Milling & Baking News - August 23, 2022 - 28

TUES | 08 23 2022
Flowers sees lower-income households
purchasing less premium bread
THOMASVILLE, GA. - While lower-income
households appear to be shifting their
buying to lower-priced baked foods, a longterm
move toward premium products in
the bread category is likely to continue, said
A. Ryals McMullian, president and chief
executive officer of Flowers Foods, Inc.
In prepared remarks released Aug.
11 in connection withthe company's second-quarter
financial results, Mr. McMullian
addressed bread market dynamics in
an uncertain economic environment. He
said economic turmoil has been reflected
in changes in where consumers have been
shopping with more food purchases being
made at value‐oriented merchants such as
mass, dollar and club stores.
" Lower-income consumers have tended
to trade down to less expensive products
more than those with higher income, " he
said. " This behavior has been particularly
stark in the premium category, where
higher-income consumers have actually
increased purchases of some products,
including DKB (Dave's Killer Bread). On
the other hand, we have seen lower-income
households reduce their number of purchases.
We are closely monitoring these
developments and maintaining our marketing
investments to keep our brands top
of mind and entice these consumers back
when that economic pressure is relieved.
In short, we believe the premiumization
of the category remains a long‐term trend
despite some shorter-term challenges. "
In the meantime, Mr. McMullian said
Flowers has a broad product line leaving
the company " well positioned to support
consumers in this unique environment. "
Mr. McMullian also commented on
what he called a " pause " in the long-term
decline in private label's share of the
bread market. He said it would be incorrect
to simply attribute this change to a
trade down by consumers in response to
rising bread prices.
The improved private label performance
has been driven by concentrated
activity in the mass merchandise channel
" where private label retail prices have
not adjusted to reflect recent inflationary
pressures, " he said.
" The resulting wide price gaps to
branded products seem to be driving much
of the stabilization in private label share, "
he continued. " Areas of retail that reflect
price gaps more in line with historical levels,
such as in the grocery channel, show
continued private label share losses. "
The company has raised or is raising
private label prices in markets where the
gap had widened excessively and where
pricing had not kept pace with rising production
costs, Mr. McMullian said.
Flowers net income in the second quar28
ter
ended July 16 was $53.68 million, or
25¢ per share on the common stock, down
4.8% from $56.36 million, or 26¢ per share,
in the second quarter last year. Net sales
were $1.13 billion, up 11% from $1.11 billion
Dave's Killer Bread gained share in the quarter
despite regional capacity constraints.
a year earlier. Adjusted net income in the
quarter was down 5.2%.
Flowers lost 10 basis points of market
share during the second quarter, with
several factors contributing. A packaging
shortage affecting DKB was a factor,
though its effects were mitigated as the
quarter progressed, Mr. McMullian said.
He also cited a stock-keeping unit rationalization
program as a contributor, especially
in cake, foodservice and private
label, and he said price increases taken
earlier than usual left the company in a
" temporarily less competitive position. "
The market share loss was not across
the board. Nature's Own and Canyon
Bakehouse gained share, and even DKB
gained share despite " regional capacity
constraints and packaging shortages, " Mr.
McMullian said. He said the DKB problems
have been resolved and that Flowers
remains " supremely confident " in the
brand's growth potential. In particular,
he said increased West Coast capacity will
be a boost there and that the brand is performing
well in the Northeast.
Tracked channel sales of Nature's Own
during the quarter rose 12%, DKB was up
nearly 10%, and Canyon Bakehouse sales
jumped 22%.
" We've maintained many of the new
consumers we gained during the height of
the pandemic, and we are working to build
upon that growth through continued elevated
marketing and brand investments, "
Mr. McMullian said. " Our 17.5% dollar
bakingbusiness.com
COMPANY profile
FLOWERS FOODS, INC.
http://www.bakingbusiness.com
Milling & Baking News - August 23, 2022

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