2. SOURCES

The present research combines personal in-depth interviews and an examination of documents and data gathered from the company’s archives and from commercial publications (Yin Reference Yin2003). Direct information about Inés Rosales prior to 1985 is practically non-existent and bibliographical references are very scarce and extremely generalFootnote ¹³ .

Consequently, the reconstruction of the history of Inés Rosales is based on the information provided by the firm itself and collected during three interviews conducted with Juan Moreno Tocino, the company’s current owner. The official history generated by the firm gives rise to difficulties already underlined by the literature (Rowlinson and Hassard Reference Rowlinson and Hassard1993; Delahaye et al. Reference Del Ángel2009; Rowlinson and Delahaye Reference Rowlinson and Delahaye2009; Suddaby et al. Reference Suddaby, Foster and Trank2010), because companies tend to construct their own thinking and their own myths according to later needs and justificationsFootnote ¹⁴ . Delahaye et al. (Reference Del Ángel2009, p. 31) point out that almost all companies produce historical accounts of their trajectory, either through formal texts making up their corporative history or through their «who we are» section on their websites.

On the other hand, the interviews with the current owner (conducted on 17 September 2015, 3 May 2016 and 25 November 2016) assumed the risk of presenting Juan Moreno’s activity as a mechanism to achieve legitimacy, status and reputation (Suddaby et al. Reference Suddaby, Foster and Trank2010). This possibility was consciously sidestepped by referring to the available sources, namely the company’s notarial deeds of incorporation, transfer to the new owners in 1985 and capital increase of Inés Rosales SAU. The interviews combined the interviewee’s free speech with questions that had been previously defined in order to gather detailed information on the beginnings of Inés Rosales as a born-again global firm.

Finally, the documents provided by the firm have also been used, in particular its internal report on the company’s internationalisation strategy and its accounting documentation, which included Inés Rosales’ annual accounts from 2008 to 2015, sales data by both country and year, and product and year, and the costs and investments associated with the internationalisation process.

3. INÉS ROSALES CABELLO AND INÉS ROSALES: FROM THE ORIGIN AND SUCCESS OF A TRADITIONAL PRODUCT (THE OLIVE OIL TORTA) TO ITS CRISIS

The history of Inés Rosales starts back in 1910, when Inés Rosales Cabello started the adventure of producing olive oil tortas, first at home and later on an industrial basis. The olive oil torta is a traditional Andalusian recipe for a homemade pastry made with natural ingredients: unbleached wheat flour, extra-virgin olive oil and aromatic spices (aniseed, sesame seed and natural anise essence). The olive oil torta is flat and round (12 cm in diameter) and its dough combines all the above-mentioned ingredients. Even today, tortas are handmade and then put in the oven until they are cooked. The result is a crunchy cake with a salty-sweet flavour and a touch of anise.

Inés Rosales Cabello lived in a village called Castilleja de la Cuesta, which is very near the city of Seville, on the road from Seville to Huelva. She started very modestly, with a homemade production that women from the village sold at crossroads, coaching inns — later on, bus stops — and at the nearby old Seville train station. This ambulant sale of olive oil tortas to travellers at transit points facilitated the product’s expansion to other Spanish regions, and it was not long before the torta became the first sweetmeat commercialised far from the place where it was produced.

The transition from homemade production to a more industrialised activity took place only in the 1920s, when Inés Rosales bought an oven from the village bakery and, a little later, invested 6,500 pesetas in new equipmentFootnote ¹⁵ . At the beginning of the 1930s, she introduced the waxed-paper wrapper that allowed optimal preservation and maintenance of the tortas’ properties and quality, as well as easier transportationFootnote ¹⁶ .

Inés Rosales Cabello died in 1934 and her brother Esteban Rosales Cabello took over her responsibilities at the firm. Very soon, the outbreak of the Spanish Civil War paralysed activity at the factory due to lack of raw materials. When the war ended, the firm announced the resumption of its activityFootnote ¹⁷ . In the 1950s, Francisco Adorna Rosales, Inés Rosales’ only son, entered the firm.

In the distribution of olive oil tortas across Spain, the role of Andalusian emigrants moving from their hometowns and villages to other Spanish regions such as Catalonia, Madrid or the Basque Country in the 1950s and 1960s was essentialFootnote ¹⁸ . The increasing demand for tortas led to the modernisation and mechanisation of certain phases of the production process, incorporating new ovens and machinery, although the tortas themselves were still handmade. In those years, the products were also diversified with the introduction of the torta de polvorón Footnote ¹⁹ , the almond torta Footnote ²⁰ and the cortadillo Footnote ²¹ .

The 1973 economic crisis also had an impact on Inés Rosales. Sales clearly decreased while labour conflicts broke out in what was a labour-intensive factory, where the employees moved rack ovens and the kneading of the dough and the wrapping of the tortas were still done by hand. If the seasonal character of the production is also considered — the tortas could not be made during winter because the wet weather spoiled the dough — it is easy to understand why the company’s bad results had a negative impact on the atmosphere of social peace in the factoryFootnote ²² .

At the same time, the olive oil torta came to be regarded as an outdated product and was displaced among young people and children by the booming industrial bakery products entering the Spanish market in those years with aggressive marketing campaigns targeting these segments of the consumer populationFootnote ²³ .

When the new decade started, serious problems were threatening what was already a «loss-making badly managed» firm. This is why in 1980, Francisco Adorna Rosales, owner and manager of Inés Rosales, decided to change the legal form of the firm and transform it into a public limited company (Inés Rosales SA) with a capital of 13 million pesetas. He persuaded his nephews, José María and Juan Carlos Bermudo Lecumberri, to join the firm and draw up a business plan for itFootnote ²⁴ . They made a diagnosis and suggested implementing an Expediente de Regulación de Empleo (ERE, employment regulation plan), an option that their uncle totally rejected, mentioning the family’s honour and commitment to preserving the tradition and protecting the employment createdFootnote ²⁵ .

Given the impossibility of relaunching Inés Rosales SA without dismissing anybody, Francisco Adorna Rosales, who was childless, decided to sell the firm. The purchaser was the Sánchez Romero Carvajal group, who appointed Pedro Lucas Robles Garrido as the new manager. He implemented the ERE and used the distribution network of Osborne (another company owned by the Sánchez Romero Carvajal family holding) to sell Inés Rosales’ tortas Footnote ²⁶ . The new management undertook a series of transformations in the production process (the tortas were now made mechanically, saving money but losing authenticity) and the packaging process (the tortas were now packed in cardboard boxes, which were cheaper but, because they absorb the moisture, made the tortas lose their properties and expire earlier). These changes lowered the quality of the product and led to a constant decrease in sales, negatively affecting the firm’s profit and loss account. In addition, given that the mechanisation process was externally financed — the company’s own resources were very limited — the financing costs increased consequently and led, together with the falling revenues, to the firm not being able to face its payment commitments.

4. A BORN-AGAIN GLOBAL FIRM IS BORN: THE NEW INÉS ROSALES

A born-again global firm is a company with a prior history and no interest in foreign markets that responds to a critical event by undertaking a quick internationalisation process of global scope. Inés Rosales outlived two of those critical events, rather than just one. The first took place in 1985 and almost led to the company’s dissolution due to financial and sales problems. The second affected the company between 1996 and 2004, during the confrontation (see below) that ended with Juan Moreno becoming the sole owner of the firm.

From a corporate perspective, Inés Rosales went through a transition phase that lasted from 1985, when it was acquired by the new purchasers (Juan Moreno Tocino, the brothers José and Antonio Ponce Jiménez, and Juan López), who divided their shares into equal lots (25 per cent each), to 2004, when the firm became the property of the Moreno familyFootnote ²⁷ . The acquisition implied reducing the share capital to zero in order to restore the equity balance, destroyed as a result of the company’s accumulated losses, and a capital increase of 20 million pesetas in which only the new shareholders participatedFootnote ²⁸ . In reality, the disbursement of those 20 million pesetas never took place, because the sellers presented a fake accounting record of the firm, given that the actual financial discrepancy was larger than the one reflected in the company’s documentsFootnote ²⁹ . Thus, the new owners used the 20 million pesetas to rebalance and reorganise the firm, with 15 million pesetas being used to help to take care of the firm’s imminent payments.

The company’s original share distribution was modified around 1990, because only Juan Moreno and Juan López subscribed the capital increase carried out that year. Each of them now held 26 per cent of the business. Between 1992 and 1993, José and Antonio Ponce (who were in disagreement with their two partners) sold their shares for 90 million pesetas to a company called Arroyo Pérez SL, which thus acquired 48 per cent of Inés Rosales SA Footnote ³⁰ . Juan Moreno immediately responded to this operation by purchasing Juan López’s 26 per cent of the business to guarantee his position as majority shareholderFootnote ³¹ . These changes took place during a period in which distributors were losing their specific weight in the commercialisation of bakery products because large sellers were buying directly from the producers.

The owners of Arroyo Pérez SL, who had mistakenly thought that by purchasing those shares they would get hold of most of Inés Rosales’ capital, opposed all subsequent shareholders’ meetings and undertook legal proceedings on the basis of disloyal administrationFootnote ³² . Those proceedings ultimately caused the ruin of Arroyo Pérez SL when the court ordered the attachment of most of its shares in Inés Rosales, which, after being auctioned, ended up in Juan Moreno’s handsFootnote ³³ . Finally, in 2004, the company sold the remaining shares to Juan Moreno. He thus became the only shareholder of Inés Rosales Sociedad Anónima Unipersonal (SAU), a single-shareholder firm which nowadays belongs entirely to Corporación Alimentaria SA, a corporation whose shareholders and owners are all members of the Moreno Pedrosa family (Juan Moreno and his offspring)Footnote ³⁴ .

From the point of view of production and marketing, the first decision that the company made in 1985 was a massive repurchasing of the stock of Inés Rosales products that was still in the hands of the distributors (~70-80 per cent was recovered). The remaining 5 million pesetas of the 20 million provided by the new shareholders were used for this operationFootnote ³⁵ . The objective was to restore consumers’ trust in the company by removing from the market those products that did not meet the quality standards. The second major decision was to return to the old packaging and the original production system, since the new owners were sure that the cardboard packaging and the mechanised manufacture of olive oil tortas were the two factors that had affected sales most negatively.

Customers immediately perceived the change and, as soon as June 1985, employees at the factory were working overtime to meet the increasing demand for tortas. Nevertheless, the seasonal character of the production was still an obstacle, considering the under-use of the firm’s industrial capacity. The solution was found in 1986 through a plastic packaging heat-sealing machine, originally designed to preserve biscuits, which Inés Rosales adapted to its own needs. The use of this machine made it possible to produce and sell olive oil tortas during the winter, notably increasing the factory’s productivityFootnote ³⁶ .

It was in 1996 when the Inés Rosales factory moved from its original site in Castilleja de la Cuesta to its current and larger premises in the village of Huévar del Aljarafe. This move made it possible to expand and modernise its facilities (incorporating a continuous oven and an in-house designed automatic packaging machine). After 2004, when the company’s ownership was fully in the hands of the Moreno family, a major investment process was initiated at the factory (Figure 1).

The internationalisation of Inés Rosales was driven by several factorsFootnote ³⁷ . The first of these was the confirmation that a mature domestic market offered limited options for further growth. Second, the so-called «democratisation of transport», that is, the modernisation and streamlining of transport means, which allowed the company to reach customers wherever they were at increasingly reduced prices and without having to ship large quantities of productsFootnote ³⁸ . Of course, the third and most relevant element was the product itself. In Spain, the olive oil torta is a low-value product commercialised as a low-price, traditional and nostalgic product, whereas in foreign markets tortas are a differentiated product that fit in with healthy food consumption patterns because they are handmade with wheat flour and olive oil and contain no preservatives, food colourings or additivesFootnote ³⁹ .

The firm prepared itself for the challenge posed by the internationalisation process by sending its managers to international fairs and meetings where they could gather information about the different countries and market possibilities, which helped analyse the perception of the product and contact potential distributors (Cambra-Fierro and Vázquez-Carrasco Reference Cambra-Fierro and Vázquez-Carrasco2010). Even though the internationalisation process had in fact started earlier, in 1998 the firm formally created an export department. This department was responsible for introducing and placing olive oil tortas in Spanish imported goods stores, positioning the whole range of products in relevant gourmet stores, incorporating the torta as a permanent item on the menu of international Spanish restaurants and looking for «distributors who could endorse the product, caring for it and preserving its image before the consumers» (Cambra-Fierro and Vázquez-Carrasco Reference Cambra-Fierro and Vázquez-Carrasco2010, p. 70). Thanks to these efforts, olive oil tortas have become, in new destinations, a product for health-minded middle- and high-income customers.

Companies usually start their internationalisation processes by exporting to countries that are close to theirs in both language and culture. Inés Rosales made a different choice and selected its targets first among countries in northern and central Europe (the Netherlands, France, Belgium, Germany, Norway, Finland, Sweden and Denmark), where it had to face the competition of domestic sweetmeats, and then within the Anglo-Saxon market (United Kingdom, United States and Australia)Footnote ⁴⁰ . All these countries had a double common denominator: (i) a healthy food culture, which conditions the consumers’ purchase decisions and promotes healthy products for which they do not mind paying a higher price; and (ii) a high-income per capita that allows consumers to access those high-priced productsFootnote ⁴¹ . The main challenge was introducing the product in markets with cultural entry barriers against it. In these cases, new eating habits needed to be introduced; in other words, customers had to be taught how to savour an olive oil torta Footnote ⁴² .

The export plan designed in 1995 was implemented 1 year later, when exports were made to three European countries, although initially their sales barely accounted for 1 per cent of the firm’s turnover (Figure 1 and Table A1 in the Appendix). During this first phase, the number of target countries slowly increased to seven, but the 1 per cent of the turnover barrier was not clearly overcome while the sales were concentrated in European Union countries (Tables A2 and A3 in the Appendix). The effort of entering markets where customers were not used to buying foreign manufactured agri-food products and then consolidating the company’s presence in those countries slowed down the search for new markets.

The first 5-year period of the 21^st century brought a leap forward in the number of countries to which the firm exported (thirteen) and in the percentage of export sales (around 9 per cent). The destination countries were still within the EU (with Germany, Belgium, France and the United Kingdom in the first line) and accounted for almost 95 per cent of the firm’s exports, but there was already a timid approach to the North American market (Figure 2 and Tables A2 and A3 in the Appendix). In 2002-2003, the firm experienced a slight upturn, and the number of countries to which exports were made increased from nine to thirteen. This success was the consequence of greater experience and of the product’s consolidation in several foreign markets.

FIGURE 2 EXPORT SALES AS A PERCENTAGE OF TOTAL SALES AND NUMBER OF COUNTRIES TO WHICH INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL (SAU) EXPORTS Source: Calculated with data provided by Inés Rosales SAU.

The beginning of the second half of the decade (2004-2005) brought a setback in relation to the percentage of sales in foreign markets and the number of countries the firm exported to, but not in absolute numbers. With the exception of 2005, these numbers kept growing during the whole period. 2006 saw the consolidation of the expansion in the North American market with sales multiplying by ten in the United States (Table A3 in the Appendix).

From 2006 onwards, exports have increased constantly, both in absolute numbers and as a percentage of the firm’s total sales (Figure 3). However, Inés Rosales concentrated its foreign market activity in six countries only: Belgium, Germany, Switzerland, United Kingdom, France and United States, which accounted for 50 per cent of the company’s total exports in 2007 (Table A2 in the Appendix). It was after 2009 that exports reached a double-digit percentage, accounting for 17 per cent of turnover in 2011 (Table A1 in the Appendix). Sales more than doubled between 2007 and 2010, rising from 0.5 to 1.2 million euros. The United States’ vitality as a foreign market and the company’s consolidation in north European countries were responsible for most of those sales. However, in 2014 sales actually dropped to less than 1 million euros because of a decline in the North American market (infra) (Table A2 in the Appendix).

FIGURE 3 EXPORTS OF INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL (SAU) (EUR) Source: Calculated with data from SABI (Sistema de Análisis de Balances Ibéricos) database and annual statements of Inés Rosales SAU.

Until 2008, Inés Rosales concentrated its export activity in a small group of European countries and the United States. However, from 2009 onwards, the number of countries to which the firm exported clearly expanded from fourteen in 2009 to twenty-three in 2011. The firm was busy consolidating those markets until 2013, but later spread to other countries in South America, Asia and Oceania, until it reached twenty-six in 2014 (Table A1 in the Appendix). The available data show how Inés Rosales has worked to consolidate the European market’s sales volume at around 200,000 euros.

Not only did the firm’s strategy focus on incrementing the number of destinations for its exports, but it also insisted on the healthy character of its products. Obtaining quality and Kosher certifications allowed the company to expand the customer base by including both Jewish and Muslim consumers and everyone interested in healthy eating habitsFootnote ⁴³ .

In its search for new European and North American customers, the firm has diversified its products and adapted its flagship product, the traditional olive oil torta, to new experiencesFootnote ⁴⁴ . Selling in northern European markets had an impact on the production of cortadillos, which were traditionally made with lard and have now been transformed into a fat-free productFootnote ⁴⁵ . The North American market forced the replacement, in the traditional olive oil torta, of anise, which is associated with alcohol consumption, with cinnamon and orangeFootnote ⁴⁶ . In addition, the North American demand for a product that is closer to a salty snack has led to the commercialisation of savoury olive oil tortas Footnote ⁴⁷ .

Within this international expansion operation, the entry into the U.S. market was certainly the most successful one, and it has been the main source of export revenues for Inés Rosales since 2006, accounting for 82 per cent of the firm’s export sales and 14 per cent of its global sales. The choice of the United States, due to the resemblance of its consumption patterns to those of the United Kingdom, was also influenced by the fact that North American consumers have the habit of exploring products that are good for their healthFootnote ⁴⁸ .

The expansion strategy in the United States included some of the patterns described in the literature (Solberg Reference Solberg2012), first of all, the selection of a network of small-scale healthy products distributors. Bonds of trust were then created with them and soon Inés Rosales’ products accounted for 50 per cent of their turnoverFootnote ⁴⁹ . In those years, sales augmented progressively, from the initial 13,000 euros to a figure in excess of sales in European countries as a whole in 2007 and reaching sales of over 1 million euros in 2011 (Table A2 in the Appendix).

The problem came when a larger group purchased the original distribution network, for which Inés Rosales’ products represented a much smaller share of the business. After several consecutive takeovers of one distribution group by another always increasingly larger one, Inés Rosales’ products ended up accounting for less than 1 per cent of the distribution decisions. In 2012, the loss of relevance of Spanish olive oil tortas in the perception of the new North American distributor led to a drastic fall in sales, which was even sharper in 2014 (Figure 4).

FIGURE 4 SALES OF INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL (SAU)’S PRODUCTS IN THE UNITED STATES (EUR) Source: Calculated with data provided by Inés Rosales SAU.

Consequently, in 2015, Inés Rosales SAU decided to create Inés Rosales USA (IRUSA, New Jersey) as a subsidiary in the United States. As a result, the Spanish parent company could decide and control the distribution strategy and objectives without depending on third partiesFootnote ⁵⁰ . Assuming the commercialisation and distribution of its production in the United States through this American subsidiary has transformed Inés Rosales into a multinational company.

IRUSA imports the products from Spain, which arrive in the United States in containers, and then sells them to North American distributors (local, regional and national) and to specific retailers that have been collaborating with the company ever since the times of the old importer. IRUSA works mostly with brokers, who are the actual commercial force of the company in the United States. These are commercial representation and marketing companies that develop all sales and merchandising activities in those states where IRUSA is not physically present. In some cases, they also work as intermediaries between the company and the distributors, alongside whom they manage the different promotionsFootnote ⁵¹ .

Inés Rosales is thus focussed on its internationalisation process, not only in relation to its profits, but as acknowledged by the Executive summary of the company’s global internationalisation strategy:

5. THE INTERNATIONALISATION STRATEGY OF INÉS ROSALES: AN ANALYSIS OF ITS FINANCIAL RATIOS

The next step in this research is to evaluate the results of the company’s internationalisation strategy according to the main profitability ratios, comparing the real data with those calculated in relation only to production and sales in the domestic market. The calculation was done replacing the value of sales, costs and investment in foreign markets with the value that would have been obtained had that percentage of the production been sold in the Spanish market (Table A4 in the Appendix). All the indicators (Figure 5) evidence the same fact: that the firm’s internationalisation strategy is actually a survival strategy, the results of which prove its effectiveness when compared with those that would have been obtained had the strategy not been implemented.

FIGURE 5 PROFITABILITY OF INÉS ROSALES SOCIEDAD ANÓNIMA UNIPERSONAL (SAU) WITH AND WITHOUT EXPORT REVENUES Source: Table A4 in the Appendix.

The mature domestic market stimulated the implementation of the company’s internationalisation strategy. Until that moment, domestic sales had oscillated between 8 and 8.5 million euros, but export sales allowed total sales to reach a figure between 8.5 and 9.5 million euros.

The low EBIT (earnings before interest and taxes) reflect Inés Rosales’ production costs, which are high due to certain costly inputs of the production process required to maintain the product’s quality. Thus, in the best scenario, EBIT do not reach 800,000 euros for sales that are close to 8.5 million euros. The best result obtained for the margin, which puts the EBIT in relation to sales, is 9.14 per cent (2009), certainly a low figure, which means that the company earns 9.14 euros for every 100 euros sold. The lack of improvement in the margin over the years (it fluctuates between 4.8 and 8.15 per cent) confirms that only a rise in sales would make it possible to maintain and increase the company’s earnings.

If the internationalisation effect is taken out of the equation, it is possible to see how the company’s performance declines. The firm’s meagre profits suffer significantly when the sales drop; in any case because of the costs. The worst data, with losses estimated over 323,000 euros, justify the need to compensate the above-mentioned cost structure with higher sales. The relation between EBIT and sales, that is, the margin, would be negative had the internationalisation process not taken place. The margin would have fallen as low as −4.48 per cent, causing a major problem to the firm, given that sales would not have brought profit but losses and the situation would only have been solved by increasing the turnover. Without export sales, Inés Rosales’ margin would have remained negative, although it would have improved to around 3.54 per cent, a poor figure nevertheless, considering that the impact of the financial costs (interests) has not been removed from the equation.

The firm’s turnover, with or without internationalisation, oscillates between 100 and 120 per cent. In both cases, the values are high and reflect that, despite the handmade nature of Inés Rosales’ products — artisanal products usually provide a higher margin and a lower turnover — the low margin obtained from their sale implies the company’s need to increase its total sales under all circumstances as a key element in their profitability strategy.

In consonance with the turnover, return on assets (ROA) values run parallel to margin values, so that the observations made regarding the margin also apply here. It is possible to conclude that, the larger the assets, the higher the cost structure, although higher production costs do not always imply higher sales. The analysis presents positive ROA values when exports are included and negative values when the export effect is not taken into account.

A negative ROA value has an immediate impact on the return on equity (ROE). It is important to remember that the ROE depends on three basic factors, two of which are directly related to it, while the third is inversely related. Thus, the company’s ROE increases with higher ROA and leverage values, and decreases when the cost of debt rises. In this specific case, ROE values are very positive when the internationalisation effect is included, reaching 26 per cent the first year, falling to a minimum of 6.92 per cent in 2012, and later improving to 15 per cent in 2014.

When the internationalisation effect is dismissed, the scenario is radically different, because ROE values would turn negative in the period between 2010 and 2013 because of the firm’s losses, which, unless capital increases were approved, would inevitably undermine the firm’s shareholders’ equity. Without the support of the foreign markets, the ROE drops from −10.59 per cent to −18 per cent and the accumulation of losses makes the firm’s equity shrink to half its value, thus compromising the company’s future viability. From a legal point of view, it would certainly constitute grounds for dissolution.

The firm’s total assets, which have an impact on the profitability ratios, increased during the first 4 years until, in 2013, they declined following a concentration process that allowed the firm to reduce its assets and to slim down the financial structure in the form of debts, thus lessening the financial costs and the risk of insolvency (Table A4 in the Appendix). The results of the internationalisation strategy were not directly affected by this, but they were indeed indirectly influenced, considering that the slimming down of the economic structure and, as a result, of the financial structure, became a competitive advantage in the access to external resources to be used for new investments.