Play to your strengths. Focus on your core. Those messages came through loud and clear when managers at Pan Pepín interpreted specially commissioned consumer research. The wholesale bread and bun baker, located at Bayamón, PR, sought to identify growth opportunities that could transcend a mature category during difficult economic times in its challenging island-based market.
“Pan Pepín has a very strong brand,” said Mario Somoza, the bakery’s president and CEO, “but we had to take it further.” With growth at a premium, the company put its emphasis on premium products. Necessity dictated the plan, and results back it up.
In 2006, Mr. Somoza had just transferred from another division of the parent company, the privately held B. Fernández Holding Co., Inc., San Juan, PR. As the bakery’s new chief executive, he wanted to get a handle on the business. He used his master’s degree in business and experience in marketing and advertising to take a hard look at the bakery and its place in the market.
During his first year, the company conducted an intensive consumer research study. “We learned that bread is a very mature category, with 97% household penetration in our home territory,” Mr. Somoza said. “Pan Pepín has 80% brand awareness, and two-thirds of shoppers have bought our products within the past 30 days.
“Pan Pepín has a really good image,” he continued. “Taste, quality, freshness — it’s all there. It’s a jewel of a brand. Now, how far can we go with it? What we had in mind was to take the company to the next level.”
It was obvious that the focus should be on core products, so Pan Pepín dropped less profitable lines. It reorganized production activities to reduce time- and money-wasting changeovers as well as cut overtime. Throughout, volume remained relatively stable, and the company saw its premium Finest brand take the lead in soft buns. Long-standing exclusive licensing agreements for production of premium brands add to its market position.
Today, the high-volume bakery consumes more than 600,000 lb of flour weekly to produce nearly 60 million lb of product per year. Sales exceed $80 million annually. To bolster its quality image, Pan Pepín sought and achieved Safe Quality Food (SQF) 2000 food safety certification, the world standard for food processors. It was the first bread and bun bakery in the Caribbean to get this high rating.
Adjusting the mix
Pan Pepín produces 16 different types of pan bread, with Whole Grain White Club in a 24-oz loaf as the top seller, and White Club a close second. White styles have historically dominated the Puerto Rican market, but trends now favor whole wheat and whole grain products (see “Trends arrive later in Puerto Rico but move faster”).
“We pay real attention to the retail bun area, and we have proven that the 10-count hot dog pack works,” Mr. Somoza said. It’s now the No. 1 item among Pan Pepín’s retail buns and the market leader overall. Altogether, Pan Pepín produces 18 kinds of buns and rolls.
The company’s market is primarily retail, but food service accounts such as schools, company cafeterias, restaurants, hotels and cruise ships represent a good portion of sales, too. “We see food service as an area of opportunity, but the focus right now is on our branded retail items,” Mr. Somoza said.
By analyzing the company’s sales demographics, managers identified opportunities in related product lines. “We use new products such as tortillas and toasts to get to new segments and new locations,” Mr. Somoza explained. The company selected contract manufacturers to produce both lines and takes care to manage these relationships to maintain the Pan Pepín quality consumers expect.
Practical asset management
Reviewing company resources, Mr. Somoza found two great strengths. “First is our staff — first and foremost. The people here will do whatever needs to be done,” he said. “And second is our brand. It’s very strong.”
The bakery employs 540 individuals, with some having up to 40 years of tenure. It has been selected three times as one of the 20 best companies to work for in Puerto Rico. “This goes back to the commitment of the people here,” Mr. Somoza explained. “Their enthusiasm never ceases to amaze me. It’s a part of the organization’s DNA, and our people take a lot of pride in their work.”
With Mr. Somoza as president and CEO, Pan Pepín’s management team includes Carolina Rodriguez, vice-president, finance; Iraida Rodriguez, human resources director; and Peter Rodriguez, sales director. Bakery operations are supervised by Victor H. Rodriguez, director of operations, and engineering by José Pagán, engineering director.
Because it’s hard to recruit experienced bakers among the island’s relatively small population, Pan Pepín grows its own, investing in the training and professional advancement of its staff. It uses a train-the-trainer approach and provides key employees access to certification through AIB International and SQF. For example, both Mr. Rodriguez and Mr. Pagán are AIB Certified Bakers, and the bakery’s quality control manager, Amarilis García, is now enrolled in the same program.
Partnerships confer important benefits to Pan Pepín. For more than a decade now, the company has held exclusive licensing agreements with Flowers Foods, Thomasville, GA, and ConAgra Foods, Omaha, NE, to make premium branded products. “The Nature’s Own bread and Mrs. Freshley’s products in our agreement with Flowers provide us with a big advantage,” Mr. Somoza said. Of the three ConAgra Healthy Choice items on the Puerto Rican company’s product list, a premium product — the 7-grain round-top loaf — leads sales. “This brand really helps round out our portfolio in the trade,” he added.
Such relationships extend to key suppliers and vendors, too. For instance, Lesaffre supplies the bakery with yeast and technical help, with experts regularly visiting Bayamón. Pan Pepín also sends its people to Lesaffre’s Safmex baking center at Toluca, Mexico, for “Baking 101” training.
“On the equipment side, Burford has been a great resource,” Mr. Somoza said, citing another example. The bakery’s supervisors and engineers often travel to the vendor’s Maysville, OK, factory. There, they have the opportunity to pull the equipment apart and really work with it in a nonproduction setting.
“It’s very reassuring to be able to turn to our suppliers and vendors to help solve problems and to develop new products,” Mr. Somoza said. “The same is true of the American Society of Baking, the American Bakers Association and BEMA. These are the people I learn from. Once you establish the contacts, people go out of their way to help.”
Renewed production focus
With the decision made to emphasize core products, Pan Pepín engineers and production managers turned their attention to plant activities. The company shut down an underperforming frozen dough/par-baked bread line and sold those assets to a food service specialist baking company.
Because land is so tight, the bakery could expand only by putting a second building on the other side of the street, one of the busiest in the area. Starting in 1988, each product style was made in both buildings to facilitate shipping, but that pattern required a lot of changeovers at each location. In 2004, Pan Pepín acquired a soft bun operation — and its third production site — when a US-based baker exited supply of the quick-service restaurant category.
“It seems obvious in retrospect, but one of the most important things we did recently was to reorganize where we produced which items,” Mr. Somoza said.
By moving all long-run products to the newer building and concentrating lower volume items at the original site, Pan Pepín dramatically minimized changeovers and associated costs. “We had to adapt distribution logistics, but now we have better product consistency and significantly reduced overtime,” Mr. Somoza reported. “In many cases, we eliminated the need for overtime altogether.”
Optimization also allowed Pan Pepín engineers to move the soft bun line from its original location several miles away into the building that previously housed the frozen dough line. This change, made in 2008, reduced the extra engineering and sanitation assets once required. Throughout this process, engineers were careful to retain as much production flexibility as possible, knowing it would be required in emergencies (see “Be prepared: How Puerto Rico’s Pan Pepin gets ready for hurricanes”).
The company is about to address its expansion problem. Large properties next door to both facilities have become available, and in early March, managers signed a letter of intent for their acquisition. That will set up Pan Pepín for at least 20 years of expansion capacity.
Efficient operating systems
Currently, baking operations encompass more than 78,000 sq ft of the site’s 105,000 sq ft, and warehousing occupies 21,600 sq ft. Six packaging lines manage the output of the two pan bread lines, running 115,000 units daily, and three bun lines, producing 40,000 units at the same time. The bakery makes club sandwich white and whole grain loaves in economy, regular and premium brands along with hot dog and hamburger buns. The facility operates a 7-day schedule, with five for production plus two for sanitation and preventive maintenance.
Recent additions to capital equipment include two silos, installed three years ago to handle ConAgra Ultragrain flour in bulk. “Volume grew so much, we couldn’t manage with bagged flour anymore,” Mr. Somoza said.
Pan Pepín updated the relocated bun line with two new AMF horizontal mixers — one for sponge and the other for final dough — an AMF dough pump, a UBE slicer and a UBE autoload twin-pack bagger. The bun line uses three pan sets, including a new 10-count hot dog bun pan developed for the bakery by Bundy.
“The consistency we achieve is great, and because of it, we have a strong position in buns and rolls,” Mr. Rodriguez said.
Another important change for Pan Pepín was to install Burford bag-sealing systems on all packaging lines. “Every bag has a temper-evident seal,” Mr. Rodriguez explained. “We use this method for all products we make.”
Each facility loads its products into tractor-trailers. “We operate four distribution centers and send at least two truckloads to each every day,” Mr. Rodriguez said. “We seal the shipping containers and trailers with a numbered tag in accordance with SQF requirements.”
Active in business for more than 40 years, Pan Pepín takes care to be a good member of the community, too. “This involvement started with its founders,” Mr. Somoza said, “and has always been important to us because we are locally owned.”
For example, the company works with SER de PR, a nonprofit group formed more than 50 years ago to treat and rehabilitate polio victims. Today, it focusses on children with disabilities of all types, including autism. Pan Pepín actively participates in fund-raising projects and features the program on bakery packages, according to Mr. Somoza. “We want to be involved everyday with children, through product donations as well as funding,” he said.
School tours, usually held a few times a week, provide another way the company caters to children. Grammar school classes visit the bakery, where students learn about not only the baking process but also healthy eating. “It’s a great program,” Mr. Somoza said. Tours are so popular that the bakery’s calendar books up completely by the end of first few weeks of the school term.With such awareness, Pan Pepín sets itself up for continued success. “We have a great group of employees and a strong brand, so the sky’s the limit. There are still opportunities to keep expanding and to reach new consumers,” Mr. Somoza summarized. “That will drive us for the next five to 10 years.”