This Document Is Discoverable and Free To Researchers Across The Globe Due To The Work of Agecon Search

The World’s Largest Open Access Agricultural & Applied Economics Digital Library
This document is discoverable and free to researchers across the

globe due to the work of AgEcon Search.
Help ensure our sustainability.

Give to AgEcon Search
AgEcon Search
http://ageconsearch.umn.edu
aesearch@umn.edu
Papers downloaded from AgEcon Search may be used for non-commercial purposes and personal study only.
No other use, including posting to another Internet site, is permitted without permission from the copyright
owner (not AgEcon Search), or as allowed under the provisions of Fair Use, U.S. Copyright Act, Title 17 U.S.C.
Agricultural Economics Report No. 386 April 1998
VALUE-ADDED WHEAT PRODUCTS:

ANALYSIS OF MARKETS AND COMPETITION
Jianqiang Lou
William W. Wilson
Department of Agricultural Economics ! Agricultural Experiment Station

North Dakota State University ! Fargo, ND 58105-5636
ACKNOWLEDGMENTS
The research reported in this paper was motivated in part by a research grant from William
C. Nelson, through the U.S. Department of Agriculture’s North Plains International Trade
Program, and a contribution by the United Spring Wheat Processors. Helpful comments were
received from Frank Dooley, Tim Petry, and Ed Janzen. However, errors and omissions remain
the authors’ responsibility. Charlene Lucken provided editorial assistance, and Carol Jensen
prepared the manuscript.
We would be happy to provide a single copy of this publication free of charge. You can
address your inquiry to: Carol Jensen, Department of Agricultural Economics, North Dakota
State University, P.O. Box 5636, Fargo, ND, 58105-5636, Ph. 701-231-7441, Fax 701-231-7400,
e-mail cjensen@ndsuext.nodak.edu . This publication is also available electronically at this web
site: http://agecon.lib.umn.edu/ndsu.html
NOTICE:
The analyses and views reported in this paper are those of the author. They are not
necessarily endorsed by the Department of Agricultural Economics or by North Dakota State
University.
North Dakota State University is committed to the policy that all persons shall have equal
access to its programs, and employment without regard to race, color, creed, religion, national
origin, sex, age, marital status, disability, public assistance status, veteran status, or sexual
orientation.
Information on other titles in this series may be obtained from: Department of

Agricultural Economics, North Dakota State University, P.O. Box 5636, Fargo, ND 58105.
Telephone: 701-231-7441, Fax: 701-231-7400, or e-mail: cjensen@ndsuext.nodak.edu.
Copyright © 1998 by Jianqiang Lou and William W. Wilson. All rights reserved. Readers
may make verbatim copies of this document for non-commercial purposes by any means, provided
that this copyright notice appears on all such copies.
TABLE OF CONTENTS
Page
LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
LIST OF FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
ABSTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PREVIOUS STUDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. PRODUCT MARKET ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

3.1 Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Product Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Product Composition of Wheat by Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Market Size and Growth Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4.1 Flour Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4.2 Consumption of Bakery Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
All Bakery Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Bread Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Roll Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Bakery Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Factors Affecting Consumers’ Behavior and Demand . . . . . . . . . . . . . . . . . . . . . . . 15
3.5.1 Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.5.2 Convenience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.5.3 Diet and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.5.4 Ethnic Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.6 International Trade in Value-added Wheat Products . . . . . . . . . . . . . . . . . . . . . . . . 16
4. STRUCTURE OF COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Trends in the Baking Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1.1 Bread, Cake, and Related Products (SIC 2051) . . . . . . . . . . . . . . . . . . . . 18
4.1.2 Cookies and Crackers (SIC 2052) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1.3 Frozen Bakery Products (SIC 2053) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 Composition of the Baking Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2.1 Wholesale Bakers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2.2 Retail Bakers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2.3 Food Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.2.4 In-store Bakers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
TABLE OF CONTENTS (CONT.)
Page
4.3 Competitive Structure and Major Players by Segment . . . . . . . . . . . . . . . . . . . . . . 21

4.3.1 Bread and Roll Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.3.2 Cookie and Cracker Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.3.3 Frozen Dough Product Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.4 Geographic Market for Bakery Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.4.1 Geographic Scope of Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.4.2 Geographic Distribution of Bakery Plants . . . . . . . . . . . . . . . . . . . . . . . . 23
4.5 Product Composition of Bakery Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.6 Size of Bakery Plants and Minimum Efficient Scale . . . . . . . . . . . . . . . . . . . . . . . . 26
4.6.1 Size of Bakery Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.6.2 Minimum Efficient Scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.7 Dynamic Changes in Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.7.1 Acquisition and Merge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.7.2 Strategic Alliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.7.3 Entry and Exit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5. CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ii
LIST OF TABLES
Table Page
1 Categories of U.S. Bakery Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2 Wheat Flour Types and Their Baking Uses in the United States . . . . . . . . . . . . . . . . . . . 5
3 HRS Flour Usage in Producing Bakery Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4 Projected Per Capita Consumption of Bakery Products in the

United States, 1993 - 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5 Economic Indicators for the U.S. Bakery Industry, 1992 - 1995 . . . . . . . . . . . . . . . . . . 19
6 Bakery Sales by Segment in the United States, 1991 - 1995 . . . . . . . . . . . . . . . . . . . . . 20
7 Competitive Structure by Product Segment in the United States, 1995 . . . . . . . . . . . . . 22
8 Average Shipping Distance and Modes of Transportation for Bakery Products

in the United States, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9 Geographic Distribution of Bakery Plants in the United States, 1996 . . . . . . . . . . . . . . 27
10 Distribution of Bakery Plants by Number of Products Produced, 1979 - 1996 . . . . . . . 28
11 Most Common Size of Bakery Plant in the United States, 1996 . . . . . . . . . . . . . . . . . . 28
12 Average U.S. Bakery Plant Size by Product and Estimated

Minimum Efficient Scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13 Mergers and Acquisitions in the U.S. Baking Sector, 1995 - 1997 . . . . . . . . . . . . . . . . 33
14 Dynamic Changes in the U.S. Baking Industry, 1979- 1996 . . . . . . . . . . . . . . . . . . . . . 38
15 Surviving Rate of New Entrants and Incumbents, 1979 - 1996 . . . . . . . . . . . . . . . . . . . 38
16 Number of Products Produced by Plant: Entry, Stay, and Exit . . . . . . . . . . . . . . . . . . . 39
17 Employment Size of Bakery Plant: Exit, Stay, and Enter . . . . . . . . . . . . . . . . . . . . . . . 40
18 Plant Sales Size: Entry, Stay, and Exit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
iii
LIST OF FIGURES
Figure Page
1 Domestic Consumption of Wheat by Type in the United States, 1976 - 1997 . . . . . . . . . 4
2 Per Capita Consumption in the United States, 1980 - 1996 . . . . . . . . . . . . . . . . . . . . . . . 7
3 Consumption of Wheat Flour by Major User Group in the United States . . . . . . . . . . . . 7
4 Composition of Per Capita Consumption of Bakery Products in

the United States, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5 Percent Change and Percent Net Shift of Per Capita Consumption

of Bread Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6 Percent Change and Percent Net Shift of Per Capita Consumption

of Roll Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7 Percent Change and Net Percent Shift of Per Capita Consumption

of Bakery Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8 Geographic Distribution of Bakery Plants in the United States, 1996 . . . . . . . . . . . . . . 25
iv
ABSTRACT
This study evaluated the U.S. domestic market for bakery products and identified market
size and growth rate by product segment. The competitive structure and dynamics of the baking
industry were analyzed including the geographic scope of the market, product structure, minimum
efficient scale, processing consolidation, and entry/exit behavior.
Key words: bakery, consumption, industry, competitive structure.
v
HIGHLIGHTS
The demand for bakery products has been increasing over the past several years. The
baking industry itself has been going through structural changes during the past decades. This
study provides a comprehensive analysis of the bakery product market and dynamic structure of
the baking industry.
Per capita consumption of most bakery products has grown steadily. However, the
increase in per capita consumption is not evenly distributed among product segments. Variety
breads, bagels, and frozen bakery products are among the fastest growing categories while white
pan bread, cake-type doughnuts, and pies are losing their market share.
Due to perishability of products, the geographic location of processing plants is generally

determined by population density. This explains why most baking plants are small size and
scattered around the population centers.
The majority of baking plants operate under minimum efficient scale of production (MES).
This implies that consolidations and shake-outs are expected to happen more frequently as more
plants try to achieve MES in the baking industry.
A significant trend in the baking industry has been the escalation of merger and acquisition
activities. Acquisition offers an opportunity for a firm to strengthen its market presence, expand
geographically, and increase productivity and market accessability.
The analysis indicates that product structure, sales size, and employment size will affect a
plant’s survival over time. Results also show that large size plants will have a higher survival rate.
vi
VALUE-ADDED WHEAT PRODUCTS: ANALYSIS
OF MARKETS AND COMPETITION
Jianqiang Lou and William W. Wilson*
1. INTRODUCTION
Hard red spring (HRS) wheat is a major crop in North Dakota and in the Northern Plains.
In 1993, the sale of wheat comprised nearly 46 percent of cash receipts from farm marketings in
North Dakota. Approximately $1.0 billion of the receipts were from HRS wheat. Nothing is
close to the importance of HRS to the agricultural sector of North Dakota. Nearly all of the HRS
wheat produced in North Dakota and surrounding states is shipped to domestic and international
markets as a raw commodity but only a small portion of the ultimate value of final consumer
products is received by farmers in the state.
Demand and market opportunities for value-added wheat-based products have been
escalating. The flour milling industry is the major processor of wheat, accounting for over 90
percent of primary domestic wheat processing use. Other major uses for wheat include breakfast
food, pet food, and other feed manufacturers (Bureau of Census, 1992 Census of Manufacturers:
Grain Mill Products). The majority (89 percent) of wheat processed as flour is sold in bulk to
grain-based food manufacturers. Only 11 percent is bagged and sold to ingredient distributors.
The baking industry represents the primary users for wheat flour milled in the United States.
According to 1992 census estimates, wholesale bakers directly use about 70 percent of all flour
sold from domestic flour mills. Millers ship the remaining 30 percent to breakfast cereal
producers, manufacturers of blended and prepared flours ( who sell flour mixes to wholesale
bakers), feed manufacturers, and a variety of other food processors and industrial concerns. The
majority of products (82 percent) prepared by retail bakers are either from a mix or frozen dough.
Only 18 percent prepare products from scratch (North Dakota Wheat Commission).
The purpose of this study was to analyze market opportunities and the competition
structure for value-added wheat-based products, with an emphasis on products produced from
spring planted wheat. Since wholesale baking is the largest user in flour consumption, our study
mainly focused on the domestic wholesale baking industry. This study provided comprehensive
background information and analysis of the industry with a focus on markets and opportunities.
The analysis is organized into four sections. The next section is a summary of important
previous studies of the bakery market and baking industry. The third section describes the bakery
product market, including product definition, product composition of wheat by type, flour
consumption, bakery consumption trends by product type, and factors affecting demand. The
fourth section provides a detailed analysis of the competitive structure of the baking industry
regarding trend, composition, geographic distribution, product structure, efficient size, and
dynamic changes of the baking industry. The report closes with a summary of major findings.
*
Former Research Assistant and Professor, respectively, in the Department of Agricultural
Economics, North Dakota State University, Fargo.
2. PREVIOUS STUDIES
Agronomic Research defined key quality criteria for spring wheat flour in the domestic
market. It found that demand is growing fast for baking purposes that traditionally use higher
protein hard wheat flours or flour blends. High cost, lack of availability, and poor flour quality of
high protein spring wheat forced wholesale bakers and other users to seek alternatives to spring
wheat flour. The study also determines flour quality needs for different end products and for
different types of baking operations.
Several studies have been devoted to the bakery market and baking industry. Harwood et
al. analyzed the U.S. milling and baking industries, their structure, conduct, and performance from
the early 1970s to the mid 1980s. They found the growth of demand during this period has been
accompanied in the baking industries by increased output per plant, improved production and
distribution efficiency, and rising acquisitions and mergers.
Packaged Facts prepared a study of the U.S. bread retail market. The report mainly
focuses on the retail market for bread and bread products (packaged, perishable, and frozen) in
the United States. It analyzes products delivered to stores as well as those produced on site and
sold through bakeries operated by supermarket chains or independent retailers. Its conclusion
was that consumers are shifting from white pan bread to higher cost variety breads. Even though
there are few giant marketers in the retail bread market, none of them dominates the bread
business.
Business Trend Analysts published a report on the $28 billion market for the packaged
bakery industry. The report provides a statistical analysis of the market of bread and bread-type
products, cookies and crackers, pretzels, cake and cake-type products, and frozen bakery
products. The report includes information on sales size and growth by bakery product type,
market composition, and per capita consumption and expenditure. Factors affecting demand for
bakery products include price, advertising, and demographic trends. Also discussed are the
structural characteristics of the bakery products industry including operating structure, margin,
value-added, labor productivity, and other aspects of the bakery market, such as leading
competitors, distribution, and foreign trade.
3. PRODUCT MARKET ANALYSIS
3.1 Data Sources
Secondary data were used in this analysis. Wheat types and their baking uses were taken
from the Agronomic Research study. Wheat consumption by type and flour consumption data
were obtained from Economic Research Service, USDA. Bakery product consumption data and
baking industry aggregate sales and shipment data were gathered from U.S. Industrial Outlook
reports and Bureau of the Census’ Manufacturers reports. Cahners Publishing Co. Bakery
Production and Marketing: Red Book provided wholesale bakery plant location, employment
2
numbers, sales value, flour use, items produced, and other information.1 Transportation data for
bakery products were collected from Bureau of the Census’ 1993 Commodity Flow Survey, U.S.
Department of Commerce. Geographic demographic data were based on the Environmental
Systems Research Institute’s ArcView GIS Database. Other sources such as Sosland Publishing
Staffs’ Milling and Baking News, Cahners Publishing Co. Bakery Production and Marketing
were used to provide an up-to-date analysis of the dynamics of the bakery industry.
3.2 Product Categories
The U.S. Bureau of the Census data for bakery products are divided into three major
categories: bread, cake, and related products, cookies and crackers, and frozen bakery products.
Products within the bread, cake, and related products category are bread, rolls, soft cakes, pies,
pastries, doughnuts, etc. Under the bread sub-category are white pan bread, variety breads,
hearth bread, whole wheat bread, rye and the like, and other breads. The roll sub-category
includes hamburger, bagels, brown-and-serve, hearth, English muffin, croissants, and other bread-
type rolls. Products within the cookies and crackers category are crackers, pretzels, biscuits,
cookies, wafers, ice cream cones, and related products. Frozen bakery products include most of
the bakery products except bread and bread-type rolls. The breakdown and description of bakery
products are listed in Table 1.
3.3 Product Composition of Wheat by Type
Hard red winter (HRW) wheat, hard red spring (HRS) wheat, soft red wheat (SRW), and
white wheat are the four main types of wheat for baking use in the United States. Consumption
of HRW wheat comprised 38 percent of the domestic wheat market in 1996. Consumption of
HRS wheat has the second largest share of the wheat market, 24 percent in 1996. SRW and
white wheat represented 21 percent and 11 percent of wheat consumption, respectively.
Historical data show that both HRS wheat and white wheat consumption have an upward trend.
However, the growth of HRW wheat and SRW wheat has been relatively flat (Figure 1).
Technically, different types of bakery products require different types of wheat flour.
Broadly defined, there are seven different types of wheat flours used in the domestic market.
HRS and HRW wheat flours are mainly used in the baking of all kinds of breads and like products
such as rolls, bagels, pizza crust, frozen dough, etc. Cookies, crackers, pretzels, and cakes are
products made almost exclusively from soft wheat flours. Through blending processes, the
milling industry can produce different types of flour for different baking purposes such as sweet
goods, pastries, and cakes (Table 2).
1
It is important to acknowledge that Red Book provides a point of departure for developing lists of
baking firms. However, that directory is not a complete list and several firms/plants are not reported.
3
Table 1. Categories of U.S. Bakery Products
Category Sub-category
All Breads White pan bread
Variety Breads Variety bread including hearth bread, whole wheat bread, rye and
other variety breads
Other Breads Unspecified bread
Rolls Hamburger and hotdog, bagels, brown-and-serve, hearth rolls,
English muffins, croissants, other bread-type rolls
Sweet Yeast Goods Doughnuts and all other sweet yeast goods
Soft Cakes Snack cakes and all other cakes
Pies Snack pies and all other pies
Cake-type Doughnuts
Cookies Sandwich, marshmallow, wafers for ice cream sandwiches, and
all others
Crackers Graham, saltines, cracker sandwiches, cracker meal and crumbs,
pretzels, other crackers
Source: 1992 Census of Manufactures: Bakery Products (Bureau of the Census).
800
HRW
700
HRS
600
Soft W h e a t
million bushels
500
White W heat
400
300
200
100
0
76/77 80/81 84/85 88/89 92/93 96/97
year
Figure 1. Domestic Consumption of Wheat by Type in the United States, 1976 - 1997
4
Table 2. Wheat Flour Types and Their Baking Uses in the United States
Wheat Class Flour Type Protein Contents Baking Uses
HRS High Gluten 14.5%+ Bagels, thin pizza crust,

(13.5% flour) kaiser rolls, frozen dough,
English muffins, specialty
breads.
HRS/HRW Medium Gluten 13-15% Ethnic breads, hearth
(Variety Bread) (12-13.5% flour) breads, hard rolls, frozen
dough, croissants, whole
and cracked wheat, rye
breads, whole grain breads.
HRW/HRS Bread 11.5-13.5% White pan breads,
(10.5-12% flour) hamburger and hotdog
buns, tortillas, breading
flour, batter flour, deep dish
pizza crust, sweet goods.
HRW/SOFT All-purpose 10.5-12% Cakes, biscuits, breads,
pastries, pie crust, cookies.
SRW/SWW Cracker/Pastry 9-11% Cookies, crackers, pie crust,
cereals, pretzels.
SRW/SWW Cake < 9% Layer and sponge cakes.
Durum Semolina/Durum 12-16% Pasta and noodles.
Source: “Identifying and Defining Key Quality Criteria for Spring Wheat Flour in the Domestic
Market” (Agronomic Research).
Utilization of HRS wheat flour varies based on the product produced. HRS wheat flour
makes up about 1/3 of total flour usage according to a survey conducted by Agronomic Research.
The bread and roll segment represents the largest HRS wheat flour users, but HRS flour only
made up 29.3% of its total flour usage. Bagel, pizza crust, and frozen dough makers consume a
much higher percentage of HRS flour in their total flour usage, 83, 71, and 70 percent,
respectively (Table 3).
5
Table 3. HRS Flour Usage in Producing Bakery Products
Annual Total Annual HRS Percent of HRS
Flour Usage Flour Usage Flour Usage
Type of Products (million cwt.) (million cwt.) (%)
All Firms in Survey 63 23 36
Bread/Roll 40 12 29
Bagels 2 2 83
Frozen Dough 5 3 70
Mixed Manufacturers 10 3 35
Pizza Crust 3 2 71
Others 4 1 18
Note: Others include sweet goods, English muffins, and starch/gluten manufacturers.
Source: Agronomic Research.
3.4 Market Size and Growth Rate
This section presents measures of market size and growth for each of the product
categories. First, growth in flour consumption is shown which can be used as a summary measure
of all product consumption. Then, for each of the product markets, various measures of market
size and growth are derived.
3.4.1 Flour Consumption
U.S. per capita consumption of flour reached a record level in 1996, at 148 lbs.
(Economic Research Service). The upward trend of flour consumption has persisted except for a
few aberrations since 1981 (Figure 2). Wholesale bakers, bread, cake, cookie, and cracker
bakers, account for about 51 percent of total flour use (Figure 3). Commercial mixes, prepared
flours, frozen baked foods, and frozen dough ranked second, about 17 percent of total flour use.
Pasta manufacturers are the third largest flour customer, accounting for about 11 percent of total
flour use. In-store and retail bakers only use about 4 percent of total flour.
6
150
145
140
135
lbs
130
125
120
115
110
1980 1982 1984 1986 1988 1990 1992 1994 1996
Figure 2. Per Capita Consumption in the United States, 1980 - 1996
Figure 3. Consumption of Wheat Flour by Major User Group in the United States
7
3.4.2 Consumption of Bakery Products
All Bakery Products
From 1981 to 1986, consumption of major bakery products showed a steady decline. Per
capita consumption of bakery products decreased from 92.7 to 89.6 lbs. Since then, the per
capita consumption of bakery products exhibited an upward trend, increasing from 100.91 lbs. in
1987 to 109.89 lbs. in 1992. This is mainly due to lower retail prices, improved quality, more
effective marketing, better packing, consumer’s heath concerns, and the “Food Pyramid.”
However, the increase in per capita consumption is not evenly distributed among the various
segments of the baking industry. Consumption of most bakery products shows positive growth
except for cake-type doughnuts and pies during 1987 and 1992.
Bread Products
Per capita consumption of all breads comprises the largest share of consumption of total
bakery products, 46.6 percent (Figure 4). Consumption grew by 1.49 percent annually from 1987
to 1992. Consumption of bread is projected to increase 14.5 percent from 1993 to 2000
(Table 4).
The primary type of bread consumed in the United States is white pan bread. The growth
of white pan bread consumption is flat, increasing only 2.4 percent during 1987 and 1992.
Negative net percent shift indicates the growth of consumption of white pan bread is much slower
than the average growth of consumption of all breads. But it still remains the largest segment of
the bread market, representing 55 percent of total bread consumption (Figure 5).2
Using a different baking process, hearth bread has a formation of solid, crisp, flavorful
crust and other attributes that appeal to consumer desires. Hearth bread consumption, which
represents 13.4 percent of the total bread market, is showing strong growth, a 21.5 percent
increase during 1987 and 1992. Net percent shift indicates that it has captured 57 percent of the
variability in average bread consumption growth.
Per capita consumption of whole wheat bread, representing 19.55 percent of the bread
market, increased by 7.1 percent from 1987 to 1992. Negative net percent shift indicates it grew
slower than the average growth of the bread category.
2
The net percent shift is an alternative measure for ranking growth. This measure estimates the
percent of deviations from the average growth rate captured by each category. It provides perspective on
the rate of growth for each product category in relation to the market as a whole and provides a more
appropriate method of ranking growth among procuts. For a more in-depth discussion of shift-share
analysis, see Huff and Sherr.
8
Figure 4. Composition of Per Capita Consumption of Bakery Products in
the United States, 1992
Rye bread consumption mainly depends on local ethnic preference. Consumption of rye
and like bread, representing only 4.3 percent of the bread market, increased by 11.2 percent
during 1987 to 1992. It captured 5.5 percent of the variation average growth of bread
consumption.
Consumption of all other variety breads, 7.3 percent of the bread market, has shown a
strong growth rate, increasing 24.7 percent from 1987 to 1992. Net percent shift indicates that it
captured 37.3 percent of the variation of the average bread consumption growth.
Roll Products
Consumption of rolls and sweet goods is among the fastest growing categories, with
annual growth rates of 1.66 and 1.69 percent, respectively. These products made up 21.4 and
3.7 percent of the total consumption. From 1993 to 2000, consumption of rolls and sweet goods
is projected to increase 9.6 and 16.8 percent, respectively (Faridi and Faubion).
9
Table 4. Projected Per Capita Consumption of Bakery Products in the United States, 1993 - 2000
Product 1993 1994 1995 1996 1997 1998 1999 2000
------------------------------------------------------------------ lbs.----------------------------------------------------------
All Breads 52.01 52.85 53.78 54.83 55.88 56.96 58.20 59.54
Rolls 23.91 24.33 24.70 25.08 25.35 25.63 25.91 26.20
Sweet Yeast Goods 4.11 4.28 4.39 4.50 4.58 4.65 4.73 4.80
10
Soft Cakes 8.34 8.55 8.72 8.89 9.02 9.17 9.32 9.49
Pies 1.64 1.64 1.64 1.63 1.63 1.63 1.63 1.63
Cake-type 0.92 0.86 0.82 0.80 0.80 0.79 0.79 0.78
Cookies 12.29 12.56 12.88 13.16 13.37 13.53 13.69 13.85
Crackers 8.23 8.39 8.61 8.85 9.01 8.31 7.58 6.85
Source: Wheat End Uses Around the World (Faridi and Faubion).
11
Figure 5. Percent Change and Percent Net Shift of Per Capita Consumption of Bread Products
Hamburger and hotdog consumption represent 57.1 percent of the roll market. But the
growth is relatively low, increasing only 4.6 percent during 1987 to 1992. Negative net percent
shift indicates the growth of consumption is slower than the average growth of consumption of all
roll products (Figure 6).
Bagels, once considered a specialty ethnic food, are a low-fat, boiled or steamed bread.
Bagel products, which originally have been popular for decades in the Northeastern region,
rapidly spread across the nation and even into the offshore market. Because bagels were in the
early stage of the product life cycle, the market was increasing simply through product awareness.
Bagel consumption, which represents 14.2 percent of the total bread market, has shown
remarkable growth rate, a 55.6 percent increase during 1987 to 1992. Net percent shift indicates
that bagels captured 61.7 percent of the variability in average growth of roll consumption.
Per capita consumption of brown and serve and hearth rolls, representing 11.8 percent of
the roll market, increased by 4.6 and 6.9 percent from 1987 to 1992, respectively. Negative net
percent shift indicates they grew slower than the average growth of the roll category.
Consumption of the English muffin, representing 7 percent of the roll market, decreased
by 4.1 percent during 1987 to 1992. Consumption of croissants, representing only 2.3 percent of
the roll market, has shown a fast growth rate, a 51.4 percent increase from 1987 to 1992. Net
percent shift indicates that it captured 9.1 percent of the variation of the average roll consumption
growth. Consumption of other type rolls, representing 7.7 percent of the roll market, has also
shown solid growth, a 48.4 rise between 1987 and 1992.
Other Bakery Products
Per capita consumption of soft cakes and cookies is also showing strong growth with
annual growth rates of 1.8 and 1.6 percent from 1987 to 1992, respectively. Per capita
consumption is projected to increase 13.8 and 12.7 percent from 1993 to 2000, respectively
(Faridi and Faubion). Net percent shift of soft cakes and cookies is 36.6 and 15.9, respectively.
It indicates that soft cakes and cookies capture a large percent of the variability in average growth
of bakery product consumption.
Per capita consumption of crackers grew 3.7 percent annually during 1987 to 1992.
However, negative net percent shift indicates it grew slower than the average growth of all bakery
products (Figure 7).
Per capita consumption of the pies and cake-type donuts categories has a downward
trend. Consumption decreased by 32.6 and 5.1 percent during 1987 to 1992. The decreasing
trend is projected to continue from 1993 to 2000.
12
13
Figure 6. Percent Change and Percent Net Shift of Per Capita Consumption of Roll Products
14
Figure 7. Percent Change and Net Percent Shift of Per Capita Consumption of Bakery Products
14
3.5 Factors Affecting Consumers’ Behavior and Demand
A number of factors have contributed to the growth and composition of consumption in

this market. These are described here briefly.
3.5.1 Children
Children represent one of today’s hottest targets for baked goods marketers. More and
more dual-income and single-parent households have boosted children’s role in family food
purchasing decisions. They influence nearly $100 billion in food and beverage purchases annually,
with this amount growing at a rate of 17 percent to 20 percent annually (Milling and Baking
News). Research also indicates that children have “a lot of influence” on their parents on which
brand to purchase, and they are more brand savvy and market-aware (Milling and Baking News).
3.5.2 Convenience
There has been an increase in demand for convenience foods. More and more Americans
are eating when and where they can, refusing to be structured by the “three meals a day” dictum.
3.5.3 Diet and Health
Diet and health are strong concerns among consumers. The Food Guide Pyramid,
developed by the U.S. Department of Agriculture, helps people choose what and how much to eat
from each food group. It also advises all Americans two years and older to rely on bread, cereal,
rice, and pasta, as well as fruits and vegetables, for most of our food choices to maintain health.
The pyramid’s message has had a positive influence on consumer perception of grain-based food
products. According to some research, the message has not reached its goal of enticing people to
eat 6-11 servings of cereal and grain products daily. Therefore, there is room for the
consumption of an additional 100 lbs. of cereal-based wheat products per person per year to meet
the pyramid recommendations.
An increasing percentage of Americans are concerned about reducing the intake of

calories and fat. Many grain-based foods are either naturally lower in fat and/or calories. Low-fat
eating is the No. 1 nutrition concern among the consumers, and low cholesterol and low sodium
choices are also sought.
3.5.4 Ethnic Market
Many grain-based companies are targeting the fast-growing and financially lucrative ethnic
market. The growing numbers of ethnic consumers make them an attractive market. In 1995, the
U.S. Census Bureau estimated that one in every four Americans was non-white. By 2050, that
proportion will be about one in two. The important demographic changes in Hispanic and Asian
American populations will have implications for food manufacturers in labeling as well as in
supermarket product offerings.
15
3.6 International Trade in Value-added Wheat Products
There has been substantial growth in trade in value-added wheat products.3 Market
characteristics were described by import market size, import market growth, and net shift share
analysis of the import market. The quantity of imports, measured in metric tons, was used as the
measure of market size and calculated from 1995 data. Market growth was calculated from 1992
to 1995.
Among the four commodity groups, macaroni was the fastest growing import commodity.
Macaroni imports grew 52 percent worldwide from 1992 to 1995. Bread/biscuits imports grew
14 percent, pastry imports grew 8 percent, in contrast to cereal imports which grew 7 percent.
Within the four commodity groups, the largest import markets were the United States, Germany,
France, and Monaco. France was the largest cereal importer with a 17 percent world import
market share. The largest macaroni importer was the United States with a 19 percent world
import market share. The United States was also the largest bread/biscuits importer with a 16
percent world import market share. France had a world import market share of 19 percent for
pastry imports.
The fastest growing import markets comprised only a small percentage of total world
imports. The quantity of cereal imports grew the highest in percentage terms in Uruguay,
Colombia, Ecuador, Guatemala, and Tunisia. These five countries had only a 1 percent share of
total world imports of cereal. The countries with the highest percentage increase in macaroni
imports (Chile, Zimbabwe, Egypt, Peru, and Argentina) had a 2 percent market share of total
world imports. Bread/biscuit imports had the highest percentages of growth in Honduras,
Zimbabwe, Panama, Uruguay, and Guatemala. The combined world import market share of
bread/biscuits for these five countries was 1 percent. The situation was similar with world pastry
imports. Tunisia, Thailand, the Philippines, the Korean Republic, and Chile had the largest
percentage import growth for pastry from 1992 to 1995. They had a combined pastry world
import market share of 1 percent.
Among cereal importing countries, Germany had the greatest net import percent shift at
13 percent.4 The United States had the lowest net import percent shift of -20 percent. The
situation was reversed for the United States in the macaroni import market. The United States
had the largest net import percent shift of macaroni at 19 percent. In the bread/biscuits import
market the United States also had the largest net import percent shift. The United States had a
net import percent shift of bread/biscuits of 19 percent. In the pastry market, the United States
had the largest net import percent shift, with a net import percent shift of 32 percent.
3
This section is a brief summary of a forthcoming report on trade in value-added wheat products
(Onnen and Wilson). Secondary data were used in the analysis. Export and import values and quantities
between countries from 1962 to 1995 were collected from UN Comtrade data. Data were collected for
SITC 04812 (breakfast cereals), SITC 0483 (macaroni), SITC 04841 (bread/biscuits), and SITC 04842
(pastries) commodity groups. The data were reported for over 220 countries.
4
Shift share analysis was used to compare the distribution of import quantities for each commodity
from 1992 to 1995. This distribution was measured by the net import percent shift in each country.
The United States was one of the largest exporting countries for each commodity. It
ranked third for cereal exports to the world, behind the United Kingdom and Germany. Among
countries that export macaroni, the United States ranked sixth. Italy, with a 53 percent export
market share, was the largest macaroni exporter. The United States ranked second for exports to
the world of bread/biscuits. The United States had an export market share of 12 percent, which
was less than Germany’s share of 15 percent. The United States ranked eighth for exports of
pastries to the world, with a 5 percent export market share. Belgium-Luxembourg was ranked
first with a 15 percent export market share.
While the United States is among the countries with the largest export quantities in 1995
for each commodity, it ranked among the lowest five in export shift share analysis. The net
percent export shift in the cereal market was -32 percent for the United States, which ranked it
last among all world exporters. The United Kingdom had the largest net percent export shift in
the cereal market at 12 percent. In the macaroni market, the United States had a net percent
export shift of -2 percent, which placed it 45th of the 49 countries which reported exports of
macaroni. China had the largest export market shift of 48 percent. Italy, the country with the
largest export market share in 1995, had the lowest net percent export shift at -79 percent.
Similar results occurred in bread/biscuits exports. While Germany had the largest export market
share in 1995, it had the lowest net export market shift at -37.1 percent. The United States had a
net export market shift of -9 percent, which placed the United States as the 48th of the 51
countries reporting exports of bread/biscuits. Italy had the largest net export market shift at 17
percent. Within the pastry market, Turkey had the largest net export shift of 37.4 percent. The
United States was ranked 47th of the 50 reporting countries. The United States had a net export
shift of -21 percent. Belgium-Luxembourg, the country with the greatest export market share of
pastries, had a net export market shift of -.6 percent, which placed its rank at 38th.
4. STRUCTURE OF COMPETITION
4.1 Trends in the Baking Industry
Census data for the wholesale bakery industry are published by the U.S. Department of
Commerce every five years. It is widely regarded as the most authoritative and complete
assessment of the state of the industry. The census reports classify the bakery industry into three
categories: bread, cake, and related products industry (SIC 2051); cookies and crackers industry
(SIC 2052); and frozen bakery products industry (SIC 2053).
17
4.1.1 Bread, Cake, and Related Products (SIC 2051)
Manufacturers classified in industry 2051 are made up of establishments primarily

manufacturing fresh or frozen bread and bread-type rolls and fresh cakes, pies, pastries, and other
similar “perishable” bakery products.
The bread and cake sector continues to be the largest section in the bakery industry, about
60 percent of total value of the bakery industry shipments. According to the newly released
census data for the bakery industry, total shipment value of the bread, cake, and related products
industry in 1995 was $19.6 billion, an 8.3 percent increase from $18.1 billion in 1992. Value
added by the manufacturer in the bread, cake, and related products industry in 1995 was $ 12.4
billion, an 8 percent increase from $11.5 billion in 1992. Capital expenditure for plant and
equipment was $534.8 million in 1995, a 4 percent growth from 1992. Compared with other
sections, the growth of this section is relatively flat and has not shown much growth for several
years (Table 5). However, some companies are still exploring the market by introducing new
varieties and tastes. For example, variety breads and bread-type rolls are taking the market share
away from white pan bread.
4.1.2 Cookies and Crackers (SIC 2052)

manufacturing fresh cookies, crackers, pretzels, and similar “dry” bakery products.
The total shipment value of the cookies and crackers sector in 1995 was $10,500 million,
a 21.1 percent increase from $8,668.4 million in 1992. Value added by the manufacturer in the
cookies and crackers sector in 1995 was $6,609.8 million, a 19.7 percent increase from $ 5,523.4
million in 1992. Many manufacturers are opening new plants or expanding capacity and buying
new equipment to meet the growing demand. The capital investment was used to increase
production capacity, add new product lines, and improve production efficiency. Capital
expenditures for plant and equipment were $457.6 million in 1995, a 47.5 percent growth from
1992. This sector grew faster than did the bread and cake sector.
4.1.3 Frozen Bakery Products (SIC 2053)

manufacturing frozen bakery products, except bread and bread-type rolls.
The market for frozen baked food in the past few years has shown a very strong growth
rate. The total shipment value of the frozen baked products industry increased by 44 percent
between 1992 and 1995, at about $2,445 million in 1995. Value added by the manufacturer in
this sector in 1995 was $1,323 million, a 44 percent growth from 1992. The frozen market has
become large enough to induce expansion in this sector. Growth of capital expenditures in this
sector has paralleled growth of industry shipment value. Capital expenditures for plants and
equipment were $94 million, a 153 percent increase from 1992.
18
Table 5. Economic Indicators for the U.S. Bakery Industry 1992 - 1995
Indicators Product 1992 1993 1994 1995 % Change

1992-95
-------------------------------- million $ ------------------------------
Bread and Cake 18,130 18,658 19,285 19,640 8.3
Value of Industry
Shipment Cookie and Cracker 8,668 9,442 10,094 10,500 21.1
Frozen Bakery Products 1,696 1,810 2,049 2,445 44.2

19
Bread and Cake 11,462 11,678 12,143 12,381 8.0

Value Added by
Manufacturer Cookie and Cracker 5,523 6,045 6,630 6,610 19.7
Frozen Bakery Products 919 1,007 1,132 1,323 43.9
Bread and Cake 514 511 590 535 4.0

Capital Expenditures
for Plant and Cookie and Cracker 310 314 385 458 47.5
Equipment
Frozen Bakery Products 37 39 61 94 152.6
Source: 1993, 1994, 1995 Annual Survey of Manufactures (Bureau of the Census).
4.2 Composition of the Baking Industry
The baking industry is made up of four different segments: wholesale bakers, retail bakers, in-store bakers, and food services.
4.2.1 Wholesale Bakers
Wholesale bakers manufacture full-baked products and deliver most of them to independent grocery stores and to the individual
outlets of some chain grocery stores for retail sale. A small share of their output may be sold to restaurants and other institutions.
Wholesale fully baked products are usually for general consumption.
Wholesale bakers continue to be the backbone of the baking industry. This segment generated 59 percent of all bakery sales in
1995 (Table 6). Nabisco Biscuit Co., Interstate Brands Corp., CPC Baking Business, and The Earthgrains Co. are the top four
wholesale bakers in the United States.
Table 6. Bakery Sales by Segment in the United States, 1991-1995

1991 1992 1993 1994 1995
------------------------------------ billion $ ------------------------------------
Wholesale Bakers 29.1 30.4 30.7 31.5 32.4
Retail Bakers 7.1 7.5 5.5 5.9 6.0
Food Services 8.8 8.7 8.0 7.5 7.5
In-store Bakers 8.1 8.6 8.7 9.1 9.4
Source: Bakery Production and Marketing (Cahners Publishing Co.).
4.2.2 Retail Bakers
The U.S. Department of Commerce defines retail bakers as businesses in which bakery foods, baked either in whole or in part
on the premises, are sold over the counter directly to customers. This definition includes traditional full-line retail bakeries, as well as
20
specialty bakeries, donut shops, and franchise outlets. Retail bakers take a small share of the total
baking industry sales, about 11 percent.
Generally speaking, retail bakers lack resources and capabilities of branded products in
areas such as research and development, consumer research, and trend analysis. In other words, it
is hard for them to come up with innovative products to compete with name brands in quality and
production efficiency.
4.2.3 Food Services
The food service segment includes full-service restaurants and hotel eateries, fast-food
outlets, take-out and delivery joints, and company and school cafeterias. It comprised about 14
percent of total bakery sales in 1995. While the food service industry is increasingly complex in
structure, quick-service and full-service restaurants still account for 60 percent of all sales. This
suggests opportunities for wholesale bakers as suppliers to these businesses.
4.2.4 In-store Bakers
In-store bakers are located at the distribution center (a supermarket), which purchases
frozen dough from a wholesale plant and bakes products at the supermarket. The process of
bake-off includes defrosting dough, proofing, and baking. This segment contributes about 17
percent to total bakery sales. The top four in-store bakery companies are Winn-Dixie Stores,
Inc., The Kroger Co., Safeway Stores, Inc., and The Great A & P Tea Co., Inc.
Increasingly, consumer craving for freshness and convenience dominate their decision on
purchasing bakery products. That is good news for the in-store bakery, because its product is
perceived as being fresher and of higher quality. In fact, more and more super stores are featuring
displays of freshly made baked goods. The emphasis on in-store bakeries is steadily shifting
toward thaw-and-sell and frozen bake-off items that require less preparation and baking time
while simultaneously improving quality control and profit margins.
4.3 Competitive Structure and Major Players by Segment
4.3.1 Bread and Roll Segment
The United States has more than a thousand large and small bread and roll manufacturers.
It comprises the largest segment of the bakery market. This is a market with intense competition
and is considered to be somewhat over capacity. The industry is considered mature, and
consolidation and shake-out will likely become important. The top four firms are estimated to
account for about 60 percent of total market share (Table 7). Interstate Brands Corporation,
based at Kansas City, became the nation’s largest wholesale baker of bread and rolls in mid-1995
with the $520 million acquisition of Continental Baking Co. from Ralston Purina Co. It operates
nationwide, and the annual sales in 1995 were estimated to be about $3 billion. CPC Baking
Business, based at Bay Shore, NY, is second in bread and roll products marketing, with about
$1.7 billion in total annual sales in 1995. It was created by the purchase of most of the baking
21
operations of Kraft Foods, Inc. for $865 million in 1994. The Earthgrains Co. spun off by
Anheuser-Busch to shareholders in 1994, is third in bread and roll products marketing with total
annual sales of $1.5 billion in 1995. Its marketing area covers most of the nation except the
Northeast region. The fourth largest bread and roll marketer is Flowers Industries, Inc. Its
market area is concentrated in the Southeast region.
Table 7. Competitive Structure by Product Segment in the United States, 1995

Growth 4-Firm
Market Size 1992-95 Market Share Number of
Product (%) (%) (%) Plants
All Bakery Products -- 15 31 2,714
Breads and Rolls 38.76 10 60 1,599
Cookies and Crackers 28.72 19 68 927
Frozen Dough 10.66 27 24 331
Sources: Annual Survey of Manufacturers (Bureau of the Census), Bakery Production and
Marketing: Red Book (Cahners Publishing Co.), Milling and Baking News (Sosland Publishing
Staffs), various issues.
4.3.2 Cookie and Cracker Segment
The number of cookie and cracker manufacturers in the United States is less than the
bread and roll manufacturers. The growth of the market was about 20 percent between 1992 and
1995. Similar to the bread and roll segment, this is also a mature market with fierce competition.
The large portion of market growth is from the introduction of low-fat and fat-free products.
This is the market with an even higher concentration than the bread and roll segment. In the top
four firms, market share is estimated at about 68 percent of the total segment. Nabisco Biscuit
Co. is the leader in this segment with $3.5 billion total sales in 1995. Its marketing area is
nationwide. Keebler Co. is second with $1.5 billion total sales in 1995. Its products are also
distributed nationwide. Sunshine Biscuits Inc. ranked third in the cookie and cracker market with
$580 million annual total sales in 1995, far behind the top two leaders. Lance Inc. is fourth with
$460 million sales in 1995. Its marketing area is mainly focused in the Southeast, Midwest, West,
and Southwest regions.
4.3.3 Frozen Dough Product Segment
Frozen dough is the third largest segment in the baking industry. It is the fastest growing
segment among all bakery segments, with 27 percent growth between 1992 and 1995. There are
few major companies in this market, and none of them has dominated this segment. The top four
firms only control 24 percent of the market share. This is a market with less entry resistance
22
compared with other segments. Many firms are entering this attractive market. Rich Products
Corp., Country Home Bakery, Inc., and Hazelwood Farms Bakeries are considered to be at the
top with $1.8, $1.5, and $.7 billion total sales in 1995, respectively. All of them have been in the
frozen bakery business for over 20 years. Another major firm is Heinz Bakery Products. It
entered the market through a series of nine acquisitions in both the United States and Canada
between 1988 and 1991. Pillsbury is also a major firm. It focuses its non-brand food business on
both frozen dough and mixes.
4.4 Geographic Market for Bakery Products
4.4.1 Geographic Scope of Market
The geographic scope of the market is an important element of industry structure. The
most straightforward measurement of the geographic scope of the market for bakery plants would
be the distance a product could be shipped.
According to the 1993 Commodity Flow Survey Report (Bureau of the Census, U.S.
Department of Commerce),5 average shipment distance for all bakery products is 74 miles
(Table 8). About 98 percent of bakery products are shipped in single transport modes, such as
private truck, for-hire truck, rail, and postal service. Only 2 percent of bakery products are
shipped though multiple modes or other modes. Most shipments of bakery products (70 percent)
are made with private truck fleets, which are operated by a temporary or permanent employee of
an establishment or the buyer/receiver of the shipment. The shipment of bakery products by the
private truck has an average market radius of 49 miles. For-hire truck fleets, which carry freight
on a fee-collection basis, ship about 28 percent of bakery products. With a 295-mile average
distance per shipment, for-hire truck fleets cover a market area five times larger than private truck
fleets. The shipments of bakery products through other transport modes are less than 2 percent.
Considering the shipping distance of bakery products, the baking industry is a local
industry instead of highly concentrated like the milling industry. The majority of bakery products
must be delivered immediately after they are produced. The industry mainly relies on truck fleets
for product shipment. However, the scope for centralizing production of bakery products could
be expanded with the advent of industrially produced frozen dough and technology of baking.
5
The Commodity Transport Survey, conducted by the U.S. Department of Commerce, is
regarded as the most authoritative assessment of the shipping distance of commodities. In 1993,
approximately 200,000 establishments were selected from a universe of 800,000 establishments
engaged in mining, manufacturing, wholesale, and selected retail and service activities, as well as
auxiliaries of multi-establishment companies. Establishments were selected from the 1992 Standard
Statistical Establishment List (SSEL) of business establishments with paid employees. The
establishments in the survey were stratified by three-digit Standard Industrial Classifications (SIC).
Bakery products were classified as SIC 205.
23
4.4.2 Geographic Distribution of Bakery Plants
Since most bakery products are perishable and have a shorter shelf life, the economies of
plant dispersion runs surpass the advantage of the economies of large-scale production. Shipping
costs of bakery products and potential deteriorating of quality outweigh the benefit generated by
having large-scale production. Therefore, multi-plants at different geographic locations are a
common strategy for large baking firms in the United States. Distribution of U.S. bakery plants is
highly related to distribution of population and bakery retail outlets (Figure 8). This explains why
bakery plants are either located in metropolitan areas or close to them.
24
Table 8. Average Shipping Distance and Modes of Transportation for Bakery Products in the United States, 1993
Value Tons Ton-miles Average Miles
Mode of Transportation Per Shipment
Number Number Number
(million $) Percent (thousands) Percent (millions) Percent
Total 48,049 100.0 28,767 100.0 8,153 100.0 74
Single Modes: 46,991 97.8 28,242 98.2 7,544 92.5 --
Parcel, postal service, or courier 71 0.1 11 — 7 0.1 880
Private truck 33,375 69.5 19,998 69.5 2,876 35.3 49
For-hire truck 13,358 27.8 8,140 28.3 4,496 55.1 295
Air -- — — — — — (S)
25
Rail 187 0.4 93 0.3 165 2.0 1,551

Multiple Modes: 675 1.4 273 0.9 445 5.9 --
Private truck and for-hire truck 19 — (S) — 4 — 276
Truck and air (S) — (S) -- (S) -- (S)
Truck and rail 623 1.3 260 0.9 434 5.3 1,658
Truck and water 25 0.1 9 — (S) 0.5 (S)
Inland water and deep sea 8 — 4 — 7 0.1 1,524
Other Modes 381 0.8 237 0.8 120 1.5 184
Source: 1993 Commodity Flow Survey (Bureau of the Census, U.S. Department of Commerce).
26
Figure 8. Geographic Distribution of Bakery Plants in the United States, 1996

About 2,500 U.S. bakery plants are scattered across the 50 states. The majority is located
on the East and West Coasts, and the Midwest where population density is high. California is the
leading state with 314 bakery plants, followed by New York with 217 bakery plants, and
Pennsylvania with 180 bakery plants. States like Illinois, New Jersey, Ohio, and Texas also have a
high percentage of bakery plants. Few plants were observed in the low population density states
such as Montana, Wyoming, and Idaho (Table 9).
4.5 Product Composition of Bakery Plants
As discussed in Section 4.4.1, the geographic scope of the bakery market for a bakery firm
is limited. To increase market share, bakery firms either have to ship to different geographic
markets to capture more market area or have to increase the sales at local markets. Another
option is to diversify its product line. Since the manufacturing technology is similar across
different products, it is possible for plants to produce multi-products to the local market.
In the United States, more than 73 percent of bakery plants produce more than two
product categories. About 79 percent of the plants produced one to four products in 1979. This
percentage has been declining over the years, 68 percent in 1990 to 65 percent in 1996. Bakery
plants producing 9 to 12 products have increased from 1 percent in 1979 to 10 percent in 1990
and 12 percent in 1996. About 4 percent of bakery plants produce 13 to 16 products from a
single plant (Table 10).
4.6 Size of Bakery Plants and Minimum Efficient Scale
4.6.1 Size of Bakery Plants
Since the manufacturing technology of bakery products is similar, the common size of
bakery plants has sales ranging from 1 to 5 million lbs., weekly flour usage ranging from 0 to
50,000 lbs. per week, and employees ranging from 20 to 50. This size is common for plants
producing breads, bagels, frozen dough, croissants, sweet goods, donuts, cakes, and cookies.
However, the statistics also show that plants producing buns, rolls, pizza crusts, and crackers tend
to be larger in sales, flour use, and employment (Table 11).
The baking industry is considered fragmented. This is even more obvious at the start-up
level of an organization. Many are not well-capitalized and do not have the professional staff to
put together a company that is able to withstand the competitive forces in the market. The
average size of bakery plants is very small. Plants producing crackers have the largest average
size of sales, followed by plants producing buns, rolls, cookies, and bread products in decreasing
order. Plants producing bagels and croissants have the smallest average size of sales.
27
Table 9. Geographic Distribution of Bakery Plants in the United States, 1996
State # of Plants Percent State # of Plants Percent
Alaska 5 0.2 Montana 2 0.1
Arizona 26 1.1 Nebraska 16 0.7
California 314 13.1 New Hampshire 13 0.5
Colorado 26 1.1 New Jersey 110 4.6
Connecticut 32 1.3 New Mexico 11 0.5
District of Columbia 9 0.4 Nevada 10 0.4
Delaware 2 0.1 New York 217 9.1
Alabama 15 0.6 North Carolina 52 2.2
Arkansas 20 0.8 North Dakota 9 0.4
Florida 86 3.6 Ohio 111 4.6
Georgia 58 2.4 Oklahoma 24 1.0
Hawaii 27 1.1 Oregon 43 1.8
Iowa 21 0.9 Pennsylvania 180 7.5
Idaho 4 0.2 Rhode Island 18 0.8
Illinois 136 5.7 South Carolina 16 0.7
Indiana 58 2.4 South Dakota 8 0.3
Kansas 19 0.8 Tennessee 45 1.9
Kentucky 16 0.7 Texas 124 5.2
Louisiana 21 0.9 Utah 24 1.0
Massachusetts 87 3.6 Virginia 42 1.8
Maryland 35 1.5 Vermont 7 0.3
Maine 19 0.8 Washington 40 1.7
Michigan 85 3.5 Wisconsin 60 2.5
Minnesota 39 1.6 West Virginia 9 0.4
Missouri 36 1.5 Wyoming 2 0.1
Mississippi 6 0.3
Source: Bakery Production and Marketing: Red Book, 1996 (Cahners Publishing Co.).
28
Table 10. Distribution of Bakery Plants by Number of Products Produced, 1979-1996
1979 1990 1996
Number of Number of Percent Number of Percent Number of Percent
Products Plants of Total Plants of Total Plants of Total
1 - 4 1,319 79 1641 68 1600 65
5 - 8 328 20 463 19 471 19
9 - 12 20 1 246 10 302 12
13 - 16 1 0 70 3 89 4
Table 11. Most Common Size of Bakery Plant in the United States, 1996
Sales Flour Usage Number of
Product Type (million $) (1,000 lbs/week) Employees
Bread Plant 1-5 0 - 50 20 - 50
Bun Plant 10 - 25 150 - 300 100 - 250
Roll Plant 10 - 25 0 - 50 20 - 50
Bagel Plant 1-5 0 - 50 20 - 50
Frozen Dough Plant 1-5 0 - 50 20 - 50
Pizza Crust Plant 10 - 25 0 - 50 100 - 250
Croissant Plant 1-5 0 - 50 20 - 50
Sweet Goods Plant 1-5 0 - 50 20 - 50
Donut Plant 1-5 0 - 50 20 - 50
Cake Plant 1-5 0 - 50 20 - 50
Cookie Plant 1-5 0 - 50 20 - 50
Cracker Plant 75 - 100 500 + 500 - 1000
29
4.6.2 Minimum Efficient Scale
The minimum efficient scale of production (MES) for an industry is defined as the smallest
production volume for which the unit costs reach a minimum. MES plays an important role in
determining entry decisions and ability to survive. MES indicates the scale of operations required
and capital investment needed to enter the industry. Generally speaking, the small MES of a
specific industry makes it attractive to new entrants. In addition to MES, it is important to know
the ratio of minimum efficient scale to the overall size of the market. The ratio indicates the
required market share for a low-cost entry into a market.
Estimating MES requires information on output and cost at the level of the plant for the
industry, which is difficult to obtain. In absence of cost information for the baking industry, a
proxy measure (Comanor-Wilson approach) is used to estimate MES. The MES of the baking
plant is measured as the mean size of the largest plants accounting for 50 percent of the baking
industry sales.
This methodology was applied to the different sectors of the U.S. baking industry. The
results indicate that a bakery plant should have an annual $63 million sales value with 510
employees and 382,000 lbs. weekly flour usage to achieve the MES. The ratio of MES to the
overall market size on national basis is about 0.2 percent, which indicates that a large portion of
bakery plants are operating below the MES level. This is an industry with relatively low-cost
entry.
The results also show the MES differs across the product categories. Cookie and cracker
plants need relatively larger sales size ($91 million annual sales) to achieve MES, while bread,
bun, and roll plants should generate about $55 million annual sales. Bagel and croissant plants
can be operated at a significantly smaller scale to reach MES compared to cookie and cracker
plants, $30 million and $22 million of annual sales, respectively (Table 12). However, to achieve
the MES, a plant’s production scale should be at least two to three times larger than the industry
average. For example, average annual sales for all bread plants is $14 million while the MES
plant should have a sales size of $54 million. The majority of bakery plants is operated under the
MES level. According to the statistics, 94 percent of bread plants and 97 percent of cookie plants
operate under the MES level. This implies that consolidations and shake-outs are expected to
occur more frequently as more plants try to achieve MES in the bakery industry.
30
Table 12. Average U.S. Bakery Plant Size by Product and Estimated Minimum Efficient Scale
Bread Bun Roll Bagel Frozen Dough Pizza Crust
Employees 157 207 169 79 124 121
Sales (millions) 14 19 15 7 13 12
Average Plant Size
Flour Usage 175 234 193 109 134 136
(1,000 lbs/week)
No. of Plants 680 362 512 115 159 179
Employees 440 481 458 236 434 337
Estimated MES Sales (millions) 54 55 53 30 59 50
Flour Usage 387 410 403 333 328 306

(1,000 lbs/week)
31
No. Of Plants 87 63 74 13 18 21
Employees 608 656 638 289 561 589

Average Size of Plants
Operated at or Over Sales (millions) 76 75 74 41 76 84
MES
Flour Usage 423 441 438 389 385 457
(1,000 lbs/week)
No. of Plants 39 30 32 7 10 7
Average Size of Employees 130 167 137 65 95 102

Plants Operated Below
MES Sales (millions) 10 14 11 4 9 829
Flour Usage 160 216 177 91 118 123

(1,000 lbs/week)
No. of Plants 641 332 480 108 149 172

Table 12. (Continued)
Sweet Goods Croissant Donut Cake Cookie Cracker
Employees 112 83 173 135 149 399
Sales (millions) 10 6 14 12 15 45
Average Plant Size
Flour Usage 90 56 136 99 118 313
(1,000 lbs/week)
No. of Plants 287 70 126 312 359 69
Employees 626 158 818 804 758 706
Estimated MES Sales (millions) 69 22 84 89 91 91
Flour Usage 341 123 427 417 445 431

(1,000 lbs/week)
32
No. Of Plants 20 10 11 21 30 17
Employees 808 175 844 857 813 750

Average Size of Plants
Operated at or Over Sales (millions) 87 38 92 100 100 100
MES
Flour Usage 412 163 450 429 453 425
(1,000 lbs/week)
No. of Plants 13 2 8 7 8 5
Employees 79 80 127 119 134 371
Average Size of Sales (millions) 6 5 9 10 13 40

Plants Operated Below
MES Flour Usage 75 52 114 91 110 304
(1,000 lbs/week)
No. of Plants 274 68 118 305 351 64

4.7 Dynamic Changes in Industry
4.7.1 Acquisition and Merge
A significant trend in the baking industry over the last several years has been the
acceleration of merger and acquisition activities. Milling and Baking News recorded 18 separate
acquisition activities in 1995, 19 separate acquisition activities in 1996, and 12 separate
acquisition activities in the first 10 months of 1997. Table 13 provides a summary of the
acquisitions and mergers between 1995 and 1997. Many of the major firms such as Interstate
Bakeries Corp., Flowers Industries, Inc., and Earthgrains Co. have been actively participating in
the ongoing acquisition and consolidation of the baking industry during the past three years.
Bakers foresee more consolidation in the wholesale baking industry through merger and
acquisition activity.
Several reasons explain these merge and acquisition activities. First, acquisition has been
the best way for a baking firm to strengthen its presence in a market and to gain synergies through
consolidation of administration and product sourcing. Consolidation can also reduce industry
capacity or avoid adding capacity to a sector where excess capacity is a threat to the incumbents.
Examples for these acquisitions are Interstate Bakeries Corp.’s acquiring Continental Baking Co.
and CPC International’s acquiring Kraft Foods, Inc. in 1995; Inflo Holding’s acquiring Keebler
Co. in 1996, Interstate Bakeries Corp.’s acquiring San Francisco French Bread, and Lewis Bros.
Bakeries, Inc.’s acquiring the Butternut Bread Plant in 1997. Baking firms have realized that
buying an existing plant is cheaper than building a new one.
Second, acquisition provides opportunities for a baking firm to expand its geographical
market. Acquiring existing plants and facilities where the firm had no presence before will help a
firm to expand its business into this new area. Many baking firms have adopted this strategy to
expand their market share. For example, Earthgrains Co. acquired Coopersmith Inc. in 1997 and
Manhattan Bagel Co. acquired I. & J. Bagels, Inc. in 1995.
Third, small size bakeries usually have capital constraints, which limit their ability to make
major technical improvements necessary to increase productivity and develop new products.
Because many acquiring companies have substantial financial and marketing resources, they can
invest large amounts of capital to increase productivity, develop new products, and build brand
loyalty. For example, E. J. Noyce acquired J. J. Nissen Baking Co. in 1995.
Fourth, a bakery firm can increase product market accessability through acquiring product
distribution network and product brands. Through acquiring Kraft Foods, Inc. in 1995, CPC
International got one of the best nationwide direct store distribution systems in which to
distribute its products. Flowers Industries acquired Mrs. Smiths to enhance its frozen brand retail
sales through Mrs. Smiths’ national distribution network in 1996. Existing brand awareness is
also a reason for acquisition such as Pillsbury’s acquiring Pet Inc. and Interstate Bakeries’
acquiring San Francisco French Bread.
33
Table 13. Mergers and Acquisitions in the U.S. Baking Sector, 1995-1997
Buyer Acquired Firm Year No. of Trans. Products Marketing Comments
Interstate Bakeries Continental 1995 $520 Bread, roll, Nationwide The acquisition extends I.B.C’s presence and gains
Corp. Baking Co. million bun synergies through consolidation of administrative
functions and product sourcing.
Interstate Bakeries San Francisco 1997 Specialty California I.B.C. added three new labels to its bread brands. It
Corp. French Bread from bread strengthened I.B.C.’s presence in California.
Specialty Foods
Interstate Bakeries J. J. Nissen Baking 1997 Bread, cake, Oregon, Maine, It would increase Interstate’s presence in the New
Corp. Co. frozen dough Mass., Rhode Island England market and add brands to its product mix.
Earthgrains Co. and Earthgrains Co. 1996 Asset bread Texas, Virginia The asset exchange will allow both companies'
Interstate Bakeries and Interstate exchange operations to be more cost-effective and in a
Corp. Bakeries Corp. position for growth in the bakery markets.
Earthgrains Co. Heiner's Bakery, 1996 1 Plant and Bread, bun, West Virginia The acquisition fits Earthgrains’ strategy of
Inc. 100 roll building brands and increasing branded mix of
delivery products.
routes
Earthgrains Co. Coopersmith, Inc. 1997 Bread Southeast Region The acquisition gave Earthgrains its first plants in
Massachusetts, North and South Carolina.
34
Flowers Industries, Big Bear Stores, 1995 1 Plant Bread, bun, Ohio, West Virginia Flowers will supply the Big Bear supermarket
Inc Inc. roll chain.
Flowers Industries, Holsum Baking 1995 Arkansas
Inc Co.
Flowers Industries, Storck Baking Co. 1995 Bread, bun, Virginia, Ohio, Flowers will continue operating Storck and serve its
Inc and roll. Kentucky, customers.
Pennsylvania.
Flowers Industries, Pet, Inc. 1995 2 Plants Bun and Georgia Strengthens Flower Industry's presence in Georgia.
Inc. sweet snack
Flowers Industries, Mrs. Smiths of J. 1996 Frozen pies Nationwide Mrs. Smith's consumer franchise and national
Inc. M. Smucker Co. distribution network give Flowers the framework to
enhance its frozen branded retail presence.
Flowers Industries, Shipley Baking 1996 1 Plant Bread and Arkansas, It would allow both companies to strengthen and
Inc. Co. roll Oklahoma, Missouri expand their brand presence in the region.
Flowers and Invus Keebler Company 1996 8 Plants $487.5 Cookie and Nationwide Flowers and Invus Group formed a 50/50 joint
Group million cracker venture to acquire Keebler.

Flowers Industries, Allied Bakery 1997 Partial or full New York The alliance is not involved in the baking of
Inc. Products, Inc. baked bread products, it focuses on the freezing and shipping of
and roll partially or fully baked breads and rolls.
Nabisco, Inc. Salerno Division 1995 1 Plant Cookie and Illinois The acquisition is to increase the production
of Sunshine cracker capacity in that area.
Biscuits
CPC International Kraft Foods, Inc 1995 15 Plants $865 Bread, sweet Nationwide It will give CPC one of the best nationwide direct
Inc. million goods, store delivery systems. It will also strengthen the
muffin presence of CPC's consumer foods business.
Pillsbury Pet, Inc. 1995 $2.6 Frozen Missouri, Georgia, The acquisition provides Pillsbury with growing
billion waffle and Pennsylvania brands and customers.
pie crust
Keebler Company Sunshine Biscuits, 1996 Biscuit California, Georgia, Sunshine is strong on the coasts and Keebler is
Inc. Kansas, New Jersey strong in the Midwest, Southeast, and Southwest.
Tasty Baking Co. Dutch Mill Baking 1995 Donuts, cake, New Jersey, It supplements Tasty Baking's strategic plan to build
Co., Inc. cookie, New York its business through geographic expansion and new
muffins product development.
35
Tasty Baking Co. Emerald Snack 1996 1 Plant Snack Pennsylvania The acquisition is a continuation of the company's
Food Plant of strategy to increase its core business and expand
former Keebler geographically.
Big Apple Bagels Chesapeake Bagel 1996 151 Units $ 29 Bagel Eastern States The acquisition brings BAB into markets in the
Bakery million East with a superb product, strong brand name
recognition, and franchise system.
Big Apple Bagels, My Favorite 1997 Muffin and East Coast
Inc. Muffin Too, Inc. bagel
Manhattan Bagel I.&J. Bagels, Inc. 1995 1.5 million California The acquisition marks Manhattan Bagel's entry into
Co. shares of the California market.
stock
Manhattan Bagel Bay Area Bagels, 1995 8 Stores $158,000 Bagel California The acquisition broadens Manhattan Bagel's market
Co. Inc. in cash and reach to the western coast area.
73,000
stock share

Burns & Ricker Inc. Bagel Chip Co. 1995 Bagel New York Nabisco divestitures Bagel Chip Co. for focusing on
business where it is either a major player or has a
strong niche position.
Dawn Food Knaub's Cakes 1997 Frozen cake Pennsylvania It will increase Dawn's access to retail, in-store, and
Products, Inc. food service markets.
Dubilier & Co. CPC International 1997 Toast New York Increasing product capacity. Utilization of
Inc. management team and work force.
Edwards Baking Mother Butler Pies 1996 4 Plants Frozen pie California, Florida, Edwards becomes a supplier of Denny's. It will
Co. from Fagstar Illinois, Washington increase sales of Edwards by leveraging distribution
Companies, Inc. capabilities and new sales channels.
Einstein Bros. Noah's New York 1996 37 Stores $100 Bagel California, Noah's is the dominant bagel retailer on the West
Bagels, Inc. Bagels, Inc. million Washington Coast with a loyal customer base.
Schwebel Baking Kaufman's Ohio 1995 1 Plant Bun Ohio The acquisition provides Schwebel the access to
Co. Bun Plant serve the fast-food business.
Schwebel Baking Flowers Industries, 1997 Sales routes Ohio, Pennsylvania Schwebel will be the exclusive distributor of some
Co. Inc. of Flowers' products.
36
Lewis Bros. American Bread 1995 1 Plant Tennessee The plant will be consolidated into the existing
Bakeries, Inc. Co. Plant of plant at another location.
Coopersmith, Inc.
Lewis Bros. Butternut Bread 1997 1 Plant Bread Illinois To increase Lewis Bros.' presence in the Illinois and
Bakeries, Inc. Plant from I.B.C. Wisconsin area.
Kellogg Co. Mountain Top 1996 1 Plant Convenience Kentucky To supplement Kellogg's marketing and product
Baking Co. foods development work in convenience foods.
Kellogg Co. Lender's Bagels 1996 4 Plants $455 Bagels Connecticut, Illinois, The acquisition aimed to expand Kellogg's
from Kraft Foods million New York convenience foods business.
E. J. Noyce J. J. Nissen Baking 1995 Bread, cake, Oregon, To provide Nissen needed capital to upgrade its
Co. frozen dough Massachusetts production facilities and a platform for growth.
Foodbrands TNT Crust, Inc. 1995 2 Plants $33.4 Par-baked Wisconsin To broaden its product offerings and further expand
America, Inc. million pizza crust it into a growing niche market.
Four-S Baking Trademark from 1997 Bread Four-S Baking expects to increase its presence in
Interstate Bakeries Trademark the market with acquisition of the brand.

Frito-Lay, Inc. Eagle Snacks of 1996 4 Plants Snack North Carolina, The acquisition increases Frito-Lay's geographic
Anheuser-Busch Tennessee, coverage and production capacity.
California,
Pennsylvania
Grupo Industrial Pacific Pride 1996 1 Plant Bread, bun, California Marking Bimbo's first venture into bread baking in
Bimbo Bakeries roll the United States.
Hazelwood Farms Signature Breads 1997 Par-baked Massachusetts The acquisition will strengthen Hazelwood Farms'
Bakeries bread and presence in both in-store and food service baking
roll business.
Leon's Bakery, Inc. Best Brands, Inc. 1996 Sweet goods, Minnesota
mixes, frozen
dough
Maple Leaf Foods, Frozen Division of 1996 1 Plant Bread California The acquisition significantly expands the
Inc. Pioneer French company's U.S. specialty bread business.
Bakery, Inc.
37
Metz Baking Co. Cambell Taggart 1995 2 Plants Bread and Illinois Metz Baking aimed to enhance its presence in
Bun Illinois and Wisconsin.
Mountain View Gerard's French 1997 Colorado
Harvest Co-op Bakery
Mrs. Fields Cookies Original Cookie 1996 500 Cookie Nationwide The merger would result in more than 1,000
Co. Outlets company-owned and franchised stores in the U.S.
New York Bagel Lots A' Bagels 1996 $2.7 Bagel Colorado
Enterprises million
Onex Investment Edwards Baking 1995 Frozen Georgia, This is a series of actions of Onex Investment Corp.
Corp. Co. and Tripp desserts, pie, Illinois with the objective of creating a new U.S. food
Bakers Products cake, bread company over a period of several years.
United States Gai's Seattle 1997 3 Plants Oregon, The acquisition is aimed to better serve the
Bakery French Baking Co. Washington customers and compete more effectively against the
giants of the baking industry.
Van de Kamp's, The frozen 1996 Frozen pizza Tennessee
Inc. business of The
Quaker Oats Co.
Fifth, acquisition is also a choice for new firms who seek to enter the bakery market. Low
entry cost, existing distribution network, and established customer relationships associated with
acquisition will facilitate a firm’s entering the market and avoid adding capacity to reduce the
possible reaction of incumbents. Onex Investment Corp. and Maple Leaf Foods, Inc. used this
strategy to enter the U.S. bakery market.
4.7.2 Strategic Alliance
In addition to merger and acquisition activities, some other activities may have an even
greater influence on the structure of the bakery industry. These are the ventures grouped under
the strategic alliance. These partnership-forming activities mainly took place in route acquisition
and distribution alliance. A strategic alliance allows both partners to have a better focus on their
core business and cost saving while expanding their geographical market extent.
During 1996 and 1997, several baking firms formed strategic distribution alliances to
explore the efficiency of the supply chain. Uncle B’s Bakery and Heinz Bakery Products signed
an agreement in 1996 that Uncle B’s Bakery will supply frozen bagel dough to Heinz.
Earthgrains signed a five-year contract with Jitney-Jungle to provide its products to Jitney-Jungle
stores nationwide. Mother’s Cake & Cookie Co. expanded marketing of its products to 13
additional states through a long-term distribution agreement with The O’Boisie Corp. Mrs
Baird’s and CPC Baking reached an agreement under which Mrs Baird’s Bakeries would be the
exclusive distributor of the complete line of CPC Baking Business products in the Texas market.
Schwebel Baking Co. acquired the central Ohio sales routes of Flowers Industries, Inc. Schwebel
will operate the routes, which supply bakery products to customers in central Ohio and Pittsburgh
under the agreement. In addition, Schwebel will be the exclusive distributor of Flower’s snack
cake and pastries in the region (Milling and Baking News).
4.7.3 Entry and Exit
Entry and exit of firms have been recognized as two of the major determinants of market
structure. An examination of entry and exit as well as its post entry performance provides an
interesting understanding of the structural dynamics of the bakery industry (Tables 14 and 15).
From 1979 to 1990, 769 bakery plants exited and 1,487 plants entered this section, while
899 plants stayed. For those 899 plants who stayed , about 18 percent exited during 1990 to
1996. New entrants tend to have a relatively lower survival rate. For those 1,487 new entrants
during 1979 to 1990, about 30 percent of plants did not survive during 1990 to 1996.
From 1990 to 1996, 621 plants exited, and 642 bakery plants entered this section while
1,765 plants stayed during 1990 to 1996. Compared with the period from 1979 to 1990,
incumbents during 1990 to 1996 were of greater importance relative to entrants.
38
Table 14. Dynamic Changes in the U.S. Baking Industry, 1979 - 1996
Number of Number of
Plants Plants
1979 - 1990 1990 - 1996
Exit 769 621
Exist 899 1,765
Enter 1,487 642
Source: Bakery Production and Marketing: Red Book 1979, 1990, 1996
(Cahners Publishing Co.).
Table 15. Surviving Rate of New Entrants and Incumbents, 1979 - 1996
No. of Plants No. of Plants
Exit 1990-1996 Percent Exist Percent Total Plants
Exist 1979-1990 163 18 736 82 899
Enter 1979-1990 458 31 1,029 69 1,487
Source: Bakery Production and Marketing: Red Book 1979, 1990, 1996 (Cahners Publishing
Co.).
Dynamic changes of bakery plants are analyzed from the perspective of number of
products produced, sales size, and employment size for exiting plants, existing plants, and new
entrants. The first group is classified as exiting plants, which represent those plants exiting the
industry in a certain period. The second group is classified as existing plants, which refer to those
plants existing both at beginning and end of the study period. The third group is classified as
entering plants, which represent those plants entering the industry during a certain period.
There were 899 plants classified as existing plants during 1979 to 1990. The total plants
producing three products or less dropped from 680 to 611 while total plants producing four
products or more increased from 219 to 288. During 1990 to 1996, 1,765 plants were classified
as existing plants. The number of plants producing three products or less decreased from 1,078
to 1,038. The number of plants producing four products or more increased from 687 to 727. The
results showed some bakery plants increased the number of products produced over the time, but
the evidence is not strong enough to show the correlation of plant existence and number of
products it produced. However, about 45 percent of new entrants in the baking industry
produced four products or more (Table 16). This indicates many new entrants did use a product
diversifying strategy to enter the market.
39
Table 16. Number of Products Produced by Plant: Entry, Stay, and Exit
Products Produced
3 or Less 4 or More
Period Plants (%) (%) Total Plants
Exit 71 29 769
Plants exist in 1979 76 24 899
1979-1990
Plants exist in 1990 68 32 899
Enter 54 46 1,487
Exit 55 45 621
Plants exist in 1990 61 39 1,765
1990-1996
Plants exist in 1996 59 41 1,765
Enter 56 44 642
The statistics show that a large portion of plants exiting or entering the market are small in
employment size. However, the whole baking industry is also comprised of small bakery plants.
Larger plants, measured as employment size, have higher probability to survive over time. But
the ratio of number of exiting plants versus the number of existing plants with large employment
size is also high (Table 17). The results indicate that a plant’s employment size is not a
determining factor impacting entry and exit decisions. Other factors such as regional supply and
demand condition, market size, baking technology, and efficiency may be more important. For
those plants existing over a certain period, there is a tendency for a plant to increase its size. For
instance, 12 plants fell into the employment size of 250 to 500 in 1979. The number of plants
with this size increased to 112 in 1990 while small size plants classified as existing groups
decreased over the time. The same trend also occurred during 1990 to 1996, when the number of
plants with this size increased from 138 in 1990 to 161 in 1996.
The statistics show that most exit and entry behavior happened with plants with sales less
than $10 million, especially those with sales less than $5 million. Since most entering and existing
plants are small in both employment and sales, it suggests the bakery industry is a low- cost entry
market. Thus, one will continue to observe new firms entering this market. The surviving rate of
large plants is significantly higher than those small sales size plants. Over time, those plants that
survived over a certain period expanded their sales to a larger scale. Many plants increased their
sales from less than $10 million to more than $10 million. For those plants existing during 1979
to 1990, 72 plants had sales values ranging between $10 to $25 million in 1979. The number of
plants with this sales range increased to 134 in 1990 while the number of plants with sales less
than $10 million decreased. In 1996, the most significant increase was the number of those
existing plants with sales more than $25 million (Table 18). The results indicate that the bakery
market is going to become highly competitive quickly as more firms try to expand this market.
40
Table 17. Employment Size of Bakery Plant: Exit, Stay, and Enter
Number of Employees
0-50 50-250 250-500 500+ Total No.
Period Plants (%) (%) (%) (%) of Plants
Exit 36 38 1 5 757
Plant exist in 1979 27 65 1 8 891
1979-1990
Plant exist in 1990 26 52 13 10 891
Enter 65 30 4 2 1,477
Exit 58 34 4 4 618
Stay in 1990 48 40 8 5 1,750
1990-1996
Stay in 1996 44 41 9 6 1,750
Enter 66 27 3 4 637
Table 18. Plant Sales Size: Entry, Stay, and Exit

Sales (million $)
0-1 1-5 5-10 10-25 25+ Total No.
Period Plants (%) (%) (%) (%) (%) of Plants
Exit 27 40 25 4 3 726
Plants exist in 1979 14 40 31 10 6 740
1979-1990
Plants exist in 1990 13 34 22 18 13 740
Enter 39 42 8 6 4 1,137
Exit 35 43 10 5 6 474
Plants exist in 1990 27 38 14 13 8 1,403
1990-1996
Plants exist in 1996 26 34 13 14 13 1,403
Enter 51 30 7 7 6 490
41
5. CONCLUSIONS
Demand for bakery products has been increasing over the past several years. The baking
industry itself is also going through dynamic changes. The purpose of this study was to analyze
the bakery product market and the dynamic structure of the baking industry.
Per capita consumption of most bakery products has shown a steady upward growth
trend. However, the increase in per capita consumption is not distributed evenly among product
segments. Variety breads, bagels, and frozen bakery products are among the fastest growing
categories. White pan bread, cake-type doughnuts, and pies are losing their market share to other
bakery products. Factors affecting consumers’ demand include children’s influence, convenience,
diet and health concerns, and a growing ethnic market.
The geographic scope of a single baking plant is limited. As a result of product

perishability, multi-plant firms at different geographic locations have an advantage over a single
large concentrated plant. This explains why most baking plants are relatively small and scattered
around the population center. The baking industry is fragmented, with the majority of baking
plants operating under the MES level. This implies that consolidations and shake-outs are
expected to happen more frequently as more plants try to achieve MES to improve their
production efficiency.
A significant trend in the baking industry has been the acceleration of merger and
acquisition activities. Acquisitions offer a firm the opportunity to strengthen its market presence,
to expand geographically, and to increase productivity and market accessability. The analysis
indicates that product structure, sales size, and employment size affect a bakery plant’s ability to
survive over time. The results show that large plants have a higher survival rate.
42
REFERENCES
Agronomic Research. “Identifying and Defining Key Quality Criteria for Spring Wheat Flour in
the Domestic Market.” Agronomic Research, St. Paul, MN, 1995.
Bureau of the Census. 1993 Annual Survey of Manufacturers: Statistics for Industry Groups
and Industries. U.S. Department of Commerce, M93(AS)-1, Washington, DC, 1993.
Bureau of the Census. 1992 Census of Manufacturers: Grain Mill Products. U.S. Department
of Commerce, MC92-I-20D, Washington, DC, 1992.
Bureau of the Census. 1992 Census of Manufactures: Bakery Products. U.S. Department of
Commerce, MC92-I-20E, Washington, DC., 1992.
Bureau of the Census. Census of Transportation, Communications, and Utilities, 1993

Commodity Flow Survey. U.S. Department of Commerce, TC92-CF-52, Washington,
DC, 1993.
Business Trend Analysts. The Market for Bakery Products. Business Trend Analysts Inc.,
Commack, NY, 1996.
Cahners Publishing Co. Bakery Production and Marketing, various issues, Cahners
Publishing Co., Des Plaines, IL, 1992-1995.
Cahners Publishing Co. Bakery Production and Marketing: Red Book 79. Cahners
Publishing Co., Des Plaines, IL, 1979.
Comanor, W. S., and T. A. Wilson. “Advertising Market Structure and Performance.” The
Review of Economics and Statistics, 49(1967): 423-440.
Economic Research Service. Wheat Classes: Marketing Year Supply and Disappearance 1976-
1997. U.S. Department of Agriculture, Washington, DC, 1997.
Environmental Systems Research Institute. ArcView GIS Database. Environmental Systems

Research Institute, Redlands, CA, 1996.
43
Faridi, H., and Jon M. Faubion. Wheat End Uses Around the World. American Association of
Cereal Chemists, St. Paul, MN, 1995.
Harwood, J. L., M. N., Leath, and W. G. Heid, Jr. The U.S. Milling and Baking Industries.
Economic Research Service, U.S. Department of Agriculture. Report No. 611,
Washington, DC, 1989.
Huff, David. L., and Lawrence A. Sherr. “Measure for Determining Differential Growth Rates of
Markets.” Journal of Marketing Research, Vol. IV, pp. 391-39, November 1967.
North Dakota Wheat Commission. “Baking Industry Facts.” Dakota Gold, Volume 14, No. 1.
Bismarck, 1997.
Onnen, J., and W. Wilson. Value-added Wheat Product Trade. Ag. Econ. Rpt. # . Department
of Agricultural Economics, North Dakota State University, Fargo, forthcoming.
Packaged Facts. The Bread Market. Packaged Facts, New York, 1996.
Sosland Publishing Staffs. Baking/Snack Directory & Buyer’s Guide 1990. Sosland Publishing
Company, Kansas City, MO, 1990.
Sosland Publishing Staffs. Baking/Snack Directory & Buyer’s Guide 1996. Sosland Publishing
Company, Kansas City, MO, 1996.
Sosland Publishing Staffs. Milling and Baking News, various issues, Sosland Publishing
Company, Kansas City, MO, 1994-1997.
44

This Document Is Discoverable and Free To Researchers Across The Globe Due To The Work of Agecon Search

Uploaded by

Copyright:

Available Formats

This Document Is Discoverable and Free To Researchers Across The Globe Due To The Work of Agecon Search

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

This Document Is Discoverable and Free To Researchers Across The Globe Due To The Work of Agecon Search

Uploaded by

Copyright:

Available Formats

The World’s Largest Open Access Agricultural & Applied Economics Digital Library

This document is discoverable and free to researchers across the

Help ensure our sustainability.

VALUE-ADDED WHEAT PRODUCTS:

Department of Agricultural Economics ! Agricultural Experiment Station

Information on other titles in this series may be obtained from: Department of

LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

3. PRODUCT MARKET ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

4.3 Competitive Structure and Major Players by Segment . . . . . . . . . . . . . . . . . . . . . . 21

1 Categories of U.S. Bakery Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

3 HRS Flour Usage in Producing Bakery Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4 Projected Per Capita Consumption of Bakery Products in the

5 Economic Indicators for the U.S. Bakery Industry, 1992 - 1995 . . . . . . . . . . . . . . . . . . 19

6 Bakery Sales by Segment in the United States, 1991 - 1995 . . . . . . . . . . . . . . . . . . . . . 20

7 Competitive Structure by Product Segment in the United States, 1995 . . . . . . . . . . . . . 22

8 Average Shipping Distance and Modes of Transportation for Bakery Products

9 Geographic Distribution of Bakery Plants in the United States, 1996 . . . . . . . . . . . . . . 27

10 Distribution of Bakery Plants by Number of Products Produced, 1979 - 1996 . . . . . . . 28

11 Most Common Size of Bakery Plant in the United States, 1996 . . . . . . . . . . . . . . . . . . 28

12 Average U.S. Bakery Plant Size by Product and Estimated

13 Mergers and Acquisitions in the U.S. Baking Sector, 1995 - 1997 . . . . . . . . . . . . . . . . 33

14 Dynamic Changes in the U.S. Baking Industry, 1979- 1996 . . . . . . . . . . . . . . . . . . . . . 38

15 Surviving Rate of New Entrants and Incumbents, 1979 - 1996 . . . . . . . . . . . . . . . . . . . 38

16 Number of Products Produced by Plant: Entry, Stay, and Exit . . . . . . . . . . . . . . . . . . . 39

17 Employment Size of Bakery Plant: Exit, Stay, and Enter . . . . . . . . . . . . . . . . . . . . . . . 40

18 Plant Sales Size: Entry, Stay, and Exit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

1 Domestic Consumption of Wheat by Type in the United States, 1976 - 1997 . . . . . . . . . 4

2 Per Capita Consumption in the United States, 1980 - 1996 . . . . . . . . . . . . . . . . . . . . . . . 7

3 Consumption of Wheat Flour by Major User Group in the United States . . . . . . . . . . . . 7

4 Composition of Per Capita Consumption of Bakery Products in

5 Percent Change and Percent Net Shift of Per Capita Consumption

6 Percent Change and Percent Net Shift of Per Capita Consumption

7 Percent Change and Net Percent Shift of Per Capita Consumption

8 Geographic Distribution of Bakery Plants in the United States, 1996 . . . . . . . . . . . . . . 25

Key words: bakery, consumption, industry, competitive structure.

Due to perishability of products, the geographic location of processing plants is generally

Jianqiang Lou and William W. Wilson*

3. PRODUCT MARKET ANALYSIS

3.1 Data Sources

3.2 Product Categories

3.3 Product Composition of Wheat by Type

HRS High Gluten 14.5%+ Bagels, thin pizza crust,

3.4 Market Size and Growth Rate

3.4.1 Flour Consumption

Figure 2. Per Capita Consumption in the United States, 1980 - 1996

All Bakery Products

Product 1993 1994 1995 1996 1997 1998 1999 2000

Rolls 23.91 24.33 24.70 25.08 25.35 25.63 25.91 26.20

Pies 1.64 1.64 1.64 1.63 1.63 1.63 1.63 1.63

Cake-type 0.92 0.86 0.82 0.80 0.80 0.79 0.79 0.78

Cookies 12.29 12.56 12.88 13.16 13.37 13.53 13.69 13.85

Crackers 8.23 8.39 8.61 8.85 9.01 8.31 7.58 6.85

Other Bakery Products

A number of factors have contributed to the growth and composition of consumption in

3.5.3 Diet and Health

An increasing percentage of Americans are concerned about reducing the intake of

3.5.4 Ethnic Market

4.1 Trends in the Baking Industry

Manufacturers classified in industry 2051 are made up of establishments primarily