BALTIMORE — “This is uncharted territory. We are learning as we go.”
John (JR) Paterakis Jr., co-principal and senior vice-president of sales and marketing at H&S Bakery, Inc., Baltimore, said the novel coronavirus (COVID-19) has triggered a major surge in supermarket business, a slump in foodservice business and difficult distribution disruptions.
With a growing number of schools and other institutional customers shutting down, and with more and more foodservice sites limiting business to carryout only, a major outlet for baked foods has collapsed as a result of the coronavirus pandemic. Foodservice, including supplying McDonald’s, is the largest part of the business of Northeast Foods, a company affiliated with H&S.
“It’s not in our control,” Mr. Paterakis said in a March 16 interview with Milling & Baking News of the slumping restaurant business. “It’s governed by the CDC (Centers for Disease Control and Prevention) and the federal and state government.”
Hours before the interview, Governor Larry Hogan of Maryland mandated the closing of all restaurants and bars.
“When it’s carryout business only, sales are down by 80% to 90%,” he said.
At the same time, the company, including Schmidt Baking, its retail arm, has experienced a massive expansion in supermarket demand. Beginning March 10, H&S altered its production schedules to focus on a limited number of items sold at supermarkets.
“We are only making the largest sales volume products,” Mr. Paterakis said. “It’s the 80/20 rule — 80% of our volume comes from 20% of our items. That’s what we are doing.”
Narrowing the number of products H&S bakes has been key to keeping up with demand.
“They got wiped out,” he said. “We were doing two to three times the orders they normally would get. They got wiped out over the weekend, everything was gone.
“The key is to keep the lines running on the same items. Low volume items, changing over, you lose time. That time is very important when you can make more production volume when you’re running straight dough continuously on the same items.”
How much of a difference do the longer runs make for H&S? Mr. Paterakis said the company’s nine plants in the Northeast give it close proximity to customers and the flexibility to adjust production lines to meet the highly unusual market needs.
“We will pick up a lot more volume,” he said. “We picked up over a million units the last four days just by doing what I just said — concentrating on key staple items, rather than small items you constantly change over.”
Finding enough bread trays has been a particular challenge H&S Bakery has faced since the demand surge began. The company has tapped into additional tray supply it keeps in storage for the cluster hamburger and hot dog season, 110,000 additional trays.
“All that got wiped out, too,” he said. “It’s all out in the market. You can’t go fast enough. We called the tray companies to order more, just in case we don’t get all the trays back.”
With volumes subsiding from restaurant and institutional customers, Mr. Paterakis said H&S is taking advantage of slack foodservice demand to begin baking for grilling season to keep the lines running.
“We’re baking buns for the upcoming Memorial Day holiday,” he said. “You can’t make enough clusters (eight packs of buns) for the holiday week. No bakers make enough, so all bakers freeze in advance.”
While pleased by the strong overall demand, Mr. Paterakis said it would be a mistake to characterize the surge in sales as a positive for the business.
“No, no, no,” he said. “This has not been good. It has disrupted our entire distribution operations.”
The strong demand has forced delivery drivers going out two to three times in a single day to make deliveries.
“It is difficult to find enough drivers to satisfy the additional demand,” he said. “We have had to go to second- and third-party distribution companies. That’s been a huge issue and a problem.”
He expressed appreciation for the professionalism retailers have demonstrated in difficult circumstances. Similarly, he said navigating the difficult currents encountered in recent days would have been impossible but for “long-term employees who are dedicated to the values and mission of our company.”
H&S is aware of potential disruptions to the company’s workforce from the COVID-19 crisis.
“The good news is employees in all our bakeries are working,” he said. “We haven’t had any employee walk off. That doesn’t mean in the near future it’s not going to happen. Our backup plan is, we have called third-party temp workers. Every one of our bakeries is backed up.”
The company has identified certain lines that will be shut down in the event workers are unable to make it to work.
No letup in demand is anticipated in the near future from supermarkets, Mr. Paterakis said. The company has been in touch with the leading chains, and the sense bread sales will remain heavy was widespread.
He expressed appreciation for retailers’ cooperative efforts to “help the supply chain of bread into their stores.”
“Everyone has been positive with out-of-the-box methods and ideas to receive the production and distribution on volumes needed. They understand our dilemma and are willing to help work through the difficult issues.”
Many stores will be reducing hours, with locations that had been open 24 hours cutting back to 12 or 14, he said.
“In some stores they will be shutting down completely, only delivery,” Mr. Paterakis said.
Looking forward, the effects of COVID-19 on baking will be different than the effects of a snowstorm or a hurricane, Mr. Paterakis said.
“Demand from a snowstorm is good for the first three to five days,” Mr. Paterakis said. “Then, usually the bread business would drop significantly.
“In this case, it’s a little different. I think we will continue to see people panicking and hoarding whatever they can to freeze in addition to eat fresh product. I think that will continue. I don’t see a slide in the supermarkets.”
An internal memo to employees sent March 16 concludes with a summary of how the company is approaching the current health crisis:
“Through vigilance, and God’s Grace, we will get through this. In the meantime, let’s go feed America!”