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Monday 20.08.2018 | Name days: Bernhards, Boriss

Latvian bakery Hanzas Maiznīca to sell bread to US army

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The United States (US) army representatives visited us and we are about to close a supply agreement as the potential bread supplier, in case they need to place an order, the bakery AS Hanzas maiznīca Marketing and Sales Director Edijs Vegners told the business news portal BNN.

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AS Hanzas maiznīca Marketing and Sales Director Edijs Vegners

At the same time he stresses sales campaigns goods is a headache for producers, because sales of goods bought through such best offers are surging due to people choosing the cheapest bread. Best offers have turned from a tool to boost sales into an ordinary practice. If you do not offer any sales campaigns, customers are not even considering your offer. At the same time he denies there are any cartels among bread producers and highlights the tough competition in the industry.

Hanzas maiznīca is said to be the market leader since mid-1990s. How do you manage to maintain this position, given the changing market situation?

The problem of producers in the bread market is that the market still keeps dropping, for many years already. The overall level of bread consumption has decreased considerably. Crisis added to it as well. We hoped people would return to such a basic product as bread after the fat years were over. However, the consumption of it is not big enough to boost the market upward. Bakeries Hanzas maiznīca, Fazer maiznīca/Druva and Latvijas maiznieks (former – Dinella) are the three leading market players. However, succession determined this, as it cannot be achieved in one day’s time. Merger of bakeries Baltmaiznieks, Abra and Rēzeknes maiznieks gave way to the current Hanzas maiznīca in mid-1990s. These were roots steaming from Soviet times and they were continued successfully. Hanzas maiznīca’s total market share (according to Nielsen data) makes up more than 30% of bread consumption in the modern retail, excluding schools, hospitals and prisons. Quality, innovations and active work is the key.

What is the point of offering 45 types of bread, if the majority of people switches to cheaper bread?

You are right, the crisis has introduced big changes. People no longer pamper themselves with three to four types of bread. Now they mostly focus only on white bread and rye bread. These 45 kinds of bread include both full loaves of bread and only halves of it. It is common knowledge smaller packages cost more per kilogram, which is not profitable from the perspective of consumers. This option is most suitable for persons living alone, because they might not manage to consume the whole loaf by the time it expires. 0.5kg and 0.8kg packages are gaining popularity. Costumers should turn more attention not the price of a unit, but the price per kilogram.

Is that true you will sell bread to US army?

We have some small partners in the United States and Great Britain, however domestic market is our key focus. We are also exchanging certain amount of production with the other two Baltic states – only within our group. We could supply US army with frozen bread products or pastry, because it would be very complicated to ship fresh bread. US army representatives have visited us and we are about to close a supply agreement as the potnetial bread supplier, in case they need to place an order in a zero hour – to load bread in Riga as a transhipment point of a military mission.

What is the standpoint of the shareholders? Is is that the profit leaves the state or the Latvian market is maintained?

Vaasan Oy group operating in Finland, Sweden, Norway and Denmark has 160 years experience. It owns a bakery in each of the Baltic states – UAB Vilniaus Duona in Lithuania and AS Leibur in Estonia. They are good at managing the market, so they want to control the Baltic bread business as well. Vaasan Oy owns Hanzas maiznīca’s block of shares, while the rest is owned by M. Investīcijas, which is a Latvian company. So, basically, we are a joint venture. Part of the dividends stay in Latvia, while the most of profit is re-invested in development.

What catastrophes do you see in the Latvian economy?

We have been scolded enough for as if too high bread prices. There simply cannot be any cartel among bakeries, because the competition is too tough. Last year bakeries union comprised 80% of them – about 29.

Which bakeries dropped out, when the crisis stroke?

These were bakeries Žaņa Lagzdiņa maizes fabrika in Riga, Jēkabpils maizes kombināts, Zelta kliņģeris in Kuldiga district Vārme, Zelta dona, Valmieras maiznieks, Jelgava and Liepāja joint bakery.

Who took over this market share?

It was divided among the three major bakeries. The small ones covered 5-10% market shares in total. A longer period of time lead them to a bankruptcy. Consequently, they gradually lost their market shares.

Why did you assess the Latvian bread business environment as positive in October 2008?

2008 and 2009 were record successful years for all Hanzas maiznīca bakeries. 2010 was not bad either. We did feel the consequences of the crisis, though, because sales of a number of best offers and campaigns spiked considerably. Most of people switched to cheaper bread. Such best offers actually devalue products. Best offers have turned from a tool to boost sales into an ordinary practice. If you do not offer any sales campaigns, customers are not even considering your offer, unless they are very loyal.

Do you fear the Latvian economy growth recession will be ongoing for another five to ten years?

It is difficult to forecast whether the crisis will go on for yet another three, five or ten years. It depends on many coincidences. We are linked to both the internal and the external market. The government’s policy to slow down internal consumption is hitting bakeries very hard. Bread is among the basic needs, unlike chocolate. People are considering how to make it until the next salary. We once even had bakeries with confectionery and fresh-baked bread, but we have closed them down. This function has been transferred to supermarkets. We are strong at baking industrial bread. We could consider smaller stores right next to the bakeries, selling bread that expires faster, but we have not yet made any decisive decisions regarding that. Supermarkets sell out bread approaching expiry date at a discount of 30, 50 or 80%. More needy customers thus have a chance to get hold of a premium class bread for little money. We have studied what is important exactly for our customers. It is the balance between the flavour, smell and the price. Bread should smell alluring, otherwise it is advisable people avoid it. Bread cut in slices expires faster, because it oxidizes and loses its aromatic and fresh features. Quality bread should remain fresh for several days. Sliced bread is more popular in the industrial sector.

Leave a reply

  1. Robert C says:

    When the zero hour strikes… I guess we should hope it never strikes, but the the company does not get any profit? Any way – good luck!

  2. Ernst says:

    Their startegy to obtain more clients is reasonable.

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