Innovative branded products and creative marketing enable this company's fresh bakery unit to buck the declining white bread category and capture greater variety bread market share. Even fresh artisan-style ciabatta has reached the bread aisle.
White pan bread took it on the chin during the Atkins Diet craze and in many markets still is reeling from the body blows. Yet, that hasn’t blocked Sara Lee North American Fresh Bakery from challenging established notions of marketing white bread.
Having entered the fiercely competitive fight for sales and market share only nine years ago, the Sara Lee Corp. business unit has trained and conditioned its Sara Lee® Soft & Smooth® Made with Whole Grain White bread to become the number one traditional white bread in dollar sales for the 52 weeks ending Jan. 29, 2010, according to Information Resources Inc. data.
“Sara Lee took a bold move to introduce Soft & Smooth. And this was into a stagnant marketplace,” recalls Jim Nolan, executive vice president, Sara Lee North American Bakery, Downers Grove, IL.
“People recognized that balance in diet, not one extreme nor the other, is important, especially when it comes to the importance of whole grains in a well balanced diet.” Whole grains have driven the broader bread industry for several years, he observes, and “we need to increase the education level for the consumer. The Soft & Smooth line introduction helped do that.”
Sara Lee North American Fresh Bakery grew to a near-national bread producer seemingly overnight in 2001, when it acquired The EarthGrains® Baking Co., the second-largest bakery operation in the U.S., known for its premium line of all-natural bread products. An independent publicly held firm at the time, EarthGrains had been spun off by brewing giant Anheuser-Busch in 1996. EarthGrains brand products were introduced to consumers in 1975.
Tim Zimmer, vice president-marketing, Sara Lee North American Fresh Bakery, joined Sara Lee in 2003 and was on the marketing team charged with building the business. “We had three objectives,” he says. “One, to take Sara Lee branded fresh bakery products national. Sara Lee enjoys great equity in frozen product, and we believe it had relevance in fresh bakery. Two, to bring innovation to the category. And three, to build a marketing team to support a consumer-driven model to achieve these objectives.”
In 2003, Sara Lee Fresh Bakery had 118 brands and about 5,000 SKUs spread across nearly 70 percent of the country. While building the Sara Lee brand, including EarthGrains, the company has eliminated others. Market research revealed where duplication exists, enabling the company to reduce the number of brands to about 40 and to eliminate SKUs to less than half the original count, he says.
Initially, removing brands that had become less relevant was easy, Zimmer says. As the team looked at more difficult choices, “we had to set up opportunities to transition consumers into the Sara Lee brand.”
For example, Sara Lee uses co-branding, placing the Sara Lee brand on regional brand packaging. “This makes it easier for consumers to better understand the move,” he explains. “The alternative is to remove a brand, throw consumers into the air and allow them to fall. We want to make sure that we keep those consumers and bring them into the Sara Lee brand.” Some duplication remains, so the process continues, he adds.
Sara Lee bread products are geared to the needs of three sets of consumers, Zimmer says. Sara Lee addresses mom and households with children. Earthgrains tends to appeal to 45-plus-year-olds and households without children. And, strong, or “power,” regional brands have hometown equity and cross both demographics, which nice blend well with the Sara Lee and EarthGrains brands, he adds.
Sara Lee assesses each market individually, viewing each from a national and local perspective. Drilling down, it determines the appropriate number of SKUs based on geography, a market’s capacity to deal with SKUs and the velocity of those SKUs, Zimmer says.
Consolidation of local brands and introduction of national brands and new products begin with the consumer. “That is, we need to drive the bread category so that it drives consumer solutions,” Zimmer says. “We don’t want this category to become commodity-based. Rather, we want to add variety to meet consumer needs.” For example, introduction of Sara Lee Soft & Smooth Made with Whole Grain White bread occurred in 2005 in the midst of the Atkins Diet craze.
Volume and sales of white bread were down significantly in sales and production. “The language in the press was, ‘White bread is dead,’” he says. “And, the baking industry was focusing on moving consumers to whole grains and the whole wheat. We looked at the situation as an opportunity to identify a consumer solution.”
Sara Lee sought to tap its brand equity of sweetgoods among older consumers and apply it to mothers. It already had introduced Sara Lee 45 calories Delightful White® bread, which addressed the need for low-carb and low-sugar white bread and whose sales were growing.
“We looked at how we could contemporize the Sara Lee brand for mom,” Zimmer says. “She has battles every day with her children to eat right. They want food that tastes great, while she wants to provide nutrition. We wanted a product that would combine both needs: a great-tasting white bread that sticks to the roof of your mouth and provides the nutrition that mom wants.”
The breakfast cereal industry then was introducing whole grain breakfast cereals, a move that, he explains, helped lead Sara Lee to develop Sara Lee Soft & Smooth Made with Whole Grain White bread “with the taste and texture that children love and the whole grain goodness that mom feels good about.”
The bread became a platform to fill other needs and occasions for mom. This led to introducing Sara Lee Soft & Smooth Made with Whole Grain White hamburger and hotdog buns. “We also recognized that whole wheat bread and rolls often don’t appeal to children. Whole wheat products can be dark in color, coarse with an open grain and have a bitter aftertaste,” Zimmer says. The buns’ color is light, the texture is soft, and no bitter aftertaste is present.
Last year, the company introduced Sara Lee Soft & Smooth Made with Whole Grain Mini Bagels, which contain 100 calories each, compared with 300 calories in standard-size bagels, and impart the mild taste, soft texture and whole grain nutrition of other Soft & Smooth products.
The latest examples of building a product from the Soft & Smooth platform are the Sara Lee Soft & Smooth Plus breads Made with DHA Omega-3, rolled out this month. “We saw that DHA (docosahexaenoic acid) omega-3 is a growing benefit in food products aimed at households with children, such as baby formula, cereals, milk products,” he says. “Mom’s within this demographic have a 92-percent awareness of the benefits of DHA omega-3. But, bread, one of children’s primary foods, didn’t contain DHA omega-3. We believed we had an opportunity to introduce bread into children’s diets earlier and, in doing so, expand the category.”
Specifically, the bread is targeted to families with children aged to five years old. Sara Lee tests showed it met consumers’ expectations. “The bread went full circle from consumers driving the interest in a DHA omega-3-formulated bread to creating and delivering it,” Zimmer says. “So, instead of talking about a SKU, we can go to retailers and talk about a platform and how we use it to provide consumer solutions.”
Platform building also extends to the company’s EarthGrains breads and rolls. This month, Sara Lee announced that flour in EarthGrains breads will include Eco-Grain™ wheat flour. Produced by Horizon Milling Co., a unit of Cargill Inc., the flour is milled from hard red winter wheat grown using precision farming, an innovative farming practice that promotes sustainable land use, Cargill says.
EarthGrains partnered with Cargill, and the brand launched its “Plot to Save the Earth, One Field at a Time” marketing program this month to support awareness about Eco-Grain sustainable land use. EarthGrains bread made with Eco-Grain meets a trend in which “many consumers long for simple, natural products that celebrate the Earth and want to help the environment. Supporting Eco-Grain wheat was a natural fit for the EarthGrains brand,” Zimmer says.
Currently, only five farmers in Idaho produce Eco-Grain wheat. The breads currently contain 20 percent Eco-Grain; later this year, Eco-Grain will be added to EarthGrains buns. “We’re starting, one field at a time. Eventually, we want EarthGrains breads to contain 100 percent Eco-Grain,” he says.
Another consumer-based solution surfaced in part because of the current recession, which has curbed dining out. This has opened an opportunity to bring casual dining to bread shelves with artisan-style bread. Sara Lee this month introduced Hearty & Delicious Ciabatta™ bread and buns in the central west. A co-packer produces the bread for distribution by Sara Lee.
Because of the economy, fewer people are eating out, Zimmer says. “If we can tap into those consumers, this will be yet another way to expand the category.”
Tracking consumer trends includes how consumers obtain information, which assists Sara Lee in developing its messages. “Where ever mom goes, we go with her. For example, mom and her children spend a lot of time with the Disney, which is the number one communicator in households with children in television, print, radio and Internet,” he says.
In 2008, Sara Lee initiated the brand’s first promotional tie-in with Disney’s “High School Musical 3: Senior Year” movie launch, as part of a multi-million dollar market program to promote the Soft & Smooth brand. The campaign included television ads, point-of-sale materials, an on-line presence, movie theater events and a consumer sweepstakes contest. The brand continues to tie-in with Disney’s high successful properties, launching the national Bring HOme the Magic promotion tie-in with Disney’s “Wizards of Waverly Place” movie launced in 2009.
Internet exposure is critical, Zimmer says, noting, “Moms go online regularly to gather information and blog. Facebook and Twitter have extended word-of-mouth communication exponentially.” In August, Sara Lee conducted a nutrition summit at its headquarters with 12 influential moms who blog regularly.
The company provided the participants with information about healthful nutrition and asked for their thoughts. The women returned to their homes and began blogging. “They wrote about healthful tips, Sara Lee and Soft & Smooth bread and garnered more than 50 million impressions with their blogs,” he recalls. “This is an example of how the world has changed.”
Sara Lee Fresh Bakery also maintains a website, Facebook page and uses Twitter. “We want to be everywhere mom is communicating and to be engaged with her in a relevant and valuable manner,” Zimmer says.
Social media communication among 45-and-older consumers also is exploding. Sara Lee partnered with FarmVille, an interactive, online game (www.farmville.com), which attracts several millions of users.
To collect and interpret consumer trends information, Fresh Bakery uses outside market research resources extensively but also draws on abundant consumer market information available within Sara Lee. CEO Nolan notes that most large baking companies are focused solely on the baking industry. “Yes, Sara Lee Fresh Bakery is focused on baking, but Sara Lee Corp. is a multiple category company operating in multiple geographies,” he says. “We have a great meat company and in Europe a coffee company, a body care company and a bakery operation.”
These companies share their information and in doing so enable Sara Lee Fresh Bakery to plug into to trends occurring in other areas. “So, we can take the external data and the internal information and look at our market on a broader basis.” Nolan says.
Fresh Bakery then takes an integrated approach to apply consumer trends information to develop products, working with food scientists at the company’s North American Research and Development Center in the Downers Grove, Ill, headquarters, external food scientists, ingredient suppliers and its Bakery Tech Group, which applies new or reformulated products to real world conditions in the plants.
The 150,000-sq. ft. research center, which was opened last year, features pilot bakery plant operations to produce all of Fresh Bakery’s products. Before the center was opened, product development teams had to go on location to test production runs.
Integrating products into the plants has become easier as the company has been standardizing processes since it acquired EarthGrains. Sara Lee now runs 42 plants, which use sponge and dough production. Most have been well-maintained and have required mostly routine maintenance and replacement equipment.
Nolan declines to discuss the amounts of capital expenditures but says the company has invested steadily into the fresh baking operations. To ensure this commitment, we need to achieve the right kind of return to justify the investment package.
“We addressed how to improve the operating returns and identified the areas to invest in to do it,” he says. “We have embraced several productivity initiatives to do this, including a lean approach to manufacturing in 2005.”
This has included shuttering plants, while adding others through acquisitions. Also, standardizing processes has yielded improved productivity, he says.
In 2008, the company initiated Project Accelerate, which for Fresh Bakery “addresses the broader scale of our productivity, exclusive of manufacturing,” Nolan continues, and involves areas such as route and warehousing operations and back office systems.
During the last three years Fresh Bakery sales and volume increased steadily by single-digit growth; however, operating margins slipped each corresponding year by similar percentages. The company introduced Project Accelerate to help improve productivity and enhance operating margins.
One Project Accelerate initiative, radical simplification, requires looking at SKUs on a more “holistic basis within a geography,” he says. “It’s a complete analysis to identify and evaluate the manufacturing footprint, number of SKUs, and route structure and densities. What is the value of each SKU?”
The management team responsible then is charged to drive the geographic footprint to drive productivity. “Often a sales group has an idea of what needs to be done, manufacturing has another, finance has a third, and distribution has a fourth,” Nolan says. “Each will discuss the issue within the group, but the groups don’t sit down together, forced to work together.” The process has led to 18 radical simplification roll-outs, nine of which have been executed.
Chris Finck, executive vice president, sales, says this type of thorough analysis, applied to product movement in retailers’ stores, can help to boost bakeries’ sales. Retailers, he notes, are looking for more help from the vendor community to increase sales. Sara Lee uses its resources to track and identify product movement, including Sara Lee’s products, competitors’ products and non-bakery products.
“We look at the bakery category as under-spaced, as compared with the top-10 categories within a supermarket,” Finck says. “We help retailers understand how adjacent categories are performing and may be over-spaced.” Fresh Bakery uses consumer trends and product data to show how to shrink some categories and increase others to display space productivity.
“We rely on solid, fact-based data to point to consumer and category trends, and explain to retailers that we will meet those trends and that they should allocate more space to take advantage of them,” he explains.
As bakeries roll out new products, they cannot afford to delete core SKUs, so they will have to present solid cases for expanding their shelf space, Finck says. Under-utilized space could be in the shelves across from the bread shelves, next to the breads, behind the breads, or at the end aisle.
“Retailers have a huge opportunity to set displays according to consumer decision-making,” he says, for example, organize sets according to moms’ and dads’ shopping habits and to meals and product type: breakfast, dinner, white bread, specialty breads. The goal is to get consumers to buy according to multiple segments, not just from one manufacturer.
“This takes category management to a higher level: category leadership.”
Sara Lee Fresh Bakery’s leadership team is optimistic about white bread’s future, despite current sales being depressed by the recession and competitive pricing from private label and branded product.
“We still see opportunities in the white bread market, based on consumer solutions that will ensure that our bread is relevant to consumers.” Zimmer says. “Right now, that’s Soft & Smooth Plus with DHA Omega-3.”
Nolan adds, “I’m a firm believer that news drives consumer interest, and these recent introductions, I believe, will generate more interest. And, we will have more. We have a platform upon to build and add products.
Headquarters: Downers Grove, Ill.
Distribution: 70 percent of U.S.
Number of bakeries: 42
Number of routes: 4,400
Number of employees: about 12,000
Senior management: Brenda Barnes, chairman and CEO, Sara Lee Corp.; James Nolan, CEO, North American Fresh Bakery, and executive vice president, Sara Lee Corp.; Chris Finck, executive vice president, sales, North American Fresh Bakery; Tim Zimmer, vice president, U.S. Fresh Bakery
Annual sales: $2.2 billion (2009)
Product line: about 2,500 different SKUs of white and variety pan breads, hotdog and hamburger buns; specialty breads
Brands: Sara Lee and EarthGrains national brands, about 40 regional and local brands
Business channels: retail supermarkets and other food markets and foodservice.
Distribution: 27 depots and distribution centers Iowa, Wisconsin, Illinois and Nebraska
Number of tractors/trailers: 14/34
Production volume: 22 million loaves per year
Number of employees: about 100
Management: Alan Walters, plant manager; Tim Fetzer, distribution manager; John Shultz, production supervisor; Tracey Hager, quality and food safety manager
History: constructed in 1931 by Trausch Baking Co. and later purchased by Metz Baking Co.; acquired by EarthGrains Baking Co. in 1999 with purchase of Metz; included in Sara Lee’s acquisition of EarthGrains in 2001
Products: multiple Sara Lee and Earthgrains brands bread and hotdog and hamburger bun products, including bread in wide pans and 20-oz. round-top sizes
Mixing method: sponge and dough
Production lines: two bread, two roll lines with Lanham proof-and-bake conveyor system
Sara Lee Corp. released its second fiscal quarter results this month, which showed that Fresh Bakery branded and non-branded sales had slipped 7.5 percent from a year earlier to $499 million and that volume declined 4.2 percent. This was in contrast to gains of similar percentages in both categories posted during the last three years.
After the release, Brenda Barnes, Sara Lee chairman and CEO, spoke with securities analysts in a conference call. Following are excerpts of her comments:
“Fresh Bakery remains a challenging category with substantial competitive pricing pressure and some growth in private label. This is an area where we will recalibrate pricing to stimulate volume over the remainder of the year. . . We expect these actions to stimulate volume and allow maintaining our strong branded position in the industry.
“At the same time, we are focused on a powerful marketing campaign which partners Sara Lee Soft & Smooth breads with Disney’s most-popular TV show, The Wizards of Waverly.
“I am pleased with how this segment has managed a multi-year change in commodity pricing. For a three-year period, wheat prices soared to unprecedented levels, and while prices are falling now, they remain at high levels relative to historic norms. We’ll continue to do the right thing to manage our price points while focusing on delivering bottom-line results.”
In a question-and-answer session, Barnes noted that branded products are generating a large portion of competition.
“If you look at the private label business for the last 10 years, it has been in pretty steady range with no large change in market share. But, branded is very aggressive now. . . The net result is the price per loaf is down.”
She added that when adjusting prices down, “We will go surgically, market by market, where the volume needs to be restored,” and reaffirmed that company “will not back off on its brand-building efforts and will maintain planned levels of activities to market and promote its new branded products.”