Bimbo snapped up Saputo Bakery for C$120m ($101m) late last year via its recently acquired Canada Bread business. The Mexican bread titan said the buy would further strengthen its position in Canada.
Svetlana Uduslivaia, senior research analyst at Euromonitor International, agreed that the acquisition strengthened Bimbo’s Canadian footprint but said the purchase came as a surprise.
“Saputo’s bakery division is not a profitable business and is not likely to become one, especially given the fact that Grupo Bimbo does not plan to implement any changes to how the acquired business functions and what it focuses on, namely pre-packaged cakes,” she told BakeryandSnacks.com.
“The company’s growth strategy through acquisition is a viable one, but simply acquiring business does not ensure growth. The company will need to review and consider trends on the marketplace, changing consumer base and preferences, and areas of future growth,” she said.
While she said Saputo controlled an 85% share of retail sales (in dollar value terms) of Canada’s packaged cakes category, the segment was not in growth.
The cake products in Saputo’s portfolio, for example, didn’t match consumer needs, she said. “It is a struggling business as it does not fit into any prevailing consumer trends, such as health and wellness, freshness, flavor varieties and novelty.”
The iconic brand struggle
While Saputo’s cake brands didn’t match up to consumer needs, they were iconic Quebec brands that could be likened to Twinkies in the US, she said.
However, even this heritage strength was starting to become lost as Canada’s consumers changed, she added.
“…From the point of view of heritage, the Canadian population is changing, and the growth is driven by immigration which means expanding consumer base of those who do not have any particular affinity with brands Saputo’s bakery division has been making for years. So, the heritage part is lost on these consumers – they have different preferences and tastes, with no loyalties to Saputo brands.”
Uduslivaia said it would therefore be impossible for Bimbo to build a successful future on these brands with a sole focus on heritage.
Too soon after Canada Bread?
The Saputo buy comes just behind Bimbo’s first venture into the Canadian bakery market via its Canada bread C$1.83bn purchase, which received full clearance in March, 2014.
Uduslivaia said that while both acquisitions gave Bimbo a strong entry into Canada’s bakery market, it took the Mexican firm into an extremely mature and competitive marketplace.
George Weston and its retail arm Loblaws Cos – the largest grocery retailer in Canada – was particularly strong in the market, she said, along with private label and artisanal bakeries.
“Entering the market in their own right and not through acquisition would have been extremely difficult,” she said.
However, Uduslivaia suggested acquisitions in two struggling areas – packaged cakes and packaged breads – would perhaps not reap the market rewards Bimbo was looking for.
“It’s a tough market to compete and grow. So, perhaps a second acquisition, and of struggling business too, is coming a bit too soon,” she said.