MEXICO CITY — An uncertain outlook for away-from-home eating looms as a major question mark overhanging prospects for the US baking industry, said Fred Penny, president of Bimbo Bakeries USA.
In a July 27 call conducted by Grupo Bimbo SAB de CV with investment analysts, Mr. Penny offered his perspectives on the strongest quarter ever for Horsham, Pa.-based BBU and how the company has responded to surging supermarket demand.
Tracing what has transpired since the start of March, Mr. Penny said the first few weeks of the pandemic were characterized by “panic buying.” Since then, sales have remained consistently strong.
“And I expect them to remain strong, although it's really hard to predict where this is really going to go,” he said. “It all has to do with to what extent consumers begin to eat away from home again. When those schools open, when will and how will colleges and schools open or not reopen. We’ve seen, as I’m sure you know, most food categories have seen it, just a significant shift to food consumed at home as opposed to away from home. So it’s difficult to project how that’s going to play out. But certainly, it’s been more consistent than I would have expected.”
As reported earlier, the North American business of Grupo Bimbo had operating income in the period totaling 4.07 billion pesos ($187 million), up 219%, from 1.28 billion pesos in the second quarter of 2019. Sales were 49.41 billion pesos ($2.3 million), up 36% from 36.24 billion pesos in the second quarter of 2019.
“Volume growth was extraordinary across the retail channel, which includes grocery, mass merchandisers and club,” Daniel Servitje, chairman and president of Grupo Bimbo, said during the call. “We experienced market share gains across the bread, buns and as well as breakfast, sweet baked goods and snacks categories. And the e-commerce channel more than doubled. This strong performance was partially offset by weak volumes across the QSR (quick-service restaurants), foodservice, and convenience channel due to the pandemic. Adjusted EBITDA margin reached a record level at 12.9%, reflecting the strong sales growth, lower commodity prices and productivity benefits from past investments, which were partially offset by onetime expenses related to the coronavirus.”
The earnings call was Mr. Penny’s first since the pandemic outbreak in March (he did not participate in an April earnings call).
Overall, sales of branded products have been strong for Bimbo and its competitors in recent months, Mr. Penny said. Private label sales have been growing far more modestly, if at all, he added. He said these trends apply across the various product categories in which Bimbo participates.
How Bimbo has responded to the demand surge has varied by product category, Mr. Penny said. The company initially reduced the number of stock-keeping units “to varying degrees,” based on the category and whether the company had adequate or not enough production capacity.
“Frankly, there were a number of categories where we just simply had to scale back on the number of SKUs we were making to even come close to demand,” he said. “Going forward, we’ve brought some products back as things have stabilized a bit. And we’re going to continue to evaluate our portfolio as we go forward with an effort to continually try to optimize it where we can.”
Mr. Penny called the bun season “quite strong” for Bimbo and “fairly strong” for the entire baking industry. With the dramatic shift in what consumers are buying, forecasting demand across BBU’s various categories has been “interesting,” he said.
Asked about bread pricing, Mr. Penny said Bimbo, in the face of limited supplies, chose to “scale back promotional activities” in an effort to diminish the likelihood supplies would be depleted in supermarkets.
“We’ve adjusted some promotional depth and frequencies to align with supply and demand as well as our customer strategy,” he said. “So I wouldn’t necessarily want to give guidance specific to pricing, but I would say that we’re working to both optimize our promotional strategies and ensure that we’re meeting our customers’ needs and our consumers’ needs.”
E-commerce sales have been growing rapidly, but BBU has considerable work to do in this area, Mr. Penny said.
“While our e-commerce sales are up substantially, Daniel mentioned more than double, they're still a relatively small percentage of our total overall sales that are going through our DSD (direct-store delivery) distribution system,” he said. “So I think there’s more at work there.”
Consumers seem to be gravitating to familiar brands when they are home and buying online, he said.
“We’ve seen that across not just our business, but I would say across the category as well,” he said.