Paulo R Cavalcante – PMAN Director
One of the most impressive strategic moves of recent times in the Industrial Bakery market, in the Americas, was definitely the launch by the company Bauducco, of 85-day-old bread, or hyper-expiration bread, as we call it internally at PMAN. This launch broke many paradigms and is changing the market as a whole.
Figure 1: photo of Bauducco bread in a supermarket in Santiago, Chile
Figure 2: photo of Bauducco bread in a supermarket in Rio Branco – Acre, between two shelves of local manufacturers in Acre.
Bauducco is a traditional Panettone manufacturing company, in addition to other products such as biscuits; It has a vast distribution network and a national geographic coverage of sales, in addition to being an important exporter.
The industrial bakery market traditionally works with expiry dates that vary between 11 and 18 days, depending on the degree of contamination in the factory and the combination of barriers against mold installed.
The sector's logistics are intensive; bread deliveries are made 2, 3, 4 times a week to customers, such as small, medium and large supermarkets. The logistical costs reach 8% of the costs of bakery companies; the fleet is usually owned.
In addition, it is necessary to work with reverse logistics, that is, bread that is not sold in supermarkets within 5 days before expiry date must be removed from the shelves, replaced by bread with a longer shelf life; the sector's average returns are 7,5% of the volume of bread sold, but in companies with low expiration dates or even mold problems, they can reach up to 20% in the most critical cases.
Figure 3: Demonstration of the Traditional Logistic Scheme of a Bread company
Companies work with returnable plastic boxes, as it was understood until the launch of Bauducco's bread line, that non-returnable cardboard boxes were very expensive; these same boxes are usually lost and invariably stolen and still need to be sanitized to enable use in the next delivery. In addition, these same boxes end up hindering the productivity of bread companies, because when they do not return to the manufacturers in time, they make it impossible to deliver the new bread that has been manufactured and sold.
The geographic range of sales, in companies with greater validity, rarely reaches or exceeds 1.000 km from the factory; in smaller companies it does not reach 50km from the manufacturing point.
Figure 4: Demonstration of the Traditional “Site Location” Scheme of a Loaf Bread company
Investments in factories are high, to compensate for the low geographical coverage, forcing the largest manufacturers to have several factories installed in the countries where they operate. With several factories installed, there is a need to maintain administrative structures and overhead for decentralized production control.
All these STRATEGIC paradigms were broken with the launch of the hypervalid breads;
We emphasize the word STRATEGIC, because with this article, we want to demonstrate the immense correlation between the shelf life of bread and the strategy to be adopted in an industrialized bread company. When talking about validity or Shelf life or shelf life in a bread company, we are no longer talking about ingredients, quality control techniques for raw materials or the degree of contamination in factories, but about strategy; depending on each company's strategy, different barriers need to be installed and combined;
In the famous picture above we see the little “mofinhos” jumping over the barriers to try to reach their food: they are living beings and need water, oxygen and food; their food are, for example, breads, pizzas, cakes, panettone and other bakery products; the obstacles symbolize the barriers: PH (controlled by acidulants), AW (water activity), Preservatives (internal and external), Heating Treatment (in this case the oven of bakery products), GMPs (Good Manufacturing Practices), Conditions of Packing and Refrigerated Storage.
Each of these barriers contributes as an additional obstacle to making it difficult for “molds” to reach the food; here comes the correlation between the Company's Strategy and the expected Shelf Life:
Sales Comprehensive Strategy x Shelf Life: the greater the geographic range, the more barriers need to be installed to increase Shelf Life; on the other hand, if a company's sales are not nationwide, it makes no sense to spend on many barriers:
National or International Level: If a company has a National Sales Coverage (and in the case of Brazil, our country is almost a continent), or sometimes International (notice in figure 1 with the photo of the Bauducco breads; the labels are in Spanish, and the breads are manufactured in the southeast of Brazil and reach Chile – approximately 4.000km from the Factory to the point of sale), or in figure 2 where we show Bauducco breads in Acre, which have a similar distance; in this case, many barriers are necessary to achieve the necessary shelf life for a loaf to travel 4.000km + sales turnover time in all existing channels (distributors, supermarkets) + safe consumption time at the consumer's home.
State Level: if a company has a Sales Coverage at the State level (and in the case of Brazil we must analyze it on a case-by-case basis because depending on the State the number of kilometers driven can surpass many countries) the barriers may be smaller, requiring less financial investments.
Municipal Level: if a company has a Sales Coverage at Municipal Level, the barriers may be even lower and therefore the respective investments in barriers.
Note that the competition will no longer be the same; companies that were formerly “protected”, lost the geographic protection that distance imposed;
Also note that companies will need to adjust your barriers according to the established strategy, acting at municipal level, or the sum of some municipalities, or at State, National and finally International level.
Note that the Packaging Strategy tends to migrate from traditional plastic, returnable boxes and high reverse logistics costs to cardboard boxes;
Note that the Delivery Frequency tends to drop, from 3 to 4 times a week to once a month or even bimonthly, with storage and distribution being entrusted to distributors who share the logistical expenses with several products;
Note that the returns tend to fall, because with a longer expiration date, almost all breads will be sold on the shelf before expiration
Note that the Logistics Strategy will change drastically in the Industrialized bread sector: it is no longer necessary to have a own distribution fleet🇧🇷 you can work with independent distributors
Note that the expenses will migrate between the various accounting items depending on the adopted strategy, but without increasing the final expenditure for the consumer, even reducing costs in relation to those currently practiced.
Finally note that hypervalidity will allow the entry of new players who never thought of working in the bread market, such as mills, biscuit companies, panettone, ready-to-eat meals, pasta and other products that enable cross selling.
Conclusion: the best combination of barriers is the one that provides gradual increases in costs, as it is very difficult for a company to move from a Municipal to International scope in a single movement, unless it already has the pre-established scope through other products.
PMAN is a specialist in this matter and will be able to guide your business in the best way, with customized solutions for each company. Count on us!
