Milling & Baking News - July 27, 2010 - 7

Editorial



Is bread baking really a defensive business?

o one enjoys a kind word about baking or because of excellent demand. That is ascribed to
the broad food manufacturing business bread being a core food business ranked as a "demore than this magazine does. Similarly, fensive asset." Many investors, these observers
no one likes less any and all demeaning criticisms say, want to acquire such businesses as protection
of industry prospects. Expressing that thinking in against volatility in the economy as well as in eqturn leads to a feeling of great urgency to under- uity markets. This approach assumes that any
stand how best to regard prospects for grain-based problems facing an individual baking business is
foods at this particular point in the fast-moving do- countered by the expectation that a "double-dip"
mestic and global economies. That is especially the recession like some are forecasting for the Americase when thoughtful analysts in recent days have can economy will find baking a good place to be
expressed strikingly different opinions about the as penurious consumers tighten their belts and buy
relative virtues of investing in the industry at this essential foods like bread.
moment. Making an assessment becomes critical in
Indeed, this "defensive asset" argument has been
light of the many uncertainties ruling on the out- put forward to explain several other offerings of malook for business in general, not
jor food companies that are conWill baking's results
just in the balance of this year but
sidered likely this year. Similar
follow or not the trends in
for this second decade of the 21st
to Sara Lee's taking advantage of
the general economy?
century. Will baking's results folthe demand for "defensive busilow or not the trends in the general economy?
ness" is the apparent decision by the private equity
Those uncertainties are heightened when sharply owners of United Biscuits to want to sell that comcontrasting views are voiced about the very same pany as well as a similar plan aimed at liquidating a
baking business. Widespread rumors, neither de- major holding in Yoplait, a leader in French yogurt.
nied nor confirmed, are that the Sara Lee Corpora- According to the Financial Times, these businesses
tion is moving to separate its wholesale bread bak- are attractive to equity buyers because they proved
ing business, which is largely what it acquired as their resilience during the recent recession.
Earthgrains some years ago. For one analyst, Sara
Neglected in any enthusiasm about the marketLee is doing the right thing to rid itself of a busi- place's appetite for these companies is that baking
ness that does not have a promising future, which and other aspects of food manufacturing did not reis a mild way of interpreting what this analyst said. ally fare well during the recent recession. For one
This very same adviser, though, expresses doubt of the few times in history, baking's performance
that any other food company will want to acquire was not much different from firms in industries that
Sara Lee's bread business in light of the great dif- truly struggled. Sure, baking and the food business
ficulties it faces. And Sara Lee itself has been go- enjoy steady consumer demand, but as these ining through a difficult time, disposing of non-food dustries have sought to innovate and to introduce
businesses that would make divestment of baking higher value products as the way to bolster both
at variance with what had been perceived as a cor- profit margins and positions at retail, they also have
porate strategy focusing on food.
exposed themselves to fluctuations of the overall
In contrast with this dour prognosis of where bak- economy. While it would be a wonderful example
ing is heading are other analysts who have reached of "having your cake and eating it" to be consida much different conclusion on the driving force be- ered both defensive and innovative, that is not the
hind Sara Lee's rumored sale of its baking business. likely outcome of strategies most baking compaHere the view is that Sara Lee is seeking to sell baking nies have decided to pursue. MBN

MORTON SOSLAND, EDITOR-IN-CHIEF
WE'RE EAGER TO GET YOUR FEEDBACK: E-mail editor@sosland.com or write to us at
Milling & Baking News, 4800 Main Street, Suite 100, Kansas City, Mo, 64112
EDITORIAL STAFF
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Morton I. Sosland
Executive editor, markets
Neil N. Sosland
Editor
L. Joshua Sosland
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7bakingbusiness.com
/ March 13, 2007 
/ world-grain.com
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Milling & Baking News - July 27, 2010

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