The Great Disconnect

by Morton Sosland
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By Morton I. Sosland, Editor-in-chief

In what most likely will be recorded as the Association of Operative Millers' first technical conference of the 21st century, the temptation is irresistible to look back in order to see what history may have to tell us about flour milling's future. After all, milling is one of the planet's oldest industries, producing today as its principal product nearly the same flour from quite similar wheat as was being turned out a century ago. Few other industries could make such a statement about the durability of both their main product and process.

This uniqueness for milling is sobering when it is remembered that this very same assertion of little or no change in product could also be made about milling in comparison with the start of the second millennium, one thousand years ago. Of course, the milling business and milling itself have changed hugely over those years, even though the industry's ultimate product, bread, may not be all that different.

Changes, but not fundamental transformation, have occurred in how flour is milled from what was the case a century ago. Many of these changes happened in the last decade or two.

Yet, milling's uniqueness may also be measured by suggesting that a milling superintendent of 1900 would not have all that much difficulty if he were recalled to fill a similar role in a modern plant. His challenge would come in dealing with the electronics and the pneumatic conveying that comprise the major changes in milling in the last half of the 20th century.

Here again, it is difficult to name another industry where change has been so limited, a point emphasized by noting that milling is one of the few industries in existence today that were ranked as industries 100 years ago.

One of the more startling facts in looking at the state of flour milling in America a century ago is that this industry in 1900 was America's largest. Of course, 1900 preceded the establishment of many industries now dominant. Today's leaders in information processing and technology were not even imagined in 1900.

Flour milling's eminence in America arose about the time of the Revolutionary War, propelled by the invention of the first automated production system by the "father" of all milling engineers, Oliver Evans. Milling maintained its lead for a century and a quarter, or just about half of our nation's history, a period during which mill owners and managers stood at the pinnacle of American business and industrial society.

As a further historical reminder, U.S. mills in 1900 turned out 200 million hundredweights of flour, and nearly 25 per cent of that production — more than half for large milling centers like Minneapolis — went for export.

It is hard to imagine that the largest export market for U.S. flour at that time was Great Britain. American millers in the late 19th century had captured on the basis of price and quality the British market from Hungary. Like in 1800, when Evans' bucket elevators and his automated systems caused a revolution, 1900 saw the roller mill replacing stones in another milling revolution.

There has been no revolution in how flour is produced at this century's turn, even though the calendar might say the time is at hand.

It was in the wake of the conversion of this country's commercial mills from stone grinding to roller mills that American millers gained an export edge. And even though the conversion to roller milling caused the closing of numerous mills in the United States, the number of plants in operation in 1900 as the 20th century opened approached 12,000.

Here is where change has been immense. Those 12,000 mills, producing flour mainly for household use and for export, have been transformed at the start of the 21st century into 200 mills turning out twice the 1900 output.

If that's not change enough, just imagine where the flour being produced is used in contrast with a century earlier. Family flour now represents barely 5% of output, and exports hardly even equal that percentage of the total. Bakers, who had just surfaced as users of flour at the start of the 20th century, now account for most of the total.

This is a shift in usage so immense that one can hardly speculate what might happen in the 21st century that will even approach its importance. A century ago the most valuable asset of most millers was their family flour brands, which then numbered in the thousands. Protecting brand names was the most urgent task of millers in 1900. Now, the number of family flour brands of value probably could be counted on the fingers of two hands, meaning that it is not brands, but company names and reputations that determine today's success in flour marketing. In this context, "success" is measured in terms of product quality, product pricing, product service and product and service innovation. In almost all of these categories, those who operate the mills have an important role to play, a role that is absolutely key to performance.

WOMEN'S CHANGING ROLE. To understand what may happen in the 21st century that will prompt similarly huge change requires examination of what occurred in the past 100 years. There is no question but that the shift of flour milling from a business producing for household consumption to being the manufacturer of a major commercial ingredient may be traced to the changed role of women in the 20th century.

This was the century that saw women at its end comprising half of the workforce, compared with hardly 10% at its beginning. Two world wars may have precipitated and hastened this change by spurring women to work in order to sustain domestic production when men went off to battle. Once the fighting was done, though, there was no returning to Victorian-era family life.

The result was not just a shift in flour foods consumption from home baking to reliance on bakers' bread and other products, but the arrival of convenience as a great force in food buying. "Convenience" is nothing more than a code word for slashing kitchen work. The fabled "sliced white bread" became, in response to this need, the ultimate convenience food.

Of course, the drive for convenience also has made eating food prepared away from home a great force in the last quarter of the 20th century. It was the "bun revolution" arising from the exploding popularity of fast food that helped drive the rise in consumption of flour-based foods beginning in 1970. Eating away from home and eating foods at home that are prepared outside the home have contributed greatly to expanding consumption of commercially-prepared baked foods. Woe indeed to the miller or baker that has not hitched to the food service wagon.

There are those who contend that the shift to eating commercially prepared baked foods has run its course, meaning that the market from this point forward will grow no faster than population, or less than 1% per year. Saturation is the term frequently applied to the fast food business, and maturity is the word commonly used to describe commercial baking.

It's tough to dispute these opinions, particularly when total consumption has barely held steady for two years running, 1998 and 1999, and per capita use has dropped. Unless a spark is lit to fire consumer liking for bread and other grain-based foods as nutritious or a product innovation rekindles demand, it's difficult to argue with the thesis that homemaker buying of baked foods has plateaued.

In speculating about what may lie ahead, one cannot overlook in these very early days of the 21st century the newest revolution unfolding in the workplace. This is the revolution built on allowing women and men to do their work at home rather than in the office or plant. It reflects what modern telecommunications and electronics make possible, even encourage. New systems facilitate people doing tasks at home that historically required their presence in offices.

Many projections have been made of how this trend to work at home may eventually affect lifestyles. There are those who believe that nearly half of present-day office-type work may be done outside the office, most likely at home. One sure result is that women and men will gain more time to be with each other and with their children, perhaps far more than ever before in history.

Hailed as the potential savior of the family and what are called family values, it is easy to conclude this change may mean more time for, and thus more interest in, home food preparation — even for home baking.

True, it's impossible to detect any changes yet in family flour demand that would even hint such a revolutionary change is conceivable. Just like baking mix manufacturers that 50 years ago had to deal with the perception they were competing with their bakery customers, the current situation might re-introduce this phenomenon as millers respond to the opportunities that work at home may offer.

Similarly, these possibilities also define one of the great challenges facing commercial baking. Bakers must ask whether new lifestyles will reverse the trends over the past century, spurring homemakers to rely on commercially baked products.

If such a reversal in baking is even remotely possible, it is not too early to begin thinking about its implications. For instance, there is no question but that such a change would require new products meant to recapture a home baking market where the current generation has had little or no experience with or knowledge of baking. While successive generations of 20th century women had few qualms about abandoning the home baking habits they learned from mothers and grandmothers, the task of drawing women ignorant of home baking back into the fold is daunting.

It is probably overreaching even to think that old-style home baking will be revived. But looking "outside the box" can't help but make one think of new and improved baking mixes, refrigerated and frozen dough for home use, application of new kitchen utensils like microwave and other advanced ovens to baking, and new technology and new products that capitalize on such a swiftly changing food environment.

Like the merchandisers who were bright enough to appreciate the vast changes posed by the baby-boomers of several decades ago, it may be sensed that the successful marketers of the future will be those who not just understand what is happening to change the food preparation environment, but how best to capture these amazing possibilities. Similarly, producing flour and flour-based products, like new mixes and other formats, that fit these new possibilities may well be the greatest task facing millers. It also poses a formidable challenge to commercial baking.

THE RETAILING REVOLUTION. Hardly anything is more important to realizing the potential of such sweeping consumption changes than fostering collaboration between our industry and food retailers.

If women leaving the home for work have been the major force in food consumption patterns in the past century, the principal structural change occurring simultaneously within the food industry has been the revolution that has swept across food retailing. This revolution has two parts that have greatly changed marketing of grain-based foods as well as the relative dominance of the various industry players.

The first part came several decades ago when national grocery chains like A.&P. and Safeway fell by the wayside because of their inability to deal with the changes that occurred in the immediate post-World War II years. This breaking up of once all-powerful grocery retailers into numerous local and regional chains came to a totally unexpected climax in the past several decades as national retailers even larger than their powerful predecessors were formed through mergers and acquisitions. Today's leading grocery chains have one highly important difference from their predecessors — their almost total lack of interest in being food manufacturers. Whereas A.&P. in its glory days might have been the nation's largest baking company, operating a vast network of bakeries to produce bread under its own label for its own stores, today's retail grocers mostly look to bakers to be their suppliers.

The second part of the retail revolution itself has a duality signifying change as great or greater than what has already been described. The retail food business is being revolutionized by the entry of retailers that formerly were not active in food, companies like Wal-Mart and K-mart. Their presence — more a full-scale attack than a gradual intrusion — is accompanied, if not facilitated, by new computer-driven systems providing unprecedented levels of information about customers.

Besides these new entrants, the retailing revolution is accelerated by expanding global ambitions. Not only have major foreign-based chains entered the U.S. market but the leading retailers, regardless of where based, seem hell-bent on gaining a foothold in the developing world.

A historical perspective may be needed to understand why the relationship of flour millers to retailers is so very important. Remember that flour milling was America's largest industry in 1900. At that time, grocery retailing barely existed, and millers and other food manufacturers told retailers what they were going to sell and how they were going to sell it.

The shoe is now on the other foot, and retailers call the shots, not just in the developed markets of America and Europe, but also in developing countries. The latter is where these retailers see their greatest opportunities. After all, incomes in much of the world are still low enough to limit diets, in quantity and quality, but agreement is widespread that this is going to change.

Referring to the title of this article, "The Great Disconnect," this is one of the areas illustrating a "disconnect" between how grain-based foods is behaving and what other food sectors may be doing. It seems a bit strange that grocers like Wal-Mart, Tesco, Carrefour and Ahold are aggressively moving to establish themselves in developing nations while U.S. food manufacturers, for the most part, are highly cautious in pursuing these opportunities.

Considering the near certainty that the standard of living in large parts of the world will rise substantially in the next half century, avenues for expanding consumption of grain-based foods on a global scale are boundless. Currently, hardly half a billion people in North America and Europe enjoy a middle-class standard of living. By the middle of the 21st century, it is predicted, 5 billion people will enjoy income levels equal to what we now have. Three billion of this number will be in Asia, and the total economy of Asia, now ranking third behind North America and Europe, will grow to be larger than the rest of the world combined.

Another "disconnect" has to do with the way wheat is converted into flour. This process has changed very little, not just during the past century, but in recent centuries. Yes, milling has changed, referring to the impact of roller milling, pneumatics and electronics. A modern flour mill at the start of the 21st century is replete with electronics meant to run machinery more efficiently with less human input.

But millers should not view themselves as having captured all or even most of the possibilities inherent in what is happening in technology. The world is moving at breakneck speed from the Factory Age to the Information Age. Most millers still see themselves operating in the Factory Age, and this is another "disconnect." It's time to disconnect the disconnect.

I.T. TRANSFORMATION. Another American industry, apparel making, has many likenesses to flour milling and has been totally transformed by information technology. Shirts, coats and dresses, the industry's main products, are essentially the same as they were a decade or more ago. These products have not changed. What has changed hugely, though, is how they are made. Look at inventory. A group of experts involved in studying textiles aptly called inventory "the physical correlate of deficient information." By applying new information technology, apparel makers have responded to the demands of retailers like Wal-Mart for both smaller inventories and a much greater variety of goods, all to be sold at lower prices and to be delivered in much smaller quantities more frequently.

Laser technology and the use of bar codes tracking production and shipments, along with the creation of new distribution centers replacing warehouses, helped facilitate these changes. Common standards for raw materials, finished products, shipping containers and systems, were essential.

The initial outcome was expensive computer systems tying giant retailers more and more tightly to a selected group of suppliers. But that, too, has been transformed because the Internet offers more powerful information at lower cost. Now, large numbers of new and smaller suppliers have gained access.

In the wake of this revolution, developments in textiles are spoken in terms of an industry reinvented. "In the new economy, information will substitute for goods," one commentator wrote. He described how "the process replaces the product" when it comes to inventory management. It is his contention that information technology means a new business order, that "unless companies respond in kind, they will wither like towns on the Great Plains that failed to attract the early rail lines."

A similar observation was made recently by Jack Welch, chief executive of General Electric. Acknowledging that G.E. has been slow in embracing the Internet revolution, he declared, "Any company, old or new that does not see this technology as literally as important as breathing could be on its last breath."

He warned how companies hesitating in embracing Internet technology will be overcome. He then said, "Reality in the Internet world means moving at a fanatical, maniacal pace everywhere."

This is heady stuff, considering its source. Imagine a flour mill that operates in immediate response to the movement of bread at retail. Consider, for example, the opportunities that exist to examine the decisions and situations of thousands and thousands of wheat farmers into a single, open information system. Flour milling is a long way from realizing the promise inherent in information technology.

Flour milling and all of grain-based foods must come alive to the potential of these new tools. Participation in the reinvention of an industry with the long history of flour milling is a possibility none of us should want to miss. It implies a willingness to shatter the business order, to pick apart the process lying behind what you make and putting the chain back together in different ways.

The message of this new technology is that each of us must examine carefully what we do in relation to others and in relation to the supply chain of which we're a part. In that way, we may at last realize that the real task before us is to give the process precedence over the product.