Bakeries
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Industry Overview
The US bakery industry has about 2,600 commercial bakeries, with combined annual revenue of $25 billion, and 7,000 small retail bakeries, with $2 billion total revenue. Large companies include Interstate Bakeries and Flowers Foods, plus divisions of companies such as Sara Lee and Nabisco. The commercial side of the industry is highly concentrated: the 50 largest commercial bakers hold more than 80 percent of the market. The retail side of the industry is very fragmented. Although big companies may operate dozens of bakeries, the typical baker operates just one facility.
Competitive Landscape
Demand is related to eating trends and to the changing structure of the grocery industry. Profitability for individual companies is determined by efficiency of operations. Large companies have scale advantages in procurement, production, and distribution. Small companies can compete by offering specialty goods or superior local distribution services. Despite high automation, the low value of the product produces a fairly modest $150,000 in annual revenue per employee for commercial bakers.
Products, Operations & Technology
Baking is a low-technology business that produces low-priced products from commodity ingredients. Fifty percent of industry volume is from baked breads, mainly white, wheat and rye; 20 percent from rolls, buns, muffins, bagels and croissants; 11 percent from soft cakes; and the rest from pies, pastries, doughnuts and a variety of sweet goods. Annual US per capita consumption of bread is close to 60 pounds, according to the Wheat Foods Council.
Bread bakers buy wheat, high-fructose corn syrup, yeast, and shortening (mainly soybean oil), mix them into various dough combinations, then bake, package, and distribute the goods. Other raw materials include fruits, eggs, sugar, oils, milk, and chocolate. The cost of ingredients constitutes from 15 to 30 percent of the wholesale selling price. Some bakers buy premixed dough from suppliers. Ovens burn natural gas or propane. Management in most commercial bakeries focuses on lowering production and distribution costs.
Large economies of scale occur in producing baked products, mainly because labor costs can be reduced dramatically in large bakery facilities. A big automated bakery can produce a million bread loaves a week with just 100 employees working two shifts. The size of production facilities is limited by the need to distribute a highly perishable product to a large number of customers. Usually a large baking facility can service an area within a 300-mile radius.
The most modern bakeries are highly automated. To track and help assure compliance with government regulations that affect bakeries, companies deploy software, such as the American Bakers Association's Environmental Quality Management program. Bakery firms may use computer systems to receive orders, track sales, and exchange other data with large customers.