CINCINNATI — The complex and difficult food industry backdrop against which bakers currently operate is important to keep in mind assessing the picture for the bread category, said Todd R. Hale, principal, Todd Hale, L.L.C.
|Todd R. Hale, principal, Todd Hale, L.L.C.|
“It’s a pretty tough marketplace for edibles in general across the food and beverage market,” he said. “Deflationary pressure has been intense, most notably for eggs and milk.”
Noting that egg prices have plunged to a 10-year low, the price swoon has had an impact on overall retail store performance, said Mr. Hale, a former Nielsen executive.
While the commercial bread category has “had its challenges” relative to high performing categories in supermarkets, the news has not been all bad.
“Three departments have been driving growth at retail during the four years ended in July 2017 — deli, produce and meat,” he said. “Deli and produce have been driving gains about four times what could be expected (indexed in 2017 versus 2013). Meat has grown nearly twice the rate of the rest of the store.
“Without question, the perimeter of the store is where the growth is.”
Performing most poorly has been the frozen department, indexing 80% lower than the rest of the store in terms of share of sales growth.
“Commercial bakery is 14% better than you would expect, measured by sales gain,” he said. “At least it is better than the rest of the store.”
The 114 index number for the commercial bakery category compares with 90 for grocery, the languishing center of the store.
“It’s a challenge for bakery,” he said. “The growth in the perimeter of the store, demand for fresh — gotta have it now in terms of meals and snacks — is a major factor. Prepared meals and snacks are in greater demand than ever before. See-through packaging gives the impression that it is fresher, whether or not that is the case. It isn’t necessarily better for you, but it is convenient and tastes good.”
Notwithstanding the extraordinary growth of the store perimeter, perceptions of the center of the store are somewhat skewed, Mr. Hale said. By virtue of its vast size (a quarter of a trillion dollars annually in Nielsen measured outlets) grocery is more than three times larger than the second largest edibles department — dairy at $68 million. As a result, even modest increment of growth in grocery translates into a large aggregate number.
“Grocery accounted for half of the supermarket growth over the last four years,” Mr. Hale said. “It is not dying. It just isn’t growing as fast as fresh departments.”
Mr. Hale cited a number consumer tailwinds beneficial for the baking category.
“Some good things are happening,” he said. “There is low unemployment, consumer confidence at a nice high and low gas prices.”
Demographics, age specifically, are working against bakers.
“When it comes to spending power and demand for food, the older we get, the less we spend on food,” he said. “I’m so happy the baking industry has introduced half loaves of bread. That’s all we buy, and we don’t finish the loaves. I buy 8-oz cans of coke. I’m 67 years old.”
Millennials are delaying having children, forming families. So the number of mouths to feed is smaller. The birth rates are the lowest since the 1930s.
Looking at trends of possible interest to bakers, Mr. Hale said “free-from” claims remain the most popular, but that interest in certain better-for-you claims may be ebbing.
“Over the last several years the compound annual growth rate (CAGR) for better-for-you claims has been strong across many departments and categories in stores,” Mr. Hale said. ”In many instances the growth rate is slowing. Quite honestly the claims don’t account for a lot of sales, but free-from account for 11% of sales, and they are growing at a good rate.”
Free from artificial colors and flavors is most popular, and gluten-free growth is slowing, Mr. Hale said. For example, gluten-free cookies have a four-year CAGR of 17% but grew only at 8% in the last year.
He noted a similar trend in organic food, with a four-year CAGR of 14%, but only 2.3% in the past year.
Free-from products tend to cost less than organics, creating an opportunity for packaged foods companies, Mr. Hale said.
“’Free-from is a less expensive way for food companies to connect with a large number of potential consumers — those who are concerned about what goes in their bodies,” he said.
Sharing advice for bakers for the coming year, Mr. Hale encouraged the industry to think about how bread is positioned for today’s consumers and within today’s supermarkets.
“You need to be thinking about your flavor profile,” he said. “If we’re more diverse than we’ve ever been, how are your profiles matching up with population segments that could generate growth?
“How well do your products align with areas of stores that are growing?”
He urged bakers to “ride the coattails” of rapidly growing parts of the store like produce and meat.“Bread is a big category,” he said. “Think more about how you merchandise with other categories to help retailers maintain strength in their store with your baked foods.”