Dan Malovany: Maple Leaf Foods defending its borders
Nov. 1, 2011
For Michael McCain, president and CEO of Maple Leaf Foods, the status quo simply wasn’t acceptable anymore. Because the competitive landscape in the food industry has changed so dramatically in North America during the past few years, the Toronto, ON-based company has had no choice but to embark on the largest cost-reduction effort in its history.
Specifically, Maple Leaf plans to spend more than CA$700 million on new capital projects and more than CA$1.2 billion overall by 2015 to revamp its operations, reduce complexity, improve productivity and build large-scale, state-of-the-art food producing facilities so that it can perform on par with its US competitors. Those capital investments include a CA$100 million venture along with Canada Bread, which is 90% owned by Maple Leaf, to build a 385,000-sq-ft bakery in Hamilton, ON, that will be the largest and most technologically advanced in Canada when fully completed in 2013. It’s also breaking ground on a meat processing plant next year.
During the bakery’s grand opening in late September, Laurie Gorton and I traveled up to Hamilton to document this milestone in the company’s history. Eventually, when all nine lines are up and running, the Hamilton operation will replace three less efficient, landlocked bakeries that are all about a half-century old and average 70,000 sq ft in size.
In speaking with the media, Mr. McCain, who is also chairman of Canada Bread, noted that the companies made 30 acquisitions over the years to eventually become Canada’s largest baking company. “That supply chain could be reasonably characterized as regional, small-scale, low-tech facilities,” he observed. “That was sustainable at a 65¢ [Canadian] dollar. When the dollar moved to parity with US dollars, as a manufacturer, we had to restore the productivity and competitiveness of our North American bakeries. That’s why we are investing in this facility.”
The Hamilton bakery is one of several initiatives to lower its cost structure. In the fresh bakery business, the company is standardizing loaf sizes and pan sizes. In 2010, the division had 110,000 pans in 33 different sizes. By the end of 2012, the division expects to reduce the number of pan sizes to 10, with 80% of its volume coming from only three sizes. In addition to simplifying production, the smaller pan sizes allow up to 8% more pans per oven shelf, according to a 2010 presentation by Barry McLean, president of Maple Leaf Foods fresh bakery business.
Likewise, the bakery division is standardizing its baskets and trays from 10 designs to two types. In addition to reducing labor, the move will lower the replenishment costs of trays by around 40% and even streamline transport costs by allowing the fresh bakery operation to add 65 to 70 more of them per trailer.
When fully operational, the Hamilton bakery is expected to slash overhead costs while building in the versatility to fuel future growth. In recent years, for instance, the baking division ventured into the flatbread arena with tortillas and naan, as well as the snacking occasion with baked sweet goods. In addition to replacing the capacity of the three older bakeries, the Hamilton operation set aside space for three additional production lines — or a total of 12 — to respond to emerging consumer trends or enter new grain-based foods categories.
With companies like Grupo Bimbo expanding globally, others can’t afford to operate as they did in the past. Maple Leaf Foods and Canada Bread recognize they need to invest now to thrive in the long run.