Slow growth in baking has category leaders searching for answers.
KANSAS CITY — The nation’s two largest baking companies both have long histories in the industry, and over the past year both companies made major moves in order to be positioned for success in the long-term future.
The actions of Grupo Bimbo S.A.B. de C.V., based in Mexico City, and Flowers Foods, Inc., Thomasville, Ga., have been taken at a time in which growth in baking has been scant.
Dollar sales of fresh bread were flat over the past year, according to data from Information Resources, Inc., totaling just over $13 billion. Within the bread category, fresh bread sales were down very slightly, off 0.1%, at $8.9 billion. Bun sales were down 2% while “other fresh rolls/buns/croissants, were up 2.4%. Bagel sales fell 1.9%. Strong in grain-based foods were indulgent categories, including pastry/donuts, up 4.4%, and pies and cakes, up 3.2%.
Between the two companies, Bimbo Bakeries USA and Flowers Foods have combined retail sales of $4,248 million, accounting for 61% of branded bread sales in the United States, according to I.R.I. data.
Restructuring efforts undertaken by both companies followed major acquisitions within the U.S. baking industry. In 2011, Bimbo acquired the fresh baking business of Sara Lee Corp., and three years later Flowers acquired out of bankruptcy the bread business of Hostess Brands, Inc. While the latter business had been ailing for many years, the Hostess business historically had been the largest bread business in the United States, and the Sara Lee business had ranked second. Both acquired companies had aging asset bases, and it is no wonder significant restructuring efforts followed both transactions.
In the years since it acquired the Sara Lee business, capacity rationalization has been pursued steadily by Bimbo. Baking plants have been closed by the company in California, Illinois, Iowa, Kansas, Kentucky, Nebraska, Pennsylvania, South Dakota and Tennessee. In Canada, plants have been closed in Alberta, Nova Scotia and Quebec.
Speaking in late July, Daniel Servitje, Bimbo’s chief executive officer, said company efforts to optimize its production and distribution infrastructure should be viewed as a “never-ending process.”
“As we streamline and improve our efficiency within our plants, we are always looking at the cost-per-unit effect on all of our plants,” he said. “And we’re always striving to do better. When we operate at a better rate, we can bring more volume to the most efficient plants. And if there is an opportunity to have a structurally better performing company, we will take that. And we are constantly opening lines in different parts of the world and shutting down lines or plants if we can do it. Because as we’ve always said, our intent here is not basically to work for a quarter or a year, we are a long-term builder of a competitive advantage in our industry. And that requires us to look at the opportunities with the long-term purpose. So these closures are part of a plan that will continue to be implemented over time here and in all markets. In North America, basically the plants that are planned for closing or closed already are small plants, old plants. Most of them are one- or two-line plants.”
Bimbo’s efforts have not been limited to capacity reduction. New lines have been added at certain plants, and a $75 million new plant was opened by the company in 2015.
Additionally, in March 2017 the company announced a bolt-on acquisition of Stonemill Bakehouse Ltd., a specialty baker based in Toronto. Stonemill bakes slow fermented craft bread baked in stone ovens using non-G.M.O. certified and organic ingredients. The company’s bread is sold under the Stonemill Slow Crafted brand and is available in several varieties, including Sprouted 3 Grains, 11 Whole Grains, Bavarian Light Rye and Sprouted Flax. More recently, Bimbo agreed to acquire Chicago-based East Balt Bakeries from One Equity Partners for $650 million. While East Balt operates three U.S. baking plants, East Balt’s business is centered outside the United States, a point emphasized by Mr. Servitje. He said East Balt appeals to Bimbo because it provides an avenue toward increased geographic and product diversification.
At Flowers, a more comprehensive restructuring has been under way over the course of the past year. In September, Allen L. Shiver, president and chief executive officer of Flowers, said the company is streamlining its brand lineup and will focus resources on its four largest brands — Nature’s Own, Wonder, Dave’s Killer Bread and Tastykake.
“Our priority to reinvigorate our core business is all about focusing on our core brands and improving execution in the marketplace,” Mr. Shiver said in a presentation at the Barclays Global Consumer Staples Conference. “We’re focusing on innovation and marketing resources on four key brands. We will work to bring to market new items under these brands that have a clear point of difference and resonate with the consumer.”
Commenting very briefly on each of the four brands, Mr. Shiver said Nature’s Own is the top selling loaf bread in the United States, Wonder has 98% consumer awareness, Dave’s Killer Bread is the leading organic bread in the nation and Tastykake is drawing increased Flowers’ support through marketing partnerships and new varieties.
As part of that focus, Flowers will be eliminating many stock-keeping units, including a number of smaller brands that have long histories. Over time, the proliferation of brands has become costly and distracting, Mr. Shiver said.
“Decades of bolt-on acquisitions have left us with a complicated marketing assortment,” he said. “For the fall shelf sets, we will go to market with a streamlined offering, we’ll be able to improve merchandising and put support behind our strongest brands and products. As an added bonus, this action also increases run times and improves overall manufacturing efficiencies while also improving our order accuracy.”
In June, Bimbo Bakeries USA added to its Thomas’ Swirl Bread line with the limited-edition launch of a Blueberry Pancake variety.
With so much organizational and structural change, innovation in bread has been less robust over the past year. One area of strong interest has been in breakfast bread. In June, Bimbo Bakeries USA said it was adding to its Thomas’ Swirl Bread line with the limited-edition launch of a Blueberry Pancake variety. The bread was to be available through September at a suggested retail price of $3.99. Other varieties in the Swirl Bread lineup include banana bread, cinnamon raisin and cinnamon.
Among other innovations during the year targeting the breakfast market was the baguette bagel from Ace Bakery, a unit of Weston Foods Ltd., introduced in March. The company said the product combines the texture of a baguette with the convenience of the bagel. Ace has been baking baguettes for nearly a quarter century and describes the new product as a “baguette on the go.” Ace said the baguette bagel will fit more easily into a toaster than a sliced baguette.
“This exciting new bagel innovation caters to those yearning for the ultimate in taste and convenience,” said Roy Benin, president of Ace. “All bagel lovers will want to try this delicious, new taste sensation.”
In March, Ace Bakery introduced a baguette bagel.
Organic bread has been an area of interest as well.
In April, Klosterman Baking Co. said it was entering the organic market with four new organic 24-oz bread varieties. Klosterman’s new organic raisin bread, organic honey wheat bread, organic honey white bread and organic 100% whole wheat bread will be distributed fresh and frozen nationally to restaurants, co-packers, retailers, institutions and food service customers.
Also in April, Bimbo Bakeries added to its Eureka! brand of organic bread with the launch of Outta Sight White.
Flowers Foods bridged the two trending bread categories with the introduction of Dave’s Killer Bread varieties targeted toward breakfast. The new products included three bagel varieties and a cinnamon raisin bread.
Flowers Foods brought its Dave's Killer Bread brand to the breakfast category with new bagel varieties and cinnamon bread.
“With this introduction, we’re focused on growing our share of the almost $2 billion breakfast segment, which for us is an undeveloped area of the category,” Mr. Shiver said. “This underlines the potential to expand into other segments for the category with the D.K.B. brand.”
In March, Rudi’s Organic Bakery announced the introduction of two new bread varieties launched in partnership with Community Grains, an Oakland, Calif.-based whole wheat milling company. The new varieties are Whole Wheat Bread made with Sacramento Valley Whole Grain Flour and Whole Wheat Bread made with Hungry Hollow Whole Grain Flour.
Produced from locally sourced wheat, Rudi’s said Community Grains is “dedicated to improving ingredient sourcing transparency from seed to table through partnerships with regional grain farmers to preserve nutrients and add robust flavors while helping consumers understand where their food comes from.”
In March, Rudi’s Organic Bakery launched two new bread varieties in partnership with Community Grains.
In January, General Mills, Inc. said it was looking to help schools elevate their sandwich selection with two new Pillsbury bread options for food service: panini and ciabatta. The new bread options allow K-12 schools to offer a variety of hot and cold sandwiches without extra equipment or labor, General Mills said. The panini bread comes pre-grilled and needs only to be heated in an oven while the pre-sliced ciabatta may be thawed and served.
Another food service innovation came from Subway in September 2016. At the time, the sandwich chain said it was adding multigrain flatbread to its permanent menu. The product contains chia and flax seeds, with 50 grams of whole grains in each 6-inch sandwich. The new flatbread features the Whole Grain Stamp from the Whole Grains Council. In April 2015, Subway introduced the Whole Grain Stamp on its 9-Grain Wheat bread and 9-Grain Honey Oat bread.
