Philadelphia-based Tasty Baking Co. has shown how a company can be successful without nationwide distribution. Nevertheless, with a new state-of-the art bakery under construction, a major tie-up with Wal-Mart and a growing online business, there seems to be plenty of scope for expansion. Chris Jones spoke with Tasty Baking’s marketing director, Jon Silvon, about the company’s regionally-focused business model and plans for the future.
just-food: Tasty Baking is an iconic brand in the eastern US, with up to 70% of the bakery sector in some markets, but you don’t sell your products across the whole country. Does that put you at a disadvantage?
Silvon: Not at all. Being regional allows us to be very agile. When we launch a new product, our marketing teams can go into every market where that product is sold and see if it is working. That means we can test products far less expensively than our rivals rolling them out in markets that are sometimes thousands of miles away from their headquarters or bakeries. We don’t need to do pre-market studies or consumer surveys – we can just make a small batch of the new product, launch it and see how it works.
j-f: But doesn’t restricting your coverage to the eastern seaboard mean you are inevitably going to struggle against firms with nationwide coverage?
Silvon: If you look at our annual reports from the early 1990s, you’ll see that going national was our key objective. We were in California, Arizona, lots of western states. But that kind of coverage is very challenging to support from one bakery here in Philadelphia. Our products have a two-to-three-week shelf-life, so we can’t afford to spend seven days transporting them to the other side of the country.
We have pushed down into Florida and Georgia, and into Ohio, so we have been growing the business. And if you look at our competitors, which have nominal nationwide coverage, you’ll see that they often tend to do most of their business around one or two core markets: Entemann’s focuses on New York, Hostess and Drakes are in the mid-west. And one of our biggest national competitors, IBC, is in Chapter 11 bankruptcy, so we think we are in pretty good shape.
j-f: Does your success mean you are attractive to other companies as a potential acquisition target?
Silvon: We’ve had our share of approaches, yes. But we think we can offer better value to our stockholders at this time by doing things our way. In any case, we have national coverage of sorts through our relationship with Wal-Mart, so that is enough for now. We’ve got an exciting new bakery under construction here in Philadelphia, so that will allow us to spread our wings a little more.
j-f: What was the motivation behind the new bakery?
Silvon: Our main bakery here is a vertical plant, over six storeys, and it is very complicated to move the products around. We’ve been here since 1914, and we’ve tried to incorporate as many of the technological developments in the baking sector since then into our Philadelphia bakery. But we operate over 580 square feet here, while the new bakery will cover just 360sq ft when it opens in 2010, and all on one level, so it will be much more efficient.
Tasty Baking Co. is set to move from this site – set up in 1914 – to a new Headquarters later this year
j-f: Is it hard for a regional player such as Tasty Baking to fund such an ambitious move?
Silvon: We were lucky in that we had support from the local state authorities, who encouraged us to stay in Philadelphia by helping out with some of the US$100m price tag. A more efficient plant will inevitably mean job losses, but we think that most of the reduction in staff will come from retirees not being replaced and from temporary staff. So we don’t expect to see many of our extremely loyal, full-time workers have to leave.
j-f: This new facility has been described as a ‘green’ plant. What does that mean exactly?
Silvon: That was one of the requirements of our deal with the Pennsylvania state authorities: we had to move to more sustainable production. The site will re-use a lot of the energy we need to bake our cakes, and the packaging will be nearly 100% recycled. We’ll be able to swap high-energy electric ovens for less energy-intensive gas ovens in the new facility too. Our new corporate headquarters will also be green, and we are also working with Wal-Mart to improve sustainability along the supply chain.
j-f: Will the new bakery allow you to do things you haven’t done before?
Silvon: Tasty Baking has always been a highly innovative company. As I said before, we’ve been able to try out new things in our local market without significant cost implications. We’ll certainly be moving to trans-fat-free production as quickly as we can – though many of our products have always been trans-fat-free – and it’s been challenging to find new blends of oils that give us the same flavour profiles for our icings, for example, without the trans fats. We’re pretty pleased with the performance, though there will be some price implications because commodity costs in general are through the roof at the moment.
j-f: And what about other healthier products?
Silvon: We’ve been moving into sugar-free, fat-free, low-cholesterol and other products for some time now. We’ve had a new leadership team for the last five years and they have taken the decision to work on building brand equity – our policy was focused on heavy discounting before that. So now we’re looking at tapping into the healthy eating trend, with wholegrain products as well as reduced- and no-sugar variants. There are opportunities there for us, definitely.
We launch around 20 new products a year, although not all of them are healthier brands – some are seasonal products. We’ve started to look at natural and organic products but our problem with that is how big the opportunity is at the moment. As natural/organic stores like Wegmans and Wholefoods grow then there could be a chance for us. But for now we are just dipping our toe into that market.
j-f: Any other developments on the horizon?
Silvon: We’ve been doing good business through our website, selling cakes across the US, and we’re keeping an eye on whether that would be a good way of getting nationwide coverage. It’s an incremental business at the moment, but we just don’t know yet if it will be cost efficient.
Another possible development could be the expansion of our business through Wal-Mart, as they go more international. Shelf-life could still be an issue, but we could freeze our products to allow them to travel further. We’re also looking at ways of extending the brand. Turkey Hill, a local company here, makes an ice cream product using our brand which has been successful, so if we can find similar partners in other areas, that would be an opportunity for us.