Over the past two years, a larger proportion of the U.S. fresh bread baking industry production capacity has changed ownership hands than at any time in the industry’s history. Given these dramatic changes together with an economic environment thought to be making consumers less adventuresome, it is hardly surprising that new product introductions in bread have lagged over the past 12 months. Still, innovation is hardly absent in the market for bread and rolls with particular attention devoted to niche and specialty products, including gluten-free products.
Amid all the change, the fundamentals of the bread business appear to have improved modestly over the past year. While bread sales volume as estimated by Information Resources, Inc. was lower in the 52 weeks ended Jan. 26 than in the previous year, the decline was more modest than was the case in 2011 or 2012. For bread and rolls combined, the sales volume decline was negligible.
Dollar sales of bread in the year ended Jan. 26 were $8,954,904,000, up 0.8% from a year earlier. Unit volume of fresh bread was 3,887,367,000, down 1.01%. By way of comparison, the I.R.I. data for the Bread Product Perspective published by Milling & Baking News two years ago showed a 4.5% volume decline for the year 2011.
Private label made strong inroads in the bread market during the year. Dollar sales were $2,217,540,000, up 3.6%, and accounting for 25% of all bread sales. Sales volume for private label was estimated at 1,423,468,000, up 2.4%. On a volume basis, private label share was estimated at 37%.
In the case of fresh bread and rolls combined, dollar sales in the 52 weeks ended Jan. 26 totaled $13,583,370,000, up 1.6% from the year before. Unit sales were 5,965,627,000, down 0.3%. The buns and rolls category alone enjoyed a 5% gain in dollar sales and a 1.8% gain in unit volume. For hamburger and hot dog buns, dollar sales in the 52 weeks ended Jan. 26 were up 1.9% and unit volume was essentially unchanged, up 0.04%.
The massive disruption in the structure of the bread industry was evident not only in the gains and losses of sales indicated for individual companies by I.R.I. but also in how the various baking companies were ranked. For instance, Flowers Foods was listed as the No. 1 baking company in the United States with sales of $1,419,746,000 in the 52 weeks ended Jan. 26, down 15% from the year before. The figures appear to have merged Hostess Brands into the Flowers listing. In fact, Bimbo Bakeries USA is the largest bread baker in the United States, and Flowers achieved a sharp increase in dollar sales rather than a dollar decline.
Bimbo Bakeries was listed with sales of $931,319,000, but I.R.I. separately listed as vendors other companies that appear to be part of the B.B.U. universe — Earthgrains Baking Companies, Arnold Products and a company listed by I.R.I. as Orograin Bakeries Products.
Amid the confusion around the listing of the largest baking companies were two mature regional baking companies that appeared to enjoy dramatic sales gains during the year: Lewis Bakeries, Inc., Evansville, Ind., and Aunt Millie’s Bakeries, Fort Wayne, Ind.
John B. (Bohn) Popp, vice-president of marketing at Aunt Millie’s, described the bread market of the past year as extraordinary, likening what happened with the bankruptcy of Hostess Brands, Inc. to a popular motorsport event.
“After the exit of Hostess, it was like the start of the Indy 500,” he said. “All those cars going full speed for the first turn, getting everything they can. Then it all gets sorted out.
“The last 10 years have been busy for us, but the last 15 months, especially the time period from November 2012 until June 2013, were unlike anything I’ve ever seen. We picked up a lot of business with a lot of new customers. Then you make investments, and you have to perform.”
The exit of Hostess gave Aunt Millie’s the opportunity to enter the Chicago market where the company’s presence previously had been modest. The shifts also had implications for product development at the company.
“We are now full blown 100% in Chicago,” he said. “And that’s expensive. We went from 20% to 90% in less than three months, adding 50 to 60 routes. We had so many items down in our ‘war room.’ Purchasing teams were covered with new items new customers wanted. In many but not all cases, private label new product formulations were already being baked by Aunt Millie’s for other customers, but the company has introduced between 20 and 30 new bread products.”
An example Mr. Popp cited was high end bread varieties sold to Jewel-Osco in the Chicago area.
Another company that noted share gain as a result of the Hostess evacuation from the marketplace was Pepperidge Farm, Inc., Norwalk, Conn.
Chris Foley, general manager, fresh and frozen bakery, said the company benefited when consumers tried and stuck with items such as Pepperidge rye due to the absence of the Hostess Beefsteak rye line.
“We’ve also worked very closely with retailers to ensure that they weren’t disadvantaged as a result of the Hostess departure, by offering a comprehensive selection in the bakery aisle and delivering excellent customer service,” he said.
Several baking companies have taken advantage of growing interest in specialty baked foods, particularly gluten-free products. For instance, B.B.U. has made quiet forays into the sector.
The company established Goodbye Gluten Bakeries in June 2012 and has been offering two varieties of gluten-free bread: white bread and multigrain. The company also offers plain and multi-grain wraps.
At Flowers Foods, Inc., the only new bread product introduction for 2013 was a honey wheat variety under the Nature’s Own brand, a company spokesperson said. And new to the company are major bread brands acquired as part of its transaction in connection with the Hostess Brands bankruptcy — Wonder, Home Pride, Butternut and Merita.
While the company does not currently offer a gluten-free bread, top executives have acknowledged that gluten-free is a consumer trend that is “very high on the radar.”
Going full throttle in the gluten-free baked foods market has been Rudi’s Organic Bakery, Boulder, Colo.
In addition to building out its portfolio of certified organic baked foods, the company more recently has been adding to its line of gluten-free products.
“We’ve had an exciting year with 14 new product launches across three core gluten-free initiatives,” said Doug Radi, senior vice-president of marketing and conventional channel sales at Charter Baking Co., the parent of Rudi’s Organic.
“The first is a heat-and-serve ciabatta roll line featuring two s.k.u.s (stock-keeping units) — plain and rosemary olive oil.”
Offered frozen in a resealable package of eight, the rolls are meant to bring the gluten-free market for this baked foods segment far closer to the wheat flour products being replaced.
“There are roll lines out there in the market,” Mr. Radi said. “They haven’t been developed like the true heat-and-serve line, where the crust gets crisp and crusty. Most were hamburger rolls repackaged as dinner rolls.
“We did research and development from the ground up. The heat-and-serve market is worth over $600 million at retail. There hasn’t been a great gluten-free offering. We expect to launch more heat-and-serve varieties in the future. We’re very excited. We began shipping in November.”
More specifically to bread, Mr. Radi said Rudi’s has enjoyed great success in the gluten-free sliced bread category. The company offers cinnamon raisin, multigrain and original.
“Consumers are asking for more varieties, so we’ve launched two,” he said. “First is a double fiber gluten-free variety. We wanted to match dietary fiber in some of the 5 to 10 best-selling bread s.k.u.s. There hasn’t been a choice like this in the gluten-free market. Gluten intolerant and celiac individuals struggle with getting enough nutrients. So many gluten-free products are less nutrient dense. Fiber has been missing. Our product has 4 to 5 grams per slice, equating to 20% to 25% of daily intake when you eat two slices.”
A second new bread product introduction is a deli style gluten-free bread with caraway, modeled on traditional rye bread. Again, Mr. Radi said the introduction was in response to what consumers said was most missing from the marketplace.
In addition to the bread varieties, Mr. Radi said Rudi’s will be offering a gluten-free cereal bar product — a cherry almond bar.
“It’s designed to be sold off the bakery table in a clamshell package seven per pack,” he said.
In the case of organics, the summer bun and roll season is a principal area of attention at Rudi’s, Mr. Radi said.
“We’ve launched the first certified organic pretzel bun,” he said. “Pretzel buns are a hot trend in quick-casual and quick-service restaurants. There is yet to be an organic version for the retail side of the business. We’re excited about that.”
With the pretzel buns, other Rudi’s buns and rolls have been restaged with a softer texture aimed at a more “family friendly” positioning, Mr. Radi said.
“There is a lot of activity coming from us for the grilling season,” he said.
The move into the pretzel bun followed the introduction in 2013 of an organic snack pretzel from Rudi’s, a product Mr. Radi described as analogous to the Superpretzel.
“It has done well at retail and is building strong distribution,” he said. “It’s seeing strong support.”
More broadly, Mr. Radi said a key consumer insight for the company is that mothers are looking to buy certified organic products for their families, and Rudi’s has done well by offering bread with taste and texture that appeal to children.
“Talking to moms, we realized there are gaps in the category, and we are trying to address those,” he said.
Mr. Radi said growth in organic bakery overall is in line with the aggregate organic market, with growth in the low double digits.
“We’re seeing growth in bread keeping up with the market,” he said. “What’s most promising is the traction organic is gaining with more conventional retailers, whether it’s the big national guys like Kroger or Safeway or the regional retailers. We’re getting more and more calls about interest in organic. What had been a relatively underdeveloped market relative to milk, dairy and produce is really beginning to pick up steam.”
Even as snack foods such as Goldfish and cookies account for an ever larger part of the business of Pepperidge Farm, Inc., bread remains core to the brand and a target for innovation.
“Bread is the heart of our business, as Pepperidge Farm began when Margaret Rudkin baked a loaf of bread for her son,” Mr. Foley said. “We are pleased with the performance of our bread portfolio and plan to continue to invest to ensure that the quality of our products meets our consumers’ expectations and we stay ahead of changing preferences and trends. For example we’ve recently introduced premium quality Bake at Home breads, which are inspired by artisan-style breads you see in independent bakeries and farmers markets, and we’ve extended our range of potato bread products to include hotdog, hamburger and slider buns in response to the growing popularity of that flavor.”
Pepperidge describes the Bake at Home bread line as produced from “hand-crafted dough” and “baked in a unique stone oven.” The product is finished with baking at home.
Varieties include Tuscan Boule, French Loaf, Semolina Loaf, Multi-Grain Loaf and Sourdough Boule.
A consistent hit in recent years for Pepperidge has been its Swirl line of breakfast bread. Mr. Foley said limited-edition launches aimed at young families were the chosen approach to innovation over the past year.
“New flavors were blueberry, french toast and gingerbread and we reintroduced caramel apple and pumpkin spice, which are hugely popular fall flavors,” he said. “We have found that introducing these limited-edition flavors brings excitement to the bread aisle and interest from consumers who may not have tried our permanent flavors such as cinnamon raisin.”
A new product from Pepperidge that did not sustain initial success was its Goldfish brand thin bread. Mr. Foley said the company continues to offer it on its food service menu.
“However we discontinued it from retail sales in the middle of last year as after an initially successful launch we were seeing sales soften,” he said.
Mr. Popp of Aunt Millie’s also discussed changes with retailers and the impact the changes are having on product innovation in baking.
“There is a lot of pressure on retailers,” he said. “The economy isn’t very good. It isn’t horrible, but it isn’t great. I think customers want as much cost out as they can.”
As a result, Aunt Millie’s and other baking companies have had to work to reorganize route structures and account structures, he said. Increasingly in recent years there has been pressure on bakers to utilize data analytics.
“It probably varies by geography, but in the Midwest you just have to justify everything you do from start to finish,” he said. “You have an opportunity for new products, and you can’t miss. You can’t throw stuff against the wall and see what sticks, which was the practice in the past. Now, you must perform in that valuable retail space.”
While discipline in bringing new products to market is better than in the past, Mr. Popp said tighter supermarket policies with larger penalties for unsuccessful introductions have had at least a somewhat chilling effect on innovation.
“Now you’re in for a set time — either April to October or October to April,” he said. “Otherwise you pay a fine. Not all customers are that way. You need to give them concrete numbers. You have to do sales justification. You have to explain. The more detailed the better chance you have of getting it in. But I think it has limited introductions. I think it has affected product development and innovation, but innovation is still critical.
“With reformulations you have to be tight,” he said. “If you’re going to take ADA (azodicarbonamide) out, you have to figure out what you will put in. You must focus on those things.”
Social media also has factored into what baking companies need to think about when it comes to formulation and execution, Mr. Popp said.
“You can’t fake it,” he said. “You can’t fool people any more. If you try to pull something, you just can’t do that. If the government doesn’t get you, the consumer groups will. As well they should.”
Aunt Millie’s also has enjoyed success with a pretzel bun introduction.
“It has done well for us,” Mr. Popp said. “It started slowly beginning last spring but things have gotten better. We also came out with a variety of honey wheat bread. It has been a big item in Illinois, a new territory.”
Food service has been an area of innovation and expansion for Aunt Millie’s in recent years, Mr. Popp said.
“Frozen baked foods for food service has been a growing business,” Mr. Popp said. “We offer basic bread, buns and rolls, and probably not too long from now we’ll be offering some new products. I feel much better about innovation in food service than in D.S.D. (direct-sales delivery).”
While he didn’t cite any particular recent additions to the whole wheat product line of Aunt Millie’s, Mr. Popp said the environment for whole grains continues to evolve.
“It’s very different today than in the past,” he said. “The flavor profile is critical — you must bake a good loaf of whole wheat bread if you want to be a good variety bread company, if you want to be growing. It used to be you had to have whole wheat bread to fill out your line. You knew the return rate would be 30% to 40%. Today you have to have it, and the return rate is like mainline bread. We’re past the time when everyone is trying to figure out the space. Now it’s established, real.”
An ebbing trend, in Mr. Popp’s view, is the effort baking companies had been making to add a variety of special functional ingredients to baked foods. At a minimum, he said, consumers don’t look for every possible nutrient to be incorporated into their bread.
“Clean labels are very important,” he said. “For a while we tried to put all kinds of things in bread. Sugar free. Fat free. Calcium. I don’t think that works. They want their vitamin C in orange juice. Omega-3 fatty acids in fish. Their fiber in bread. Fiber is critical. You get your fiber from cereals and vegetables. You get vitamins from the germ. It’s still a great health vehicle.”