SPECIAL EDITION: MINIMIZING COSTS THROUGH INGREDIENTS
Bakers look to commodity supply for cost management
Managing costs is, of course, important for the baking industry but when considering price, bakers will never compromise on quality, said Gordon Polson, director of UK industry association Federation of Bakers.
“I think bakers are more concerned at maintaining quality of supply, of course at a reasonable price,” he told BakeryandSnacks.com.
When there was a poor UK harvest, for example, bakeries made clear that they would not compromise on quality, and so everyone accepted a price rise rather than an inferior product, he said.
For this reason, supplier relationships are extremely important, he added.
“It’s much more important to have continuity and security of supply rather than just squeezing everything down on costs. You’ve got to have ingredients at a good quality – you can’t keep flipping your supplier. Companies are focused on securing a good, long-term relationship.”
Robb MacKie, president and CEO of the American Bakers Association, agreed that quality was something that could not be compromised when trying to reduce costs.
“Cost has probably been an issue since the first baker mixed flour and water. How to stretch those resources without sacrificing quality will always be front of mind for bakers.
“…If you offer a quality tasting product then consumers will remain loyal. If you lose the quality of the product, it impacts consumer loyalty across the brand.”
Bakers dedicated to commodity risk management
However, MacKie said that cost management does occur at an ingredients level through focus on commodity sourcing strategies.
“It is impossible to control ingredient costs, especially when an international event could potentially impact the commodity markets without warning. Bakers look more to managing their risk.
“The one big change that bakers have implemented since commodities hit record highs a few years ago is to monitor costs even more closely,” he said.
MacKie said most bakers are utilizing some form of hedging or futures strategies on their major ingredients.
“Bakers will ensure they are not paying more than they should on any ingredient, but this is a run-of-the-day business practice,” Polson said.
Plant closures and efficient lines
Along with careful commodity sourcing, bakers are also investing capital in production and plant upgrades to improve efficiency and flexibility, Polson said.
“In broader terms, bakers are meeting cost pressures with plant closures on smaller and less efficient bakeries. They are putting in new lines to make bakeries more efficient and flexible.”
Rather than considering formulation changes or cheaper blends and replacers, he said bakers are more focused on efficient plants and distribution, which in turn means they are using ingredients more efficiently.
“I’m not saying there haven’t been strong commercial discussions taking place [on use of alternative ingredients], but it’s not a major area of cost-cutting that I’ve heard about,” he said.
For more on this special edition:
Understanding key commodities: Wheat buying tips for European bakers
Enzymes have money-saving potential, says Campden BRI
On the cheap: Bakers must look beyond ingredients to cut costs