Milling & Baking News - February 22, 2022 - 27

TUES | 02 22 202 2
basis points since 2019. These improved
metrics are driving sales and market
share gains. Nature's Own, Dave's Killer
Bread and Canyon Bakehouse grew 2021
tracked channel sales by 0.3%, 11% and
16%, respectively, despite the difficult prior-year
comparisons. Those top brands
also gained a combined 60 basis points of
market share. "
Also during the call, Mr. McMullian
offered an update on the company's
digital initiatives first announced in
February 2021. The effort is crucial for
the company to achieve its aspirations
around efficiency, he said.
" When we launched this initiative, I
highlighted some of the digital domains
we were focusing on initially, " he said.
" These domains included bakery of the
future, e-commerce and autonomous
planning. The bakery of the future
domain, among its many benefits, is
expected to provide new business metrics,
real-time performance management
and automate repetitive processes. We
expect those changes to translate into
meaningful benefits such as reduced
scrap and labor expenses, even more
consistent product quality and ultimately
lower production cost per hour.
" We've already launched pilots at several
bakeries, and we expect to deploy
this program to half of our bakeries by
the end of the year. "
Even as the company has communicated
its plans around the bakery of the
future for more than a year, details about
what the initiative entails have been
sparse. Asked during the investor call
whether installations would be disruptive
to current facilities, Mr. McMullian
offered hints of what may be involved in
the projection.
" From an operational standpoint, it's
not disruptive, " he said. " We're not having
to shut things down. This is mostly
data-driven type stuff at this point.
Obviously, we're doing some automation
work, robotics and that type of thing,
which is a little bit of a different story, as
we did that in Navy Yard. But the pure
initial for us to bakery of the future is
mostly around data, better data, more
real-time data, driving out inefficiencies,
lowering scrap costs, etc. "
Regarding e-commerce, Mr. McMullian
said the company is looking to
extend the reach of its products.
" Our ultimate goal is to become the category
leader driving sales at traditional
that units are holding up well and our trade promotion rate remains low. I have
seen some research that suggest consumers are beginning to look for value as
prices rise, but so far, that dynamic has been less apparent in the bread category.
In fact, most of the category softness has been confined to lower-priced,
less-differentiated products. Premium items such as Nature's Own Perfectly
Crafted, Dave's Killer Bread and Canyon continue to generate growth in dollars
and units. That product mix gives us confidence that 2022 has the potential to
be another very strong year. However, if consumers begin to trade down to lower-priced
products, that could put some temporary pressure on margins. "
Actions the company is taking to enhance profitability will yield more benefits
in the second half of 2022 than in the first, Mr. Kinsey said.
" While our January pricing initiatives will impact the full year, the benefits
of many of our growth and efficiency initiatives are expected to occur in the
back half of 2022, " he said. " Some of the factors we considered when setting
guidance - including inflationary pressures, our ability to take additional pricing
and the resulting demand elasticity. "
A degree of uncertainty always surrounds financial guidance early in a year,
but Mr. McMullian elaborated on specific factors he said could drive where
results fall within the range provided by the company.
" The first is demand elasticity, and the second is the timing of our efficiency
initiatives, " he said. " As we said, our early analysis suggests that consumers
are absorbing the price increases well, but we will need to get a little
bit further into the year for a more complete picture. Also, given the success
of our portfolio optimization initiative, which generated $60 million in savings
over the last two years, I am confident in our ability to deliver incremental
value. However, a timing shift in those initiatives could impact overall results
bakingbusiness.com
retailers' websites, online retailers and
last-mile delivery partners, " he said.
In an effort to build its autonomous
planning resources, Mr. McMullian said
Flowers seeks to connect the various
pieces of its supply chain digitally.
Such capabilities would help the company
" predict consumer demand with
higher accuracy and integrate that insight
from point of sale through the supply
chain to ensure the right raw materials
are on site at the right time, " he said.
He explained that producing the right
products at the right bakeries, delivering
products to optimize on-shelf availability
will greatly benefit the company.
" These digital domains and others are
expected to drive greater sales and efficiencies,
enabling us to meet or exceed
our long-term financial targets, " he said.
Key to the initiatives is an upgrade of the
company's enterprise resource planning
(ERP) system, a project he said has moved
to the build from the design phase. The
upgraded system will " deliver better
data; automate processes; and enable us
to become a more digitally agile company
with the ability to leverage data and technology
to further improve efficiencies,
operations and service. " MBN
FLOWERS FOODS, INC. WEEKLY SHARE PRICE
$24
$27
$30
$15
$18
$21
Feb.
2020
Shares of Flowers Foods have been rising the last two years
but recently have held beneath mid-January highs.
April June Aug.
Source: New York Stock Exchange
this year. So consumer trade-down to lower-priced products and a timing shift
in our savings initiatives could move results toward the lower end of the range,
but continued strong demand for our premium brands and timely delivery of
savings would help drive results toward the upper end of the range. "
Mr. Kinsey said inflation is higher in 2022 than in 2021, in part because
several hedges established in 2021 before cost hikes have ended.
" In total, we are expecting high single-digit cost increases (in 2022), " he said.
" Prices for commodities such as flour, fats and oils; and packaging have risen
significantly. And we are doing everything in our power to offset these higher
costs. Our hedging strategy, in which we attempt to lock in commodity prices 6 to
12 months out, provides visibility into future inflation. Approximately 70% of our
key raw materials are covered for 2022. " MBN
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Milling & Baking News - February 22, 2022

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