THOMASVILLE, GA. — A little more than a year after the brand was relaunched, Cobblestone Bread Co. bread is enjoying marketplace success, said Allen L. Shiver, president and chief executive officer of Flowers Foods, Inc., Thomasville.
Mr. Shiver commented on Cobblestone during a Nov. 12 conference call with investment analysts in connection with the company’s third-quarter financial results.
Versus the same period last year, Flowers net income was down 1.7% while sales were up 4.7%. EBITDA adjusted for special charges in the third quarter was up 6% from the third quarter last year, while net income was up 8%. Additionally, the company projected earnings per share for the year of 96c to 98c, versus 96c to $1.01 as Flowers was projecting at the end of the second quarter.
While the Cobblestone Bread brand initially was reengineered with an eye toward millennial consumers, Mr. Shiver did not cite any specific demographic in describing the appeal Cobblestone has begun to show.
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| Allen L. Shiver, president and c.e.o. of Flowers Foods, Inc. |
“Earlier this year we introduced a right-size loaf under our Cobblestone Bread Company brand in select test markets,” he said. “The C.B.C. right-sized specialty bread has the unique varieties of bread that consumers want, but in a smaller size.
“After the successful test, we have rolled out C.B.C. right size items across our D.S.D. (direct-store delivery) network, and the response from consumers has been great. According to I.R.I., Cobblestone had the greatest unit increase in the specialty premium category during the third quarter. Between our organic bread offerings and C.B.C., we have a sound strategy to grow our share of the specialty premium category.”
For the last several years, Flowers’ principal product line in this category had been Nature’s Own Specialty Premium, first introduced in 2006. Flowers said the relaunch of Cobblestone Bread Co. represents a new standard bearer for the company in the premium specialty category.
Even while tempering expectations for full-year financial results in 2015, Mr. Shiver identified no shortage of positives in developments at the company over the past quarter. For example, sales of Tastykake products were strong. The brand had been under pressure for an extended period following the return of Hostess snack cakes to the market in the summer of 2013.
He cited I.R.I. data showing Flowers’ total dollar share in snack cake up 2.6 percentage points (driven entirely by price — with volume flat). The Tastykake brand did better still.
“Direct-store delivered Tastykake is driving our cake business,” he said. “I.R.I. reports Tastykake retail sales were up 6% with unit volume contributing 4.5% and positive price mix,” he said. “Tastykake has grown sales by leveraging Flowers’ D.S.D. network in both core and expansion markets.”
Gains in bread were more modest, with Flowers capturing a 14.1% market share, up 0.2 points in the quarter. Responding to a question later in the call, Mr. Shiver said the volume rather than the depth of promotional activity has decreased.
“But, again, it varies dramatically from one market to the next,” he said. “Pricing varies dramatically from one product category to the next.”
Looking forward, the recent Tastykake experience could have a positive spillover effect in bread, Mr. Shiver said.
“Our success integrating Tastykake products into our D.S.D. network gives me confidence that we will execute on our plans to add Dave’s Killer Bread items to our D.S.D. routes, and extend the reach of D.K.B. beyond the Pacific Northwest,” Mr. Shiver said.
Food service sales were another area of strength at Flowers during the quarter, helping generate a 6.7% gain in non-retail sales during the third quarter.
Perhaps most promising has been the market reaction to the Flowers acquisition of the Dave’s Killer Bread brand, Mr. Shiver said.
“We are now adding D.K.B. to our existing West coast direct-store delivery network and working quickly to increase capacity and expand distribution in our core markets,” he said. “Our retailers are eager to have these brands on their shelves, and we are working closely with them in preparation for their spring shelf resets. Even with all the activity, an absolutely critical aspect of the integration has been the attention we have put on making sure that even as the companies come together, the quality and integrity of their products, and the culture of their team is respected and preserved.”
Responding to a question, Mr. Shiver suggested the company has been under pressure to integrate D.K.B. faster than originally planned, especially on the West coast.
“With the acquisition of Dave’s, on the West coast a lot of the grocers are very anxious to have fresh D.S.D. delivery of Dave’s, and right as we speak, we are in the process of adding Dave’s to our D.S.D. network on the West coast.,” he said. “The rest of our retailers are also excited about the brands and would like to have them nationwide. Obviously, we’ve got some work to do from a manufacturing standpoint to make sure that we are producing the products as close to market as possible, and we are targeting to be ready for really another level of roll-out for Dave’s and Alpine this spring. So the good news is, there’s a lot of support and a lot of interest from the consumer and from the retailers. It’s all coming maybe a little faster than we had anticipated, which, that’s a good problem to have.”
The success of Cobblestone and the addition of D.K.B. and Alpine Valley Bread are particularly important at Flowers given macro challenges facing the industry, Mr. Shiver said.
“There’s a long list of center store products categories that are flat to down,” he said. “Fresh bakery is also flat to down slightly. And I think the real challenge for us is to make sure that the segments of fresh bakery that are growing, that we are taking full advantage of that. And that’s why we’re so excited about new products like Cobblestone Bread Company, that really has the unique positioning in the specialty segment, as well as our organic brands, Dave’s and Alpine.
“So the category is relatively flat. I’m very proud of our team, even in a flat market, we have been able to generate acceptable price and sales increases. We are working on a lot of other aspects of the business to improve our brand strength and give the consumer a reason to buy Flowers brands, as opposed to what they may be doing now. But at the same time, we are doing things that we feel like can drive the category to our brands over time.”
Asked about Flowers’ ingredient market position going forward, the company’s executives said they were not yet issuing guidance for the new year but hinted that they may have taken extensive forward coverage amid what was described as favorable market conditions.
“Generally, we feel good about our coverage at this point for next year,” said R. Steven Kinsey, executive vice-president and chief financial officer. “What we’ve said historically is when the market is opportunistic, we will take coverage, and as you can see from the prices over the last four or five months there’s been a lot of opportunity. So from that perspective, I would say we feel really good about where we are covered at this point for 2016, and we will provide more detail when we finish our planning process.”
