Flowers Foods Gears Up For Bakery Category Headwinds

Flowers Foods posted solid Q3 performance despite reporting a net sales decrease of 0.7% to $1.19 billion as positive pricing more than offset volume declines. Adjusted EBITDA grew 10% to $133.3 million, representing 11.2% of net sales.

While the broader bread category experienced dollar and unit sales declines, Flowers’ brands all posted positive sales growth including Nature’s Own (+2%), Dave’s Killer Bread (+4%), Wonder (+3%) and Canyon (+11%). Those gains were the largest among the broader category, claimed chairman and CEO Ryals McMullian during a call with analysts, and further validates the company’s “investments in differentiation.”

However, the company’s sweet baked goods and fast food businesses did feel the negative effects as cost-conscious, discretionary consumers skip over indulgences. In response, Flowers is gearing up for continued growth headwinds, primarily driven by cost-conscious consumers, as it looks to the new year.

“That [strategy] includes maximizing our opportunities in areas that we can control by targeting pockets of growth in branded retail, margining up our private label and away-from-home businesses and executing our cost-savings plan,” McMullian said.

But that behavior also comes as the company notches declines in its private label business. According to McMullian, private label pricing has increased, narrowing the gap as many branded items have gone on promotion this quarter. He said that dynamic is helping shift preference back onto branded products.

As consumer purchasing behavior shifts, Flowers is throwing its weight behind its Dave’s Killer Bread (DKB) portfolio and working to expand the brand deeper into snacks. That will see the debut of three new snack bite SKUs and will differentiate the product line into savory territory with Epic Everything, Toasted Garlic and Bold Buffalo flavors.

“Shelf space and visibility are so important [in snacks], and we were out of the gate with three [bar] SKUs, they did quite well, but now expanding to six and beyond that,” said McMullian. “The snack bites are completely differentiated from that and in a different category, and quite unique to the category. There’s really nothing quite like it out there… We’re very excited about the prospects for that, [and] retailer acceptance of it has been great.”

Those new innovations are a key piece of Flowers’ strategy to engage with new customers. But given the current inflationary environment, the company also intends to support those new innovations with marketing and promotional activities, and McMullian said it has increased promotional activities while noting those investments still fall below pre-pandemic levels.

“These things take time. This is very much like a startup, and it takes a while to get the ramp, to build the consumer base,” said McMullian. “Some of these consumers are not current DKB shoppers, which is great because we’re expanding consumption of the brand, but it does take time to do that. Having said all that, we remain very bullish on this burgeoning snack business we have for DKB.”