Conventional wisdom suggests consolidation weeds out the weaker players and makes the industry stronger in the long run. So can smaller companies compete against the goliaths of the industry?
“Bigger companies have the advantage of scale, but at the same time, their size limits the opportunities for them,” noted Marc Schulman, president and CEO of Eli’s Cheesecake, Chicago, who participated in this year’s capital spending report for our magazine. “We’re very focused on our customers — and that’s what our customers want. They don’t want their supplier to be as big as they are. Customers want to be important to their suppliers. As a result, consolidation is good in this sense.”
Joe Turano, president, Turano Baking, Berwyn, IL, added that consolidation provides new opportunities for bakers with a specific niche in the market. Many customers also appreciate working with an independent baker. “We are flexible and react to our customers’ needs very quickly as a family-owned company, and we have our direct link with the customer because of our close involvement in the business,” he explained.
Kambiz Zarrabi, managing director, Blue Coast Bakers, Ormand Beach, FL, said consolidation positively forces mid-sized bakers to become more competitive based on capacity. “We’re increasing our lines to meet our customers’ demands and provide them with a variety of items at the same time,” he said.
But is bigger better? “We’re trying to assess, do we want to get bigger, more efficient and reduce the cost of production by producing fewer products? Or do we want the flexibility to provide more variety — not the least costly option — in a given category?” asked Scott Kolinski, president and CEO, Lantmännen-Unibake USA, Lisle, IL. Those are critical questions, he said, with the ongoing consolidation among retailers and foodservice distributors.
Hearthside Food Solutions, Downers Grove, IL, one of the nation’s largest co-manufacturers, is one of the consolidators in the industry. “It’s good because it improves productivity,” said Rich Scalise, chairman and CEO. “It allows our customers [to use] fewer suppliers and to control the supply side of their businesses better. Our relationships with our customers are stronger and more interactive, and our customers have more influence over us trying to make sure we provide them with better products.”
On the other hand, David Hays, owner, Bodacious Foods, Jasper, GA, said smaller players are more susceptible to fluctuating commodity costs and don’t have the deep pockets and advertising budgets of many category leaders. “It’s getting harder and harder to be an entrepreneur in this country,” he said.
Chip Mann, president and CEO, Pretzels, Inc., Bluffton, IN, which co-manufactures for many major snack companies, noted consolidation closed some doors and opened others. “We have to remain nimble and respond in a variety of ways,” he said. “Start-ups can find several opportunities in the cracks from consolidation.”
A colleague once told Mr. Schulman that consumers are looking for integrity and authenticity. “And I thought, ‘That’s what we’re all about and what we do,’ ” he said.
In the end, though, it’s all in the eyes of the beholder — and the customer.