Economics of Change in Market Structure, Conduct, and Performance the Baking Industry 1947-1958
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University of Nebraska - Lincoln DigitalCommons@University of Nebraska - Lincoln Papers from the University Studies series (The University of Nebraska) University Studies of the University of Nebraska 12-1963 Economics of Change in Market Structure, Conduct, and Performance The Baking Industry 1947-1958 Richard G. Walsh University of Nebraska - Lincoln Bert M. Evans University of Nebraska- Lincoln Follow this and additional works at: https://digitalcommons.unl.edu/univstudiespapers Part of the Arts and Humanities Commons Walsh, Richard G. and Evans, Bert M., "Economics of Change in Market Structure, Conduct, and Performance The Baking Industry 1947-1958" (1963). Papers from the University Studies series (The University of Nebraska). 48. https://digitalcommons.unl.edu/univstudiespapers/48 This Article is brought to you for free and open access by the University Studies of the University of Nebraska at DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Papers from the University Studies series (The University of Nebraska) by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. new series no. 28 University of Nebraska Studies december 1963 Richard G. Walsh Bert M. Evans Economics of Change in Market Structure, Conduct, and Performance The Baking Industry 1947-1958 university of nebraska studies : new series no. 28 published by the university at lincoln: december 1963 The University of Nebraska The £lard of Regents RICHARD E. ADKINS B. N. GREENBERG, M.D., president J. G. ELLIOTI JOSEPH SOSHNIK, corporation secretary VAL PETERSON CLARENCE E. SWANSON J. LEROY WELSH The Chancellor CLIFFORD M. HARDIN Richard G. Walsh Bert M. Evans Economics of Change in Market Structure, Conduct, and Performance The Baking Industry 1947-1958 university of nebraska studies : new series no. 28 published by the university at lincoln: december 1963 Preface Agricultural product markets are receiving much attention from economists. The industrialization of food processing in the past 50 years has aroused mixed emotions in the minds of many thoughtful citizens. On the one hand, it has been welcomed as a source of employment and economic growth, and of labor saving in the home. On the other hand, the dwindling number and expanded size of firms that process and market most food products has been viewed as a potential threat to the public interest in competitive, efficient food markets. Private and public research agencies, including the u.s. Depart ment of Agriculture and universities, are examining this situation. The Marketing Economics Division of the United States Depart ment of Agriculture is conducting a study of the economic conse quences of consolidation, integration, and merger among agricul tural product marketing firms. Studies are being conducted in Washington and in universities on a cooperatively sponsored basis. This book presents the findings of a recently completed inquiry into the baking industry-the structure, conduct, and per formance of bread markets. Funds for this research were authorized by the Agricultural Marketing Act of 1946, under a contract initiated in July, 1957, between the Department of Agricultural Economics, University of Nebraska, and the Economics Research Service of the U.S.D.A. The authors are grateful for the assistance of many individuals and groups in the development of this study. Dr. Paul E. Nelson, Jr., Head, Market Structure and Practices, U.S.D.A., was particularly helpful in planning and initiating the research. Drs. Winn Finner and Allen B. Paul contributed as U.S.D.A. representatives. Dr. Charles C. Slater, Economist, Arthur D. Little, Inc., formerly with the baking industry, acted as a continuing consultant to the study. Much of the work would have been impossible without the gen erous cooperation of many individuals and firms in the baking industry. We are also indebted to Eleanor M. Birch and to Drs. J. B. Hassler, H. W. Ottoson, and C. J. Miller, Department of Agricultural Economics, University of Nebraska, for their valuable advice and critical comments. These and many others have contrib uted to the original design of the study, to the collection of data, and to the analysis and findings presented here. The authors express their appreciation to all and willingly share with them whatever credit the study may earn. We reserve for ourselves, however, any debits that may be charged against it owing to possible errors of fact or inference. R. G. WALSH B. M. EVANS Contents 1. Introduction ................................................................................... 2. Structural Characteristics of the Industry ................................ 8 3. Technology and Costs of Bread Production ...... 44 4. Costs of Bread Distribution .......... ...... .................... 68 5. Price and Nonprice Conduct of Firms in Bread Markets.. 82 6. Industrial Performance ................................. 115 Appendix .............................................................................. 155 Index ................................................................................................. 165 List of Tables I. Number of Establishments, Total Value of Shipments, Value of Shipments per Establishment, Perishable Bakery Products Industry, United States, 1947, 1954, and 1958.... 9 2. Distribution of Bakery Plants by Number of Employees and Average Value Shipments per Plant, Bread Products Industry, United States, 1947, 1954, and 1958....................... II 3. Changes in Concentration Among the Eight Largest Bak eries and Comparisons of the Sales of the Eight Largest Bakeries With Total Sales of the Perishable Bakery Prod ucts Industry, United States, 1947, 1954, and 1958............ 13 4. Distribution of Bread Plants by Capacity per Hour and Ownership, United States, 1958................................................ 15 5. Market Shares of the Seven Largest Wholesale Baking Com panies and Major Grocery Chains Integrated into the Baking Industry, 27 Selected Metropolitan Market Areas, 1957 ... ...................... .................. .................... 17 6. Value of Shipments of the Four Largest Baking Companies as a Proportion of Total Value of Shipments, by States, Bread Products Industry and Total Bakery Products, 1954.. 19 7. Number of Stores and Average Share of Grocery Store Sales by Corporate Chains, Cooperative and Voluntary Chains, and Unaffiliated Independents in 15 Metropolitan Areas of the United States, 1948, 1954, and 1958............................ 21 8. Number of Multi-Plant Bakery Firms With Number and Size of Acquisitions Arrayed by the Size of Acquiring Com panies, United States, 1953-58.................................................. 27 9. Annual per Capita Sales of Perishable Bakery Products, United States, 1947, 1954, and 1958........................................ 41 10. Estimated Average Production Costs of Wholesale White Bread, United States, 1947-1958......................................... ..... 45 II. Investment in Selected Bakery Machinery, United States, 1954 and 1958................................................................................ 48 12. Estimated Percentage of Bread Plants Having Adopted Selected Equipment by 1947, 1954, and 1958, United States 49 13. Comparison of Selected Automatic Bakery Equipment Cost With Labor Cost Saving and Years to Pay Out Investment in Plants of 4,000 Loaves per Hour Capacity, 1954............... 51 14. Comparison of per Pound Production Costs of Small and Large Model Bread Plants Under a Range of Hours per Week Operation and Without Daily Variation in Output, United States, 1959 ........................... ······ . 57 15. Comparison of per Pound Production Costs of Small and Large Model Bread Plants Using Standard and Automatic Equipment Under a Range of Hours per Week Operation and Typical Daily Variation in Output, United States, 1959 ............................................................................ ................. 57 16. Estimated Daily Variation in Bread Production Capa bilities of Wholesale Bakery Plants, United States, Second Quarter, 1958............................................................. 61 17. Estimated Average Distribution and Selling Costs of the Wholesale and Retail Functions, Bread, 1947 and 1958.... 72 18. Average Distribution Costs per Pound of Bread Products Sold, by Channel of Distribution, United States, 1959........ 80 19. Comparison of the Average Transfer Price per Pound of White Pan Bread Among Segments of the Bakery Industry, United States, 1947, 1954, and 1958 ........................................ 119 20. Average Transfer Price per Pound, Various Bakery Prod ucts, Total Industrial Production, United States, 1947, 1954, and 1958............................................................................ 121 21. Profits (After Taxes) as a Percentage of Stockholders' Equity, Selected Baking Firms, Food Firms, and Manufac- turing Firms, United States, 1940 and 1947-58 .................... 123 22. Bakery Sales, Investment, and Profits, A & P Bakery Divi- sion, 1924-39 ............................................................................... 125 23. Estimated Average Wholesale Bakery and Integrated Gro cery Chain Bread Costs, Prices, and Profit Margins, by Region and Average, United States, 1958....... ..... 127 24. Estimated Production Cost Reductions That Would Result From Possible Alternative Industry Organization, Bread and Bread Type Rolls, by Size of Plant, United States, 1958 ..............................................................................................