Sanborn Hermanos, S.A. Business Information, Profile, and History

History of Sanborn Hermanos, S.A.

Best known in the United States as the American tourist's home away from home in Mexico, Sanborn Hermanos, S.A. (universally called Sanborns) is much more than that to Mexicans. The Sanborns units (86 in 1995) generally serve food and drink, and there also is a chain of Sanborn Café outlets (35 in 1995). Drugs, cosmetics, confections, sundries, gifts and toys, audio and visual equipment, and books, magazines, and newspapers are also found in Sanborns' upscale shops. Unlike many other enterprises, Sanborn Hermanos remained profitable despite the vicissitudes of the Mexican economy in the 1980s and 1990s.

Family Business, 1903--46

Walter Sanborn, a young American recently licensed as a pharmacist, wandered down to Mexico in 1898 and took a job in the Mexico City apothecary shop run by an old German named Schmidt. Four years later his brother Frank came down for a visit and was equally fascinated by the country. In 1903 the brothers opened their own drugstore in Mexico City. "We decided that Mexico couldn't be a land of manana and a land of opportunity at the same time," Frank recalled in an interview many years later. "We decided we'd have to work just as hard here as we would at home, and we decided we were here to stay, not to make a quick fortune, but to build our homes and lives. That makes a difference in the attitude of people here just as it would in our hometown."

The business, founded as Farmacía América, became Sanborn Hermanos in 1907 (hermanos is the Spanish word for brothers). One of the first decisions was to eliminate the 15 percent commission that doctors charged for directing prescriptions to a pharmacist. Most of Mexico City's doctors refused to deal with them, but a few agreed because, Walter said, he promised them "not only quality, but service you have never seen before." At the time, it took hours--and sometimes even days--for medicine to reach the patients from drugstores. Sanborns' bicycle messengers provided the city's first quick free delivery service. By the early 1940s the company estimated it had filled nearly 3 million prescriptions.

The Sanborn brothers not only had to overcome the reluctance of Mexico City's doctors to direct prescriptions to their pharmacy but also the virtual monopoly that three German firms held over the drug business in Mexico. Besides importing German and American brands, they produced cheap imitations of others and sold them at a discount. The Sanborn brothers brought in American brands and refused to discount but offered guarantees of quality. "We missed a lot of sales, but once we'd won a customer, we never lost him," Frank recalled.

One of the German firms then played its trump card: it placed an enormous order with an American manufacturer for a brand Sanborns' was importing, an order big enough to supply all Mexico for more than a year. Frank Sanborn took a train to New York and convinced the manufacturer that the Germans planned to divide the goods among themselves, then flood Mexico's pharmacies with them at discount prices until Sanborns was driven out of business, then return to their old practices, which favored German brands over American ones.

The Sanborns were not content to run a pharmacy. They started to serve lunch to their employees to keep them from going home for the siesta and soon began serving sandwiches to their customers as well. In 1910 they sent to the United States for a soda fountain, which was still a novelty even there. The needed milk supply for ice cream and malteds was unsafe, but the brothers found a few healthy cows and imported Mexico's first cream separator along with the soda fountain to serve what they claimed was the first scoop of ice cream south of the border. Sanborns did so well catering to the Mexican sweet tooth that the brothers brought in a herd of tested cattle, thereby becoming fathers of Mexico's modern dairy industry. They rented more space to accommodate trade, and the soda fountain grew into a restaurant.

Undoubtedly Sanborns most difficult period was the decade that followed the Mexican revolution of 1910, during which the country was plunged into bloodshed and anarchy. The store was smashed by soldiers in 1914, when the brothers evacuated their U.S. workers, but it survived as a kind of neutral zone in which Sanborn employees were forbidden to talk politics and the same ban was "tactfully impressed" on its patrons. In 1919 the brothers decided the political situation was stable enough to move into the House of Tiles--a stone palace, covered with blue tiles, in the heart of downtown, that had just been vacated by the Jockey Club. It had been built in 1596 for a Spanish aristocrat and had later served as the Russian and Japanese embassies and as a dormitory for homeless newsboys. A Mexican later recalled that the opening of the new Sanborns in 1921 "was like a rebirth of optimism in the city. Other businessmen, too, decided the revolutions were over, and money that had been hidden for 10 years began to circulate again."

The Sanborns restored the House of Tiles and commissioned the celebrated painter José Clemente Orozco to produce a mural facing the great stairway. Waitresses were dressed in the colorful costumes of the Tehuantepec Indians. Politicians, civil servants, journalists, and businessmen--the movers and shakers of Mexican society--gathered in the restaurant. Churchgoers began dropping in for breakfast after Mass, and Sanborns even became home for debutante teas. By the end of World War II almost 2 million people were visiting the two-story tiled palace each year.

Sanborns entered a new endeavor in the early 1920s, when Frank Sanborn found he could not locate a competent silversmith even though Mexico led the world in silver production. While another American, William Spratling, was reviving the art and craft of silverwork in Taxco, Sanborns stimulated the trade by using workmen to fashion silver to its own designs. By the early 1940s Sanborns annual sales volume from silverwork came to $250,000. Ten years later it was the biggest silver shop in Mexico.

By this time Walter Sanborn was long retired and Frank was administering the business with the help of his two sons, Frank, Jr. and Jack. The tile-clad patio restaurant served 3,500 customers a day, and there was a cocktail lounge, too. Besides silverwork, Sanborns, the biggest crafts shop in Mexico, was selling the output of some 1,300 native craftsmen in wood, wool, glass, pottery, stone, metal, leather, and feathers. The second floor offered furs, gowns, and furbelows, men's suitings, and household goods. There was a post office and information bureau for tourists. A second Sanborns had been opened in Monterrey.

Sanborns was a considerable wholesaling and manufacturing concern as well. The company was Mexico's largest drug manufacturer, with a modern factory. There was also a toilet-goods plant. In addition, the company was serving as the Mexican wholesaler for nearly 30 U.S. manufacturers. Sanborns held the manufacturing and distribution rights to several major U.S. drug and cosmetic lines, including Hinds hand cream, Listerine, Pro-phy-lactic brushes, and the products of the American Safety Razor Corp. Its annual sales volume came to close to 20 million pesos ($4 million). The company had between 700 and 800 employees.

Under Walgreen Management, 1946--84

In 1946 the Sanborns sold their business, which now included a second Mexico City outlet in the Hotel Del Prado (a victim of the 1985 earthquake), to the Walgreen Co. drugstore chain for about $2.5 million. By Mexican law, the purchaser was required to form a Mexican corporation in which at least 51 percent of the stock was owned by Mexican citizens. In the mid-1960s this controlling interest was in the hands of a group headed by two of the nation's biggest industrial and financial tycoons, Carlos Trouyet and Julio Lacaud. Walgreen's received a share of the profits and ran the enterprise under a long-term management contract. It was the chain's only venture outside the United States. A Sanborns plant manufacturing chocolates, candy, and other comestibles was added around 1950.

Sanborns opened a four-story, $5 million store in 1953 on Mexico City's swank Paseo de la Reforma, next to the U.S. embassy. This virtual department store included, besides a restaurant and soda fountain, a big drug department, cosmetics, clothing and accessories, household goods, arts and crafts, photographic equipment and supplies, and a bakery. It also included a plush cocktail lounge. The structure, with 98,000 square feet of floor space, was leased to Sanborns on a rent-plus-profit-sharing basis.

In the ensuing 20 years Sanborns grew into a chain of eight stores, all of them in Mexico City except the Monterrey outlet. Three of the Sanborns stores now had cocktail lounges. About 45 percent of the chain's sales came from restaurants and lunch counters. Only four of the outlets maintained drug departments, because with prices controlled by the government and discount stores glutting the market, the company had decided the business was no longer profitable. Sanborns had displays of U.S. magazines, money-exchange booths, and the kind of trinkets and sombreros that attracted tourists, but the tourist trade only made up about 15 percent of the company's business.

More than 10 percent of Sanborns' income now came from wholesaling popular-priced Sanborns-labeled products to other stores. These consisted mainly of toiletries, coffee, ice cream, and candy, with candy the leading single item sold in all the stores. Sanborns was still making its own candy and selling more than 100 tons a month in its own stores and through the wholesaling operation. Sanborns' manufacturing line also included shampoo, cold cream, and cologne (Mexico's top seller), and it was licensed to produce four items under the Walgreen name: a henna hair rinse, a shampoo, a cleaning fluid, and an after-shave lotion. The company no longer was manufacturing and distributing U.S. products under other licenses except to bottle Eye-Gene, an eyewash, and to distribute Mentholatum and Tampax. "Most of the companies that once licensed us now have moved in with their own manufacturing operations after the market was developed for them," explained general manager James Mitchell.

Sanborns opened a store in Acapulco in 1966 and one in Puebla in 1969, when its number of outlets reached 12. Also in 1969, it completed construction of a large modern complex that included a laboratory, warehouse, commissary, and laundry. In 1971 its number of stores reached 17, including three new Mexico City outlets, one of them in the Plaza Satelite, a shopping mall. A second Acapulco store opened in 1973. By this time the company's arts-and-crafts offerings included sculpture and paintings. Sanborns acquired the 18 units in five Mexican cities of the Denny's fast-food chain in 1976. A year later the company ranked 71st in sales among Mexican-based companies, with 1.29 billion pesos (about $58 million) in revenues.

Sanborns had revenues of 2.98 billion pesos (about $130 million) and net income of 255.8 million pesos (about $11.3 million) in fiscal 1980 (the year ended June 30, 1980), when it operated 44 retail outlets (including the Denny's chain), of which 14 were outside Mexico City. But the 1982 Mexican economic crisis so reduced the value of the peso that Walgreen's lost faith in the chain's ability to return a significant profit in dollars. In 1984 the company sold its 46.9-percent share in Sanborns to a group of Mexican investors for $30 million. The company had been selling shares on the Bolsa de Valores, Mexico City's stock exchange, since 1956, and most of the shares not held by Walgreen's belonged to banks and mutual funds. The purchasers of Walgreen's stock were not disclosed, but by 1990 Carlos Slim Helú had a controlling share of the company through the firm Galas de México, in which he held majority control.

Sanborns in the 1990s

After Walgreen's sold out, James Mitchell was replaced as general manager of Sanborns by Juan Antonio Pérez Simón, who also assumed the title of president. Sanborns continued to turn a healthy profit. In 1991 it had net income of 81.04 billion pesos ($26.9 million) on net sales of 990.54 billion pesos ($328.4 million). By the early 1990s a large portion of Slim Helú's assets were in the holding company Grupo Carso, which owned a two-thirds share of Sanborns. Sanborns was now selling books as well as magazines (and was, or would soon become, the largest bookseller in Mexico) and audio products such as stereo systems. Some 90 percent of company sales were coming from the Sanborns chain, with the rest from Denny's. The company's assets now included a significant amount of real estate.

By 1995 Carlos Slim Domit, son of Carlos Slim Helú, had become general director of Sanborns, replacing Pérez Simón, who became chairman of the board of directors. Despite the devaluation of the peso in December 1994, resulting from a flight of capital abroad, and the devastating economic crisis that followed, Sanborns continued to be profitable. In 1995 it had net income of 158.1 million pesos ($23.2 million) on net sales of 2.28 billion pesos ($335.3 million). The long-term debt was 142.9 million pesos ($21 million) at the end of 1995. By then the Denny's units had been converted into more-upscale Sanborns Cafe coffee shops. The company also had taken a majority interest in the Mix-Up and Discolandia music-store chains. There were 86 Sanborns units and 35 Sanborns Cafe units at the end of 1995. During the first quarter of 1997 Sanborns accounted for 12.1 percent of the consolidated revenues of Grupo Carso and 7.4 percent of its operating profit.

Principal Subsidiaries: Acolman, S.A.; Administración Integral de Alimentos, S.A.; Bienes Raices de Acapulco, S.A.; Central Imobiliaria de México, S.A.; Fideicomiso de Administración 2393; Imobiliaria Buenavista, S.A.; Imobiliaria Ciudad del Sol, S.A. de C.V.; Imobiliaria Diana Victoria, S.A. de C.V.; Impulsora de Empresas y Exportaciones, S.A. de C.V.; Operaciones e Inversiones, S.A.; Pam Pam, S.A.; Productos Chase, S.A. de C.V.; Promotora Musical, S.A. de C.V.; Santepec, S.A.