Bread and cake producers struggle with changing consumer tastes

19th August 2014
IBISWorld
The rise of the supermarket in-store bakery is causing problems for the bread production and cake and pastry manufacturing industries, which are struggling to hold on to market share. Value-conscious customers are gravitating towards the private-label offerings of supermarkets, while consumers concerned with health and quality are increasingly purchasing high-margin products from artisanal bakeries. Mass-producing operators will have to rely on new product lines and smarter business models to effectively reach customers.
The battle for market share in the bread production industry is intensifying. The rise of the supermarket in-store bakery has been a massive challenge for bread producers, who have recorded modest growth of an annualised 2.1% over the past five years. Revenue is expected to total $2.6 billion in 2014-15. For customers that are primarily concerned with value, in-store bakery products are low-priced while also appealing to the customer’s desire for freshness. Additionally, both major supermarkets offer $1.00 loaves of private-label white bread in a bid to grab the attention of budget-conscious shoppers.
Meanwhile, shifting consumer preferences are also harming bread producers at the other end of the market. Rising health consciousness is driving consumers to seek organic, wholegrain, seeded or gluten-free options. Furthermore, the popularity of cooking shows and celebrity chefs has brought quality and freshness to the forefront of consumers’ minds, even for household basics such as bread. Many customers are willing to forgo the cheaper supermarket loaf in favour of high-margin, specialist products from artisanal bakeries. Mass producers of bread have only recently started to respond to this trend, and are now beginning to focus on producing premium, innovative products in an effort to take back market share from bakeries. In May 2014, Goodman Fielder’s Helga’s brand released three low-carbohydrate bread options geared towards health-conscious customers.
The majority of products made by factory-based cake and pastry manufacturers are destined for sale in supermarkets. Operators in this industry are being affected by the same trends as bread producers. As quality, freshness and nutrition have become increasingly important to customers, the mass-produced, often frozen products offered by the industry have lost appeal. The view that a sweet indulgence should be fresh and high quality has gained traction among consumers, who are increasingly turning to artisanal bakeries for fresh, innovative baked goods. At the same time, those budget-conscious customers that are content to purchase cakes and pastries from supermarkets are increasingly turning to private-label products from in-store bakeries. These products are marketed as freshly baked, but are low in price. This has left cake and pastry manufacturers struggling to hold on to market share. The industry has recorded low annualised growth of 1.3% over the past five years to total an expected $1.5 billion in 2014-15, and will have to quickly adapt to consumer trends to maintain growth. Operators are expected to develop new product lines and target the convenience store sector.
Unlike cake, pastry and bread producers, artisanal bakeries have immediately and strongly benefited from the growing focus on quality and health consciousness. Over the five years through 2014-15, the artisanal bakery industry is expected to post growth of 3.1% to $3.9 billion. Artisanal bakeries offer a range of fresh, specialist products. Operators can tailor their offering according to their local demographic, and their innovative, fresh-baked goods attract higher prices than supermarket offerings. This allows artisanal bakeries to enjoy better profit margins than cake and bread manufacturers. However, the threat of supermarket in-store bakeries looms large for artisanal bakeries too. Supermarkets are increasingly emphasising freshness and value, and allow customers to complete all their shopping under one roof. Intensifying competition from supermarket in-store bakeries will put pressure on artisanal bakers, even as demand for high-quality baked products remains robust.