The in-store bakery (ISB) is supported by more affluent shoppers and by breakfast bakery items. ISB revenues showed slow, but steady, annual growth in the range of 2-3% from 2004-2006. More recently, ISB revenues have been less steady, increasing 4.9% in 2008 and suffering a small decline for 2009, as the recession bit.
While ISBs have not seen the big declines experienced by other sectors, profitability has been hit by increases in labor, ingredient and production costs, which have proven difficult to pass on to consumers during the current recession. One reason for better-than-might-be-expected performance is the recession has encouraged some consumers to eat at home more often, rather than in restaurants.
Rates of purchase at ISBs do seem to be declining, with only 63% of respondents to Mintel’s consumer survey stating they bought from an ISB over the last year in 2009, as compared to 70% in 2008. Yet, they are falling faster amongst lower-income respondents, indicating that, while some consumers may be deserting ISB’s premium offerings for the bread aisle, more affluent shoppers may be making up for it by buying artisan breads and fancy desserts through ISBs (rather than dining out or shopping at specialty bakeries).
While desserts still account for the majority of ISB sales, it is bakery breakfast which has been moving the channel recently, having grown 9% from 2007-2009 to reach $2.2 billion (21.4% of sales). This change is largely related to more at-home breakfasts that increased as the recession started. However, with the high level of investment in the breakfast daypart recently seen in QSRs (notably Dunkin’ Donuts and McDonald’s), Mintel does not expect breakfast bakery to continue growth at these rates. Consumers continue to seek treats in the form of lower-priced, more affordable desserts.
Breakfast breads are being supported by increased prices. Interestingly, sales of breakfast breads (packaged) have shown a similar pattern to ISB sales, growing 2-3% annually through 2007, then switching to strong growth in 2008 (7.3%, partly on the back of price increases and related to the average price per pound of fresh loaf bread in FDMx, which jumped from $1.41 in 2005 to $1.75 in 2008). Volume sales of fresh loaf bread and fresh rolls/buns/croissants--which together comprise nearly three-quarters of total bread sales in FDMx--actually declined by nearly 500 million pounds from 2005-2008. The full year of 2009 is expected to show sales settling back down to around 3%.
Mintel has also seen a growing interest in private label breads, and consumer data shows penetration of store brands jumping in 2009. Sales have benefited from whole-grain sales, too, although consumers seeking lower-priced products contribute to the soft market. This will likely continue through 2010.
The need for healthier eating, suggested by the growth in whole-grain foods, is further supported by sales of breads though the natural channel. Despite challenges faced by the natural channel, SPINS data shows sales of bread through this channel grew 25% in the years from March 2007-March 2009, to $251 million. A similarly strong growth is evident in this channel for sales of bagels, English muffins and crumpets, which grew 31% in the period of September 2007-September 2009 (to $19 million).
Private label will be everywhere--keep an eye on 7-Eleven’s new line of 15 packaged, private label bakery items, which includes donuts, crème cakes, danishes, pies and buns. The company is quite openly targeting the taste and quality of the national brands. But, value will trump all. According to a recent study from IBM (Ad Week, September 25, 2009), 72% of consumers are more worried about the quality of the food they buy than the price, and 90% believe both value and nutrition will be at least as important, or more so, after the recession. When asked what product they would splurge and spend an extra $10 on, dessert foods were the top choice.
Shopping Behavior Changing
Competition between in-store bakeries and the shelf-stable bakery aisle has been tilting in favor of ISBs, as consumers consider “freshness” to be an important attribute. Besides promoting freshness, ISB products also can be positioned as having no preservatives and being “more natural”--another important attribute for shoppers. Also, as baking-from-scratch becomes a dying art, the market has been partly driven by the convenience factor.
However, towards the end of 2009, Mintel’s consumer research showed some 34% of respondents agreed they are buying from ISBs less often, due to the tough economy. A full 52% said they are eating at home more often, 46% are cooking more often, and 46% have reduced grocery bills through various strategies. Some key respondent groups that are particularly likely to cook and dine at home more include women with children in the household (59% are cooking more, 62% eating dinner at home more often) and Hispanics (52% are cooking more, 59% dining at home more). These groups will be key targets for baked goods manufacturers, as they are looking to the supermarket shelf for better deals.
While those aged 55-64 appear to be cutting back deeply on ISB spending (a high 40% state they are spending less at ISBs), seniors ages 65 and up are actually the least likely to report changing their shopping and eating behavior, probably due to the fact that this group has always been more frugal and may be less directly affected by the recession. This group buys more basic and low-priced breads to begin with and is highly change-adverse. So, while the ISB market will likely be targeting these groups, traditional baked goods manufacturers need to create defensive strategies to counter this.
Generally speaking, the recession brought renewed interest in the concept of baking as a family and it being a fun activity. This is a cheap way of killing time when on a budget, with the added benefit of having freshly baked goods in the home. Sales of easy-bake products have been performing strongly; however, previous behavior patterns would suggest that once people have money back in their pockets, they will, even if not immediately, return to more convenient options (eating out or store-baked). Certainly, the growth rates shown by home-baked products will start to slow, as the economy pulls out of the recession.
The Nostalgia Line
The major players in the industry have gone to great lengths to make their classic products more “modern”--by launching 100-calorie packs and more contemporary flavors--but, they must also keep the distinctive characteristics that make the cakes perennial favorites. Considering more than half of respondents under the age of 65 still, at least occasionally, purchase brands that have been around since their childhood, there is a strong temptation not to “fool around with success.”
Mintel’s consumer research shows over half of people (55%) who eat ready-to-eat baked goods answered, “I sometimes still eat the packaged cakes and pies I ate as a child.” While this response is expected to skew to the younger age groups (and it does), it is interesting to see 60% of 45-54-year-olds also agree.
However, by not changing the packaging, the flavors or the presentation, manufacturers are also taking a risk. While some brands, such as Twinkies, seem to be “evergreen,” they may also become boring and uninspiring. Additionally, while half or more respondents may “sometimes” eat nostalgic products, the frequency with which they do so may not be enough to sustain some of the brands.
What Will Happen Post-recession?
What is going to happen to baked goods after this recession? One thing that is clear is, while consumers eat more at home, they have not become instant cooks. Undoubtedly, some people are cooking more, but much of the focus on recession spending has been on easy-to-prepare foods (think pancake mix, cookie dough, mac-and-cheese); sales of prepared foods have, in most instances, held up (think frozen ready-meals).
Mintel does not see significant annual growth in the immediate future in the various markets that encompass baked goods, cakes and pies, breakfast breads and in-store bakeries, as markets move between 1-3% annually. It does predict growth slowly picking up, as the economy pulls out of the recession.
One of the reasons is the huge effort by QSR and fast casual restaurants, particularly on the breakfast daypart. In part sparked by the coffee wars that began when Dunkin’ Donuts and McDonald’s started sniping at Starbucks, and fueled by the realization that people were forgoing their breakfast muffins in favor of snacks at home, promotional and advertising efforts have been stepped up. As the recession eases, the recession mindset will undoubtedly continue to play a part in purchase patterns (expect private label to keep growing and to see a wider spread of price points). Mintel also predicts people will be opening their purses a little wider, as consumer confidence begins to return, and with that, an increase in buying small treats, including store-bought cookies and cakes.
However, this will be a new consumer. This has already happened, when the low-carb fad was replaced by a new trend towards moderation in food choices. For example, cupcakes and brownies presented an excellent alternative to larger-portioned sweets. Consumers in smaller households also embraced these products for their convenience, and it is the combination of portion size and portion control that drove sales in 2006-2008 and will continue to spur growth, despite little change in 2008-2009.
With the increased focus on health and wellness, better-for-you products are likely to gain more traction. Mintel also believes there is pent-up demand for natural and organic products. Sales of natural and organic have not increased, as was expected, likely due to their higher prices in the recessionary environment. However, as the recession recedes, Mintel expects the pace of sales to pick up. pf
Bill Patterson is a senior market analyst with Mintel International, a consumer, media and market research company with offices in Chicago and London. Mintel’s Global New Products Database (GNPD) is the company’s source of global product intelligence. This article draws from Mintel’s reports, “Cakes and Pies--U.S., December 2008,” “Breakfast Foods--U.S., November 2009” and “In-store Bakeries--U.S., August 2009.” Please visit http://reports.mintel.com for more information or call Mintel at 312-932-0400.
Going Global: Baked Goods
The whole-grain trend has been a boon to baked goods. Don Antonio Galletas Integrales was a whole-grain cookie assortment in Mexico, offered in varieties such as oat, granola, walnut, coconut, cinnamon and chocolate. In Spain, Allos Walter Lang launched Amaranth Multi-Grain Knäcke (crispbread), a certified organic and whole-grain bread made with amaranth rye sprinkled with a seed mix. A similar product in Vietnam, Wholemeal Rye Crispbread, came to market courtesy of Burger Knäcke. Indeed, whole grains could be found in multiple manifestations: from Haegaon’s Wholegrain Cereal Cookies in South Korea, to Italy’s Galbusera ColCuore Wholegrain Crackers from Galbusera Dolciaria (assured to be rich in fiber, with 8% of the daily recommendation), to Bisa Padaria’s Biscoito Integral de Gergelim (a whole-grain sesame cookie in Brazil), to Multigrain Snack Crackers from Hudson’s Bay in Canada (also promising no trans fat).
While trans fat was likewise absent from Tupy’s Algo + Biscoito Cream Crackers in Brazil and Marilan Bauny Black’s Chocolate Flavored Sand-wich Biscuits in Egypt, these two products may be more notable for another positioning: enrichment, with the former enriched with soy, linseed and omega-3s, and the latter promising vitamins A, C and E, in addition to such minerals as selenium and zinc.
Similarly, Lu’s Liga Biscuits EverGreen Hartig crackers in the Netherlands were high in fiber and added iron and B6, while Tohato introduced Japan’s consumers to Cranberry Biscuits with Vitamin E, in addition to 12 grains and a third of the daily recommendation of 10 vitamins. Such vitamin/mineral fortification could be found in the Philippines (Kraft Foods’ Tiger Energy Choco Biscuits), Greece (Kraft’s Ergastiri Pavlidis Wholemeal Cookies) and India (Complan Cream Biscuits from Heinz).
PHOTOS COURTESY OF MINTEL’S GNPD