BRAZILIAN BAKING SECTOR

Context and Challenges for

Wheat Chain

BAKING AND CONFECTIONARY SECTOR

Modern Consumer•People want convenience

•Childless couples•Women playing bigger role in work market•People want trouble free meal reparation•More and more meals eaten out of home•People living alone•Increase in life expectancy

BAKING AND CONFECTIONARY SECTOR

MODERN CONSUMER’S NEEDS

- MOBILITY: need for faster services, in the right place;

- QUALITY: customer is not prepared to sacrifice quality, companies

are looking for ways to add quality to products without charging

more;

- FRESHNESS AND NATURE: fresh products, prepared in front of

customer;

- COMMITMENT: health, quality of life, preserving nature.

THE BAKING SECTOR IN BRAZIL

Source: ABIP/ITPC 2013

In 2012:

� Sector revenues reached R$ 70.29 billion

� Growth of 11.6%

R$ 34.98 bi

R$ 39.61 bi

R$ 43.48 bi

R$ 49.52 bi

R$ 56.3 bi

R$ 62.99 bi

R$ 70.29 bi

6.9%

13.3%

11%

12.6%

13.7%

11.9%11.6%

0

2

4

6

8

10

12

14

16

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012

Faturamento embilhões R$

Crescimento em %

Revenues in billions of R$

Growth in %

Source:

Increase in Distribution

Channels

More demandingconsumers

IncreasedCompetition

Oscillation in raw material prices

Specializedlabor

Reduction in Production Costs

Increase in Services

Loss ofProfitability

NR 12Sodium Reduction

Taxes

BAKINGAND

CONFECTION-ARY SECTOR

Current pressures on Baking and Confectionary Sector

BAKING SECTOR IN BRAZIL

BAKING SECTOR IN BRAZIL

Pre-mix and additives plants

Inputs

Transformation Industry

Manufacture/Bakeries

Consumer Market

Wheat43%

Others19.8%

Yeast6%

Eggs5.2%

Fats5%

CassavaDerivatives

3%

IndustrialBakeries

ArtisanBakeries

SupermarketBakeries

ServicesConvenience, breakfast, snacks,

lunch and dinner

ProductsBreads, cakes, biscuits, pies,groceries, sandwiches, etc.

*Chain adapted from ITPC/Propan

2007.Sources: Interviews/ Carlos Cogo Consultoria Agroeconômica in John Deere Brasil / Portal Agrolink

BAKING PRODUCTION CHAIN

BAKING SECTOR IN BRAZIL

FRESH(SHORT LIFE)

NON FRESH(LONG LIFE)

� Long product life.

� Mass production with economies of

scale.

� Greater geographical range.

� Sales mainly business to business

(B2B).

� Short product life (1 day)

� End-to-end production.

� Scale economies less important.

� Limited geographical

distribution radius (1 hour).

Wholesale RetailNon artisan

(preservatives)Artisan(frozen)

BAKING SECTOR IN BRAZIL

XFRESH

(SHORT LIFE)NON FRESH(LONG LIFE)

More fragmented

business for micro, small

and midsize companies

Business

concentrated in big

companies

BAKING SECTOR IN BRAZIL

� Artisan bakeries: production of

bakery and confectionary products

as core business, direct sales to

consumer with limited scale.

� Industrial bakeries: large scale

production of bakery products, not

serving end consumer directly. Use of

product freezing and distribution

systems at other points of sale, such as

supermarkets and artisan bakeries.

COMPANY PROFILES

BAKING SECTOR IN BRAZIL

� Supermarket bakeries: it is not the

main business within the supermarkets,

but consists of production and sale of

bakery products.

� Production center: manufacture of

products at different stages, which are sent

to points of sale– POS. The products made at

these centers reach the POS ready or semi

ready for consumption; in the latter case, the

product is finalized for sale at the POS.

COMPANY PROFILES

CHALLENGES FOR BRAZILIAN BAKING INDUSTRY

�Labor �Competition

SITUATION BY REGION

� Intense presence of frozen bread

� Supermarkets have great influence in

region

SOUTHERN REGION

SITUATION BY REGION

� Food Service

� Delicatessens

� Incorporation of services

SOUTHEASTERN REGION

SITUATION BY REGION

� Lower incidence of frozen

breads

� Large stores in state capitals, in

contrast with smaller ones in

other towns

NORTHEASTERN REGION

SITUATION BY REGION

� Small presence of

industrialized and frozen breads

� Few supermarkets invest in

bakeries

� Larger stores in state capitals;

in other areas, smaller

companies with limited variety

of products and services

NORTHERN REGION

SITUATION BY REGION

� Small presence of industrialized and

frozen breads

� Few supermarkets invest in

bakeries

� Larger stores in state capitals; in

other areas, smaller companies with

limited variety of products and services

CENTRAL-WEST REGION

FRENCH ROLL STANDARD

� The formulation of the technical

standard “Bakery – French bread type –

Guidelines for quality assessment and

classification” helps to increase the

competitiveness of French bread and

establish a quality standard for the

product.

� A committee was created within the

ABNT Special Studies Commission (CEE

-160) comprising manufacturers, bakers,

teaching and research institutions.

FRENCH BREAD STANDARD

ASSESSMENT GREATER VITÓRIA AREA

0.00% 3.33%

30.00%

43.33%

23.33%Excelente

Muito Bom

Bom

Regular

Ruim

ExcellentVery GoodGoodFairBad

REPERCUSSION OF CHANGES IN BAKING INDUSTRY ON WHEAT CHAIN

� Vendor specialization by sales channel

� The variety of breads will increasingly require different raw

material profiles

� The wheat chain should be attentive to each business profile, for

example, the large bakeries are more concerned about taxes.

� Increase attention to flour quality and stratify offerings:

• Flour for artisan bread

• Flour for frozen bread

• Flour for savory snacks/products

• Flour for functional breads, among others

CHALLENGES TO GENERATING BUSINESS

� Activities should incorporate two dimensions: quality and

convenience / ease of access to product (flour) to increase

consumption by bakeries.

Dimension 1

Quality

Dimension 2

Convenience

French bread standardNew technologies could generate convenience

Consulting and training initiatives

Frozen bread is now irreversible and will increase access to bread and generate new applications

Adding services

STRATEGIC ANALYSIS

- Surveys of regions, clusters and companies that are global references.

- Interviews with companies and institutions in advanced markets:

Companies and institutions in

São Paulo

Companies in RJCompanies and institutions inSan Francisco

Companies in Los Angeles

Sources: Cluster Consulting

STRATEGIC ANALYSIS

- Visits to advanced markets: California, USA

- In the USA, non-fresh bread predominates, but there are cities like

San Francisco, California, where fresh bread predominates:

95% non-freshbread

United States(general)

San Francisco Bay area(California)

5% fresh bread

95% fresh bread

5% non-freshbread

Sources: Cluster Consulting

MOST FEASIBLE STRATEGIC OPTIONS

Bakery andmeals

Specializedbakery

Boutique bakery

Bakery-snackbar

Bakery-cafe Boutique bakery-cafe

Bakery andgourmet

meals

Bakery andChef brand

meals

Traditionalbakery

-

-

Service+

Quality

+Regular Gourmet Gastronomy

Bread

Bread+ cafe orsnack bar

Bread+

Restaurant

KEY SUCCESS FACTORS

Bakery andmeals

Specializedbakery

Boutique bakery

Bakery-snackbar

Bakery-cafe Boutique bakery-cafe

Bakery andgourmet meals

Bakery and Chef brand meals

Traditionalbakery

-

-

Service+

Quality

+Regular Gourmet Gastronomy

Bread

Bread+ cafe orsnack bar

Bread+

Restaurant

-Quality -Product mix: breads, foodservice and fresh products- Productivity in terms of volume- Efficient service- Marketing

KEY SUCCESS FACTORS

Bakery andmeals

Specializedbakery

Boutique bakery

Bakery-snackbar

Bakery-cafe Boutique bakery-cafe

Bakery andgourmet

meals

Bakery andChef brand

meals

Traditionalbakery

-

-

Service

+

Quality

+Regular Gourmet Gastronomy

Bread

Bread

+ cafe or

snack bar

Bread

+

Restaurant

-Quality of bread-Identity of space-Product offerings for consumption moments-Product mix: Special breads, ultra fresh foodservice and complementary gourmet products-Specialized complementary production units-Specialized service- Specialized marketing

FUTURE VISION

-

-

Service

+

Quality +

“Bakeries as a national benchmark in fresh, quality baking and foodservice”

Future strategies for bakeries

Current strategyof majority

With further opportunities in the fresh wholesale segment.

Head Office

Telephone: +55 (31) 2101.9999

Rua Espírito Santo, 1204 – 10º andar - Centro

Belo Horizonte, MG - Brasil

CEP 30160-031

www.marciorodrigues.com.br /

www.propan.com.br

São Paulo

Telephone: +55 (11) 3107-8594 /

3106-1208

Rua Maria Paula, 54 - 9º andar-

Bela Vista

São Paulo, SP – Brasil

Brasília

Telephone: +55 (61) 3326-3282

SHN, Qd02, Bloco H, nº 30, Sobreloja,

Sl, 55, Mix Metropolitan Flat

Brasília, DF – Brasil

Porto Alegre

Telephone: +55 (51) 3084-5885

Rua Caldas Júnior, 20, Sala 33, Centro

Porto Alegre, RS – Brasil

Espírito Santo

Telephone: +55 (27) 3325.3754

Rua Cel José Martins de Figueiredo,

965 – 1º andar – Tabuazeiro

Vitória, ES - Brasil