Tackling the Issues
June 28, 2008 By Jane Ayer
A roundtable of bakers and industry suppliers chat about challenges, solutions and the value of what the trade does.
At Bakery Showcase 2008 in May, we gathered a group of bakers, suppliers and consultants to discuss the most pressing issues of the day. Discussion primarily revolved around commodity prices, but it also touched on the value of food, and the value of the work bakers do every day. The roundtable included: Jack Kuyer of Valley Bakery in B.C.; Michelle Brisebois, Bakers Journal’s marketing columnist; Brian Hinton, owner of Lakeview Bakery in Calgary; Martin Barnett of Malaspina University College in Nanaimo, B.C.; Dr. John Michaelides of the Guelph Food Technology Centre; Frank Safian, president of the Ontario Chapter of the Baking Association of Canada and longtime flour industry rep.; Tracey Muzzolini, owner of Christie’s Mayfair Bakery in Saskatoon; Ralf Tchenscher of Lesaffre Yeast, based in Vancouver; and Andrea Damon Gibson, owner of Fred’s Breads in Toronto. In the first of our two-part coverage on the roundtable, we hear from Jack Kuyer, Brian Hinton and Andrea Damon Gibson. Check out part two in the August/September issue of Bakers Journal.
|From left to right: Jack Kuyer, Michelle Brisebois, Brian Hinton, Bakers Journal editor Jane Ayer, Bakers Journal publisher and group sales manager Martin McAnulty, Martin Barnett, Bakers Journal advertising manager Stephanie Jewell, Frank Safian, John Michaelides, Tracey Muzzolini, Ralf Tchenscher, Andrea Damon Gibson.|
Jane Ayer: Jack, can you tell us a little about some of the price increases you’ve faced lately and how you’ve dealt with those?
Jack Kuyer: Basically I first took a wait-and-see attitude, I did a small price increase around December because often you see spikes and it retracts again. I was a little concerned about raising prices too much with the media not really saying a whole lot to the consumer and then just in the last month I’ve raised all our prices, fairly substantially, just like you used to see in the ’70s. We’re about 10 per cent more in our prices than we were in December.
Ayer: What kind of feedback have you had from customers, have you had lots of complaints?
Kuyer: Not really no, because the media has been really good in the past month and that’s why I really pushed through these increases in the last period. We’re reasonably on top of our pricing, I know what I’m making on individual items and every item went up a different amount depending on what my profit margin was. I have a philosophy that the customer votes when they purchase items in the store, so I like to get a certain profit margin on each of my items and then leave it to the customer to decide which items are going to carry.
Ayer: And it’s worked so far?
Kuyer: I’m still here.
Ayer: How old is your bakery?
Kuyer: It’s 51 years old.
Ayer: Have you done anything in store in terms of letting customer know why you’ve had to raise prices?
Kuyer: Well, all of our sales staff have been trained to give certain responses. Basically we talk about the impact of the world market, we talk about food being used as fuel, we talk about China and the impact places like India and China are having on the food supply, we’ve also put out some information, in the form of a letter, in the store.
Ayer: And what about your competitors, do you know if they’re doing the same thing?
Kuyer: I have no idea. I quit worrying about what my competitors are doing, I just know what I have to do and I don’t want to work for nothing and I’m old enough now that I can be a little bit more independent. There are a lot of competitors around me, and two of them have folded up in the past year, so obviously we’re not doing anything too wrong.
Ayer: And you’ve been able to protect your margins?
Kuyer: I probably got squeezed a bit in the February/March period, but now I’m back to where I should be.
Ayer: How about you, Brian Hinton?
Hinton: Well we’re a little bit different because we’re an allergy and organic bakery, so we’re kind of highly specialized.
Ayer: You do both wholesale and retail.
Hinton: We do both, yes, we’ve kind of broken the rules a little bit because they say you should never do more than 20 per cent wholesale in your retail business, but we do. Fortunately I was able to find a co-packer to do a number of signature items for us, which provides quite a considerable profit to us and the co-packer now makes them cheaper than we could make ourselves, so that’s kind of an interesting scenario for us. We’ve also done what I refer to as brand positioning. We’ve stopped seeing ourselves so much as a bakery and more as a provider of nutrition. We’ve learned over the years that people come to us with some very specific needs and they use our products in ways that weren’t originally our intention. People use us as part of a lifestyle diet, they come in, they buy spelt bread or Kamut bread and they say, “It makes me feel better.” So we see ourselves not so much as just providing the basic bread, but as providing a health component. People say, “I drive by my Safeway because they don’t sell this, I drive by my Superstore or Sobeys . . .”, so all of a sudden our niche becomes a lot stronger. We actually put one price up which I thought was really phenomenal, we went from $4, which is expensive, to $5 and sale of the product actually went up, which kind of took us by surprise. It was an ancient grain loaf that we’ve had in our product line for quite some time and we’ve found that Quinoa and amaranth and some of those other grains, people were perceiving their nutritional benefit in that lifestyle diet. There’s been a lot of publicity around ancient grains, in fact Sobeys had this enormous ad in their flyer about ancient grains and yet they don’t sell any in their bakery, and that’s great for us, we’re right next door to Sobeys so we were able to key-in on some of those things.
Ayer: It must have protected you somewhat (against the prices increases), the fact that you have this niche market and that people need your product, for many of them (because of allergies and sensitivities) if they want to eat baked goods, they need you.
Hinton: That’s correct. For us it hasn’t been quite as traumatic. We’ve adopted a bit of a wait-and-see position and now we’re at the point where we have to put through quite a significant price increase; we had one at the end of November, which helped us considerably. We are faced with something some of the other provinces aren’t: walk-in street wage went from $8/hour to $12/hour. And even at $12/hour you don’t necessarily get quality, you get a person who may do the job, may not, who may move on in two months. We’re faced with those challenges and then the city decided, in its infinite wisdom, to ban trans fats. It’s illegal to have trans fats in your possession if you’re within the city limits. Five miles outside the city limits, you’re not subject to the same laws.
Ayer: The city has banned them above a certain level.
Hinton: It mirrors exactly the federal regulations, but what our city has said is we’re not going to go with voluntary regulations, they’re going to be compulsory, so in other words, it’s illegal to possess trans fats in your facility. We’ve had the restaurants switch over this year and then it’ll be the bakeries’ turn next year. For some people they’ll find some serious challenges. As an organic bakery, we don’t use any trans fats, but for some it’ll be a real challenge. Access to quality shortenings the smaller bakery can use for icing is going to be horrendous, they’re just not available. And even if you start formulating with a trans fat-free shortening, which we did, then all of a sudden, the distributor says it’s not available anymore because the company didn’t get any sales through it, so bakeries have that to deal with and then nutritional labelling they’ve been dealing for some time, so for the small baker there are some horrendous challenges.
Ayer: Getting back to prices, by how much will you raise prices? It’s going to be over 10 per cent – that’s at the wholesale level, not at the retail level.
Ayer: Has it changed the way you buy from your suppliers?
Hinton: It’s changed that too, and one of the things is it’s going to get rid of all of the extra lines we used to carry. We’re a friendly bakery and if Mrs. Jones came in and she wanted one custard tart, we would make sure there were at least two there. So that’s gone now, that friendliness, we have to focus on the core specific items that bring in our income.
Ayer: And what will you be doing to inform your customers about why you’re doing what you’re doing?
Hinton: Well I think the press has been very good to us. I have a TV spot and I appear regularly to state our industry’s position, which is that we’re people who are working hard and working long, we’re not millionaires, we don’t have a second home in the Caribbean, so be good to your friendly baker.
Ayer: Everything in the press has been pretty sympathetic to bakers.
Hinton: Yes, it has. One of the things Paul Hetherington (of the Baking Association of Canada) said to me is not to push it onto the farmer, and one of the things I’ve mentioned in my interviews is that this is not a farmer-driven thing, this is a global issue, and in many instances it’s the global supply chain that’s brought this about. The fact that four global companies control so much of the food supply in the world, they’ve caused different amounts of crops to disappear from countries, a lot of small farmers went out of business in many countries throughout the world, so there’s more than just ethanol affecting prices.
Andrea Damon Gibson: And it’s not clear to me exactly what’s going on because of the politics, which is what you’re talking about. It’s not clear to the public, and it’s not clear to the press exactly why this is happening. You read things and hear things but it’s not clear that these companies are in control or how they’re affecting things, and I think that’s a little frightening. Wheat is controlled by an index, I don’t get it, I don’t speak financial. The price was raised because of supply and demand, but also because it’s a commodity and people are trading it.
Ayer: How about you, Andrea, have you had to raise prices?
Damon Gibson: Yes, we’ve raised prices by eight per cent, we always took very small price increases prior to that over two years and our competitors have taken at least that and more – either 10 per cent all at once or two increases of five per cent within a month. We waited to see if prices would come down and then decided, OK, we need to do it now.”
Ayer: What was the deciding factor?
Damon Gibson: When it got to a 150 per cent increase in four months and nobody knew when it was going to come down and that it was going crazy because it was being traded as a commodity and traders were taking it for a ride, like everything else. But everybody has to do it. I think our food is undervalued anyway in North America, that people pay much less than they really should.
Ayer: Perhaps that’s one of the advantages of this, that we’re talking more about food and what it’s worth and maybe in the long run this will pay off.
Damon Gibson: I think so. We’re a specialized product, so we’re somewhat protected, even in the last recession we were a little bit protected because, you know, you don’t buy your fridge or your car, but you do buy your $5 or $6 or $7 loaf of bread.
Kuyer: I think really this is a bit of an opportunity for bakers. Generally I find that for things like pastries and cakes, Europeans virtually pay double what we pay for things. That shows how a European values food versus a North American. And I think at the same time, as a percentage of income, food is very low right now. I’ve read that we can expect food prices to almost double over the next few years and I don’t know if that’s fear mongering or not, but I think what that would do is bring it back roughly to what it was in the ’60s or ’70s, so it’s probably due. Bakers, I think, traditionally have undervalued their own services. I look at a plumber who puts a truck on the road and puts $30,000 dollars worth of equipment in that truck and is able to charge $100/hour. I look at my bakery: I have to invest at least $125,000 per baker in equipment and I’m not even talking about building at that point and I’m getting maybe $60/hour, so what I’m hoping out of all of this, is that there’s some respect built for the food industry and the people working in it.
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