Grupo Bimbo will have its work cut out baking up success in Canada and could be disappointed if it expects too much, says analyst.
Last week, the Mexican bread giant forked out C$1.83bn to acquire Maple Leaf Foods' business Canada Bread - a move it said would take it into an 'attractive' market .
However, Svetlana Uduslivaia, senior research analyst at Euromonitor International, said the bread major will have it's work cut out, as opportunities to drive both volume and value are far and few between in Canada’s already saturated bread sector.
She said ultimately it all depends on Grupo Bimbo's plans for innovation with its newly acquired brands, however added: "If the expectations are for significant, dramatic growth then that might actually be a little bit disappointing."
Struggling brands in a saturated market
Uduslivaia told BakeryandSnacks.com that for a company looking to move into a mature market like Canada an acquisition is a good way to go, as opposed to starting from scratch and competing with the country’s already-established brands like George Weston.
However, she said there would not be much room for volume growth in Canada beyond the country’s relatively slow population growth rate. Coupled with this is a general environment of decline as health conscious consumers look to cut bread out of their diets.
“I think there’s sometimes some misconceptions about what the Canadian market can really give at this point as far as growth is concerned. Yes, Canada may be the second largest territorially speaking but it is small as far as the population is concerned – it’s only one tenth of the US population so it’s really a very small market. At the same time it’s also highly developed and highly saturated and really the population growth is quite small and slow," she said.
In terms of value, she said opportunities would also be sparse since “bread is bread for many people”, and therefore there will always be a limit to how much consumers are willing to pay.
For Maple Foods this could spell relief and a chance to downsize, she said. The move will leave the food firm, which owned 90% of the Canada Bread Company, free to concentrate on its core meat businesses. Maple Leaf has been considering selling its bread business since the end of last year. The firm’s CEO, Richard Lan, told investors that while it saw opportunities for growth within the bakery sector, it had “plateaued” in growth and found itself “somewhat over weighted towards commercial bread”.
Uduslivaia said the sell marks the latest in various structural changes and strategic alternatives for Maple Leaf, a company that has been struggling for some years. The past few years have also proved tough financially for Grupo Bimbo, with the company reporting a net profit plummet of 81% in 2012 Q4. Although, in its latest financials (Q3, 2013) Grupo Bimbo reported a net profit surge of 61.7% from the previous year. In its previous quarter of 2013, net profits had also risen 4.4% which marked the first net profit rise in some time.
Artisan focus could be way to go
Uduslivaia said that innovation will be key in jumping bread sector hurdles. “Strong competition from both George Weston, one of Canada’s largest food processing companies, and local artisan bread companies means Grupo Bimbo will have to tap into consumer trends and remain innovative to stay competitive in Canada,” she said.
Canada Bread is the second largest bread manufacturer in Canada with a strong presence in food services, and with this comes over C$800m in sales in Canadian bread and retail and overall Canada Bread sales of over C$1.5b in 2012.
Within this, Uduslivaia said the fresh, artisan bread brands could be something for Grupo Bimbo to focus on when moving forward. She said consumers may be willing to pay more for this kind of bread meaning there may be more opportunity to up value in this sector.
According to Euromonitor International data, the Canadian packaged/industrial bread sector grew from C$2,805.60m in retail sales in 2011 to C$2,947.20m in 2013. Meanwhile unpackaged/artisan bread went from C$1,228.10m in 2011 to C$1,348.20m in 2013.
"Definitely innovation is going to be very important, it’s a must at this point if they are to compete successfully with the companies already in the marketplace like George Weston," she said.
Last August, Grupo Bimbo launched its first gluten-free range in the US, which Euromonitor tipped as a clever move into the market .
Uduslivaia discusses the acquisition further on Euromonitor’s blog .