Article: Health vs. Indulgence in Cakes -- May 2008
May 1, 2008
Sales of cakes and pies in the U.S. were expected to reach $5.9 billion in 2007, according to Mintel International. This figure included sales from packaged cakes/pies in food, drug and mass merchandiser (FDM) channels; cakes and pies from in-store bakeries; and those sold in independent bakeries. Although sales escalated 15% since 2001, taking into account the impact of inflation deflates market performance and results in a slight 1% gain in constant terms.
According to Mintel, in-store bakeries (ISBs) represent the largest segment in the category, accounting for 63% of market sales in 2007, with growth of 6.5% from 2005-2007. ISBs have achieved growth in recent years through catering to consumer demands for premium products and smaller portions. The remaining market share (37%) is consumed by the packaged cakes segment, which grew 6.7% from 2005-2007 in FDM outlets, excluding Wal-Mart. This segment is further divided between sales of shelf-stable cakes/pies, cupcakes/brownies, cheesecakes and refrigerated cakes/pies. Shelf-stable cakes/pies and cupcake/brownies generate the majority of sales and experienced the strongest two-year growth, up 9.1% and 5.3%, respectively. Cheesecakes proved to be the only segment reporting a sales decline from 2005-2007. Refrigerated cakes/pies are the smallest segment in the market and plagued by competition, especially from the adjacent freezer section.
Overall, market performance has been most influenced by changing consumer trends regarding health and wellness, demand for gourmet pro-ducts and increased compet-ition in the baked goods genre.
Healthier to Feel BetterConsumers today are more health-aware and diet-driven than previous generations and, as a result, are demanding healthier choices even in their indulgences. The popularity of low-carb diets caused purveyors of cakes and pies to meet the demand by launching numerous “low-carb” versions in 2004, prompting a spike in sales growth for the year, but sales corrected in 2005 as the trend faded. As diet focus turned toward better general health, trans fat-free and whole grains emerged as important criteria. The category was negatively impacted, as few products matched such demands.
Baked goods are among the highest in trans fats, which have caused reason for concern. According to Mintel’s exclusive consumer research, 24% of respondents who do not eat cakes or pies said they do so to avoid trans fats. The removal of trans fat poses significant hurdles for cake and pie manufacturers. Trans fat substitutes, such as butter or palm oil, affect the outcome of the product, including shelflife, taste, texture and product stability. Additionally, most reasonable alternatives cost roughly 30% more than regular shortening. Makers of cakes/pies should gain confidence in the fact that Mintel’s consumer research discovered 53% of respondents would be willing to pay more for products produced without trans fat.
Evidence of manufacturers’ commitment to develop products without trans fat is revealed in the number of new product launches offering a low-/no-/reduced-trans fat claim. According to Mintel’s Global New Products Database (GNPD), 37 new products entered the market in 2007 offering the low-/no-/reduced-trans-fat claim--representing 15% of all new product launches during that period. For example, in February 2007, Entenmann’s launched new 100-calorie packs of Little Bites that promoted its trans fat-free status.
Unlike trans fats, reformulating to whole-grain formulas should be much easier for baked goods suppliers. This presents an opportunity for cake manufacturers to leverage their products to fulfill daily requirements of whole grains. Of consumers who wish for more availability in healthier cake/pie options, Mintel found 51% would like to see more whole grains.
While many packaged cakes have always offered portion control through individual packaging, suppliers have adopted a healthier stance by delivering portions in 100-calorie packaging--with Little Debbie, Hostess and Entenmann’s all offering 100-calorie product lines. In the future, Mintel expects ISBs will follow packaged cake suppliers in offering 100-calorie options, as these venues have already reduced portion sizes to cater to the growing number of smaller households in the U.S.--making the inclusion of calorie counts a likely next step. The idea of ISBs leveraging their freshly made image and premium ingredients in conjunction with healthy-positioned products provides a distinct advantage.
There also remains a need for diet-specific cakes and pies, such as sugar-free or low-fat, which can help consumers who are dieting or have diet restrictions (like diabetes) to satisfy a sweet tooth. One success story is evident in Dawn Foods’ launch of shelf-stable cakes under the Weight Watchers moniker in 2005. FDM sales for 2006 were $36 million, excluding Wal-Mart, which is evidence of Americans’ desire for guiltless treats.
Mintel’s proprietary research confirms this notion, as some 63% of cake/pie eaters would like to see healthier cake/pie options on the market. (The remainder supports the belief that “cakes are for indulging, so there is no need for healthier versions on the market.”) Consider that Simmons data reveals fewer consumers today claim to eat sweets as frequently and fewer feel guilty when they do. In particular, Simmons data reveals a significant decline in household usage of snack cakes, down 10 percentage points between 2001-2006. Further, in households with children, usage of snack cakes dropped 15 percentage points since 2001.
The bottom line is that if there were more healthy cake and pie “mini-indulgences” on the market, perhaps usage would push forward in a positive direction, as its acceptance would span a number of demographic groups. Moms are likely to appreciate lower-sugar and/or all-natural versions for children; aging Baby Boomers would be receptive to cakes/pies made with whole grains and “superfood” ingredients (i.e., nuts or fruits high in antioxidants, etc.); and healthier cakes could resonate particularly well among Asian consumers (who skewed higher in usage of light/low-fat versions per Simmons and indicated a significantly greater desire for more healthy cake/pie options in the market per Mintel’s exclusive consumer data).
Gourmet GratificationWhile there is a clear movement for healthier options, the dichotomy between what consumers know is the healthier choice and what they opt to consume can be quite different. Certainly, supplier efforts boosting the nutritional profile of cakes and pies (like removing trans fat or adding whole grains) will benefit the category, but taste delivered through indulgent, gourmet treats remains steadfastly important.
In-store bakeries continue to be the top-selling segment in the cakes and pies category—largely supported by an edge in terms of freshness, variety and more sophisticated ingredients. Single-serve/mini-cakes, premium and custom options have been the cornerstone of sales growth for the segment. Importantly, among in-store bakeries, sales of single- or dual-packed cakes have not infringed on sales of full-size varieties; rather, they offer incremental growth. Offering single-serve cakes/pies caters to the theory of mini-indulgence, allowing consumers to treat themselves without the temptation of leftovers or eating too much.
In the packaged cakes segment, the two largest suppliers, Interstate Bakeries Corporation and McKee Foods Corporation, predominantly target child consumers with simple flavors and ingredients under the popular Hostess and Little Debbie brands, respectively. Both companies experienced sales declines from 2005-2007 in FDM outlets (excluding Wal-Mart), while suppliers focusing on the premium spectrum of packaged cakes/pies experienced growth. For example, George Weston Baking, the third largest supplier (with a 7.4% share of FDM packaged cake sales), improved sales 3.6% from 2004-2006, supported by its premium Entenmann’s brand.
While “premium” positioning is subjective, products offering unique, sophisticated and even ethnic flavors, as well as the use of high-quality ingredients and bakery-style recipes, are most aligned with this status. For example, in May 2007, Atkin’s Elegant Desserts introduced a Bananas Foster Cake flavored with dark rum and brandy and topped with walnuts, pralines and a caramel sauce. The family-owned company touts using only the finest ingredients and is a self-proclaimed premier dessert company.
Mintel’s custom research shows that 61% of cake/pie eaters would like to see more cakes/pies with new and unusual flavors. One way purveyors are adding flavor value is through co-branding. For example, BC Bundt cakes experienced a 50% rise in sales through FDM channels from 2004-2006 (excluding Wal-Mart), after launching cakes with popular soda flavors such as Dr Pepper Cherry Vanilla, Orange Crush and Hawaiian Punch.
Most consumers turn to cakes/pies as an indulgent treat. While ISBs are capturing the majority of premium sales, packaged cake makers are seeking to gain consumer acceptance in this arena. Upping the culinary ante by featuring unusual flavors, ingredients and packaging presentations is important in increasing appeal to consumers looking for cakes/pies with gourmet flair.
Competition for the American Sweet ToothThe cakes and pies market is challenged by intense competition. Within the category itself, consumers may shift between segments, depending on desire, need and price. In fact, data from Mintel’s custom research shows nearly the same percentage of respondents report shopping for RTE cakes/pies in the packaged food aisle (67%) as the in-store bakery (69%).
There is also competition from alternative categories like cookies, candy, frozen desserts and baking mixes. The pressure is intensified by the fact that suppliers who have dominated their own category are now vying for a share of the cake and pie market. For example, in 2006, Hershey and Nabisco’s Oreo brought their well-known brands into the cake market. Such crossover activity is blurring the lines between similar categories, causing further fragmentation of the supply chain in the cakes and pies market.
Next, competition is rising due to the proliferation and popularity of the independent bakeries. Mintel custom data suggest slightly more than a quarter purchase RTE cakes/pies from an independent bakery or other food store, while 12% buy at a gourmet store. Of particular note is the popularity of cupcake-only bakeries such as Sprinkles or Cupcakes in Chicago. These bakeries offer premium ingredients, upscale flavor combinations, small-batch baked and handmade appeal.
Finally, there is the emerging competition from foodservice operators. Starbucks consistently makes efforts to expand its food offerings, with specific attention to morning and afternoon baked goods, including cakes and cupcakes. Other retail establishments, such as Corner Bakery or Panera Bread, also promote fresh baked goods that directly compete with in-store bakeries from a product perspective. Even fast food operators are attempting to sell baked goods. For example, Jack in the Box launched the Chocolate Overload Cake, a bundt-style cake made with European and double-Dutch cocoa mixed with chocolate chips and drizzled with chocolate butter frosting.
With a plethora of options offered by a variety of suppliers, consumers can satisfy their cravings in numerous ways. While retail competition is intense, each option attracts consumers based on needs and preferences, suggesting that consumers shop across multiple destinations for these goods. For example, they may go to the packaged food section to buy cakes for snacking, hit the ISB for a holiday pie or cupcakes for the school class, and shop an independent bakery to make a special-occasion cake.
Sweet and SteadyThe future of the cakes and pies market is likely to remain in a pattern of modest growth, as competition continues to impose on sales and, undoubtedly, health trends will emerge to cast doubt on consumers’ acceptance of cakes and pies that are positioned as being even healthier. However, the degree to which the market succeeds is directly related to manufacturers’ efforts in product development. Suppliers must keep their fingers on the pulse of health and wellness trends, incorporating these traits wherever possible, without sacrificing flavor; promote everyday indulgences through proliferation of smaller, yet satisfying servings; market kid-friendly, healthy options; use flavor to diversify brands; and differentiate offerings by using sophisticated combinations, gourmet-inspired tastes and unique ingredients.
1: Cakes are an indulgent treat, and competition is fierce--both on the retail and foodservice sides of the industry. Shown here is the Dark Chocolate Cupcake Duo from T.G.I. Friday’s. The dish features two rich, dark chocolate cupcakes topped with layers of chocolate frosting and sprinkled with dark chocolate chips.
Website Resourceswww.mintel.com -- Mintel Group
www.iddba.org -- International Dairy·Deli·Bakery Association
www.asbe.org -- American Society of Baking