Global growth: It's not easy
September 30, 2016
by Pinar Hosafci, Euromonitor International
Baked goods continued to see anemic growth in 2015 due to declining bread sales as a result of the rising popularity of low-carb diets and anti-wastage campaigns. However, in value terms, growth is rather strong, and consumers around the world are opting for high-quality variants in bread. Pastries and frozen baked goods are seeing the opposite, with volume growth outweighing value growth while value options remain popular.
With sales of more than 127.6 million tonnes (280.7 million tons), bread remains the largest baked goods subcategory in 2015 followed by pastries and cakes. Dessert mixes and frozen baked goods sales remain relatively small, though frozen baked good sales are picking up with the rising availability and greater penetration of freezers at retail and household levels.
In terms of volume growth, bread has been the worst performer as a result of the increasing popularity of low-carb diets and waste reduction efforts in emerging markets. Another reason behind bread’s dismal performance is the intensifying competition from other products consumed for breakfast, including pastries, cakes, sweet biscuits and snack bars. These products offer better growth potential than bread because they successfully capitalize on snacking and indulgence trends. To compete with those portable breakfast treats, bread could be positioned as an occasion-specific snack item.
In light of the strong growth in free-from baked goods and the stronger performance of impulse items such as cakes and pastries, bread manufacturers are pursuing inorganic growth strategies to recuperate their falling sales. Expansion of geographic footprints and inclusion of more value-added baked goods are the main motivations behind acquisitions in this field.
As margins in baked goods become increasingly tight, the industry is becoming more consolidated. Bigger players are acquiring smaller baked goods companies to gain shelf space at major retailers and to move toward healthier food and impulse products — both of which show stronger performance than standard bread.
By pursuing an aggressive acquisition strategy, Mexico City-based Grupo Bimbo — a global leader in baked goods — has managed to boost its value share from 3.3% in 2010 to 4.4% in 2015. In actual terms, this represents an increase of $6 billion in annual sales, which is more than the total sales of Tokyo-based Yamazaki Baking Co, the world’s second biggest baked goods company.
While Mexico is the world’s largest baked goods market, Egypt overtook Turkey to become the world’s second biggest market in volume terms in 2015. This is in part due to the Turkish government’s efforts such as its Preventing Bread Waste Campaign, which significantly reduced unpackaged white bread purchases in Turkey.
In Egypt, it is the result of the ongoing government subsidies given to bread flour that has kept unpackaged bread affordable for the masses. At less than $0.50 per kg, bread prices in Egypt are among the lowest in the world, leading to over-purchasing of the staple. With sales of more than 9 million tonnes (19.8 million lb) in 2015, baked goods’ volumes in Egypt are more than France and Italy combined.
Within the Middle East and Africa, Egypt and Iran stand out as the biggest countries with the best growth prospects over 2015-20. While both markets are dominated by packaged artisanal bread, other packaged varieties, in particular high-fiber options, show stronger growth. In Iran, packaged bread’s volume share reached 10% in 2015, up from 7% in 2010 following the gradual lifting of government subsidies in 2010.
Pastries comprise the fastest growing baked goods category and are driven by artisanal sales. The category’s growth is particularly strong in China and the US, which together account for 54% of total volume of pastries. The increasing penetration and appeal of specialized coffee shops and bakeries and ensuing flavor innovation are having a positive impact on the category.
The gluten-free boom, which was one of the main drivers behind bread’s value growth in Western markets, has recently been spreading to other baked good types such as cakes, dessert mixes and bread substitutes. Meanwhile, pastries’ growth is being influenced by flavor innovation and the move to hybrid items.
Over 2014-15, snacking categories, in particular biscuits and sweet and savory snacks, have outperformed packaged food and are growing faster than both staple foods and cooking ingredients. Despite the wider boom in snacking, bread is under-represented in snacking occasions in many parts of the world. It is used far less frequently as a snack than it is at more formal meal times.
Manufacturers should consider adding value to bread via the launch of free-from, clean label and ancient grains, while innovation in cakes and pastries should continue to focus on flavor sophistication. To maintain their presence at large chain retailers, baked goods manufacturers should consider acquiring smaller impulse or health-and-wellness players that show more dynamic growth.
The key consumer trends that are likely to continue in the baked goods market are high-protein, free-from and the movement towards bite-size snacking formats. While these trends are mainly shaping markets in Europe, North America and Australia, the Middle East and Eastern Europe are set to follow suit.