13 minute read
John Lindsay, Baker & Baker CEO: ‘A well-prepared journey’
A well-prepared journey
Baker & Baker reported a turnover of EUR 450 m and 14% growth in its first year as a standalone business. These results are particularly remarkable in a COVID year and against supply chain issues and spikes in energy costs. John Lindsay, the company’s CEO, shares how the business made such progress and gives us a glimpse into the second year and beyond.
+Catalina Mihu: Congratulations on the impressive results! What are your thoughts about the company’s first year? John Lindsay: Starting with the pandemic, inflation, labor issues (and the list could continue), all things considered, it has been a good year; we are very pleased with how it went. The timing was interesting! Bakeries of all types, but particularly family businesses, such as artisan bakeries in Germany, for example, are truly the unsung heroes of the past years. They were resilient and, even though the coffee corners in the bakery were closed through COVID, the shop itself kept baking and selling bakery goods throughout the pandemic. Artisan bakers, in particular, performed a critical function, which is probably why bakery has held up better than some other industries. They truly deserve credit for serving their communities. Recovery has been different in different countries. We saw foodservice pick up, particularly in the south, and in markets that are more dependent on it – countries such as Spain, Portugal and Italy. Mihu: Out of the seven countries where Baker & Baker operates, which have been the best-performing markets (and market segments) over the past year? Lindsay: The growth was general and not specific to a certain country. The key dynamic was the quick rebound of the most affected markets. Looking at the pandemic as a whole, countries that were more foodservice-focused were the hardest hit. In our case, Benelux and the south were impacted the most. But, they also had the strongest recovery. The core markets for us, the UK and Germany, were relatively resilient through the pandemic. Restaurants and gastronomy closed down, whereas bakeries and in-store bakeries kept going. Foodservice is just a part of our business so the impact we felt was nowhere near what companies having 80% of their business reliant on the sector experienced. Alternatively, bakeries and in-store bakeries, probably benefitted to some degree from restaurants being closed. Looking back on it now, some of that business would, naturally, shift to other outlets such as local bakeries. Mihu: As Baker & Baker enters its second year in business, what is the current outlook for the markets? Lindsay: With restrictions, for the most part, lifted, the markets are continuing to stabilize. What we are looking forward to is the real recovery of tourism, especially in the Iberian Peninsula – starting with Spain. Spain was hit very hard, its tourism industry was virtually closed off, with a very low hotel occupancy. We see things beginning to recover: this Easter was a turning point in this regard. To a lesser extent, looking at countries like Switzerland, France, or Italy, if tourism is again up and running, that would almost bring us back to a pre-pandemic position.
John Lindsay
© Baker&Baker
Mihu: The three outstanding challenges have been the pandemic, inflation and labor issues. Aside from the pandemic, what influence does inflation have at present? Lindsay: Inflation is a worldwide issue now and it has been exacerbated by the war in Ukraine. Europe is not the primary market for the sunflower oil and wheat that are produced in Ukraine, the Middle East is. However, any disturbance to the market has a knock-on effect: if there is a shortage of sunflower oil, then palm oil or rapeseed oil are impacted as well. We are having honest and open discussions with our customers about this. I think there is a realization throughout Europe that we all face a realistic situation. I think there is an acceptance that inflation is real, and is something that we have to tackle together, in the most sensitive way possible. Ultimately, we can all see inflation repression.
Mihu: What are some measures that might work, in this regard? Lindsay: The good thing is that we produce staple products. Some of them are treats; but, above all, bakery is a staple of life. The bakers and retailers can make different choices in tems of products that they sell and promote. Options are many, as the majority of bakery products aren’t particularly high-value, and they offer sustenance. Unlike some other industries, such as cars or furniture, for example, there are more choices within bakery than for retailers. Even with inflation, many bakery products still offer very good value for money, and remain the staples that perform a very good function, contributing to a good diet. For that, having an open communication line with customers works, based on a good relationship with them, which is what we are doing.
John Lindsay The reset
Mihu: Baker & Baker started its standalone journey following the business separation via the sale of CSM Ingredients, in April 2021. What did the transition from CSM Bakery Solutions to Baker & Baker entail? Lindsay: It was a fairly complex process, that took considerable work behind the scenes, in preparation. On the ‘front-end’, regarding the work with our customers, it helped that we managed the business by channels when we were an integrated business, one each for foodservice, industry, artisan bakery, and in-store bakery. Every channel tended to focus more on bakery products, or ingredients. The industry channel, for example, which provided materials for large industrial bakers, was virtually all ingredients, whereas the foodservice channel was all about bakery products. This is why the customers felt relatively no impact from the split. Most of the changes were in the back office, involving anything from procurement, to logistics and finance. That is where a lot of hard work went on, aside from legal work, in order to separate the two businesses into independent entities. Mihu: What helped the transition go so smoothly? Lindsay: The separation was very carefully planned, with great teamwork and collaboration. We had installed a cutting-edge business process system (SAP) a few years back into our key markets, which involved sustained cross -functional working and teamwork. That was a model for us to go by when we separated the business. That way of working really worked, in addition to careful project planning. Mihu: What were the main priorities in Baker & Baker’s business strategy, which helped the planning go so well? Lindsay: The business strategy was to deeply develop the relationship with our key customers, expand into new markets and lead with innovation. Special attention was placed on licensing and the relationship with Mondelēz. It is still the key now. The new territories we are focusing on are markets
in Eastern countries and the Middle East, where we think there is great growth potential. In the past, with CSM, the focus was mostly on ingredients for international markets outside of Europe. Whereas now, as a bakery business, we believe there is ample room for growth for bakery products there. If you look at the Middle East, you see Western chains such as Costa, Starbucks, McDonald’s and Dunkin Donuts. We supply those businesses in Europe, so we think there is a natural path for growth outside of Europe, starting with customers such as these.
Fashionable staples
Mihu: You mentioned leading with innovation. What are the priorities in innovation at Baker & Baker? Lindsay: It’s interesting because, on the one hand, we consider bakery products as staples. But, on the other hand, bakery is similar to the fashion industry: customers are always looking for new ideas. For example, American-style muffins are a growing category throughout Europe. I was looking at some that had a double deposit of batter the other day, half chocolate and half vanilla; a filling inside, a topping above, and completed with some sprinkles. What one might call standard kinds of products are now becoming quite elaborate. There is innovation within staple products. That is an interesting area for us. Also, looking at the Mondelēz range of products, particularly a product like the Oreo, it is interesting to see how creative we can be around this brand, starting from the dark chocolate flavor and color and the light, contrasting icing. We are developing Oreo brownies, Oreo muffins and Oreo donuts, for instance. It isn’t simply a case of putting the Oreo label on standard products such as these; the challenge for us is to encapsulate what the Oreo is all about and how it translates into bakery products, in exciting innovations. The hunger for innovation grows every year. All our customers, whether it’s an artisan baker or an in-store bakery, are constantly looking for innovation. We have separate NPD groups focusing on product categories such as muffins, cakes and laminated products. Mihu: What does your partnership with Mondelēz entail and how could it potentially expand? Lindsay: Our relationship is very strong. We speak biweekly and we have a five-year plan together, as we both agree we have significant headroom for growth, pertaining to increasing distribution and innovation, around brands such as Oreo, Cadbury in the UK, or Oreo and Milka on the continent. It is also about geographical expansion: we just launched some products last year in Israel, as an example of entering new territories with innovative products. There are many more things we can do in this direction. The growth in our licensed business, particularly Mondelēz, outperforms the rest of the business. It’s a very exciting area for us, especially in continental Europe.
A disruptive backdrop
Mihu: The business reported a turnover of EUR 450 m in its first year. How was this 14% growth achieved during COVID-19 restrictions, supply disruptions and fluctuating prices? Lindsay: We benefited from being a company exclusively dedicated to bakery products. The NPD teams, our sales and marketing are now fully focused on bakery products. We definitely saw the benefits of that as we navigated COVID and supply issues, and still grew significantly throughout. I think it’s a combination of having the right products at the right price for our customer base, in addition to being a company fully focusing on bakery products, which is one of the real benefits of the separation from CSM. Mihu: Under these circumstances, what strategies have
been effective in these circumstances for retail and foodservice, respectively? Lindsay: It’s all about forming strong relationships with the customers, even more so through challenging times. That is when the supply base looks to the suppliers for support. Throughout the pandemic, our service held up, despite challenges in keeping the factories running and the deliveries going. Our customers appreciated that. That is what drove the growth through the last 12 months. Mihu: People must be key to accomplishing this. You mentioned labor challenges, how is Baker & Baker managing this? Lindsay: In the middle of the pandemic, through the summer months of last year, there was a generalized challenge in this regard. As some of the markets began to open up, there was a definite squeeze on labor. But, we managed to keep the factories going without interruptions, through good relations with our factory managers and workers. We put some protocols in place. That situation has now stabilized, we are over the labor crisis we experienced last year. Things have not quite returned to normal, but they are rapidly heading that way.
Under development: product innovation
Mihu: Looking at the R&D department’s work, what trends are they focusing on? Lindsay: Free-from and gluten-free are big and growing, and the vegan segment is also very interesting for us. We have a dedicated factory for these ranges, to ensure that there is no gluten ever entering that factory. This makes the entire process a lot simpler than having to segregate everything. On the other hand, there is still a need for indulgence. If consumers decide to ‘purchase some calories’, they must have a meaningful sensation. NPD is working on flavors and texture to provide that. For our NPD, it is also interesting to explore new ways of working with the brands we collaborate with and develop truly exciting choices. Mihu: Can you share an example of branded product development? Lindsay: Looking at the Oreo donut we made, it took about two years in development to get it just right, from the flavor profile to the textures and the overall visuals. As well as the pure NPD work, there is a close collaboration with Mondelēz. We developed around 15 prototypes before we got to the final product. We are doing market tests (sampling) and we ensure that we meet the Mondelēz brand requirements through dialogue with our colleagues at Mondelēz. It’s a surprisingly involved and sophisticated process to get to the final product. Mihu: What would be some of the main steps in this process? Lindsay: Within our innovation framework, there are certain steps all projects follow, including feasibility and several factory trials. For Oreo products, a lof of the work takes place in a test bakery or a lab: the teams work on developing the dough, the filling, the topping and the overall flavor profile. Then, we have to replicate all the features we developed on the line, on major machines, to perfect the production of hundreds of tons per day, in some cases. In addition, there is an ongoing dialogue with Mondelēz, throughout the process, followed by marketing and preparations for market. Then, we explain to the customer where such a product could fit in terms of product selection, the reason to believe in it, and why it would appeal to consumers. Mihu: How was the final product selected out of the 15 donut prototypes? Lindsay: It’s evolution through a process of elimination, from the beginning to the end. The product is continuously fine-tuned in an iterative process, to reach the final form. Mihu: What trends in sweet bakery products do you anticipate to dominate in the following years, also having in mind consumers’ focus on health? Lindsay: There will be a demand for wellness – and bakery plays an important part in this area, especially in regard to sustenance and wholesomeness. It’s not always about taking things out; sometimes, it’s about putting wholesome ingredients in. Alternatively, consumers are looking for creativity and excitement. In this case, we continue to work with flavors and textures to innovate new products, to entice a consumer that will be increasingly more discerning and sophisticated as we go forward. Year one is just the beginning Mihu: What upcoming projects can we talk about at the moment? Lindsay: Muffins are a growing category, for instance. We see increasing sophistication in this product. You can expect more innovation in this area, in combinations of different flavors and textures. Looking at fried products, we will see innovation in different shapes and sizes: we just launched a pink heart-shaped donut on the continent, for example. In the UK, we are working on small, finger-shaped, laminated products called yum-yums. And, of course, there will be more innovation around the Mondelēz brands! Mihu: The plan to expand into Eastern Europe was recently announced. What are you looking into, regarding emerging markets? Lindsay: We are opening an office in Poland and we’ve just opened one in Dubai, to extend our distribution and our representation in these areas. Mihu: What are the challenges of entering a new market? Lindsay: We usually link with a distributor and try to engage with some key accounts that are already present there. We may also enter a market on a trial basis. Mihu: Is Poland such a market? Lindsay: The Poland office is here to stay. We will start on
