KANSAS CITY — With overall sales volume under pressure in the bread market, bakers are focused on enhanced efficiencies, premiumization and protecting or boosting margins. In two significant cases, owners of large North American baking companies have opted to sell their businesses, in favor of what they view as better prospects in alternative business lines or geographies.
US retail dollar sales of bread in the year ended July 11 were $9.62 billion, up 0.2% from a year earlier, according to IRI, a Chicago-based market research firm. A year earlier, sales were up 6.2% during the same 52-week period while in the 52 weeks ended July 14, 2019, dollar sales were down 1%.
While still ahead of 2019 on a dollar basis, the same was not true for unit sales, according to IRI. Unit sales of fresh bread were 3.54 billion in the 52 weeks ended July 11, down 4.2% from a year earlier. Sales were 3.69 billion units in the 52 weeks ended July 12, 2020, up 3.5%. In the year ended July 14, 2019, unit sales were 3.58 billion, down 5.2%.
Several bakers were upbeat about prospects for the bread market, despite the slippage in sales volume. Included in these ranks was the head of one of the largest baking companies in the United States, A. Ryals McMullian, president and chief executive officer of Flowers Foods, Inc., Thomasville, Ga.
“The outlook for bread remains positive,” he said. “Recently, the category has benefited from increased work-from-home trends, which has provided a boost to the historical slow, but consistent growth. That growth varies by category. Commoditized products, such as private label, have been losing share — while premium, differentiated products are gaining share and growing. We have the top bread brands, and the goal of our portfolio strategy is to increase the percentage of our sales from those premium brands.”
Still, Flowers has not been exempt from challenging market conditions, Mr. McMullian said. Volume year to date is down 6.6% relative to the same period in 2019, before the pandemic. The totals include foodservice sales, which IRI figures do not.
“(The decline) is a function of higher branded retail sales offset by lower private label and foodservice due to the pandemic,” Mr. McMullian said. “Industrywide, a similar shift is playing out whereby branded retail volumes have increased over the last several years, but store brand and non-retail volumes are down.”
He said the drop in private label reflects both a growing consumer preference from premium bread options as well as a related preference for differentiated products. He said innovation efforts at Flowers have been aimed at tapping into this preference.
“(There is a) perception private label doesn’t meet the need for more artisan and healthy/wholesome bread,” Mr. McMullian said. “Also, private label has been over indexed in bread versus other grocery categories and seems to be reverting to those lower levels.”
Helping boost branded bread sales at Flowers in recent years have been two fast growing brands — Dave’s Killer Bread (acquired in 2015) and Canyon Bakehouse (2018). Nature’s Own, a longtime growth engine for Flowers, remains a strong brand, Mr. McMullian said.
“As the leading bread brand, Nature’s Own continues to drive category growth,” he said. “Like our other premium products, Nature’s Own has benefited from increased demand from the pandemic as well as the premiumization trend. Sales remain well above pre-pandemic levels and are approaching last year’s pandemic-driven levels year to date.”
He said the brand has benefited from numerous new product introductions in recent years, including under the Nature’s Own Perfectly Crafted line — Soft Rye Bread, Brioche Style Hamburger Buns, Brioche Style Hot Dog Rolls and Brioche Style Butter Rolls. Available in the Northeast are Nature’s Own Perfectly Crafted Artisan Flats, Bistro Flats and Snack Flats.
Over the past year, Flowers has begun to share details of a major digital initiative, which includes what the company calls its “bakery of the future.” Mr. McMullian said benefits the initiative is expected to deliver become even more compelling when considering the inflationary pressures that have bubbled up since the project was announced.
The targeted objectives of the program include real-time performance management, automation of repetitive processes and performance visualization, standardization of processes and procedures across employees, shifts, lines and bakeries, and sensor-based quality checks to improve consistency and reduce time to react to changes.
“We also believe there will be a benefit to utilization of our network capacity as these new toolsets will allow us to optimize the product mix at each of our bakeries,” Mr. McMullian said. “Our vision is to deliver best-in-class bakery performance and employee engagement through the application of industry-leading digital manufacturing tools.”
Even more upbeat on bread sales trends was Daniel Servitje, chairman and CEO of Grupo Bimbo SAB de CV. He called North American sales in the second quarter ended June 30 “very strong” relative to pre-pandemic levels The company’s 52-week unit sales in the period ended July 2021 were down 1.6%, after rising 4.7% in the period ended July 2020.
“The strength was driven by consumer demand, increased household penetration and the investments we have made and continue to make in our main brands,” Mr. Servitje said. “The private label run rate has remained soft, while foodservice is beginning to rebound as schools and restaurants manage reopenings.”
To protect profit margins, Fred Penny, president of Bimbo Bakeries USA, has been “very proactive” in addressing rising ingredient costs.
“We have been able to address them in the different markets through different levers,” he said. “One, obviously, is pricing. And another lever is trade optimization or revenue growth management. And finally, in some cases also, we have complemented that with productivity initiatives.”
He said the company would raise prices during the third quarter of 2021.
“We don’t know where the inflation is going to head,” Mr. Penny added.
Like Mr. Servitje, he was upbeat on the company’s sales trends.
“As we’ve gotten into the back half of 2021, we’ve seen fairly impressive run rates to a year ago, frankly surprising to me that we would have been able to run positive to a year ago,” he said.
He said volume was slightly higher than a year earlier which, “given the huge demand of a year ago,” should be viewed as a major plus.
Like Flowers, the company’s strong position in the premium brand segment has been a plus for margins, as has been the results of capital investments aimed at lowering the company’s cost base, Mr. Penny said.
A completely different take on the baking business was reflected in the actions during the year of George Weston Ltd., Toronto. Still impending is the sale of Weston Foods, the company’s baking subsidiary. In March, Weston announced plants to exit the business. At the time of the announcement, Galen G. Weston, chairman and CEO, pointed out that baking was “part of our family and our group of companies” for nearly 140 years.
The company bakes packaged fresh bread and rolls as well as frozen and artisan bread and rolls, cakes, donuts, pies, cookies, crackers, wafers and alternatives throughout Canada and the United States. The company produces private label products and many well-known brands, including Wonder, Ace Bakery, Country Harvest, D’Italiano, Casa Mendosa, Dave’s Killer Bread and Gadoua. The company has more than 5,000 employees and operates 40 baking plants and other facilities in Canada and the United States.
In connection with the announcement the business would be sold, Richard Dufresne, president and chief financial officer of George Weston, said the Weston Foods’ unit had remained profitable during the COVID pandemic, despite negative sales pressure. The business ended 2020 with sales of $2.1 billion and EBITDA of $200 million, which represents a 9.7% margin, he said.
In the United States, the company invested more than $30 million in 2017 in an expansion of an Ace Bakery facility in South Carolina, where the company bakes baguettes and other artisan products. A few years earlier, Weston expanded its bread footprint in the United States with the acquisition of a niche player — Chicago-based Rubschlager Baking Corp., which bakes a range of rye bread varieties and products for the North American market.
In 2020, Weston was in consolidation mode, shuttering a bread and roll plant in Kingston, Ont., a few weeks after announcing it would close a sweet goods baking plant in Coburg, Ont. The company announced a range of capital spending projects on bakeries earlier this year with investments totaling nearly $20 million, but these focused on non-bread initiatives, including a tortilla line in Calgary, cupcake lines in Manchester, NH, and a mini ice cream cone line in Green Bay, Wis.
More recently, in an August update, Mr. Dufresne expressed optimism that a transaction would be announced this fall. Mr. Weston was similarly hopeful, both about the sales process and the company’s efforts to navigate challenges associated with cost inflation and the pandemic.
“As Richard mentioned, we have been pleased with the level of interest from prospective buyers of Weston Foods,” Mr. Weston said. “At the same time, Luc (Mongeau, president of Weston Foods) and the team have actively been mitigating the current inflation and labor challenges facing the industry. The fundamentals underpinning Weston Foods remain strong with leading bakery assets and high customer engagement, and we maintain our conviction around the opportunity for that business to unlock meaningful, incremental value in the right hands.”
The other prominent company exiting the US baking industry over the past year was Aryzta AG, based in Schlieren, Switzerland, The company had been under pressure from shareholders for several years because of its poor financial performance. Amidst the pressure, the company in December 2020 decided its future focus would be on the baking business in Europe and the Asia-Pacific region and that the North American as well as Latin American business would be sold.
In March it was announced that private equity firm Lindsay Goldberg would purchase the North American business for $850 million. Aryzta North America provides bread, sweet and savory baked foods, and snacks to customers in the quick-service restaurant, foodservice and retail markets across the United States and Canada. The company’s portfolio includes both private label and branded offerings under the Otis Spunkmeyer, La Brea Bakery and Oakrun Farm Bakery brands. Aryzta North America operates 15 production facilities with more than 4,000 employees in the United States and Canada.
Urs Jordi, chairman and interim CEO of Aryzta, said the sale of the North American assets represents “a significant inflection point for Aryzta and vindication of our simplification strategy to the outright sale option.”
“Today’s transaction delivers significant debt reduction and balance sheet strength,” he said when announcing the Lindsay Goldberg transaction. “It now allows us to focus on delivering further operational improvements and returning to organic growth.”
Less than two months after the deal was completed, Aryzta North America announced plans to change its name to Aspire Bakeries, a decision that reflects the company’s aim to “continue to move upwards.”
Aspire Bakeries said its strategies will remain the same, with a continued focus on its three core brands — La Brea Bakery, Otis Spunkmeyer and Oakrun Farm Bakery — as well as on quick-service restaurants, foodservice and retail in-store bakeries.
“Our brands established our North American business as a leader in baked goods, as they all have strong, long-standing reputations of providing customers with delectable foods across the artisan bread and baked goods categories,” said Tyson Yu, CEO of Aspire Bakeries. “Aspire Bakeries will execute a business strategy that focuses on continued innovation and growth across our beloved brands.”
More recently Aspire Bakeries introduced a new tagline: Rising Together. According to Aspire Bakeries, the tagline highlights the company’s promise to always put customers first.
While the difficulties experienced by in-store bakeries have represented a challenge for Aryzta because of the pandemic, Aspire has been placing greater emphasis on building its Take & Bake brand, a par baked loaf finished at home with 8 to 10 minutes in the oven.
“In 2019 we had begun optimizing the Take & Bake product line to better solve consumer needs, focusing on rolls and demi baguettes,” said Christine Prociv, senior vice president of marketing, innovation and research and development for Aryzta North America in Chicago. “Then as consumer demand for our Take & Bake breads increased during COVID, we enhanced automation at our bakery in late 2020 and will be launching our new breads within this portfolio shortly.”