THOMASVILLE, GA. — Flowers Foods Inc. stands “very well-prepared” amid a consumer migration away from traditional white and wheat loaf bread products, said A. Ryals McMullian, chairman and chief executive officer.

“The center-store bread category as measured in tracked channels has been pressured,” McMullian said in reporting fiscal 2024 year-end results. “Consumers have been gravitating more to the store perimeter as they look for restaurant-like experiences and what they consider healthier options.”

In the fiscal 2024 fourth quarter, dollar sales for Flowers’ fresh packaged bread fell 1.6% year over year after gains of 4.3% in the first, 1.9% in the second and 0.5% in the third quarters, resulting in a full-year uptick of approximately 1.3%, based on Circana retail sales data. Unit sales also dipped in the fourth quarter, down 1.3%, but followed increases of 0.2%, 1.4% and 0.7% respectively in the first three quarters, with volume finishing the year up about 0.3%.

Promotional pricing affected dollar sales totals, as did some stock-keeping unit rationalization and “some seasonal noise” in the fourth quarter, a period that McMullian described as “typically fairly weak for sandwich bread.”

“Nonetheless, we did still see very, very strong growth in some of our breakfast items, sandwich buns and rolls,” he said in a Feb. 7 analyst call.

However, the CEO noted a definite change in consumer bread preferences beyond the issue of price.

“It’s that consumer shift away from soft variety and white breads, which I think we’re very well-prepared for,” McMullian told analysts. “Soft variety and white bread were weak. I’m talking in terms of the whole year now, not just the fourth quarter. However, the investments that we’ve made in innovation around keto, gluten-free and organics, and our sandwich bun and roll business, particularly under the national Wonder label, were more than enough to offset that. So if you take the cake piece out of branded retail, we were positive in units and dollars for the year.”

Adjusting to consumer trends

Flowers said its bread dollar share slipped to 16% in the fourth quarter after hovering around 16.9% through the previous three quarters. Still, the Dave’s Killer Bread, Wonder and Canyon Bakehouse brands all gained 10 basis points in unit share for the quarter and grew their tracked channel volumes by 2.9%, 0.5% and 17.8%, respectively, McMullian said.

“I think that it’s more of a secular shift away from those (traditional bread) categories,” he said in the call. “We’ve talked for several years now about the shift to more differentiated, premium items. Some of that is coming to us in the terms of (Nature’s Own) Perfectly Crafted and Dave’s Killer Bread. Other parts of it are going to the perimeter of the store, other parts are going to tortillas and flatbreads. So consumers are looking for something different.

“Yes, there’s still value consumers that buy private label or Wonder or Nature’s Own Butterbread. But there’s definitely been a shift in tastes and preferences away from those mainline items. We’ve been ahead of this, and we’re meeting that new consumer demand and so far offsetting the softness in those traditional categories.”

Nature’s Own provides a further illustration, McMullian noted. Fourth-quarter tracked channel volume for the brand — focused on traditional loaf bread, the market segment most impacted by the current consumer environment — was down 1.6% yet outpaced the overall category, he said. At the same time, the Nature’s Own Perfectly Crafted premium line saw unit sales rise 8.5%.

“That’s a great example of where the market is shifting, if you think about white breads and what we’ve done with Perfectly Crafted,” he said. “While a traditional loaf under Nature’s Own, Perfectly Crafted was up 8.5% in units in the fourth quarter, which is typically weak. So that’s one example. We have a white bread under Dave’s as well. So that’s giving the consumer a place to go that’s more premium and more differentiated than those mainline items.”

Are GLP-1s a factor?

In his fiscal 2024 overview before the analyst call, McMullian mentioned GLP-1 weight-loss drugs as a potential factor behind weakness in the bread category, along with a difficult economic climate and healthier eating trends.

“The impact of GLP-1s on this shift is unclear,” he said. “Research seems to show that consumers who have adopted GLP-1s purchase less food and shift more of their purchases to nutrient-dense items located in the store perimeter. However, that effect seems to wane over time and, for consumers taking GLP-1s specifically for weight loss, research shows the initial impact on purchases reverses and ultimately results in consumers spending even more on center-store items than prior to adoption.”

Responding to an analyst question in the call, McMullian said of GLP-1s that “everybody’s still trying to figure out what the impact is, what the magnitude of the impact is, what the magnitude will be going forward.”

“We’re scanning all the research, like I’m sure many of you are, and some of it is conflicting,” he said. “It’s hard to get a firm handle on it, but we do want to be cognizant of it.

“But what I would say is that, if GLP-1s do become a major factor and affect overall food consumption, we think that we’re very well-positioned for that.”

The rise of GLP-1s parallels the growing interest in healthy eating, McMullian said, citing the Make America Healthy Again movement and the focus on cleaner food labels. He noted Flowers’ cultivation of brands like Nature’s Own (no artificial preservatives, colors or flavors) and acquisitions like Dave’s Killer Bread (organic bread products and now snacks), Canyon Bakehouse (gluten-free bread products) and, most recently, Simple Mills (better-for-you crackers, cookies, snack bars and baking mixes).