Rising to the challenge; Bimbo says to distributors: make like a bakery truck and haul buns, independently

Latin Trade, May, 2003 by Cheryl Smith

Delivery drivers for Mrs Baird's Bakeries, a U.S. subsidiary of Mexican bread giant Grupo Bimbo, received a curious letter last spring from their employer. The 980 delivery people in Texas, Oklahoma and a piece of New Mexico were offered a chance to buy their sales territories, ranging in price from US$60,000 to 100,000. The alternative: a severance package.

"I just thought I'd [buy] it and see how I'd like it. I figured, 'Why not?'" says Mrs Baird's driver John, a 35-year employee who declined to give his last name.

Almost a year later, turning payroll delivery people into independent entrepreneurs is getting mixed reviews. Drivers don't rave about the dive into business. Juan Muldoon, president of Bimbo Bakeries USA--Mrs Baird's parent company since 1998--says the true impact will be felt down the road. However, Bimbo balks at providing specific financial information about the program.

"The implementation of the program went as expected with no major bumps in the road," Muldoon says. "Everyone is satisfied with the results and believes that we have positioned the company to continue to grow with a strong independent sales force focused on growing their businesses and ours."

Bimbo is making a big bet on independent distribution. Route sales were a key component in a fourth-quarter 2002 spike in extraordinary costs in the United States to almost $18 million, a seven-fold increase compared to the same quarter the year before, according to the company. Despite a nearly 80% rise in U.S. sales during the quarter, thanks to the acquisition of bakery George Weston's western U.S. baking business in early 2002, Bimbo Bakeries USA lost close to $4 million in the period.

This time last year, Bimbo was hoping for revenue growth of 5% to 15% as a result of the distribution conversion. Muldoon says sales have increased, but declines to discuss specifics.

Thinly sliced costs. The previous summer, Muldoon had predicted that by September 2002 Mrs Baird's would have sold all of its routes in Texas and Oklahoma, 90% of them to incumbent drivers. The company has sold more than 90% of its routes, although it won't divulge how many went to former employees. The route sale program includes provisions for Bimbo to buy back routes during their initial year of operation as well as certain routes in the future. For that reason, there may always be some company-owned routes.

Baking companies are increasingly converting employees into entrepreneurs in attempts to squeeze more profits out of a competitive, thin-margin industry. With drivers working as independents, companies save on social security and pension costs, as well as fleet purchases and maintenance. Bimbo has been successful in reducing operational expenses on such things as equipment, insurance, maintenance and oil and gas, Muldoon says.

Drivers note that early success had to do with seasonal factors. In the late summer when the routes were sold, warm weather meant picnics and barbecues, which translate into a demand for products like hotdog and hamburger buns, tortillas and toast. John says it's too early for a verdict on his venture into self-employment. He's still getting his businessman bearings. "It seems to be working out good so far. Seems like more money," he says. "It also seems like I'm putting in a few more hours."

As company employees, Bimbo USA delivery people got paid a base salary plus a commission, typically 7%. But as independent distributors, each driver's route is a business. A set income for drivers no longer exists.

"If you include the tax advantages that arise from owning your own business, independent distributors should see an overall increase in their income. However, this depends on a number of factors, including how efficiently they run their business, whether they increase sales and how they control expenses:' says Bimbo USA spokesman David Margulies.

Independents also have the potential to sell their route for a profit. However, if Bimbo deems a prospective purchaser unqualified, the company reserves the right to reject that individual and buy the route at the price being offered.

As contractors, distributors also lose company benefits. Drivers now must furnish and maintain their own trucks. John recently spent $54,000 on a new delivery vehicle. He also has to pay for its insurance and gasoline, expenses he never incurred when employed by Mrs Baird's.

Uneven service. Kevin Long and David Hammer, both Mrs Baird's employees for at least 10 years, lament not getting paid overtime anymore. They work seven days a week, as opposed to four or five before, they say. No more calling in sick if they want time off As their own bosses, delivery people have to find and train a family member or other competent and trustworthy individuals to fill in.

Bimbo offers a route relief service, but it's expensive, drivers say. Long and Hammer, who say they earn $800 to $1,200 a week, say route relief at times costs them more than what they make.

"I don't have a problem paying someone to take my route. I just think the prices are a little high:' Long says.