Dive Brief:
- Flowers Foods executives promised a positive future ahead for the company, including wider profit margins, despite the challenges Flowers has faced in recent months, according to their presentation at the New York Stock Exchange last week.
- Earlier this year, Flowers released a disappointing earnings report, and sales have missed expectations for the past two years. However, the company plans to turn its performance around by improving productivity and efficiencies, implementing a more strategic trade promotion architecture, improving order forecasting, and increasing margins across the board.
- Flowers also stood behind its independent distributor model as creating an "entrepreneur incentive" that benefits both Flowers and its distributors.That model has evolved to an extent over the years, but Flowers currently faces more than 150 plaintiffs in over 20 pending cases over the independent distributor model.
Dive Insight:
Flowers is focusing on what it can control to improve profitability, including internal changes that could deliver concrete returns. The market is tougher for bread products as gluten-free and other grain-free diets become more common. Looking inward at operational aspects like more efficient trade promotions and order forecasting is a logical way for Flowers to address falling revenues.
In outlining anticipated revenue growth over the next three to five years, the company expects that growth to stem from its acquired organic business (1% to 1.5%), expansion market (0.5% to 1%), and price mix (0.5% to 1.5%).
Recent acquisitions, including Dave's Killer Bread and Alpine Valley Bread, made a significant contribution to fiscal 2015 sales. With the fast growth of the organic bread market, that revenue is likely to continue, especially if Flowers pursues further M&A.
As for Flowers' independent distributor model, it promotes it as entrepreneurial and enabling distributors to "be their own boss." The logistics are as such that the company (and others using this model) are now mired in lawsuits. These class-action suits are namely over the drivers' classification as independent contractors, which precludes them from overtime payments. Flowers has said the lawsuits have no legal merit. So far, one class-action has been certified, and another has been denied.