Crucial focus for bakers amid dizzying change
BakingBusiness.com, April 1, 2014
by Josh Sosland
It’s certain that the pace of change buffeting the baking industry was not news for anyone coming to Phoenix in late March to attend the annual meeting of the American Bakers Association. In addition to a nearly complete upending of the roster of leading wholesale baking companies during the past three years, similarly radical change was under way among the industry’s major flour suppliers. Placing an exclamation point on this upheaval was the announcement just ahead of the meeting of baking company acquisitions aggregating $1 billion by Aryzta A.G., itself a relatively new player in North American baking, and rumors of another billion dollar acquisition, of Hearthside Food Solutions, a very new player in the industry headed by the incoming A.B.A. chairman Richard G. Scalise. When details of the latter transaction, an acquisition led by Goldman Sachs & Co., were affirmed just after the annual meeting, A.B.A. for the first time in its history boasted a chairman (Mr. Scalise), a first vice-chairman (Fred Penny, president of Bimbo Bakeries USA) and second vice-chairman (Allen L. Shiver, president and chief executive officer of Flowers Foods, Inc.) all of whom had just completed or were in the midst of completing a major acquisition within the industry.

Drawing even more attention to the rapidly shifting landscape for baking was the A.B.A. program, which presented a seemingly endless number of ways the baked foods marketplace was changing. The focus was on fundamental changes altering how bakers will do business in the future. Most prominent among these is the explosive growth of alternative retail channels, especially dollar, drug and convenience stores. Save-A-Lot and Aldi combined, serving mainly consumers on the low-income side of the market, was cited as having grown to operate 2,634 stores at the end of 2013, a count equal to the nation’s largest supermarket chain, Kroger Co., at 2,644. Aldi alone plans 650 openings by 2018. This shift toward serving less affluent consumers mirrors an unprecedented stagnation in median U.S. personal income. The revival of on-line grocery shopping led by, but not limited to, Amazon.com, also pointed to jarring transformation for an industry that continues to revolve around direct-store delivery for the major share of its products. Perhaps the most talked-about presentation heard by bakers was delivered by Curt Steinhorst, a thirty-something speaker who specializes in addressing the challenges consumer food companies face as they try to connect with the increasingly influential consumers of the millennial generation (born from early 1980s). Dan Malovany, an editor from Sosland Publishing Co., related a story about approaching Mr. Steinhorst following his presentation. “There was a long line. When I reached the front I offered him a business card. He looked at me like I was handing him a rotary telephone.”

Amid the confrontational changes challenging baking, nothing merits immediate attention more than the need for laser-like emphasis by top executives to devising strategies that respond effectively to this heady pace. While the transformed retail and consumer landscapes must never be ignored, the primary target must be methodical reconstitution of an industry that often has been hobbled by years of struggle. While the companies that have dealt with this turmoil are obvious, too many face diminished prospects. That is not solely limited to Hostess Brands and Sara Lee but touches parts of the entire baking sector. Supermarkets, which now account for only 40% of food sales, do a much heftier 60% of retail bread sales. It may not be too great a stretch to suggest that the much-discussed center-of-store woes afflicting supermarkets were in significant measure due to leadership shortcomings in the fresh baking category. Responding to that is essential to improving both baking and supermarket operations. Yes, in a very brief time, the structure of the baking industry has changed completely with the industry now led by the companies that succeeded in managing growth while remaining financially sound. The opportunity is at hand to restore the industry’s vitality with careful focus on efficient production and distribution, effective marketing and successful product innovation. Only with these fixes will baking once again be ready to deal with the myriad changes creating opportunities as well as many, many pitfalls.