Organic bread may be difficult for Flowers to popularize, says analyst

A Euromonitor analyst has questioned Flowers Food’s recent acquisition of Dave’s Killer Bread as the organic bread market has limited potential in the packaged bread industry.

Last week, Flowers Food purchased Dave’s Killer Bread, the largest organic bread manufacturer in the US, for $275m. Emily Balsamo, a Euromonitor research analyst specializing in bakery, told BakeryandSnacks.com that the industry focus in packaged bread has been mostly in gluten-free.

“Organic bread is particularly difficult to produce,” Balsamo said. “It’s more difficult to grow organic wheat than organic soy, for example. The yeast and sugar is particularly difficult to source organically.”

“The big trend is gluten free. People looking to eat more naturally might just opt for gluten free bread.”

Dave’s Killer Bread CEO John Tucker told our sister site FoodNavigator that they’ve spent time thinking about how they will source the organic materials for the company’s bread. He said the company is very engaged with its suppliers.

“When I came on board [in May 2013] I spent a lot of time with our supply chain team asking 'what if?'” he said. “What are the implications if we grow at this rate, or at this rate?”

Closing the gap on Bimbo

Flowers, the No. 2 packaged bread company in North America, will expand its mostly-southern reach into the Pacific Northwest and Canada with this purchase. But will the company be able to catch the No. 1 packaged bread company, Mexican-owned Grupo Bimbo?

Balsamo said it might not happen in the near future, as Grupo Bimbo has a sizeable lead on the market. 

Grupo Bimbo, which produces Sara Lee, brought in $13.8 billion in sales in 2013. Meanwhile Flowers Foods, best known for Nature’s Own and Wonderbread, is forecasted to end this year between $3.79bn and $3.86bn. Balsamo said Flowers outlook is up about 1% this year while Grupo Bimbo is slightly down in packaged bread, but that still leaves a huge gulf.

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Dave's Killer Bread will operate as an independent subsidiary, according to Flowers' CEO

Could this move change packaged bread in the near future?

In her years of studying the food industry, Balsamo said there is usually more focus on products that are growing more quickly than others.   

Dave’s Killer Bread, for example, is expected to post sales of between $160m and $170m in fiscal year 2016, instantly making it Flowers’ biggest bread brand. Wonderbread brings in about $120m a year annually, she said.

However, while the ascent toward bigger sales may be flashy, Balsamo said the bigger brands, such as Grupo Bimbo’s Sara Lee, are still where the big money is made.

“As far as organic categories go, bread is not huge deal,” she said. “The industry is worth about $1bn per year. It has a lot of logistical issues … People who buy everything else organic are not necessarily buying organic bread.”

Balsamo noted that Nature’s Own, Flowers’ premier brand, brings in $1bn on its own, so organic bread will certainly have a long way to go before it becomes fully popularized.

“It is kind of a trendier product than most of what they’re offering now,” Balsamo said. “I think it’s more of a wait and see.”

“Dave’s clearly has shown that it can get momentum and can attract customers, but as far as growing into something as widespread as the other Flowers brands, I’m not sure that it could. It does seem like quite a departure from the rest of their portfolio.”