Editor Dan Malovany sizes up the market and what did he find? When it comes to being the best, size often doesn’t have anything to do with it.

Sizing Up a Market

A couple of years ago, a baker told me, “You know, we’re not the biggest baking company in the industry.”

“Well, that’s a good thing,” I replied, “because if you were, you’d be in Chapter 11.”

Ouch! All right, it wasn’t the most politically correct thing to say, but size often doesn’t have anything to do with whether something is good, better or best.

Or, at least, that’s how the saying goes.

Charter Baking Co. is not the biggest in the baking industry, but the Boulder, Colo.-based operation has been named our 2008 Wholesale Baker of the Year. Yes, the company is on par with trends, but it also epitomizes the dynamics of the industry in many ways.

First, the company is fairly new, formed only about three years ago when Charterhouse Group, a New York private equity firm, acquired four bakeries to create what has become one of the nation’s leading producers of organic and natural baked goods.

Investing in the baking industry is not new for companies like Charterhouse Group, which has a diverse portfolio including information management systems to a business that produces all-natural supplements for relieving the symptoms of menopause.

In fact, during the past few months, other private equity firms have ventured into the baking industry. For instance Gatehouse Holdings purchased Amalfitano’s Bakery of New Castle, Del., and Arbor Investments bought Gold Standard Baking of Chicago. Despite rising commodity costs and high fuel and energy prices, the industry still is attracting outside interest. As the saying goes, people have to eat in good times and in bad.

In Charterhouse Group’s case, the firm acquired bakeries that were all founded around the late 1970s by entrepreneurs who had a passion for producing natural baked goods. Three of them-Vermont Bread Co., Adams Baking Corp. and Superior Bakery-operate direct-store-delivery routes in the mid-Atlantic and Northeast, which are home to some of the strongest markets for organic and natural products. Those markets stretch from Vermont and Boston through New York and New Jersey to Philadelphia.

Its fourth acquisition, Rudi’s Organic Bakery, is located in the Denver area, which also is one of the nation’s top regions for sales of organic foods. Today, Rudi’s Organic Bakery distributes freeze-thaw products to natural food chains in all 50 states. As a result, like many growing businesses in the industry, Charter Baking is a combination of regional DSD operations along with targeted, national distribution with sales that are growing at a double-digit rate.

As other baking companies jump on the all-natural bandwagon and dabble in the organic segment, Charter Baking is leveraging its authentic brands, including Rudi’s Organic, Vermont Bread, Matthew’s All Natural and The Baker, which have established credibility with consumers who shop in these segments over the years.

Rudi’s Organic Bakery, for instance, is rolling out organic versions of mainstream products geared toward moms who buy organic products for themselves and their families. The company’s line includes not only breads and rolls, but also English muffins, bagels and granola. Once a niche, organic products have emerged as a segment of the baking industry, notes John Foley, president and CEO of Charter Baking.

To test the upside potential for organic baked goods, Charter Baking has launched a multimedia campaign in its core Denver market to educate consumers about the difference between Rudi’s Organic and conventional breads that tout themselves as natural. The campaign, titled “What’s in Your Bread May Surprise You,” takes aim at other leading breads and what’s inside them.
“Rudi’s is different,” says Doug Radi, Charter Baking’s vice president of marketing. “We use pure and simple ingredients. We never use high-fructose corn syrup. We don’t use ingredients that you cannot pronounce.”

By delineating the difference between organic and conventional baked goods, Radi says, the company hopes to build a “gateway category” like organic milk, meat and vegetables and build the Rudi’s Organic brand much in the way the Horizon Organic milk brand was established in the late ‘90s.

To some, the baking industry may seem like a traditional market that is often slow to change. However, companies like Charter Baking prove that the baking industry constantly is reinventing itself, if only in a small way.

Yes, as the saying goes, the biggest doesn’t always mean it’s the best.

 Dan Malovany, editor