Mixed signals in baking financial results
August 24, 2010
Observers of the baking industry looking for positive signs of recovery in quarterly financial results are going to have to deal with mixed comments in reports by several publicly-owned companies. Both Sara Lee Corp. and Flowers Foods, Inc. did point to hopeful elements of improvement in their results.
Sara Lee cited a favorable shift in its sales toward branded business versus the same period in 2009, and Flowers noted both higher volumes and improved margins. On the negative side, Sara Lee experienced lower competitive pricing and volume, particularly discouraging in the face of increased marketing and promotion spending on the Sara Lee brand. Flowers cited a negative 3.5 percentage point impact on sales from pricing/mix.
Individual companies may take any of a number of different paths toward profit improvement. Yet, pricing and product mix are the keys to sustained gains by the baking industry overall. Even though total demand for bread and rolls has been nearly flat for years, even decades, baking has grown its business by slowly but steadily enticing consumers toward new products with greater perceived value and higher prices. This shift appears to have stalled in the current recession, and judging by preliminary results from the most recent quarter, the industry is not yet back on the desired path.
While the need for bakers with large capital asset investments to protect market positions is understandable, even in these tough times care must be taken not to debase pricing of premium products.