Price war in bread last thing industry needs
Price war in bread last thing industry needs, August 31, 2009
by Josh Sosland

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When the second-quarter financial reporting season approached, nervousness surfaced in baking due primarily to structural change within the industry. Two of the largest baking companies in the United States have new owners — Interstate Bakeries Corp. and Weston Foods, Inc.

Amid these changes were flare-ups in parts of the country where bread was offered at retail at highly discounted prices. For many reasons, a price war in bread is the last thing the industry needs.

A first reading of the quarterly financial results of Flowers Foods, Inc. could add to concerns. The company, which historically has been conservative in issuing guidance, has reduced its sales growth forecast for 2009 to a range of 9.7% to 11% from 12.6% to 14.5%.

"Certain competitive dynamics" in the marketplace were cited as one cause among others. Still, a deeper look at what Flowers said suggests the competitive landscape has not deteriorated greatly. Flowers’ gross margins held steady from the second quarter last year. While the company’s volume was down, the cause primarily was "the result of the economic impact of the food service category and the vending business on our cake business," George E. Deese, the company’s top executive, said in a conference call.

Mr. Deese painted recent promotional activity as "par for the course" for an economic recession, something he has witnessed over and over during his career.

"This time is no different, and in the next recession you’ll probably see the same thing," he said. He did cite particularly deep cuts toward the end of June, but overall, Flowers did not lower its earnings guidance for 2009.

Without completely eliminating concerns about the prospective financial well-being of the baking industry, Mr. Deese’s take on the overall competitive landscape was reassuring.

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