Flowers Foods Inc – Strategic Update & Competitive
Positioning – 11 March 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Richard Charpentier (RC)
Former Senior Director, R&D at Flowers Foods Inc
Agenda:
1. Fresh bakery industry trends
2. Flowers Foods (NYSE: FLO) business update and retail sales tailwinds
3. Grain-based category opportunities
4. Mid-term outlook
Contents
Q: Could you give an overview of the packaged bakery foods industry? What are the main categories and
drivers? Who are the top competitors?
Q: What were the key industry trends pre-coronavirus?
Q: What challenges are facing the industry?
Q: Where would you say most industry growth comes from?
Q: Could you give an overview of Flowers Foods’ business and its different product categories?
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Q: You talked about how consumers expect more from the different companies and it’s not just about having
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the best brand. What is Flowers Foods’ consumer demographic like? Has that profile changed at all?
Q: How has coronavirus impacted Flowers Foods?
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Q: What are your thoughts on the newly created and appointed role of Chief Transformation Officer, which
will be held by Heeth Varnedoe? What gaps do you think Flowers Foods is trying to fill with this new role? 5
Q: What impact do you think the shift towards sustainability, responsible ingredient sourcing and reducing
waste is having on Flowers Foods? You mentioned consumers demanding more transparent labelling.
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Q: Flowers Foods is in both the private label and branded businesses. Are there any advantages to this dual
operating model?
Q: What are the dynamics of Flowers Foods’ strategy to lease labour?
Q: Flowers Foods is the second leading brand by market share within the fresh and frozen bakery products
category. Could you name some of the other key players?
Q: What competitive advantages and disadvantages does Flowers Foods have in its sector?
Q: How strong would you say brand loyalty is among Flowers Foods customers or products?
Q: How big a threat is competition from regional and independent bakeries?
Q: What would you say is driving competition in fresh and frozen?
Q: Could you give an overview of Flowers Foods’ branded retail portfolio and its highest-selling brands?
What are its key segments and products?
Q: Flowers Foods experienced a favourable shift in sales mix in its branded retail products because of
changes in consumer buying patterns amid coronavirus. What is your outlook for the sustainability of these
benefits?
Q: Flowers Foods is repurposing capacity to grow its branded retail business. What factors are driving this
strategic shift?
Q: What do you think is driving the margin increases for Flowers Foods in the retail business? Higher
volumes don’t necessarily mean higher profits. What factors are helping the company become more
profitable?
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Q: Growth from the branded retail business more than offset lower store-branded retail and food service
sales. How could Flowers Foods further capitalise on this growth? Do you think it says more about
innovating new products? Is it correctly marketing the brand? What do you think it can do to keep this up? 9
Q: What are the health and wellness trends in the packaged bakery foods industry?
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Q: What steps do you think Flowers Foods needs to take to build a meaningful presence and market to more
health-conscious consumers?
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Q: What are your M&A expectations pertaining to Flowers Foods? Do you think there is consolidation to
come? Are there any opportunities for Flowers Foods to take on smaller start-ups?
Q: What is the biggest threat facing Flowers Foods?
Q: Is there anything investors should know about Flowers Foods’ management team and their ability to
execute on priorities?
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Flowers Foods Inc – Strategic Update & Competitive
Positioning
Transcription begins at 00:03:25 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview, entitled Flowers Foods Inc – Strategic Update and
Competitive Positioning. I am Nyree Hinton, and I will be facilitating today’s Interview with Mr Richard
Charpentier, former Senior Director R&D at Flowers Foods Inc.
Richard, before we get started with today’s Interview, please state I agree or I disagree to the following
statement: You understand the definition of material non-public information and agree not to disclose any
such information or any other information which is confidential during this Interview.
RC: I agree.
NH: Could you begin with an introduction of your background and various roles you’ve held in the industry?
RC: Yes, I can. Again, the name is Richard Charpentier. I have been in the bakery industry for the last 34
years. My last position was Senior Director of R&D for Flowers Foods, which was two years ago, and that’s
when I last worked there. I do have a background in French baking as well, where I hold a marketing degree
from France and a bakery degree from France. I am a Certified Master Baker from the US, and I also hold a
degree of bakery science from Kansas State University and also have been working with American Institute of
Baking while I was at Kansas State. Along the way, I did work with Conagra, Hostess and Flowers Foods
among the companies I worked for.
[00:05:19]
Q: Could you give an overview of the packaged bakery foods industry? What are the main categories and
drivers? Who are the top competitors?
RC: The overview of packaged snack and bread, today, is overall, I think, not all of it, but the global bakery
market is about USD 38bn industry. From that, which I don’t have the exact data, I think at least half is done
on packaged. I know the bread category alone is about USD 12bn in the US and with snacking is probably an
extra USD 10bn, so it’s about USD 20bn which is all packaged food today in the US. Since we’re going to cover
more things later on, I’ll leave it at that for now.
[00:06:48]
Q: What were the key industry trends pre-coronavirus?
RC: Pre-COVID, the trends that we were noticing, a lot of requests for what we call the mini category, so
smaller size servings, more like pop it in your mouth, one-bite or two-bite types of items, of iconic items. The
second I think we would see was a big push for cleaner label options. The third one we would see was how
premium, a lot of licensing opportunities with large brands to put a premium, either chocolate, premium
cinnamon into some co-branding opportunities were pretty big at the time.
NH: How would you say those trends were altered by coronavirus? How might consumer behaviour have
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changed?
RC: The clean label is still there. The pandemic has accelerated consumers’ focus on wellness through diet and
nutrition, and also has augmented, increased the segment of consumers reading labels during the COVID. The
premium of what was seen before as premium co-branding, maybe it’s not as interesting. The minis are still
something that interests customers, the portion control or portion sizes, but I think the pandemic has created
a shift towards better health and better nutrition.
[00:09:09]
Q: What challenges are facing the industry?
RC: The biggest challenge, and where, again, by referring to the industry of the large manufacturers, is how
they can adjust and adapt towards the new trends coming on. Since current manufacturers are set up with very
large manufacturing lines, it’s all about big volume. Adjusting to lots of different demands and different
options and, basically, expanding the array of flavours and offerings they do to customers creates a big
challenge for large manufacturers because the changeovers and the adaptation of lines to create unique
products with unique flavours is more difficult to capture.
[00:10:11]
Q: Where would you say most industry growth comes from?
RC: The growth in the category is coming from where customers are going for premium, and when we say
premium, again, it’s relating to better, where consumers now, and getting into the details of Millennial
generation, Gen Z generation, are more disposable income, more say so in terms of what they’re buying.
Today’s consumers, they really want to connect with the brands and the companies they do business within,
including looking for the ingredients and products and brands that tell a story and where the shift, again, in
my opinion, that we’re seeing is consumers, where it’s changing, they no longer say, “This is McDonald’s,
therefore I can trust it.” Now they will say, “What does McDonald’s have for me? What ingredients they have
for me?” It’s no longer being guided by just the brand. They’re being guided by also the products and the
ingredients.
[00:11:32]
Q: Could you give an overview of Flowers Foods’ business and its different product categories?
RC: Flowers Foods is a business that has been around for over 100 years, and they grew through acquisitions
over the years. Their latest acquisition was Canyon Bakehouse, and prior to that, it was Dave’s Killer Bread.
Their strength and category is into retail, sandwich sliced bread, ambient, and they cover about 80% of the US
territory. It’s a national company, not international, they cover 80% of the US. In their categories, they do
have organic, they have non-organic, regular and then also have gluten-free, and they also have categories of
snack cakes or snacks in general through Tastykake and Mrs Freshley’s, but today, most of their distribution is
done through warehouse distribution and distributed ambient. They do a little bit of frozen distribution
through Canyon Bakehouse, but, again, it’s a recent acquisition.
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[00:13:16]
Q: You talked about how consumers expect more from the different companies and it’s not just about having
the best brand. What is Flowers Foods’ consumer demographic like? Has that profile changed at all?
RC: I don’t have access to all the breakdown of the demographics. No, I don’t think it changed much. I think
the demographics themselves are what’s changing around, and the key is how will they capture those new
consumers and how relevant will they be to those new consumers. I think the general shopper, in their
baskets, they will still buy their eggs, milk and bread because it’s a commodity item for American consumers.
It’s just how relevant they will be able to stay for today’s consumers.
[00:14:24]
Q: How has coronavirus impacted Flowers Foods?
RC: COVID impacted Flowers, where we all remember, a year ago, there was a massive lack of simple
products, paper towels, bread, eggs, pasta, simple food. Large consumers, including Flowers, benefited from
the high demand of COVID for bread. If you look historically speaking as well for companies like Flowers,
every time we have some type of recession where the economy slows down a little bit, people have a tendency
to go buy breads and snack items. Based on, again, public information, they have seen an uptick in bread sales
during the COVID, which Flowers greatly benefited from that.
[00:15:51]
Q: What are your thoughts on the newly created and appointed role of Chief Transformation Officer,
which will be held by Heeth Varnedoe? What gaps do you think Flowers Foods is trying to fill with this
new role?
RC: That new Chief Transformation Officer, it’s a new thing. That’s a brand new position that was created
early this year, I think in January. Again, my personal observation of that is to fill the gap to take Flowers
Foods into the current technological world that we live in today, which I think it’s needed for any company of
that size to bridge the gap to advance the company through technology, and I do think it’s a needed position.
NH: Are there any glaring operational efficiencies you think the company was trying to fix with this new role?
RC: Whether or not they have operational issues or anything, as of today, it’s not something I could answer.
From a technology standpoint, any manufacturers, it’s global, it’s always important to stay up to track. If you
look at companies like Walmart, to understand up-to-date inventory systems through radio-frequency. I think
Flowers Foods will greatly benefit from building new technology to understand in real-time what they’re
making and where are the orders in because the bakery industry has a big struggle with orders being put in
because you’re still dealing with fresh products, two weeks’ shelf life. Hopefully, the way I understand that
position will play a crucial role to try to build technology around it that will allow them to be faster and more
relevant in the market by delivering fresher. That’s the way I’m looking at it and that could really meet that
gap right there.
[00:18:47]
Q: What impact do you think the shift towards sustainability, responsible ingredient sourcing and reducing
waste is having on Flowers Foods? You mentioned consumers demanding more transparent labelling.
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RC: In terms of sustainability, the way I look at is, to me, sustainability is a word that means different things
to different people, but when we take that into the context of what does that mean for a manufacturer like
Flowers Foods, I take the argument of today, and those are USDA statistics, I don’t know the recent ones, but
on average, the manufacturing world generates about USD 165bn in waste. That waste creates extra resources
that are not needed that are going to the landfill. In terms of sustainability, it goes back to being able to
understand shelf life better. Ideally, what could you do to minimise how many times a truck goes to a market?
At the same time, you have to deliver fresh product. For companies like Flowers, it would be to find a way to
minimise packaging, maybe, minimise waste, minimise energy being used and all together, and that’s a big
overtaking. It’s not something that you can change at, but maybe it’s through rethinking and retooling the way
it deals with processing and distribution. Within a short question, it could be a two- or three-hour debate, but
the way I look at it is there’s a lot of work that can be done in that segment of sustainability and it’s all going to
be based on what management Flowers sees as being a priority of what sustainability means to them.
[00:21:33]
Q: Flowers Foods is in both the private label and branded businesses. Are there any advantages to this dual
operating model?
RC: Yes and no because they don’t have a complete vertical integration of the way they operate, so they’re still
relying on different things. What do you want to be? That’s my point of view. Would you want to focus on
branding, or do you want to focus on manufacturing? Their operational strategy today is to do a little bit of
both, but once you do private label, it’s also to maintain generating money from filling up your lines. Any gaps,
you’re doing that, but at the same time, you’re competing, but at the same time also you’re using the people,
you’re doing private label to fill up the shops and it’s a relationship and it’s a very delicate relationship that you
build up. I think as they grow their brand, they’re going to have a lot of different decisions to make whether or
not private labelling for others is still something they want to do because it creates a complete different other
set of how you manage your business vs just branding. There’s still some convoluted grey area in between of
how you manage one and how you prioritise one vs the other.
[00:23:31]
Q: What are the dynamics of Flowers Foods’ strategy to lease labour?
RC: Again, I come from being a master baker. I do believe in America we’re one of the only countries where
we do not really train our bakers. Baking is being seen in most other countries as a trade, similar to carpenters,
plumbers, where you require at least a minimum of, even in the US, three months to become a hygienist or a
hairdresser, but to be a baker, we don’t. I do agree that short term there are some savings that can be done in
terms of leasing or having temporary help, it’s perfect, but long term, it’s very dangerous because we, in the
US, are losing at a rapid rate knowledge and technical knowledge of people that have acquired the trade of
baking. By replacing with temporary help, it gives you a quick savings on the books for the next few years, but
it also has the potential to damage your overall quality, at the risk of quality. Again, it’s a corporate decision,
it’s a strategy to be done, but each of them have pros and cons, then they have to be balanced very well in order
to make the right decisions for the future.
[00:25:30]
Q: Flowers Foods is the second leading brand by market share within the fresh and frozen bakery products
category. Could you name some of the other key players?
RC: As people in the industry know, BBU or Bimbo is the largest and number-one competition for Flowers
Foods. Hostess and McKee or Little Debbie, which they don’t do breads but they’re competing within the
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snacking segment, same as Hostess. Then, it’s a lot of different regional players after that, but those are the
four big that I see having that pool, which is about one-third of the industry in terms of sales and revenues,
and those are the biggest competition.
[00:26:41]
Q: What competitive advantages and disadvantages does Flowers Foods have in its sector?
RC: The advantages Flowers might have is the fact it’s a solid company that was founded about over 100 years
ago. They have a strong team that they all know each other. They call it the Flowers family. What they have as
a disadvantage compared to the competition might be that they’re not technically as innovative as other
companies and, again, that’s an observation from being in the industry. How quickly they could answer the
change of market and consumer demands might be something that is going to be difficult. Like any
manufacturers, a weakness is once you build for big volume, how quickly you can adjust within current
manufacturing equipment to the changes. I know some other companies have already built up a lot of co-
manufacturing, where they’re having their own products being manufactured by other manufacturers, which
allows them to have a different control because manufacturing is great but it also has its implications, its pros
and cons. Overall, as a weakness, it’s not being able to be in touch as much with current markets and what’s
going on.
[00:28:52]
Q: How strong would you say brand loyalty is among Flowers Foods customers or products?
RC: Again, not having data or having done research, what I’m sharing is my personal opinion of the market
and what’s going on, I do think they have some loyalties and people who follow because they like the brand.
Usually, quality is what sells in the bakery category. I also believe that it’s because the market has not really
changed. If you look at the bread aisle, it’s always the same, and whatever is coming out is under the same
brand with just an extension with a flavour or something like that. I think it’s going to be a question of what
happens in the future. It would have not been something we’d be discussing to be able to sell a loaf of bread for
USD 8 or USD 9 10 years ago. We would have said no, maybe in very specific, limited markets, but today, I do
believe that consumers are willing and able and seeking for new things. It’s just a question of time until
somebody comes up with something newer and better that consumers, as we’ve seen at the Artisanal brand
from Bimbo, by changing a little bit of packaging in their offering, and all of a sudden, we’re seeing sales
shifting towards something else.
Consumers in the bread aisle, bread is a staple, bread is something fun, and consumers, a quick side analogy, if
an item you have, as in a Chick-fil-A sandwich, everybody says, “This is great, I love it,” but would you be able
to eat it every day and be happy with it, or would you like variation? I think consumers like to see some new
stuff, and it’s just a question of how the market will evolve in the next five years. As pointed out earlier on in
the conversation, I think between the Gen Zs and Millennials, it’s a question of time until the market is
shifting.
[00:31:31]
Q: How big a threat is competition from regional and independent bakeries?
RC: I think independent and local bakeries and manufacturers are a real threat. As an independent today and
working with both CPG and small, I think the threat is the fact that small manufacturers and local players have
the ability to move extremely fast, which large companies cannot. They have the adaptability to react quicker
to the market as large companies cannot. They’re not as nimble. I think where it’s going to be very, very
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dangerous and where the strategy that they implement for the future growth is going to be dangerous because,
as we all know, large companies, sometimes they have projects where it’s two years down the pipeline. If you
have projects two years down the pipeline and all of a sudden the market is shifting a different direction, how
quickly can you react and adapt? Often, the first one on the market with the newer technology is always the
one winning overall. It’s always best to be the first one except to be the second or the third one coming up with
a product.
[00:33:06]
Q: What would you say is driving competition in fresh and frozen?
RC: Premium, premium quality, just quality product and availability of premium products within the retail
channel. As mentioned earlier, consumers, the format of bread and retail is the same. It’s one loaf sliced up
with different flavours, different labels, different packaging, but overall, it’s the same thing with different
brand names. Again, it’s my personal observation is as the pandemic arrived, I think to brands that are more
health-focused and more nutrition-focused will be what makes the difference because it’s a clear indication
that consumers want it but it doesn’t exist. It does exist within smaller markets, or if you go to your local
bakery and buy a sourdough loaf for USD 10, it shows that consumers are willing and able to do that, but just
not on the retail side.
[00:34:55]
Q: Could you give an overview of Flowers Foods’ branded retail portfolio and its highest-selling brands? What
are its key segments and products?
RC: In terms of their store-branded retail products, they have, of course, Dave’s Killer Bread, which is the
leading brand. Maybe not. Their leading brand was always Nature’s Own, Honey Wheat and different brands
under the brand name of Nature’s Own. Then in the bread segment they do have Dave’s Killer, which is their
organic, and now on their portfolio, they added Canyon Bakehouse.
[00:36:27]
Q: Flowers Foods experienced a favourable shift in sales mix in its branded retail products because of changes
in consumer buying patterns amid coronavirus. What is your outlook for the sustainability of these benefits?
RC: I do think within bakery, sustainability depends on quality and consistency of your product. That’s been a
struggle within the industry from all large manufacturers. It’s about how do you maximise the profit and what
you do internally to try to maximise your profits, whether or not by changing a little thing or packaging which
could affect the product. That’s where I’m a big advocate that it starts with premium, quality ingredients to
deliver consistent results. I think for now, for large companies, for large manufacturers, I always say the same
message. It’s how do you maintain your consistency. That’s what I learned in the industry from McDonald’s, if
you go to a McDonald’s in France or in China or in the US, you’re going to get the same experience, and that’s
why consumers come back to it. I think, to me, the secret for maintaining your growth is maintaining your
quality and consistency, which in the bakery world is not an easy task, but it’s, again, as companies, how do
you prioritise that? Do you just prioritise growth? How do you plan on growing? That, I cannot answer, but to
me, that’s a way of maintaining, basically, your core and ensuring your consumers.
I’m a consumer. We’re all consumers today, and often, if I buy a brand that I like and then I buy it again and
it’s not the same, I’ll buy it again. If I think it’s too different, and I don’t have the same experience, then,
therefore, I’ll make a decision to no longer buy the brand. We all do it. Basically, how can you stay relevant?
You can price by pricing it differently. They can play the price war and try to generate and keep certain margin
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and then expand on volume. That’s another approach to do that, but I do believe, especially with bakeries, you
have to have for your consumers to relate with your brand, and it has to be either through quality or the story.
[00:39:32]
Q: Flowers Foods is repurposing capacity to grow its branded retail business. What factors are driving this
strategic shift?
RC: By growing those brands and being able to manufacture, it’s always the struggle of large manufacturers is
how can you produce enough to distribute it everywhere? Ideally, everybody would love to be in the position of
Mondelez to be selling Oreo cookies and it’s in all the stores in America. To do it with bread comes a strategy is
how do you do it? As you strategise around it, do you have one big factory and push everything through a
distribution centre and sacrifice the quality of your bread as you do that as a strategy or you go more with
smaller pocket bakeries that can distribute everywhere, but then that creates another nightmare with
changeovers and everything.
[00:40:56]
Q: What do you think is driving the margin increases for Flowers Foods in the retail business? Higher volumes
don’t necessarily mean higher profits. What factors are helping the company become more profitable?
RC: The operational changes they’re making. My manufacturing philosophy is very simple. You start with
good, well-maintained processes with good-quality ingredients and trained and happy employees, it generates
profit. If you focus on those three rules, and I know it sounds very simple, but it works, and do it well, they will
maximise profit. The big challenge for every manufacturer today, in the instance of Flowers Foods having a
total, I think, of 48 different manufacturing facilities, can you do it all across at once? It’s a massive budget
and it takes an army of people to do it. I think that as a result of probably refocusing on better manufacturing
processes, they’ll be able to be more efficient and, therefore, have higher throughputs and better shelf life and
distribute to further areas. Also, if we look over the last year, one major contributor to the increased margin
was also selling. That, coupled with COVID and the pandemics, created more sales and more margin.
[00:43:02]
Q: Growth from the branded retail business more than offset lower store-branded retail and food service sales.
How could Flowers Foods further capitalise on this growth? Do you think it says more about innovating new
products? Is it correctly marketing the brand? What do you think it can do to keep this up?
RC: In order to keep it up, I go back to putting on my consumer’s hat. As a consumer, I would buy more if I
knew it was a consistent quality. A consistent quality, as I said, is doable, but it’s costly to do, it’s not an easy
thing to do, but I think in order to maintain is to capture consumers and to make sure they relate to the brand.
It’s the same principle as McDonald’s or Chick-fil-A or Starbucks or Taco Bell. We built and we build up
expectations of what we’re going to get, and that’s why we buy it. It’s our interaction. All consumers are buying
breads. Right now, I know I’ve mentioned earlier as well, the shelves are basically filed with the same sorts of
breads all throughout most of the US with retailers, but it’s making sure that you do have innovation, where, in
order to maintain that, you capture the coming generation, between the Gen Z and the Millennial. Market
research and market study will be extremely valuable to understand how and what are the drivers for the new
consumers to purchase bread. We also are seeing a movement within the market that now, more and more
with COVID, people are baking at home. It’s understanding all of these current factors and establishing the
perfect strategy for your continued growth. It’s necessary, and I know they’re probably doing that, but not to
sit there and say, “We’re growing. We’re happy,” but it’s always having the proper leaders and leadership
where they can anticipate future changes and guide the team to go attack and approach the new potential
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business growth or opportunities within the segment of bakeries and retail.
[00:45:49]
Q: What are the health and wellness trends in the packaged bakery foods industry?
RC: I believe that all consumers, it’s global now, we were all stranded at home, having time for ourselves to
read and go on social media and listen to either influencers and what people do today with their phones and
with the time. Overall, there’s a need for more health-focused foods. We’ve all heard the term superfoods, and
I think, again, now, the continued heightened awareness of health and wellness we hear all the time, and
consumers want to prioritise foods made with quality ingredients. Clean label is more than ever because
consumers are saying, “Is this good for me? What’s good for me?” Nobody wants to eat food and everybody is
either struggling with health issues or anything like that. I do say an opinion on the fact that now, food, almost
similar to cosmetic, where people will put a cream and say, “Hey, it makes you feel younger or it makes you
look younger temporary for a day or two because that cream takes your wrinkles away.” I think consumers
now are starting to look at foods, and in the instance of our conversation, bread, to be, “What can bread give
me?” I do a lot of work on nutrition through history and how, if you look about 200 years ago, the average
consumers will be eating 2-2.5 pounds of bread per day because we didn’t have the availability or the array of
all the foods we have today.
I think the opportunity is there. It’s how do you take a bread concept and how do you make it quote, unquote
healthy, where consumers will relate to it? Is this all the buzz terms of quinoa or keto? What is it that will
capture the growth and that will be something that will be there just to stay and not just a fad that will
disappear? It’s very clear with all the indicators already showing that personalised health and nutritional
needs that consumers want, like protein, fibre, low-sugar or clean label, and those are terms that are here to
stay. All the indicators, if you do some search online, are there. That’s what consumers want, but, now, it’s for
manufacturers to be able to deliver.
[00:49:14]
Q: What steps do you think Flowers Foods needs to take to build a meaningful presence and market to more
health-conscious consumers?
RC: I think, as we can see from examples of brands becoming extremely successful in the market, like Halo
Top or others, SkinnyPop, it’s for large companies to be able to think like a start-up. Unfortunately, for
Flowers Foods, even though it’s a great company with lots of history, but it’s how do you get outside of your
comfort zone and how do you strategise that you can have that speed to market innovation and the creativity
to be able to tap into what’s going on in the trenches? Right now, most large companies, they see their
portfolio and they see the way they distribute, and if you mention something completely outside of their realm,
it becomes risk. For them, it’s how much risk are they willing to take, and are they risk-takers or are they just
not risk-takers? I can’t speak for them and for their long-term strategy and how they reinvent. To me, as a
strategy, I would go rethink of what’s the meaning of the bakery of the future, what does that mean and if the
bakery of the future is still those big, massive bakeries that can pump out huge volumes every hour or do you
have to start thinking differently?
I’ll give you one quick example that I was told about 15-20 years ago. Someone said if you want to follow the
trends of the bakery industry, you have to follow the trends of the brewing industry, which they’ve been very
correlated and very quite parallel. To me, the future will be similar to the brewing industry. 20-30 years ago,
Pabst, Budweiser were the pillars of beer, and now, today, micro-brewing and you have people going to bars or
whatever and buying a pack of four for USD 20 and it’s not a problem because it’s the experience that they get
from drinking the beer. What’s the difference between a beer and a bread? Not much. They’re both fermented
products, except one, you do it for fun and one, you eat it every day. What I’m saying, without stretching it too
far, is I think it’s the ability to quickly react, again, to wrap it up, to the market and to offer more, what I call,
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personalised health, and through bread because, again, 200 years ago, we ate much more bread. Today, you
have gluten-free, we’re trying to slowly adjust, but other than regular bread and bread with grains, organic
breads or gluten-free, that’s basically where it stops. Within breads and grains, there’s so much more of a
world that is untapped.
[00:53:43]
Q: What are your M&A expectations pertaining to Flowers Foods? Do you think there is consolidation to
come? Are there any opportunities for Flowers Foods to take on smaller start-ups?
RC: In the case of Flowers, which, historically, have always grown mostly through acquisition, and it’s a case
for all large players, that’s where in the industry you’re seeing lots and lots and lots of small start-ups going on
with crazy items, thinking, “Hey, why not? I can do it.” Today, large manufacturers are competing against the
small start-ups to a certain degree, but it’s always to be on the lookup for, “What could be the next acquisition
that will meet our portfolio that will take us to the next USD 1bn?” I do think for that, I know Flowers is
looking, I know a lot of companies are looking, and that’s where you’re seeing a lot of companies. Again, the
example of Halo Top or SkinnyPop, within 2-3 years, they’re being acquired for large sums of money because
they’re seeing the potential, because those brands are reacting quickly because they’re innovative and they
meet the demand. I guess that’s all I can say at this point.
[00:55:38]
Q: What is the biggest threat facing Flowers Foods?
RC: Again, my opinion, the biggest threat is not to be up-to-date because I think, and it’s a statement for the
entire bakery industry, baking is an old trade. Baking is slow because it takes time to make bread, and so, are
the companies managing baking in a slower approach? We take our time. I think time could be crucial, and it’s
how quickly do you adjust and how nimble they can react to the market because, tomorrow, whatever the
market share is today, it could be easily taken by smaller players. A small player could be taking 2% of the
market share, another one could be taking 2-3%, but once you add it up, all of a sudden, you’re losing 10% of
your market share, and you’re, “What’s going on here?” It’s being able to take risk. It’s a completely different
market, and I think it’s having people at the leadership who can really relate and understand how quickly the
market is shifting and changing at a lower level. I’m sure they do a lot of market research, but the market is
changing where now it’s going to branch. To me, I’ll always ask, what’s the future of bread? Is bread supposed
to be just what we look at today?
If you look at what I call the last big innovation in bread that disrupted the entire category was in 1928 when
sliced bread was introduced to the market. That really exploded the market because now it created a new
offering. I always challenge the bakery industry to be, okay, what’s the next sliced bread for us and where is
this coming? Right now, if you’re willing to think outside of the box, and no pun intended, but to think what
could be the bread of the future, and we’re thinking it could be anything. Again, I don’t know. If I knew, I
would be doing it, but it’s what’s the next big thing? To me, the only way you’re still relevant is to think outside
of the box and think, okay, there are no small ideas because if you limit yourself and you say, “My segment is
sliced bread, fresh bread, two-week shelf life, and we’re focusing on the brand,” it’s going to be a little tougher
uphill battle in the next 10 years.
[00:58:41]
Q: Is there anything investors should know about Flowers Foods’ management team and their ability to
execute on priorities?
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RC: I think what the investor community, and maybe the question to me is the points of a rapidly changing
market, Flowers’ management team, they’re people who’ve been around, as I mentioned earlier, it’s a Flowers
Family. Maybe for the future, I know they’re creating more diversity as to get people who are highly diverse
and technical within the bakery world. Right now, they have decided from a management standpoint to
basically depart from technical experts, by choice, but it’s also maybe moving later on the headquarters to be
closer to a larger urban area where there’s more going on. That, to me, would give Flowers’ management team
a better ability to execute on priority. Again, it’s an opinion, an observation from my side.
[01:00:14]
NH: Let me close by saying thank you, Richard, for your input. Clients, if you would like to speak to Richard
in a private call or meeting, please let your relationship manager know. Thank you again for joining Third
Bridge Forum's Interview today, this now concludes our meeting. Goodbye.
Transcription ends at 01:00:26 of the recorded material
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