Profitably Scaling A Bread Affair

It is always difficult when a firm grows and begins to feel pressure against the practices and beliefs that originally built a successful operation. It is impossible for the conditions under which owner-operators started with a few employees in a storefront to remain the same as the firm grow from a small bread purveyor into a local commercial operation with large wholesale accounts, delivery drivers, and growing capital needs.

PEST: Political, Economic, Social and Technology

Political: The position that the firm has taken politically as “green” is going to naturally limit the market in several ways. First, what many perceive to be the innate elitist pretentiousness of the founders will turn off large swaths of the Norton’s, Labatt’s and hockey set. The firm’s goal of “connecting city gourmands to farms” has it limits (Koepke, 2015). That being said, the market for organic, non-gmo foodstuffs is growing and has been for decades, especially with the threat of food insecurity. Major consumer products firms making everything from processed cheese to laundry detergent have felt the pressure to change and have already responded in force. Eliminating artificial colors, flavors, high fructose corn syrup and other changes made by the big consumer products companies have been driven by the social and political environment of the times. The upside for A Bread Affair is that it has helped built this wave and has grown from it. The downside is that the big Canadian and multi-national consumer product companies have caught on and made significant changes. High Liner Foods, Kraft Foods Canada, Loblaw Companies, Mars Canada and Procter & Gamble are now all producing organic everything (Krishnin, 2016) and will not be delivering in expensive eco-friendly trucks. 

Economical & Social: Due to the high overhead, A Bread Affair has decided to take on by such activities as local sourcing, no impact recycling and clean burning delivery vans they are at a constant disadvantage on a variety of fronts. First, margins will be less than competitors and this is only going to be multiplied at scale. What a one-off location can profitably execute, a mixed business with retail, wholesale, and direct operations cannot match.  Second, the ability to grow profitably and lead in the marketplace will be far more difficult and far less efficient than competitors able to make equally loud claims of health and social responsibility. The aforementioned entry of the eight-hundred-pound consumer products goods giants such as P&G and Kraft will wear away at the novelty and more importantly at the price inelasticity of consumers. They will simply advertise their way into a “social license” to do businesses. Third, because A Bread Affair will lag other bakers and the entry of the big players in these critical areas, the cost of capital will certainly be higher than their peers.

Technological: Small, sustainable, organic, locally owned and operated farms are at a distinct technological disadvantage to large commercial operations using the best corporate farming practices, tools, technologies, and genetically modified strains to maximize yield and minimize risk. The lifestyle choices of the founders of A Bread Affair may have been useful in building a story for marketing purposes, but it has also limited their ability to source supply at market rates and to scale their operation profitably. 

Porters Industry Analysis

The Porter Analysis detailed in Appendix A makes it clear that the organization has several key challenges to overcome. First, there are few barriers to entry into the organic bread specialty restaurant market as space can always be found and a new persona invented that fits the vibe of the minute. Second, competition has always been fierce in the specialty foods business and few brands actually stand the test of time.

Positioning

A perceptual map of the competitive landscape for this market includes numerous competitors. This analysis focuses strictly on domestic Canadian providers. Business tracking site Manta reports that there are 163 specialty bread bakeries in Canada as of the 30th of January, 2017. The large number of competitors assures that consumers have numerous options when making a choice of premium bread. Boulangeries and other providers are common and cannot be excluded as competitors simply because they may or may not be “organic” or “vegan” or some other niche.  Additionally, the firm must compete with the specialty breads produced by the retailers themselves and many, such as Whole Foods, will offer their own mix of products sourced locally and grown organically, but these offerings will be balanced with less expensive, higher margin items - making a loss due to waste even more concerning.

In the position map located in Appendix B, the various competitors are displayed. The X axis has budget providers on the left and premium on the right. The Y axis has specialty retailers on the top and general retailers on the bottom. A Bread Affair resides in the upper center of the chart, being both specialty and premium, but smaller than Whole Foods and others of that kind.

Recommendations

When competing against the mass “do-gooder” organizations such as Whole Foods whose environmental and ecological agenda is definitely subordinate to the profitability of the business, the creation of a level playing field for A Bread Affair is difficult to imagine. The current struggle with increasing volume and decreasing profitability is a symptom of the firm’s core belief on the use of local, sustainable supply in much more practical and resolute terms vis-à-vis their competitors. The firm may not be able to grow profitably past a certain point while continuing to practice those core values.

To overcome this challenge, the firm should split into two entities. The retail / restaurant split of the business should focus on the company desire to be “against industrial food production” (A Bread Affair, n.d.) and should remain a small, predicable business and compete fiercely for the hearts and minds of urban gourmands in the specialty local restaurant category where large scaling operations are not necessary. Thereby overhead can be reasonably kept in check and mirror other businesses in the neighborhood. Every environmentally minded firm from the indigenous advocate at Osprey Packs (where Native Americans originally sewed every pack by hand) to Vermont environmentalists Ben and Jerry (who dumped industrial waste into the bucolic Battenkill River) has moved to an industrial production model in order to finance expansion and profitably scale. 

If the founders wish to maintain their roots and yet grow like a regional consumer products firm with a channel distribution system, it will be necessary for the business to spit the business in two. The restaurant section of the business will need to remain small, local and limited to just a few close locations while the consumer product wholesale bakery becomes a more industrial operation. The firm must accept that non-organic breads, and the firms of all sizes that supply those baked goods, are direct competitors and that they play in the exact same market. A majority of the target market for organic baked goods is not, and will never be, the general population, therefore some changes to the product line on the commercial side will be necessary or the engaged interest of the large consumer products goods companies drive the market.

(Appendices A & B omitted for preview. Available via download).

References

A Bread Affair (n.d.). Retrieved from http://www.abreadaffair.com/.

Canada Bread (n.d.). Our Brands.Retrieved from https://www.canadabread.com/ 

Kopke, M. (Winter, 2015). The local Loaf – A love story. Edible Vancouver & Wine Country. 

Krishnan, N. (2016). The Changing Landscape of Consumer Packaged Goods. Retrieved from https://www.cbinsights.com/research-cpg-trends-transcript.

Manta.com (n.d.). Retrieved from  www.manta.com.