Flowers Foods has insisted that it has fended off the challenge to the company’s volumes and shelf space through increased promotional activity in the third quarter.
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The US group, which distributes baked goods to retail and foodservice customers, said third-quarter net income totalled $31.9m, up from $27.4m last year. Sales increased 4.6% to $602.6m.
However, Flowers has lowered its sales guidance for the full-year to a range of $2.6bn-2.61bn, from a previous range of $2.65bn-2.68bn.
Speaking to analysts during a conference call, CEO George Deese said that sales were dented by increased promotional activity, prompted by the competitive nature of the bakery category.
“Because of the recession, the food industry in general thought ‘well we’ve got to do more for the consumer’. The retailers were pushing hard to try to find value to pass along to the hurting consumer,” Deese observed.
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By GlobalDataHowever, he continued: “As a result people are not consuming more. We did see some shift from foodservice to retail. More people are eating at home. But at end of the day nobody is consuming more food. So what we’ve done in the baking industry is getting less for our product. Whoever has got the hottest specials for a given time might pick up some share, but at the end of the day everybody is going to get pretty equal.”
While Flowers Foods had successfully pushed price increases through last October, the company has been forced to discount its brands through promotions in order to protect its shelf space, Deese revealed.
“If you start losing units, sooner or later as the retailers reset bakery departments, if you are losing units, your space takes a cut. So we decided to make a change in our strategy and correct this issue. We did correct it. We didn’t lose any units overnight. We didn’t get them back overnight, but by end of the quarter we did see things getting back to where we thought they should be.”
Deese said that Flowers will be able to invest continue to invest in promotional activity due to the low cost structure of its business.
“Being the low cost producer in this businesses and having the most efficient distribution systems and being able to lever a lot of things, we feel like we can do what we have to to protect our share but yet take care of our shareholders, our customers and the consumers and our associates.”
Looking to the fourth quarter, Deese said the group expected “more of the same”. However, he added, Flowers has “some optimism” that promotional activity and price investments will moderate going into the first quarter of next year.
“We’ll have to see the reaction of our competitors to be assured of that, but eventually all of us have to invest back in this business – not just in promotions.”
