a school located in its neighborhoods. Through this program, HEB Partners (employees) contributed their time and effort to support low-income children education and, at the same time, developed a solid service attitude within the community. The “Volunteer Packers"




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program (school-age teenagers who helped pack goods at store cashiers) was a pilot project aimed at integrating youths to HEB’s philosophy by training them in community living, environmental awareness and service attitude in order to build a pool of future HEB "Partners" (the chain used this term to refer to its employees).

In Monterrey, HEB supported youth groups and "chavos banda" (gang teenagers) who lived near HEB stores through the "Urban Art Junior Contests," offering them artistic encouragement, granting scholarships and special awards to talented teenagers. By 2001, seven such competitions had been held with the cooperation of important institutions, such as the Museum of Contemporary Art (MARCO), the Nuevo Leon Cultural Council, the Art Center, the Monterrey Art Gallery and DIF1, among others.

HEB also provided worldwide support in natural disasters and emergencies, and Mexico was not the exception. The chain aided the victims of the 1985 Mexico City earthquake, the Paulina hurricane in the state of Guerrero, the fire in the Chipinque Sierra in 2000, the heavy rains in the central regions, and the population of the State of Chiapas. As part of its business philosophy, cash and in-kind donations to charitable organizations were a regular part of its ongoing program to improve living conditions for the needy.

The chain’s social work was rooted in the social philosophy of the Butt family. Eddie’s comment provided an insight to company principles in this regard: “Their support to social programs runs in the family. Nowadays, HEB’s social philosophy hinges on three basic areas: hunger and malnutrition, education and medical research."

Caritas Monterrey AC Food Bank

Caritas, which means love in Latin, was born in Germany in the XVIII Century when Lorenz Wethman gathered all charitable organizations and created the first "German Charity Committee." In 1947, following Pope Pius XII´s initiative, it became international, and “Caritas International” was officially founded. In 1960, Caritas arrived in Latin America and started operating in Jalisco, Guadalajara, Mexico.

Within the scope of the Catholic Church, Caritas de Monterrey AC (CMAC) was officially founded in November 12, 1982, to help eradicate hunger and malnutrition. In order to achieve its mission, CMAC contacted food companies early on to provide for its food and nutrition programs. These alliances were intended to expand its service program coverage; i.e., to increase the number of social welfare organizations and malnutrition-stricken communities served with more, different and better assistance. From the very start, CMAC endeavored to address the most basic human needs by assisting human and community development with no religious distinction.

In 1988, CMAC decided to create a food bank in the city of Monterrey. In the search for a model to imitate, they visited the first food bank in the world, the Saint Mary's Food Bank in Phoenix, AZ. There, they met John Van Hengel, known as the father of FBs, and received counseling from the bank’s personnel. After a fund-raising campaign, the Banco de Alimentos de la Ciudad de Monterrey (BACM), the first Mexican food bank, was created in October 1989. The bank’s 2001 mission statement read:

1 Desarrollo Integral de la Familia (Family Comprehensive Development): a government agency that supports family development in Mexico through health, education, food and nutrition services.




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The Food Bank belongs to Caritas de Monterrey AC, which, based on God’s work, serves as link with our brothers in need, relieving hunger and malnutrition, and helping communities benefit from food obtained through donations or low-cost purchases, by means of internal programs or through other Social Welfare Organizations.

Initially, the BACM managed three programs: food shelters , warehouses and grain international trading. Although during the first seven years it operated with scarce resources, in July 1997, the situation changed remarkably: with HEB’s support and advisory assistance, the BACM was qualified and equipped to offer the best possible service to the community.

Until 2001, the BACM greatly increased its aid capacity, not only by way of direct assistance, but also of support to institutions and nutritional education. For example, the number of people served at food shelters receiving BACM’s help increased more than 200% from 1989 to 2001, and service programs went from three in 1989 to 10 in 2001 (see Exhibit 1 for program details). It also managed two support programs: Nutritional Research and Supervision 2. Basically, the BACM’s operation consisted of large-scale preparation; selection and classification of food obtained through in-kind donations or low-cost purchases and delivered to needy communities (direct assistance) and to social welfare organizations such as homes, orphanages, shelters, hospitals and educational centers (indirect assistance).

As regards its organization, in 2001, the BACM was divided into four different areas: Nutrition, Fund Raising, Management and Quality Control. Blanca Castillo was its Assistant Manager in charge of its operations. Exhibit 2 shows the BACM’s organization chart as of 2001.

In 2001, the BACM reached, directly or indirectly, a population of more than 270,000 people (Exhibit 3), and received from all its donors, including HEB, more than 3,000 tons of food both in 2000 and in 2001 (Exhibit 4). These donations, once distributed, provided a benefit to the community estimated in more than $ 52 million (approximately 5,2 million U.S. dollars) per year, both in 2000 and 2001 (Exhibit 5). During 2000 and 2001, the number of donors totaled 45. Of the total in-kind donations, 93% came from 24 donors.

The Mexican Context at the Time of the Alliance

The alliance between the BACM and HEB developed in the late 1990s, when, despite several government programs intended to mitigate it, malnutrition still remained a severe problem in Mexico. According to the Health Ministry, malnutrition was the fifth cause of child mortality in 1996, when HEB and the BACM joined their efforts. According to data provided by the National 1996 Food Survey (ENAL), 45% of Mexican children under 5 years of age suffered some form of malnutrition; 36% of affected children lived the state of Nuevo Leon, where the BACM was located. In the southern region of the state, the situation worsened, since 26 to 50% of children under 5 years of age suffered some form of malnutrition, as reported by the "Nutritional Diagnosis on Families and Children under 5 years of Age in the State of Nuevo Leon," an investigation carried out in 2000-2001 by the BACM, with the cooperation of the Universidad Autonoma de Nuevo Leon, Nuevo Leon DIF and the Health and Assistance Secretary.

State governments were highly limited in their programs since they depended on the federal budget. Thus, state programs were very restricted in scope and results. An additional hurdle for

2 Source: BACM, 2001 Annual Report.




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hunger relief programs was that, in the retail food industry, the bulk of damaged goods (unfit for sale) did not go to the charity food market, since many supermarkets did not donate those products, but rather sold them at discount prices in second or third-class markets.

Then, HEB arrived in Monterrey and decided to donate un-saleable but usable goods to the BACM. This initiative was the result of the company’s core values. In its mission statement, HEB was committed to improving community living standards, focusing on malnutrition relief. HEB’s commitment was deeply rooted in its operation strategy at all HEB store locations. Its corporate damage-good management policy drove HEB to either collaborate in the creation of new FBs or join existing FBs in all store locations. This tradition dated back to HEB’s creation in Texas.

The HEB-BACM Alliance

The beginning of the relationship

The HEB brand was known to regiomontanos 3 because of its grocery stores located in the southern Texas Valley4, where they had regularly shopped for decades. This was one of the reasons driving HEB’s insertion in the Mexican market. Advertising for the grocery-store chain arrival began several months before the first store opened, and Blanca ran into one of HEB’s panoramic ads. Thinking the company could join the pool of the BACM donors; she started to send letters and making phone calls to the company to find the right contact for support requests.

Blanca got in touch with HEB’s office in Monterrey, where she was referred to Eddie Garcia, HEB’s Food Assistance Program director in Texas. She was totally unaware of HEB’s social work as well as of its relationship with Texas FBs. She did not know of the frustrating experience the company had gone through in streamlining in-kind donations via a state agency in another Mexican northern city. Blanca elaborated on the topic, “Government programs were usually fueled by the president’s or the local governor’s support. Then, when their term was over, so was the program. A new administration stepped in with new programs. In this case, because of HEB’s involvement, the program continued.” At that point, HEB was unaware of the existence of the BACM.

After contacting HEB for the first time, Blanca kept trying –by mail and telephone- to meet Eddie. Finally, she was able to get in touch with him over the phone. Eddie’s initial reaction was to ask her to wait for HEB to open its first store in Mexico. Once HEB Monterrey offices were operational, she should refer to their Public Relations Department. Soon after their first contact, Eddie told Blanca he was planning a trip to Monterrey and was interested in visiting the BACM to “confirm you are really doing everything you say are doing.” When he visited and surveyed the BACM, the empathy between both of them was immediate. Through Eddie, HEB agreed to start a relationship with the BACM.

First, the BACM invited Eddie to become a member of its board, and he appointed Lola Landa –initially, the Public Relations manager at HEB Monterrey - to represent HEB at the BACM’s board. Both organizations really came together with the first contacts between Lola and Blanca. They developed the network that launched the relationship in earnest, mainly by strengthening the links between Caritas and HEB staff members. Later, Lola was replaced by Norma Treviño, who met Blanca at a Mexican Food Banks Association meeting held in Mexico City.

3 Term used to refer to people born in Monterrey city, Nuevo Leon, Mexico. 4 Nuevo Leon and Texas are neighboring states across the international border.




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From the beginning, the relationship was to be based on mutual independence: specifically, neither organization demanded exclusivity in their dealings. In Blanca’s words, “At the BACM, we don’t view other institutions as competitors; rather, to us they are sister organizations doing similar or even better work to help the needy. God oversees His own work.”

As a result, the BACM’s expectations for its relationship with HEB rested on this principle. Blanca recalled, “The new Counc il chairman, Javier Gonzalez, and the general director both agreed that the BACM would keep its independence, even in name, since we owed our operation to the generosity of the local community.” Blanca informed the Council and Caritas Monterrey about her initial contacts with HEB and both institutions approved of the new partnership.

The first joint BACM-HEB activity was carried out before the opening of HEB’s first store in Monterrey. It was the 1996 “Feast of Sharing” (FOS). The feast took place in a large Monterrey park and provided approximately 10,000 BACM beneficiaries with food and entertainment in a daylong event. According to HEB, this event was intended as a test: although it was not meant to cut the alliance short in case of failure, it would prove the BACM’s management capacity. The first FOS turned out to be successful for both parties.

Another core element in the relationship was the “good feeling” between Javier Gonzalez, recently appointed Caritas Council chairman, his wife, Lucia Rivero, and Blanca. All three understood the importance of the alliance with HEB. Caritas de Monterrey had its own Council, while the BACM also had an Advisory Council. Therefore, it was important for both councils to share this view in order to facilitate alliance proceedings. Eddie pointed out, “I was most impressed by their boards, by the relationship between Javier and Blanca. They shared the same enthusiasm, purpose and trust.” At that time, Eddie thought, “they have the leadership needed to turn the BACM into something really big.” The next step was to make this commitment permeate both organizations. Blanca and Norma decided to engage their respective top management teams: Caritas Board Council, BACM’s Advisory Council and HEB Mexico’s CEO, Charles Butt.

The change in Caritas Board Council made the collaboration with HEB possible since the new chairman’s ideas matched HEB’s operative philosophy. “New people came onboard, and they shared HEB’s vision in terms of institutional quality and professionalization. So, we had a common language, a kind of empathy,” Blanca explained.

From the beginning, HEB was very clear in what it expected from the BACM. Javier summed it up, “They told us that, if we wanted to work with them, we had to comply with company standards.” The BACM agreed, although, at that point, they did not know exactly what those standards were. For example, HEB required the BACM to build a warehouse to accommodate its needs for at least 15 years, and it committed the necessary funds. Fortunately, the BACM had received a piece of land donated by a private individual and the Catholic Church of Monterrey. This land was used to build the new BACM warehouse and headquarters. The BACM left its original warehouse, which had been rented on a monthly basis.

Another aspect to be taken into account was the affiliation of both organizations. Although from different religions, both the Butt family and the company shared Caritas philanthropic philosophy and its anti-discriminating social strategy. In other words, even though it was a Catholic institution, Caritas supported people from all creeds, which was compatible with HEB’s policies.




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Strategy Alignment

The BACM was willing to follow HEB’s proposals since it was aware of the need to implement certain changes withi n the organization. “We knew we could improve a lot, but we didn’t have the means. Besides, the Council admitted they had what they called a “poverty” culture: ‘we can’t have a new truck because we are a social aid institution; we can’t buy a computer because that’s for companies; we can’t use new equipment for the warehouse…’ We only had diablitos5 ; all other devices were meant for corporate warehouses.” The suggestions given by HEB were viewed as an opportunity not only to get the necessary funding, but also to benefit from their experience in FBs. “We took it as counseling; we realized HEB had a lot of experience in FBs, and we were interested in their opinion,” added Blanca.

HEB knew it had to wait for the BACM to ripen so that the alliance would start bearing its fruits. To ease this process, HEB had to adjust some of its standard procedures in Texas. For instance, the date for the FOS, which took place for Thanksgiving in the U.S., was changed to a culturally meaningful date in Mexico. It was decided the local FOS would be held during the Christmas season to commemorate the “posadas” tradition.6

In October 1996, the BACM was invited to participate in HEB’s first FOS in Monterrey, which took place in December, before the first HEB store was opened in February 1997. Eddie recalled, “Let me tell you the story. We decided to do the FOS that same year. We were already in contact with Blanca and Javier, and the BACM was the only organization that could help us on such short notice. I came to Monterrey and met the Council members several times to get to know them. Fortunately, HEB’s team was already in place; we had good managers there. One of them, Joe Perales, had already been involved in organizing the FOS in the U.S.”

According to Eddie, the collaboration between both organizations in the first FOS was rather limited. “Caritas did most of the work.” However, Blanca admitted HEB provided counseling and training before the event. “HEB helped by training us and providing the resources for the Vicentinas Volunteers, from the Apostolado de la Cruz of the Universidad del Norte. We went to Texas for training and to see the Feast of Sharing at some of their FBs. We picked up some ideas, and we started planning our logistics and our operation. We looked for a place and suppliers. We even wrote a volunteer training and procedures manual. We did everything with HEB.” The company was willing to transfer the technology and operative know-how acquired through its experience with Texan FBs.

Both organizations viewed this first FOS differently. For Eddie, it was not a test to prove the BACM’s skills. “It was such a rush. It was all put together in such short time that, even if it hadn’t turned out right, we would have worked with Caritas anyway, to improve certain aspects. But the first year, it went very well. Our Partners (HEB’s term for employees) and managers worked with them to plan the FOS. However, most of the volunteers came from Caritas. We didn’t expect it to be perfect. If it hadn’t worked out the first time, we would have analyzed what had gone wrong to fix it the next time.” For Blanca, this first joint activity was a true test since the BACM had never undertaken such a large-scale event, and she felt their mutual relationship would be at risk if the

5 Tool of work very used in warehouses to load and to move objects, is a tubular structure with handles and wheels, similar to a wheelbarrow. 6Series of celebrations of catholic origin related to Christmas that are celebrated daily from the 16 to the 24 of December in all Mexico.




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BACM failed to deliver. “It was truly a test because we were told in October, and the event took place in December.”

The HEB-BACM Relationship Grows

Both organizations were willing to give and take constructive criticism. HEB emphasized the improvement opportunities the BACM had. For example, its warehouse could be larger and better organized, storing only food and not miscellaneous goods. “We even had some coffins there,” Blanca put in. It needed to have separate loading and unloading areas, with distribution sections to allow for product classification and selection. HEB’s funding, counseling and training always supported this kind of proposals. For instance, HEB provided the necessary funds for BACM officials to visit U.S. FBs to learn from their operations. In addition, Norma became involved in planning the BACM operations and got to know their logistic, management and food-raising needs. Thus, HEB was able to tailor its support according to the BACM requirements.

The BACM, aided and guided by HEB, embraced a new co ncept in FB management. The main differences between the old and the new framework transpired in modern equipment and machinery for operations, a more assertive attitude towards potential donors, public recognition for contributors, a symbolic fee for beneficiaries, an improved and food-exclusive warehouse, and a more company-like approach to CSO management. The BACM profited from HEB’s experience and know-how in FB operations.

Through this mutual collaboration process, HEB shared FB operative process and practice information with the BACM, which absorbed, adjusted and implemented these new concepts. In turn, the BACM offered HEB advice on how to improve its handling of damaged goods, thus simplifying its own manual. However, there was always mutual respect as regards each organization’s operative decisions. As Blanca recalled, “HEB respected our institution’s selection policies, by-laws and internal procedures… Their help doesn’t entail any coercion on their part.”

There was no written agreement signed by the parties to undertake these mutual collaboration activities. Both Blanca and Norma agreed the relationship between the two organizations was based on trust and commitment. Norma explained, “we trust each other, so the relationship is both ways: Blanca and her people let us know when they find improvement opportunities in our operations.” Both organizations had learned from their partnership, their learning processes parallel. In this regard, Blanca elaborated, “some of our council members have told me ‘don’t go asking HEB again’, but I’ve learned it’s a process… You can ask for more if you are delivering results to your donor.” Other specific elements learned by the BACM from HEB included quality control, job manuals, technical standards and presenting new ideas as business proposals.

For BACM, there was “a before and after HEB. The BACM became more efficient, and we discovered our worth in the partnership market,” explained Blanca. As more and better results were obtained, the BACM increased its chances to ask for more support from its partner. The first results made HEB more willing to work with a Mexican organization and realize this could be an important means to achieve its mission. On an individual basis, Norma quickly learned about FBs in general with Blanca, who also taught her it was possible to obtain relevant information on quality matters from partners’ feedback. During her visits to HEB stores, Blanca and her team had been able to perform an internal operative task by monitoring and reporting on store operations. As Norma put it, “Blanca and her people go to our stores and detect improvement opportunities. For us, as a company, that is very valuable. BACM people know our warehouses better than many of our Partners (employees)… They usually come up with some very positive suggestions for HEB.”




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New Collaboration Products

As the alliance and mutual trust grew stronger, there were new collaboration products. New FBs opened in Matamoros, Nuevo Laredo and Reynosa as a result of the donations received from new HEB stores in those cities. The BACM’s role was instrumental in these openings on account of its experience transference and its involvement in council organization. Also, at one point, HEB used BACM’s warehouse to store goods before the inauguration of one of its Monterrey stores, paying rent and, thus, generating funds from its excess capacity.

A new initiative, the “I’ll eat thanks to you” campaign, which provided funds for the Mexico FB´s was implemented. It was a new fund-raising means: donations were directly made by HEB customers at the store cashiers by purchasing bar-coded coupons of different denominations. HEB was already familiar with this campaign since it was in place in its Texas stores as Check Out Hunger. It had been Blanca’s idea to replicate it in Monterrey. She had just said, “Eddie, I’ve seen the little paper slips you have in Texas for people who want to help…”

Another innovative collaboration product for the BACM already implemented in the U.S. was the “Tournament of Champions.” It was to be a daylong event for top management executives from HEB supplying companies who donated cash sums going from $ 3,000 to over $10,000 (US$ 300 to US$ 1,000). Although it was a new concept for BACM, this event had been carried out every year in Texas. Eddie explained, “Once a year, HEB’s U.S. president sends out the invitations to suppliers. Donations range in thousands of dollars. It involves two or three days packed with activities. Contributions are used to pay for expenses, and the remaining funds go to Special Olympics and other organizations.” In its first Monterrey edition, there was no fund -raising: suppliers were invited to get them to “buy” the project. In its second edition, the next year, suppliers were asked for donations, and, on HEB’s initiative, the funds raised were exclusively destined to the BACM. As regards the organization of the second edition, Norma recalled, “HEB organized the event, while the BACM talked to suppliers… and became involved in organizing the event. In the first edition, HEB had handled the whole thing.”

The collaboration process also produced many manuals, such as the damaged -goods management procedure manual, written by Blanca and one of the HEB Mexico store managers, which included a HEB staff training plan (for managers and department heads). In addition, the training exchange between both organizations was fluent, extensive and both ways. First, knowledge transfers went from Eddie to Blanca, then from Blanca to Norma, and later from Blanca to HEB partners as well as to new food banks. Eventually, HEB administrative personnel shared its know-how with the BACM administrative staff. For example, when the BACM needed benchmarking training, HEB arranged for a meeting with a member of its own staff to allow for knowledge and experience transference.

As regards the specific total real benefit generated by the alliance for both parties and for the partnership itself, Eddie explained that, on behalf of HEB, he calculated it informally on a personal basis. “Here in Monterrey, I take a look at their distribution and their volume. I visit them to check on their progress.” He also clearly expressed he believed the resources and work invested in creating the BACM made it “almost perfect.” “I must say the BACM is probably the best FB in Mexico because I don’t think any other FB matches its efficiency. Javier and his people have worked very hard to make it outstanding.”

As to the cash value of donations streamlined to the partnership, HEB had a 1997-based estimation of kilo prices for products in each store department. Thus, a cash market value was estimated for goods donated to the BACM, and tax-deductible receipts were issued accordingly. HEB only used these receipts for internal control.




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To measure performance, the BACM used indicators such as: population served, institutions, counties and communities assisted, delivered courses by topics, number of meals served, stored and distributed tons, benefits to communities, budget vs. expenses, actual vs. projected revenues, average amount of damaged goods and stocks, and the Comprehensive and Inter-institutional Nourishing Intervention Model (MINII) “developed partly as a result of the work carried out with HEB,” according to Blanca, which, among other things, measured malnutrition decrease among beneficiaries.

At one point, it seemed that benefits granted to social aid institutions could be jeopardized. By 2001, HEB had 17 stores in northern Mexico. In spite of the increase in the number of HEB stores, donations to the BACM underw ent a transformation due to a policy aimed at reducing the amount of damaged goods implemented by the company, which began to send rejected products back to suppliers. As a result of the decrease in donated materials, the BACM faced the need to seek other donors. Out of loyalty to its partner, HEB helped the BACM contact other suppliers.

In this new context, the BACM changed its policy regarding donor acknowledgement. Resources were used to reward larger donors. In the past, all donors were equally acknowledged, whether they donated $100 or one million. Blanca elaborated, “Caritas had never wanted to acknowledge donors. After the arrival of HEB, we instituted the “Breakfast of Hope” on the world Food Day. Javier authorized a written acknowledgement to thank our top ten largest donors among our 150 contributors. This was a paradigm breakthrough for our Council because we used to believe all donations were important, the ten-kilo ones and the ten-ton ones alike…”

The BACM continued to work on new proposals. One of those ideas, although not implemented, consisted of granting the BACM a percentage of the revenues from sales of HEB’s own brand products. In addition, Blanca explained that another significant challenge lay in devoting time to train FB and HEB store personnel in other cities to work together as HEB Monterrey and the BACM did. According to Blanca, “HEB allowed us to help them and train their people.”

Throughout these joint efforts, HEB’s policy always kept a low profile on its social endeavors, and the BACM respected the company’s decision. “At HEB, we do a lot of things, but we don’t like to take credit for them. Sometimes, our donations are much larger than those of other organizations showing their big checks on the media. We believe ´it gets around´,” explained Norma. Although on many occasions HEB could have benefited from publicizing its social work, the company never changed its low-profile policy, not even to help its own position in troublesome circumstances. For example, when HEB announced a new store opening in a historically traffic-jammed location in Monterrey, several social sectors protested against it in the media. However, HEB did not resource to publicizing its social ventures to lobby in its favor. Rather, it waited for local authorities to announce their decision, which turned out to be favorable for the company and the new store.

The relationship continued to create value every year and in every event. Exhibit 6 shows the sequence of events building the HEB-BACM partnership as the years went by. Exhibit 7 describes the increase in in-kind donations from HEB to the BACM during their five-year relationship. Cash contributions for 1997 through 2001, calculated in consumer prices, are shown in Exhibit 8. Total in-kind and cash contributions for the 1997-2001 period are listed in Exhibit 9. Finally, Exhibit 10 includes a break-down of types of products delivered to the BACM in 2001.

Alliance Institutionalization

HEB decided to incorporate the operational guidelines used with the BACM and standardized donation delivery procedures to corporate policy. To Norma, the greatest challenge was to support




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the BACM “to obtain more donations through us and other contacts.” As the HEB-BACM partnership grew, HEB never interfered with BACM’s beneficiary target standards and procedures. Blanca and Norma started interacting with other levels in the organizations. At HEB, the relationship was handled by the HEB-FB coordinator, Karla Cassio, whose counterparts at the BACM were Tere Perez, Lourdes Portugal and Erika Dominguez from Fund-raising.

In addition, there were regular meetings such as:

• Council meetings (once a month)

• Follow-up meetings with managers (13 throughout the year, according to a calendar)

• “Tournament of Champions” meetings (10 from July through October)

• “I’ll eat thanks to you” Campaign meetings (an average of 10 from July through October)

• “Feast of Sharing” meetings (an average of 12 from October through December)

During the alliance institutionalization process, both organizations decided to share their brands. According to Blanca, “we only join our logos for HEB-sponsored events we coordinate jointly. No other donor has ever asked to share our brand. Both logos have been used on vehicles and goods donated by HEB.” The grocery store chain standardized its donation delivery procedures. “For HEB as a company, the most significant challenge was to consolidate delivery procedures to make the best use of drivers’ time at our stores,” Norma pointed out. In turn, the BACM standardized its food collection processes, improving its efficiency in managing HEB-provided aid. BACM volunteers were trained on prepping and sorting goods donated by the stores.

Leaders’ Influence

Several agents were involved in this alliance. From the beginning, as the BACM team recalled, “Eddie trusted us and proved his empathy, love for others and great humane sensitivity. At the same time, Lola set the foundations to build the relationship.” Later, when Norma replaced Lola, the relationship grew stronger. Blanca described the situation, “Norma’s style is highly interactive; we work together. She helps me from the operational standpoint. Lola’s style was more manager-like…” She elaborated on this aspect of HEB-BACM interaction, “With Norma, we sit together and review projects, come up with the numbers, etc. That’s what I admire and appreciate about her. She doesn’t tell me to develop a project and send her a copy. Instead, she says ´how are we going to do it?´, or ´let’s get together to check the receipts´. I believe that’s how we built such empathy. Our leadership is both committed and shared.” On this regard, Norma added, “Personally, I think the fact that we get along so well has been very valuable for the partnership. I am very fond of her, and that made it possible for me to say what I liked and what I didn’t like.” Eddie retired in 2001 and was retained by HEB as external consultant for its Food Assistance Program.

Alliance Communication and New Alliances

News about the alliance, its combined programs, achievements, projects, etc. became known in and outside both organizations. At HEB, Blanca reported, “they publish a wonderful magazine called ‘HEB helping the community’ that reports on their work at schools, FBs, etc.." Also, HEB offered FB-related training to managers and department heads. Within the BACM, communications were channeled through monthly bulletins, planning and operative meetings involving work teams, and their monthly council meeting. Communications to the general public have been through the FOS,




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the "I’ll eat thanks to you” campaign jingle at HEB stores, comments from non -profit organizations aided by the BACM, and the websites of both organizations.

As these communication processes expanded, they gave way, directly and indirectly, to new partnerships. The BACM developed alliances with philanthropic organizations and companies that provided in-kind and cash contributions. In part, the relationship with HEB helped trigger these relationships, but, in some cases, new partnerships were the result of indirectly motivating others to help, as in the case of a person who found out that HEB contributed to the BACM and offered his trucks for food transportation.

HEB also developed other alliances in the social sector that did not involve the BACM. Although they were somehow complementary, these associations did not arise from HEB’s partnership with the BACM. As for new alliances with donors contributing to the BACM, there were two: the Feast of Sharing and the Tournament of Champions, when HEB shared its supplier network with the BACM.

HEB alliances were based on its three top-priority social aid areas: hunger and malnutrition, education, and culture and arts -locally excluding environmental and sport issues. The criteria applied to provide help in such areas were: low income, beneficiaries' vulnerability and the possibility to offer indirect help, i.e., to institutions rather than to individuals. In the hunger and malnutrition area, HEB chose to focus only on its strategic alliance with Caritas Food Banks. Some of its contributions to other institutions were philanthropic, since they were small and temporary donations. The BACM also offered help to institutions on a temporary basis.

Differences with HEB’S Operations in the U.S.

In the U.S., the FBs are non-profit organizations and are supported financially by United Way funding, private donors, food drives, U.S.D.A. commodities and shared maintenance; therefore, HEB had some interaction with local administrations. In Mexico, the government provided no direct support for FBs, which forced HEB to get more involved with the BACM. Another difference between HEB American and Mexican social aid programs concerned the FOS, which demanded necessary changes in some activities or practices on account of cultural variations (for example, FOS date and type of food). Finally, since volunteer work among students, professionals or citizens in general was not so rooted in Mexico as in the U.S., the alliance offered the opportunity to foster the volunteer spirit among HEB Partner s (employees) in Mexico.

Five Years Into the Alliance

Five years after entering into the partnership with the BACM, HEB had not evaluated the monetary benefit derived from having the BACM as an ally in damaged-goods management. But the food -store chain was fully aware of the fact that it would have been very difficult for the company itself to handle the food storing, warehouse building and distribution, and volunteer enlisting necessary for a food aid program without the involvement of the BACM. Norma's words reflected HEB’s recognition, “the BACM’s adequate management of all resources, its capacity to collect and distribute food surplus in the secure, planned and orderly fashion of a responsible organization helping thousands of people allowed HEB to embark on this type of programs in Mexico. The fact that the BACM is legally incorporated and has an administrative staff up to HEB’s standards, the proactive leadership of the BACM top management, its compliance with company requirements (quality, handling and health standards, among others) and the certainty that the BACM would protect the HEB brand adequately have been proved by this successful five -year alliance.”




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Looking back on the relationship, it was plain to see that the alliance had certainly changed both organizations; as Blanca had put it, there was a “before and after HEB” in BACM’s history. After five years, HEB could also refer to “before and after the BACM.”

The next big step for HEB was to integrate its social work to its public relation programs. However, Norma wondered if it would be possible to break away from the company’s long -standing low profile tradition. How would top management react to such a proposal? How could she “sell” the idea? And finally, she wondered whether it would really have an impact on public opinion.




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Exhibit 1 Population Served, Institutions Assisted and Food Tons Distributed by BACM Programs in 1989-2001

Service Area Program Years Population Served

Organizations and/or

Communities Assisted

Food Tons Distributed

Direct Assistance Food shelters 1989 6,660 25 1,014a 1990 – 94 6,203 34 1995 – 99 13,964 66 2000 9,974 60 189 Support to Institutions Education and Nutrition

My Milk-My Growth Stores School Breakfasts MINIIb Aid to Agencies Fruits and Vegetables Staple Food Nutra-Packsd

2001 1998 - 99

2000 2001 1989

1990 - 94 1995 - 99

2000 2001

1998 - 99 2000 2001 2000 2001

1989

1990 - 94 1995 - 99

2000 2001 1995

1996 - 99 2000 2001

1998 - 99 2000 2001 1999 2000 2001

1991

1992 a 94 1995 a 99

2000 2001

6,893 587 962

1,570 12,300 30,546 18,966 7,944 7,105

542 1,727 1,608 3,455 5,724

79,879 101,759

20,206 63,300 50,273 55,261 15,189 47,369 24,710 11,102 24,710 27,852

8,000

19,106 6,329

11,475 6,583

53

24 75

36 36 15 56

97

200 480 344 389 106

0 164 226

171 260

53 62

135 6

18 21

1,047a

59 54

4.7a 54 40

176 143

3,131a

430 524

6,663c

1,913 1,920

45 72 88

104 205 205

Source: Elaborated by the case writer with data from the Banco de Alimentos de la Ciudad de Monterrey (BACM).. aTotal for the 1989-1999 period. bThis program was officially launched in 2000. cTotal for the 1995-1999 period. dThis program was officially launched in 1999.




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Exhibit 2 Caritas Monterrey AC Organization Chart

Assistant BACM Advisory Council

Reception and Delivery

Traffic

Supply Center

Warehouse

Systems

Cashier

Operations

Self-Service Stores

Supply Center

Special Campaigns

In-Kind Donations Nutrition Quality Control

Food Bank Case Department

Health Services

Church Cáritas

Human Promotion

Volunteers Pool

Children Homes

Posada del Peregrino

Pilgrims Lodge

Miscellanea Bank

Cáritas Monterrey Executive Director

Cáritas Monterrey Board Council




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Exhibit 3 Population served (in number of people) by the BACM in 2000 and 2001

Program 2000 2001 Direct Beneficiaries

Food Shelters (Tortillería) 9,974 6,893 My milk, My Growth 962 1,570 Stores 7,944 7,105 School Breakfasts 1,727 1,608 MINII 3,455 5,724

Subtotal 24,062 22,900 Indirect Beneficiaries Agencies 79,879 101,759 Fruits and Vegetables 50,273 55,261 Staple Food 47,369 59,446 Nutra-Packs 24,710 27,582 Subtotal 202,231 244,048 Nutritional Training 1,314 1,156 Community Nutritional Education 10,161 5,427

Subtotal 11,475 6,583 TOTAL 237,768 273,531

Source: Caritas Food and Nutrition Department, 2001 Annual Report.




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Exhibit 4 Food Tons Distributed by the BACM in 2000 and 2001

2000 2001

Direct Food Shelters 95 74 My milk, My Growth 18 21 Stores 59 57 School Breakfasts 54 40 MINII 176 143 Subtotal 401 335 Indirect Agencies 430 524 Fruits and Vegetables 1,939 1,920 Staple Foods 72 88 Nutra-Packs 205 205 Subtotal 2,646 2,738 TOTAL 3,047 3,073

Source: Caritas Food and Nutrition Department, 2001 Annual Report.




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Exhibit 5 Cash Values for BACM Program Benefits in 2000 and 2001 a

Program 2000 2001 Direct

Food Shelters 20,776,772 21,588,663 My milk, My Growth 1,005,196 1,270,920 Stores 579,747 704,992

School Breakfasts 1,541,264 1,156,792 MINII 2,382,689 1,940,542 Subtotal 26,285,667 26,661,909 Indirect Agencies 7,630,713 11,020,229 Fruits and Vegetables 11,895,669 9,813,982 Staple Foods 600,286 1,092,472 Nutra-Packs 4,111,828 3,930,899 Subtotal 24,238,496 25,857,582 TOTAL 50,101,237 52,131,102

Source: Elaborated by the case writer based on HEB’s estimated kilo sale price per department in 1997. a In Mexican pesos.




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Exhibit 6 Time Line

Event Approximate Date HEB starts its Food Bank Program 1983 BACM starts operating October 16, 1989 (World Food Day) First contact with Eddie Garcia through a formal written request submitted by Caritas Monterrey.

October 1996

Change in Caritas Board Council (Eng. Javier Gonzalez and his wife were already part of the Board when Eddie visited the BACM for the first time)

November 1996

First Feast of Sharing and first vehicle donation December 1996 Use of HEB and Caritas joint brands 1996 HEB opens its first store in Monterrey February 1997 Initial agreement to deliver in-kind donations to BACM

February 1997

The first BACM truck picks up in-kind donations at HEB’s first store in Monterrey

February 1997

HEB joins BACM Council (represented by Lola Landa, who was appointed by Eddie Garcia)

1997

HEB internal procedures manual for donations to BACM

1998

The BACM trains HEB managers 1998 The BACM starts acknowledging large donors 1998 New warehouse August 2000 New Food Banks 2000 First Tournament of Champions 2000 HEB begins to register profits January 2001 First “I’ll Eat Thanks to You” campaign 2001 Second Tournament of Champions 2001 The BACM reports operations improvement opportunities to HEB

2001

Increase in in-kind donations from other supermarkets (from perishable to grocery products)

2001

New donors at BACM 1996, 1997, 1998, 1999, 2000, 2001

Source: Elaborated by the case writer.




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Exhibit 7 In-Kind Donations a from HEB to BACM and Corresponding Mexican Peso Values (1997-2001)

Year Number of Stores

Tons Store Average

Cash Value b

1997 1 348 348 $5,563,937 1998 3 812 271 $7,539,433 1999 5 1,017 203 $8,758,930 2000 6 1,024 171 $8,446,460 2001 13 1,139 88 $7,856,801

TOTAL 13 4,339 216 $38,165,561

Source: Data supplied by HEB.

a HEB’s objective was to keep the amount of damaged goods at 1% for perishable products. Only 50% of these products went to the BACM since the rest were losses due to pilferage, customer neglect, etc.. As regards non-perishable products, damage goods accounted for 3% of stock and were often handled through product return agreements with suppliers.

b In Mexican pesos. The current exchange rate in México was $ 9.20 per dollar.




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Exhibit 8 Cash Donations from HEB to the BACM in 1997-2001

1997 1998 1999 2000 2001 Total Christmas Celebration

$360,500 $343,000 $357,000 $326,875 $299,000 $1,686,375

Vehicles $144,553 $137,463 $174,553 $68,731 $525,300 Facilities $165,600 $1,238,000 $1,081,000 $1,104,000 $3,588,600 Equipment $177,200 $72,000 $154,000 $403,200 Campaigns $280,000 $280,000 TOTAL $670,653 $657,663 $1,769,553 $1,479,875 $1,905,731 $6,483,475

Source: Data supplied by HEB.




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Exhibit 9 Total Cash Values for HEB Donations to the BACM

Donation Type Total Value In-Kind $38,165,561 Cash $6,483,475 Total in Mexican Pesos $44,649,036 Total in U.S. dollars $4,464,904

Source: Elaborated by the case writer.




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Exhibit 10 Donations from HEB International Supermarkets to the BACM in 2001

Bread Fruits and Vegetables

Groceries Non-edible Groceries

General Products

Meat

Diary Products

Total

Store with yearly highest donation Kilos 42,660 197,579 5,521 412 0 0 11,598 257,796

Estimated Kilo Price

12.00 5.10 13.86 19.94 59.52 36.25 8.74

Total 511,920 1;007,653 76,525 8,215 0 0 101,367 1;705,676 Store with yearly lowest donation

Kilos 2,886 16,2690 414 198 19,768 Estimated Kilo Price7

12 5.10 13.86 19.94

Total 34,632 82,972 5,738 3,948 127,290 Source: Data supplied by HEB.

7 In Mexican pesos.



case study - heb international supermarkets and the banco de alimentos de caritas de monterrey

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