Baking Perspectives Baking in Puerto Rico

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Baking PerspectivesBaking in Puerto Rico the
Caribbean

• Mario Somoza
• President and CEO, Pan Pepin

Sponsored by
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Baking Perspectives in Puerto Rico and The
Caribbean

• Mario Somoza
• Pan Pepín, Inc.
• June 27, 2008

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• Puerto Rico
• Basic Facts
• Bread Market
• Pan Pepín
• Who we are
• What we do
• Situation and Challenges
• Q A

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Puerto Rico Facts

• Easternmost of Greater Antilles.
• PR is 110 miles long X 39 miles wide.
• Split by a mountain range from east to west.
• Population of 4 million people.
• 12 over 65, 29 19 and under.
• One-third live within the San Juan Metro
  Area.

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Puerto Rico Facts

• Commonwealth of the US
• US citizens since 1917.
• Currency, banking and postal systems within the
  US system.
• Own Internal Revenue system, not subject to US
  taxes.
• Participation in all federal programs (20
  billion).
• Resident Commissioner representation in Congress.
• No right to vote in general elections.
• Strong sense of national pridewith a keen
  awareness of our US citizenship/relationship.
• Less than 5 support for Independence.
• National sports teams.

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Puerto Rico Facts

• The local economy is driven by the manufacturing
  sector, which represents 40 of GDP, followed by
  Finance, Insurance and Real Estate.
• 11 Unemployment.
• 45 of HH on US Food Stamps program.
• Lower SEL that behaves like mid-SEL.
• PR culture is a mix of Spanish, Caribbean and
  American influences.
• Diet includes a lot of rice, pork, seafood and
  fried foods.
• Music reflects this mix with Salsa and, more
  recently, Reggaeton.

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Puerto Rico Bread Facts

• Bread is considered a staple of the PR diet with
  over 97 in-home penetration.
• 72 of the people have bread at least 4 times
  weekly, with 56 consuming it daily.
• Over 80 of bread consumption happens in the AM.
• The market is evenly split (50/50) between pan
  bread and Pan Criollo (Agua, Sobao, etc.).

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Puerto Rico Market

• Segmentation
• Two wholesale bakeries specializing in pan bread
  and buns Pan Pepín, Holsum.
• Market evenly split between them.
• Two frozen dough companies Cidrines, Mi Pan.
• Small, specialty and neighborhood bakeries.
• Imports from US, Europe and Central America.
• Channels
• 55 of volume through chain supermarkets (approx.
  300 stores).
• Volume is relatively stable throughout the year.
• Slight increase in bun sales during the Summer.
• In tough economic times the category grows.
• Small share for private label products at 7.
• 16 in US, 30 in Europe.
• Highest in Latin America (Mexico 1).

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Who is Pan Pepín, Inc.?

• Founded in 1970 in Bayamón, PR.
• 100 locally owned company.
• Acquired in 1998 by the B. Fernandez Holding
  group of companies.
• 60 Million in annual sales.
• Employ more than 520 people in five facilities
  across the Island.
• Service over 4,500 customers in PR, Virgin
  Islands and Dominican Republic.
• Selected three times as one of the 20 Best
  Companies to work for in Puerto Rico.

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Who is Pan Pepín, Inc.?

• Our brand is available at all primary retail and
  consumption outlets.
• Primary chains Wal-Mart, Amigo, Grande, Costco,
  etc.
• C-stores, colmados and small supermarkets
• Cafeterias and restaurants
• Hotels and cruise ships
• Schools and corporate cafeterias
• We also supply 13 of 15 private labels available
  on the Island.
• Exclusive bun supplier to QSR customers like
  Wendys and Johnny Rockets, as well as casual
  dining chains like Dennys and Ponderosa.
• Exclusive licensees of Healthy Choice (ConAgra)
  and Natures Own (Flowers Foods) brands in the
  market.

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Pan Pepín, Inc.

• All our baking is done in one primary facility.
• 2 pan bread lines currently putting out 115,000
  units daily.
• 3 bun lines currently putting out 40,000 units
  daily.
• Companys historical growth has not allowed for
  optimal equipment and machinery planning.
• Little consistency in equipment across baking
  lines which complicates operation.
• Only cooling systems, bagger, tier, and coding
  machines are similar in all lines.

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Pan Pepín, Inc.

• Our bakeries are all rated Superior or Excellent
  by The American Institute of Baking (AIB).
• Pan Pepín operates 5 distribution centers
  throughout the island for optimum service.
• We operate 165 sales routes 5 days a week for
  100 coverage throughout Puerto Rico and the
  neighboring Islands.
• Delivery 5 days a week Merchandising 7 days a
  week.

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Pan Pepín Products

• We bake 16 different types of pan bread.
• Top seller is the Club Sandwich White Bread.
• Whole Grain White Club Bread has become 2 item
  in less than 12 months.
• White bread still dominates market although
  wheat/whole grain products continue to grow
  fast.
• 18 different kinds of buns and rolls.
• 10-count Hot Dog buns is 1 bun item.
• Local specialty items
• Media Noche, Criollo Breakfast Bun, Sweet Dinner
  Roll
• Contract packaging by outside suppliers.
• Crackers, Polvorones, Besitos de Coco.
• Currently evaluating other categories.

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Situation and Challenges

• Island Environment
• Limited space within current facilities and in
  the surrounding areas (urban sprawl).
• Planning for growth without a dramatic impact to
  the operation is extremely challenging.
• Market concentration Only 2 players supplying
  the market, neither can absorb the others
  demand.
• Raw material supply
• One flour mill, few options for bulk ingredients.
• Storage space within facility is at a premium.
• Technical personnel recruiting
• No breeding ground for personnel, must be
  homegrown.
• Costly to retain when competing with large,
  multi-national corporations.

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Situation and Challenges

• Planning for food trends
• Tend to lag the US but are quicker to spread once
  established.
• Difficult to gauge right timing, risk of being
  too early or too late.
• Energy costs
• Island currently has highest cost for energy in
  all of Latin America and US.
• Can equipment companies provide some expertise in
  managing this area more efficiently?
• Supplier support
• Proactiveness of equipment companies vs.
  ingredient suppliers.
• Constant and easy accessibility to technical
  support to effectively and promptly resolve
  emerging situations.

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Thank You
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Thank You

• Session Sponsor