TORONTO - Canada Bread Co. (TSX:CBY) says it plans to open the country's biggest bakery somewhere in southwestern Ontario, an area that has been hard-hit by the recent economic downturn and a longer-term loss of manufacturing jobs.
The new 300-job bakery announced Tuesday comes as Canada's largest breadmaker lays out plans to shutter the operations of three smaller Toronto bakeries that the company says are aging and unable to expand.
A spokeswoman for Canada Bread (TSX:CBY) - which makes bread, buns, rolls, bagels and other baked products under the Dempster's brand - said the Toronto-based company will begin negotiations with several municipalities this week to determine where it will build the new facility.
Ontario municipalities aggressively compete to attract the food sector, recognized as an economic driver in a province that has been hurt by the downturn in the North American auto sector and other manufacturing industries..
Brantford, Ont., has a "food cluster task force" that has solicited investments from 21 food manufacturers including Maidstone Bakeries, which produces Tim Horton's products, and the North American facility for Ferrero Group, an Italian food company. The sector accounts for about 2,000 jobs in the region.
John Frabotta, Brantford's director of economic development, said he could not comment on whether the city is in discussions with Canada Bread but said the municipality is often top of mind for food manufacturers because of its central location, access to large markets and a workforce with food experience.
"We hope to be in their selection process," Frabotta said. "Most municipalities anywhere, especially in these economic times, would welcome an investment of that size."
Robert Gibson, an analyst at Octagon Capital Corp. said such a large-scale project will help Canada Bread's stock but added it was odd that the announcement was made before the location was decided..
Gibson added that it makes sense for the company to move out of Toronto, despite its central location, because of high taxes and the price of real estate.
Canada Bread spokeswoman Jeanette Jones said the company hopes the 435 employees at the three Toronto bakeries will find new positions both at the new location or elsewhere at Canada Bread or its parent, Maple Leaf Foods Inc. (TSX:MFI).
"Maple Leaf has 13 plants across the GTA so we will be looking to place employees at other opportunities within the network of operations that we have here," Jones said in an interview.
"For anyone that's not looking to make the move, we will ensure they're treated fairly and respectfully and obviously with severance and benefits protection in excess of the provincial and employment standards."
Location is key for bakeries because distribution costs are high due to a spike in oil and gas prices. The cost of raw materials is also on the rise. World sugar prices are at a 29-year high, nearly tripling in the past year.
An analyst who spoke on background said the move is part of company-wide restructuring at Maple Leaf, which has worked to reposition itself from a commodities player to a value-added player.
He said the company, which owns a number of older factories, is focused on improving facilities and consolidation.
Canada Bread said it expects to begin construction on the new bakery within six months of securing a location and have the first production lines commissioned about a year after that.
"It will drive significantly improved efficiencies in our manufacturing and supply chain, providing the capacity to support organic growth and the growing needs of our customers," Canada Bread president and CEO Richard Lan said in a release.
The cost includes a $100-million capital investment on land, as well as building and equipment. The company will take a separate $25 million restructuring charge for decommissioning production and employee severance payments.
The company has a total of about 8,500 employees in North America and the United Kingdom.
The closure of a Toronto-area bakery is expected in late 2011, the second will be in 2012 and the third in 2013.