European baking market: In Recovery Mode
Jan. 3, 2011
by Francisco Reduello
Despite the challenges facing Greece, Ireland and possibly other European countries, retail sales of bakery products in Europe eked out slight gains in 2010. In addition to a pickup in demand for packaged, industrial bread, European consumers continue to steadily jump on the health and wellness bandwagon, which could affect sales for the long run, according to the latest research by Euromonitor International, Chicago, Illinois, USA.
Overall, the data indicate that the European bakery market seems to be in recovery mode, but the projected outlook for the market remains uncertain and, in many cases, volatile. Retail sales of bakery products in Europe reached US$171 billion (€124,800 million) in 2010, up 1% from the previous year, Euromonitor reported. This performance is relatively modest when compared with the retail value growth of 4% registered at the global level. Research shows that the significant recovery in economic growth in Eastern Europe is having a considerable effect on consumer behavior. In 2010, GDP grew by 3% in real terms in the region, compared with the 6% decline registered the previous year.
Sales of bakery products declined by only 0.4% in retail volume terms in Eastern Europe in 2009, slowing from the 2% drop registered the previous year. Economic recovery in Western Europe was slower as GDP grew by a mere 2% in real terms in 2010. The weaker economic recovery in Western Europe, however, had a positive impact on demand for staple products. Retail volume sales of bakery products in Western Europe grew by 1% in 2010, in line with the performance registered the previous year.
By product type, biscuits recorded the strongest retail volume growth (1.4%) in 2010, followed by breakfast cereals (1.2%) and baked goods (0.3%). In retail value terms, baked goods was the largest category, accounting for almost 83% of total retail sales, followed by biscuits (12%) and breakfast cereals (5%).
BREAD SALES PICK UP.
Sales of packaged/industrial bread in Europe rose by 0.4% in retail volume terms in 2010, reversing the 0.3% decline registered the previous year. Packaged/industrial bread is considerably more expensive than unpackaged/artisanal bread, which is why the latter demonstrated far stronger growth in 2009 when the recession reached its climax. Early recovery signs in 2010, particularly in Eastern Europe, contributed to improved consumer confidence and prompted a moderate trade up to more premium bread formats.
One key example of this trend was Ukraine, which saw packaged/industrial bread sales grow by 1% in retail volume terms in 2010. This reversed the decline registered the previous year when sales fell by 9%. Ukraine was severely affected by a contraction in global demand for raw materials, which prompted, in turn, a 40% value decline in exports in 2009. Stronger economic growth in its main export market, Russia, and the sustained recovery of food and energy commodity prices contributed to improved Ukrainian consumer confidence and increased average expenditure on food in 2010.
HEALTH DRIVES GROWTH.
Research shows that long-term trends such as health-and-wellness concerns continued to shape the performance of European bakery products in 2010. One key example was the Spanish market. In volume terms, biscuit sales continued to rise despite Spanish consumers’ limited spending power, with sales increasing by almost 3% in 2010. The category benefited from more Spaniards having breakfast at home in an attempt to save money and consumers’ healthy perception of many biscuits. However, current value growth has slowed during the past two years because of the increasing popularity of private )label and its lower average unit price.
Crucially, the functionality and health-and-wellness trends have driven most new product developments in biscuits. Leading Spanish manufacturers have continued to focus on these areas. A good example of this is Quely SA, which launched Quelis Cor in mid-2010. The new healthy biscuit offers antioxidant properties and the ability to scavenge free radicals thanks to its content of polyphenols extracted from grape seed.
In Russia, the growing health-and-wellness trend continued to encourage consumers to choose better-for-you products. Consequently, whole-grain bread is increasing in popularity among mainstream consumers as this variant is positioned as a healthier alternative to more traditional bread types.
In France, one of the main trends in new product development was the launch of organic pastry variants such as Ker Cadélac Madeleine Bio Pur Beurre, an organic muffin line marketed as premium across most French supermarkets. This type of premium innovation added value in a category characterized by the progression of private label and packaged/industrial products.
CONSUMERS INDULGE THEMSELVES.
The pastries category was one of the biggest beneficiaries of economic recovery in Eastern Europe. Higher disposable incomes encouraged Eastern European consumers to spend more money on indulgence food, which prompted, in turn, an increase in demand for bakery products such as pastries. Retail volume sales of these products in the region rose by 2% in 2010, compared with the 1% decline registered the previous year.
In Russia, where pastries are traditionally consumed in the family circle with tea or coffee and for breakfast, packaged/industrial pastries experienced the most dynamic growth in 2010, posting 15% current value increases and 7% retail volume growth. Rapid development of supermarkets/hypermarkets, which encouraged manufacturers to pack pastries according to modern retail standards, led to this category expansion. Also, increasing attention paid to hygiene matters, both on the part of the government and the Russian people, boosted the growth of packaged/industrial pastries.
Demand for pastries in Western Europe continued to grow in 2010, with sales rising by 1% in retail volume terms. Sales have been driven by innovation focusing on natural ingredients, a trend that reflects manufacturer intent to offer indulgence and health properties as a way to differentiate from private label. Italy is a key Western European market for pastries. Packaged/industrial pastries in that country registered value growth of 2% in 2009, although this slowed somewhat in 2010. Sales were driven in part by a good performance from croissants, together with naturally leavened products such as the popular Buondi from Gruppo Bistefani. Packaged croissants from brands such as Mulino Bianco and La Buona Crossanteria from Bauli led overall sales of packaged pastries, with Bauli introducing a line of croissants with jam and cereals.
MATURE MARKET CONTRAINTS.
Sales of bakery products in Europe are predicted to grow by just 0.2% in constant retail value terms during the 2010-15 period, according to Euromonitor International’s projections. Research shows that sales growth in Europe will be constrained by maturing consumer demand and health concerns in the West. Bakery sales are set to benefit, on the other hand, from the strong growth of categories such as pastries and cakes in countries such as Russia and Ukraine because consumers have less time to cook and pay increasing attention to snacking occasions.
From an economic perspective, GDP growth is set to recover in both regions, according to Euromonitor International’s Countries and Consumers database projections. Eastern Europe’s GDP is predicted to grow by 22% in constant terms during the 2010-15 period. This growth will be driven by strong economic recovery in countries such as Russia and Ukraine, which will benefit from the sustained recovery of food commodity and energy prices over the medium term. GDP growth in Western Europe will be weaker (10%), albeit starting from a far higher mark.
Despite the expansion of GDP in Eastern Europe, sales of bakery products are predicted to decline by 1% in constant retail value terms during the 2010-15 period, according to Euromonitor International’s projections. The performance of bakery products at the regional level will be slowed by maturing consumer demand for bread in the Russian market. In Russia, sales of these products decline by 23% in constant value over the 2010-15 period, according to Euromonitor International’s projections. Demand for bread in Russia’s cities will shrink as a result of dietary and obesity concerns, especially among middle-class professionals.
Conversely, economic recovery and strong interest in food products offering indulgence and convenience will underpin baked good sales at category level in countries like Ukraine. Sales of these products in the latter are projected to grow by 5% in constant value terms during the 2010-15 period. Packaged bread (23%) and pastries (25%) will be the best performing categories in the Ukrainian market.
Growth in Western Europe is set to lag behind, and maturing consumer demand will lead to the stagnation of value sales during the 2010-15 period. Health-oriented innovation is predicted to be a recurrent theme across Western Europe, particularly in categories such as bread and biscuits. The introduction of lines featuring a wider range of vitamins as well as a plethora of organic, low-fat and low-salt brand extensions will be used as key strategies to increase differentiation from private label. This added-value driven strategy is set to have a very positive effect on sales in countries such as Norway where sales are projected to grow by 14% in constant value terms during the next five years, according to Euromonitor International’s projections.
Despite the overall soft market for bakery foods in the foreseeable future, Euromonitor International forecasts the gradual expansion of premium products in rapidly developing markets in Eastern Europe, particularly in large urban areas such as Moscow or Kiev. International manufacturers should pay special attention to this trend and adjust their strategies accordingly.
Francisco Redruello is an industry analyst for Euromonitor International. For more information on market data and research analyses, go to www.euromonitor.com or call (+1) 312 922 1115.