No pain, no gain in the bread industry
Oct. 29, 2013
by Charlotte Atchley
When old Hostess Brands fell, it left a gap on bread shelves — a gap other bakeries eagerly raced to fill.
“Everybody was scrambling to pick up all that business as fast and as effectively as possible before the return of the Wonder, Home Pride and Beefsteak brands,” said J. Bohn Popp, vice-president of marketing, Aunt Millie’s Bakeries, Fort Wayne, IN. He likened those immediate six months to the first turn of the Indy 500. “Thirty-three cars going for the first turn at 230 miles per hour. They’re trying to get there as fast as they can. They’re all trying to get the best position they can and survive. Then it all sorts itself out.”
Bakeries last November fought for the abandoned shelf space in the bread aisle and lured consumers with lower price points and new varieties. They promoted their existing alternatives to the iconic names that had disappeared. Others simply put the pedal to the metal and cranked up production.
For example, in the absence of Beefsteak Rye, bakeries with the capacity and foresight to do so launched rye varieties. Alpha Baking Co., Chicago, simply used promotions for its existing rye, letting buyers of Beefsteak Rye know that there was an alternative waiting for them. “In the Chicago area, we already have the largest variety of ryes, so we tried promotions and pricing to get people to try our rye,” said Tim Lotesto, director of marketing and communications for Alpha Baking. “We didn’t think we needed to introduce any new varieties at the time.”
In the wake of Hostess Brands’ bankruptcy, Flowers Foods, Thomasville, GA, purchased 20 of the company’s baking plants as well as the Wonder, Nature’s Pride, Merita, Home Pride and Butternut bread brands. Bimbo Bakeries USA, Horsham, PA, picked up the Beefsteak business.
As the nation’s leading baking companies snatched up these iconic brands and continue to battle for national dominance, competition in the bread aisle has gotten stiffer once again, and it’s partly because of a lack of new product innovation, according to John Tucker, CEO, Dave’s Killer Bread, Milwaukie, OR. “There will be a lot of similarity in products from brand to brand under these larger organizations because that is a way to bring simplicity and efficiency and drive out costs to their operations,” he said.
All of this consolidation and homogenization leaves fewer choices for consumers to get excited about. “I think bread companies got somewhat complacent and said, ‘We make white bread, wheat bread and a multigrain, and we’ll sit back and let people buy it,’ ” Mr. Lotesto said. “I think people want variety, and bread companies weren’t as good at giving it to them in the past. Naan or sandwich thins pop up, and everyone jumps on it because consumers are dying for something different.” This vacuum of diversity can work to the advantage of smaller, more nimble players who can swoop in with innovative products that keep things interesting.
With Bimbo, Flowers and large regional companies dominating the bread aisle, the marketplace for bread is a cutthroat arena that keeps bakers on their toes, giving them a challenge — and that’s something Mr. Lotesto was certain helps growth. “Consolidation is helpful because I believe people got too comfortable,” he said. “It’s good that everyone is actively competing and trying to serve the customer best because that’s what’s going to win the day.”
Mr. Popp echoed that sentiment, arguing that when a bakery becomes so big, it tends to stop challenging itself to be better, and that is when it stops growing.
“We saw that with Wonder,” he recalled. “When I came into the business 23 years ago, they were the standard for everything: best product, best marketing, best sales, and they were big and could do anything they wanted. And that is the biggest danger you have when you have it all — you stop challenging yourself.”
According to sales numbers, the entire bread industry seems to have stopped challenging itself and, incidentally, stopped growing. Exciting the market with innovation centered on consumer demand may be just what the doctor ordered.
A nutritional boost
Due to a plethora of reasons — consolidation, the recession, the popularity of gluten-free diets and the vilification of grains by such popular books as “Wheat Belly” and the just released “Grain Brain” — bread sales have stagnated. From 2008 to 2012, sales have only increased just marginally each year, according to Mintel. The Chicago-based research firm forecasted that those retail sales will grow between 0.8% and 2.7% annually between 2013 and 2017, with much of that growth driven by products positioned as better-for-you.
Dragging down the category is a shift away from the bread aisle’s one dominate variety. “White bread is in a steady decline, and I think it’s because consumers are looking for more out of their foods than they have in the past,” Mr. Tucker said. “As a society, we’ve become far more conscious of the fact that what we eat is, in many respects, what we are.” This consciousness leads consumers to look for food that will impact their health in a positive way. With media frenzies over fad diets, the perpetual “bread is bad” message hinders bread sales.
“I don’t know why bread and grains keep getting picked on and demonized, but they do,” Mr. Popp said. To combat this looping message, bakers are stepping up their game to make bread that meets consumers’ demand for nutritionally dense food.
“In the past eight years, I think we’ve gotten better at that as an industry,” Mr. Lotesto said. “The old battle used to be ‘We are going to try to convince you that all bread is good for you,’ and now it’s ‘We’re really going to make this great for you.’ ” For bread bakers, better-for-you bread means whole grains, added fiber and, in the case of schools, less sodium.
When bakers look to add health value to a product, whole grain is often where they start. “Whole grain is more than a fad. I think it’s more than a trend,” Mr. Popp said. “It’s really the foundation of baking.” Mr. Popp also asserted that whole grains and the organizations promoting them such as the Grain Foods Foundation and Whole Grains Council are instrumental in advocating for the industry in the midst of demonization in the media.
Grain-based foods, already a natural source of fiber in the American diet, also lend themselves to the health halo worn by high-fiber foods. Beyond nutrients, clean label is impacting bread as well. “People want something that sounds real and is genuine,” Mr. Popp said.
All of this comes at a cost, however. Healthy, clean-label ingredients do not come at an inexpensive price point, but research shows consumers are willing to shell out the cash necessary for something they believe will be better for them. Mintel found that of the 88% of bread shoppers buying whole grain or multigrain bread in 2012, 29% were spending more than they did in 2011. The whole wheat bread category also saw a similar increase in what bread shoppers were spending.
While people may be willing to pay for premium ingredients, and the recession is technically over, American attitudes toward consumption seem to be stalled in a recession mindset, which means Americans are doing more with less.
“After the bank crash in 2008, we had a food crash in 2009,” Mr. Popp recalled. “That’s when the economy really hit home. People stopped buying the extra bag of buns or English muffins and just bought one loaf of bread and made it last.”
Variety can go a long way in vying for consumers’ hard-earned dollars. Mr. Lotesto said the bread industry can take a page from Oreo’s playbook. “Oreo does a great job of this,” he said. “They constantly have new flavors — lemon Oreos and watermelon Oreos — that are only out for a couple months. I don’t really want to buy Oreos, but they’re new and not going to last, so I buy them. No one gets too excited about a loaf of wheat bread. I’d like to change that.”
Traditional sandwich bread is under siege in light of competition from upscale alternatives in the foodservice arena and premium bread and rolls — such as artisan breads, pretzel buns and flatbreads — in the in-store bakery channel. Even in the bread aisle, sandwich thins and other products have stolen share from conventional sliced bread. Promoting innovative line extensions in the traditional sandwich bread category much in the way Oreo does in the cookie aisle can generate the kind of excitement Mr. Lotesto hoped for the bread category.
Beyond products positioned for their healthfulness, he was certain there is room for growth in the breakfast bread category, beyond the standard cinnamon raisin. Also, products like bread bowls that aren’t necessarily new but maybe not widely available to consumers could offer some opportunity for growth, especially in the in-store bakery/deli and foodservice channels.
While consumers may be holding onto a recession mentality about their spending, Mr. Popp said that success requires bakeries to continue to invest in their brands and their companies whether that means marketing, facilities, equipment or employee training.
Though lower price points may get a shopper to try a new loaf of bread, simply discounting and two-for-one promotions aren’t solutions to the bread industry’s current woes. “You can get excited about price, but that’s not going to do anything for us long-term,” Mr. Lotesto said. “Then the same with making healthy bread, I don’t even know if that’s rejuvenating the bread aisle as much as keeping it alive.”
Quality product and diversity on the shelf are key in Mr. Lotesto’s mind. “If you’re not doing the best for your customers, if you’re trying to slack off in one area or you’re not offering a quality product, you’re immediately going to be exposed, and that’s not going to get you very far,” he said about today’s stiff competition.
Picking up leftover Hostess bread business may have brought some short-term growth to some bakeries, but sustaining that growth is tricky. For many bakers, the goal is to continue the growth jump-started by the sudden influx of new business instead of letting sales fall off once Wonder bread returns. When the Hostess bread brands come back, those companies with the best quality and business practices will be the ones who sustain the business they picked up in the Hostess vacuum.
“At the end of the day, you have to have a good product and good service,” Mr. Popp said. “That’s what matters, and it matters to the retailer because they see the value in it.”
Whether it’s by creating healthy bread or new, exciting varieties, bread bakers must continue to reinvent the bread aisle to gain coveted consumer dollars, hold onto new business and rejuvenate the industry.
“We have to continue to challenge ourselves to do a better job,” Mr. Popp reflected. “Our customers are good about challenging us. Customers can make us work a little harder, and that’s nothing but good. You have to experience some pain, and then you start getting better.”