Dan Malovany: Time to wake up
BakingBusiness.com, April 1, 2012
by Dan Malovany

What keeps you awake at night? Maybe it’s high ingredient costs, the proliferation of audits, burdensome paperwork from an onslaught of government regulations or increasing demands from retailers and foodservice customers telling you how to run your operation more efficiently.

Then again, some people have no problems getting good night’s rest, right? “I sleep like a baby,” said Howard (Robin) Alton III, president and CEO, Pan-O-Gold Baking Co. “I sleep for an hour. I wake up and cry. I sleep for an hour. I wake up and cry.”

Mr. Alton spoke as a part of a panel of CEOs during the American Society of Baking's annual BakingTech conference in March. The panel unanimously agreed to say good riddance to 2011, which David Murphy, president of Mother Murphy’s, described as one of the toughest years he’s seen in his 38 years in the industry.

In addition to rising costs, bread bakers face declining sales — as much 4%, according to recent supermarket scanning data.

Is it really as bad as the numbers show? Obviously, Wal-Mart, Costco, Target and other retailers are not included in such data. “I absolutely believe it was that bad,” Mr. Alton said. “Anybody in this room that minimizes that is kidding themselves.”

Such a drop in volume, he added, affects not only bakers, but also equipment manufacturers in the long run. When Pan-O-Gold expands at a 4% annual rate, the company needs to add a production line every four years, if not less. “When it’s sliding 4% a year, when do you think I need my next line?” Mr. Alton asked. “If that happens, I’m not going to need another line.”

The decline could be attributed to a number of reasons, including the bevy of bad news about bread in the mainstream media. Every outlet from USA Today to NPR radio has run recent reports about bread being the No. 1 source of sodium in the diet to the perennial “bread is fattening” myth because of the carbs it contains. “We’ve become the poster boy for bad nutrition right now,” Mr. Alton noted.

That said, a 4% drop is not the end of the world, especially compared with the construction industry. But the projected rising price of gas — up to $5 a gallon in some markets — may push the nation into a recession this summer, or at least, eat up disposable income. An 8% or even 10% decline in volume may not be out of the question before the bread category hits bottom, according to Mr. Alton.

The good news for Pan-O-Gold is that premium branded bread sales continue to rise, although private label sales remain soft. That may be because consumers are willing to spend for higher-quality products that offer additional health benefits such as whole or ancient grains.

For suppliers, the silver lining is that companies like Pan-O-Gold will continue to invest if it makes them better operators. “We have plenty of money to invest if you have a solution, if you bring me an innovation that will pay for its self,” Mr. Alton said. “That check will be written, and I speak for most bakers, the funds are there.”

In the end, the panelists noted that they are prepared for the worst and hope for the best. In these turbulent times, nobody can afford to be caught napping on the job.