Deal Profile: Rise Baking cooks up interest in a growing segment

Key Takeaways:

  • Demand for high-quality fresh-baked goods is rising, and grocers are responding by investing in their in-store bakeries.
  • This is driving investor interest in third-party bakery suppliers, which can help retailers meet consumer demand for baked goods in a flexible, cost-effective way.
  • As exemplified by Rise Baking, the most attractive candidates are leaders in innovation, can produce a wide range of baked goods, and have the M&A expertise needed to take advantage of inorganic growth opportunities in a fragmented marketplace.

    Growing Demand for Fresh and Local

    Even as consumers increasingly focus on healthy eating, they still love cookies, cakes, breads, and other baked goods. But that does not mean they are willing to accept substandard goods when enjoying these indulgences. A growing number of consumers look for much higher quality when choosing to indulge in baked goods. They want something unique, local, great tasting, and fresher than what comes in a bag or a box. The wave of artisanal, craft doughnut shops sweeping the country is just one example of this trend.

    For grocery retailers, this represents a significant opportunity. They are making major investments in their store perimeters to sell more fresh goods and drive higher traffic and margins.

    A major behind-the-scenes player in these efforts is the bakery supplier, which helps grocery stores keep a steady stream of fresh, high-quality baked goods on their shelves. Such suppliers provide either finished frozen goods, which the retailer thaws at the store, or raw dough that the retailer bakes in its own oven, producing the scents that draw in shoppers. In either case, the products tend to be perceived as superior to prepackaged, center-of-the-store goods, and they give the retailer a strong point of differentiation among customers looking for fresh foods.

    Another benefit: Bakery suppliers provide much-needed efficiency for the retailer, assuming much of the labor costs associated with running a bakery. Because the retailers aren’t baking from scratch, they can easily handle a wide range of unique baked goods without adding staff. This further boosts margins for an already highly profitable segment.

    Strong Growth Prospects for Bakery Suppliers

    For investors, the bakery supply market is an extremely attractive one, offering strong and steady organic growth. Three key factors make this segment particularly compelling.

    Grocery retailers’ emphasis on growing the perimeter

    For some time, grocery stores have been under competitive pressure. From discount retailers to online merchants, nontraditional market entrants have pushed grocery stores to defend margins and boost differentiation. This is a key reason why such businesses are so tightly focused on enhancing their stores’ fresh offerings, an area in which they have an inherent advantage.

    According to market research firm Mintel, the perimeter category, of which bakery is a big part, could be a $370.9 billion business for U.S. grocery retailers in 2019, up from $314 billion in 2014.1 Further proof retailers are taking the category seriously: Walmart recently hired 150 new managers to boost fresh departments on the perimeter.2

    Bakery suppliers stand to be a major beneficiary of this push, as they will likely see more demand for their products and services.

    Strong customer stickiness

    Investors like stable and predictable customer relationships, and that is a common theme among bakery suppliers. It takes considerable time and effort for retailers to qualify their bakery suppliers. Once established, those suppliers become important contributors to the retailer’s brand and face to consumers. Thus, it is common for bakery suppliers to enjoy strong, long-term relationships with their customers.

    High-quality suppliers also are well positioned to gain additional business from their customers as large retail chains continue to consolidate their bakery buying among a handful of suppliers—either as part of a move to boost supply chain efficiency or to eliminate myriad regional relationships in favor of suppliers that can serve them nationally.

    “Many retailers are looking to consolidate their supply relationships, and if you're their key partner, you're going to get a bigger piece of the pie going forward,” says Brant Cash, a director in Harris Williams’ Consumer Group.

    The market’s fragmentation

    The baking space is still highly fragmented, with many smaller operators that specialize in specific subsegments and compete on innovation and flexibility. These companies are able to produce unique, lower-volume specialty or seasonal items, which allows them to excel in highly profitable market niches. Acquiring these smaller operators can enable platform bakeries to boost product differentiation and scale. This strategy also creates the potential to realize significant cost savings and cross-sell additional products to existing customers.

    There are also several platforms of scale that could be merged together to diversify product portfolios and channels. Such players could capitalize on opportunities to move into new baked-good categories sold into the grocery store perimeter, or expand beyond grocery into convenience, dollar-store, and drug retailers as well as foodservice chains.

    What Should Investors Look for in Potential Acquisitions?

    rise-ts-2.gifHarris Williams believes there is considerable opportunity for investors in the bakery supply market. One example is Minneapolis-based Rise Baking Company (Rise), which Harris Williams recently advised on its sale from Arbor Private Investment Company (Arbor) to Olympus Partners. Rise not only illustrates the market’s strength and growth potential, but also embodies some of the key things investors should look for when considering acquisition targets.

    Through consistent organic growth and multiple acquisitions, Rise has emerged as a leader in the North American bakery industry. The company supplies premium cookies, dessert bars, artisan breads, and flatbreads to customers in the in-store-bakery, foodservice, and convenience store channels. With Arbor’s support, Rise has built a strong platform that has driven robust growth year after year and positions the company to capitalize on current and future trends in the bakery industry.

    The company began as a supplier of high-quality artisan breads, but quickly expanded into other segments, including dessert bars and cookies, by acquiring other high-quality assets. With each acquisition, Rise could offer a broader product set to the bakery directors with whom the company had strong relationships. Having built a solid reputation for quality over many years, the Rise team found its customers eager to add Rise’s new products to their mix.

    “Bakeries have become so important to grocery retailers, but retailers can’t afford to add to the number of people who work in that department, either at corporate or at the store level,” notes Cash. “They’re looking for a supplier that can really simplify their life by bringing multiple products to them so they don’t have to go to different vendors for their cookies, dessert bars, brownies, muffins, and breads.”

    What is behind Rise’s success and competitive differentiation? Besides Rise’s scale—it is bigger than many of its competitors and has a national footprint—three factors stand out.

    Disciplined acquisition strategy

    Rise is building a one-stop shop in the bakery sector, steadily expanding its product categories with each acquisition. Because the team is highly selective in acquiring other businesses, only pursuing those with stellar reputations for quality and service, Rise is able to leverage the existing business and quickly make investments to accelerate growth at acquired companies.

    Rise’s management team has a proven track record of identifying acquisition targets, so its customers trust the company to only supply high-quality products that meet its high standards. Management’s deep knowledge of the players in the industry and history of cross-selling its customer base was very attractive to potential investors in the company.

    Additionally, management systematically integrates acquisitions to realize the benefit of operating as one company, rather than running them as separate entities, which is common in many industry roll-ups. Creating a unified business enables Rise to capitalize on the new capabilities each acquisition brings and leverage the strengths of the broader platform to drive growth.

    “Investors sometimes are wary of companies built through acquisitions,” observes Tim Alexander, a managing director in Harris Williams’ Consumer Group. “Am I buying one company or five different companies that are just loosely stitched together? Rise truly is just one business, and I think that impressed a lot of prospective buyers.”

    According to Alexander, the value of the management team’s experience and acumen is critical. “Arbor obviously provided support, but the acquisitions were truly driven by the management team,” he says. “They identified which companies were the right fit. They were heavily involved in putting together the deals and defining the deal strategy. And since they knew the benefits of quickly and completely integrating their acquisitions, they made sure that happened.”

    Product and technology innovation

    Rise also excels in innovation, both in the products it creates for its customers, as well as in new technology or practices that help its customers improve their bakery operations.

    The Rise platform started with artisanal breads, but with a unique twist: a truly innovative “take and bake” format that consumers enthusiastically embraced. Since then, with each acquisition, Rise has installed its culture of innovation and operational flexibility, which has enabled the company to expand its business and keep pace with consumer trends and demand.

    “Rise understands that customers in this segment are so sticky that it’s difficult to get a foot in the door,” says Cash. “But if you can demonstrate that a particular product sells better than what a retailer is getting from another supplier and win that small piece of business, over time you can become the primary supplier by proving yourself as the customer’s outsourced bakery R&D engine.”

    The key to innovation for Rise is its intense customer focus. If a customer wants a unique, custom product, Rise will provide it—there is no selling from a catalog. In fact, customer focus is so important to Rise that it is one of the top criteria in potential acquisitions. “If a target doesn’t fit with Rise’s customer-focused culture and philosophy, it’s going to be a lot harder to integrate and, in the end, could undermine Rise’s ability to innovate for its customers,” says Alexander.

    Rise also continually looks for new ways to help make its customers’ bakery operations more efficient, such as its patented Fast Pan technology. Baking cookies at a large retailer, even with pre-made dough, is labor-intensive and time-consuming. Every day, a person has to place hundreds of cookies on baking pans, keeping enough distance between them so they do not bake into each other or off the edge of the pan. Rise’s Fast Pan technology virtually eliminates that process and, according to Rise, enables a large baking operation to reduce cost and waste of their in-store operations.

    “From the outside, the technology can appear relatively simple,” says Alexander. “But others have tried and failed because a lot goes into the entire process to make it work. That technology was really a game-changer for Rise and helped the company gain a lot of market share.”

    Operational flexibility

    Across the bakery supply landscape, most suppliers are either high-volume players that produce standard products or smaller-scale local or regional operators that focus on niche or specialty goods. Rise is unique because it excels at both.

    Indeed, the most attractive bakery suppliers are those, like Rise, that can offer a full range of everyday, high-volume bakery staples that shoppers expect to find, as well as smaller-run specialty, custom, and seasonal items. The latter tend to be strong draws for shoppers and help shape retailers’ brands—and generally are more profitable.

    Rise owes its flexibility to its acquisitive heritage. Because the company was built over time by acquiring smaller regional companies, its asset base is inherently more flexible than larger, more monolithic enterprises. That means the company can satisfy a customer that wants both a limited-run custom product or seasonal offering and hundreds of everyday items.

    “What’s so unique about Rise is they can be that really innovative partner customers want and, at the same time, meet the high-volume demands of national customers,” notes Cash. “They really have the best of both worlds.”

    Baking Up Growth and Profit

    Americans love baked goods, and that is clearly not changing anytime soon. But what is changing is consumers’ desire for fresher, higher-quality indulgences that are available where they already shop. That is driving grocery retailers to take a new look at their baking operations. National retailers like Walmart and Costco recognize that a strong bakery department offering high-quality, made-on-the-spot goods is critical to attracting and retaining shoppers, and others are following suit.

    Bakery suppliers like Rise will play a major role in this effort. Retailers will increasingly look to them for new products and upgrades to existing ones that can help them project the “fresh and local” vibe that attracts today’s consumers. That, in turn, continues to attract the attention of buyers and investors looking to participate in this rising opportunity.

    Published November 2018

    1. “Giving Consumers a ‘Fresh’ Experience at Retail,” Jeff Gelski, Food Business News, November 22, 2016,

    2. Ibid.