Purity adjusting to aggressive rivalry
BREAD MAKER Consolidated Bakeries, which trades as Purity Bakery, racked up $12.49 million in losses last year, despite a six per cent gain in revenues. It represented a near 200 per cent decline in earnings for the company that made a profit of $12.96 million in 2018. The results were bad but not unexpected, said Purity Bakery CEO Anthony Chang, who told the Financial Gleaner that the company had been going through a transformation, one that saw a realignment of its product portfolio to make the producer of Purity and Miss Birdie baked goods less reliant on bread as its staple. One bright spot for the company, which produces breads, biscuits and pastries, is that its annual sales hit $1 billion for the first time, up from $960 million the previous year. “We realised three years ago that a continued over-reliance on the traditional products to bring in revenue would bring down the company. We had to change tack,” Chang told the Financial Gleaner.
Found the sweet spot
The fact that the company made gains in revenue, he noted, was an indication that the strategy is working; but it also means the company has had to be beating back rivals to safeguard the gains in market share. “These products that are doing well brought a response from our competitors, but we’ve withstood that and so far, so good. We are finding a space that we can hold on to and defend. We can’t hold on and defend in the traditional space, but now we think we’ve found the sweet spot,” Chang said. The company has introduced products such as rock cakes, cinnamon twists, raisin bread, as well as a gluten-free line of products under the Miss Birdie brand. Four years ago, Purity recorded an unusually high capex of $82 million, and in the years since then has invested another $142 million in the business. However, Chang would not say the overall cost of the transformation programme, nor was he forthcoming on what more he plans to do – a reluctance that was due in part to caution about not revealing too much to the company’s rivals. “The situation is very dynamic in that we make a move and the competition counters, then we have to adjust. Purity was never that sort of company that operated competitively, but this has become the new reality,” he said. The changes implemented so far have seen new hires in marketing and production, revamped production processes, and some redundancies. Purity also increased its distribution fleet, buying new trucks and replacing old ones, and has taken on new delivery contractors. Operational expenses, which climbed by $45 million last year, was the reason for the $12-million loss, but Chang says Purity is convinced it is on the right track despite its reduced bottom line. “That change process in itself will cause bumps in the road, reflected in our P&L and how you manage the balance sheet. It is a very delicate balance and we have to be careful,” he said. The bakery, formed by the Chang family in 1957 and listed on the stock market at the end of 2012, has adopted a more aggressive stance on marketing and product promotion. Its sales tactics include pop-up markets, social media advertising using influencers such as Olympian Shelly-Ann Fraser-Pryce, and going after a greater share of shelf space at outlets where the company appears. “We want to be in a space where we can compete, and that is the back end, where we have the factory, and the front end in the marketplace,” Chang said. Purity’s main rivals include National Bakery, Yummy and Honey Bun. National is seen as the market leader, but the respective market share held by the various bakeries is unknown. Chang says what Purity has opted for is deeper rather than wider market penetration. “We don’t have the luxury of a big islandwide footprint, but what we do is to be right up there with the competition in the locations that we are present with our products,” he said. The company also exports buns to the United States, Canada and the United Kingdom, but those markets were disrupted during the pandemic. Its main export used to be bread, Chang said, but that line has now been overtaken by biscuits and snacks among foreign customers. As for the broader impact on the business from COVID-19, those will show up in the company’s March and June quarter earnings reports, when they are released. So far, Purity has said the measures taken by the Government has impacted its production schedules, but has given no indication of the effect on sales.