July 30 (Bloomberg) -- Inversiones Nacionales de Chocolates SA, Colombia's biggest food group, will open plants in Mexico and Central America, aiming to boost exports and make the U.S. its biggest overseas market by 2007, Chief Executive Carlos Piedrahita said.

The chocolate, cookies and candy plants -- a combined investment of about $70 million -- will help Chocolates increase sales to U.S. Hispanics by taking advantage of those countries free trade accords with the U.S., Piedrahita said. The U.S., which accounts for 20 percent of Chocolates' $120 million in exports, is its second biggest overseas market after Venezuela.

``We have entered a period of expansion and now we want to change from a Colombian company to a regional company,'' Piedrahita, 50, said in an interview at his office in downtown Medellin, Colombia. ``Security in the country is helping drive the expansion.''

Chocolates has lifted domestic sales as much as 12 percent this year as President Alvaro Uribe's two-year crackdown on guerrillas and drug traffickers makes the roads safer, improving distribution, Piedrahita said. Enhanced security helped Colombia's $90 billion economy expand 3.8 percent in 2003. The government forecasts growth of as much as 5 percent this year.

``Our trucks can get through to the remote areas and so can our salesmen,'' Piedrahita said. ``That automatically translates into increased sales and better penetration. Now we need to look to bigger markets.''

Inversiones Chocolates said yesterday second quarter net income rose 47 percent to 23.4 billion pesos from 15.9 billion pesos a year earlier. Its shares, which have gained 37 percent this year, compared with a 13.9 percent rise in the Colombian Stock Exchange General Index, fell 50 pesos or 0.9 percent to 5,690 pesos yesterday.

Trade Agreements

Inversiones Chocolates is the third pillar of the Antioquian Business Group, Colombia's biggest industrial conglomerate, which includes Cementos Argos SA, Colombia's largest cement holding company, and Suramericana de Inversiones SA, the nation's biggest insurance holding company.

Chocolates brands, which include pasta and meats, had sales of 2 billion pesos ($763 million) last year. Sales in the first half of this year reached 1 billion pesos.

Chocolates, will spend up to $20 million on a plant in Central America next year ``ideally'' in Costa Rica, and another $50 million on a Mexican plant in the following two years, said Piedrahita, who has been at the group 24 years. The company will finance the plants from cash flow. While he would prefer to make acquisitions, the company will consider building new facilities.

Hispanic Market

``Moving to Central America and Mexico is a very smart strategic move,'' said Denis Parisien, a corporate debt strategist for Standard Miami, a unit of Standard New York Securities Inc. ``They are geographically close to the U.S., culturally attuned and there will be tariff benefits. And the Hispanic population in the U.S. is growing rapidly and so is its income.''

Central American nations and Mexico have free trade agreements with the U.S., allowing Chocolates to take advantage of cross-border tariff benefits by setting up shop there, Piedrahita said.

Piedrahita is betting the more than 2 million Colombians in the U.S. will buy brand recognition and switch to Colombian chocolate over brands like Hershey and Mars. Piedrahita said the company has already been expanding its marketing and distribution operations throughout the region.

``It's hard to see any new chocolate company competing one on one with the likes of Mars and Hershey's, but if you are a Hispanic company targeting the Hispanic market you stand a much better chance,'' said Don Montouri, an analyst at Packaged Facts, a division of consumer research publisher MarketResearch.com in Rockville, Md.

Chocolate Footballs

The U.S. has 40 million people of Hispanic origin, making them the country's largest ethnic group at 13.7 percent of the population, according to the U.S. Census Bureau. Some 82 percent of Hispanics eat chocolate, said Mintel International Group, a market research company in London.

``It's a good start for us, sell to Hispanics first and then try and push to the broader U.S. market,'' said Piedrahita. Even as obesity reaches record levels in the U.S., chocolate sales rose 11 percent to $14.5 billion in 2003 from $13 billion in 1998, according to data provided by Mintel.

Already at the company's 34,000 square-meter plant in Rio Negro, about 25 kilometers from the center of Medellin, workers are churning out about 42 tons of chocolate bunnies and miniature footballs for Wal-Mart Stores Inc. in the U.S. with sales pegged to Saint Valentines Day and Christmas, he said. Some 388 tons are earmarked for the U.S. market this year.

To contact the reporter on this story: Helen Murphy in Bogota Ext. Hmurphy1@bloomberg.net

Last Updated: July 30, 2004 11:36 EDT