BAKERY INDUSTRY:

A PARADOX
Farrelly & Mitchell Executive Report

February 2017
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February 2017
 REAL INDUSTRY EXPERTISE
FROM STRATEGY TO IMPLEMENTATION

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 Farrelly & Mitchell is pleased to present Bakery While consumers want healthy bakery products,
Industry: A Paradox. In this report we offer insights they also want to indulge and do not want to
into how bakery companies can grow and capture compromise on taste. For many consumers, variety
is the spice of life and demand is growing for
market share within a highly competitive and
innovative new recipes and variations of old ones.
paradoxical market.
In our experience as international food and
Our extensive advisory experience supporting agribusiness specialists, we know that
companies in bakery markets around the world understanding the consumer is not enough by
gives us a clear insight into the many challenges itself. In order to remain competitive, commercial
Malachy Mitchell operations need be driven by both market and
Managing Director facing businesses in this industry. As well as
industry practicalities. In the highly competitive
Farrelly & Mitchell drawing from our own hands-on experience baked goods sector, employing innovations that
working with a range of businesses from large improve processes and help reduce costs are just
multinationals to SMEs, we have pulled together as important as product innovations.
information from various published sources to
generate our unique perspective on the future of I would like to thank our research team based in
Europe and MEA. As always we welcome your
bakery products.
feedback.
The industry remains highly competitive with
health trends dominating the global food market,
and the bakery industry. E:[email protected]

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 Contents
Introduction ............................................................. 5

Market Overview ..................................................... 6

What is Driving Consumer Preferences .................. 7

The Health Perspective ........................................... 8

Variety is Key ........................................................... 9

Staying on Top of the Game ................................... 11

Conclusions ............................................................ 12

If you would like to discuss any aspect of this report,

please contact us.

February 2017

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 Introduction

The growth outlook for the bakery industry is While having a market orientation can position
positive, however, market growth is driven by the company for success, the foundations must
rapidly evolving consumer preferences. These
also be solid. The industry is highly competitive
preferences are, in turn, driven by market
trends that are somewhat paradoxical in their and efficient production is essential.
nature e.g. increasing health consciousness Technological innovations in hardware and
among consumers and greater demand for software for the industry continue to push
Going forward, the companies indulgence foods. boundaries. The adoption of these innovations,
were practical, can help companies reduce
that can balance the health The most successful companies are those that
costs and remain competitive.
are responsive to changing market demands.
concerns of their customers Bakery companies need to listen to their
with expectations around customers, and adjust their product mix Companies must explore all bases from
accordingly. product to process innovations to ensure
indulgence are the ones most growth in sales and profits. In this report,
likely to successfully capture Going forward, the companies that can balance
we look at the bakery industry, examining
the health concerns of their customers with
growth in the market. expectations around indulgence are the ones the main factors driving growth in the market
most likely to successfully capture growth in and providing our expert perspective on how
the market. However, that alone is not enough companies can stay on top the competition.
to ensure success.

Variety in a company’s product mix in order to

satisfy changes in consumers’ day to day needs
and desires is also essential. In addition, it is
important that company’s effectively
communicate their products’ features to their
customers to drive sales. This is especially true
as regards consumer health, as a lot of
consumers wrongly believe that certain bakery
products are unhealthy.

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Executive Report: Bakery Industry: A Paradox
Real expertise
Farrelly & Mitchell International Agribusiness, Food & Beverage Specialist from strategy to implementation
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 Market Overview

Fig 1: Global Bakery Product Sales 2015 - 2020

The outlook for the bakery industry is At the same time, paradoxically, consumers
have a strong desire for indulgence foods. This
generally positive, with the value of global sales
is particularly important in the bakery industry
Bakery Product Sales (USD billions)

expected to grow at a CAGR of 6% to reach

600 521 where indulgence foods represent a significant
$521 billion in 2020.
491 proportion of production. Resolving the health
500 463 vs. indulgence paradox represents a significant
412
437 Bread and biscuits remain the dominant
opportunity for manufacturers. Doing so
400 389 categories, with cakes and pastries the fastest
requires marrying health and indulgence
growing. Geographically, growth in the industry
200 through product and technical innovations.
is driven by increased consumption in
emerging and developing countries. In mature
100
markets, demand for traditional bakery
2015 2016 2017 2018 2019 2020 products or the staples, is declining, while sales
of “healthy” baked goods with natural and
Year
organic ingredients are growing.
Source: Euromonitor International 2016, Farrelly & Mitchell Research
One of the key features of the market for
bakery products is the rapidly evolving nature
Fig 2: Global Grocery Retail - New Product Launches of consumer preferences. Evolving consumer
in Select Food Categories preferences contribute to the sector having
Oils & Fats
one of the highest levels of product innovation
in the food industry - please see Figure 2.
Dried Foods

Savory Snacks In mature markets, growth is typically driven by

evolving lifestyles and increasing demand for
Confectionery
comfort food. Among the key trends impacting
Dairy the industry in recent times have been
Soft Drinks increased health consciousness among
5 10 15 20 25 30 35 consumers and growth in consumption of
indulgence food. In the mind’s eye of many
New Product Launches 2010-2015 consumers, bakery products are viewed as
Source: Datamonitor unhealthy.

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Executive Report: Bakery Industry: A Paradox
Real expertise
Farrelly & Mitchell International Agribusiness, Food & Beverage Specialist from strategy to implementation
Page 6
 What is Driving Consumer Preference?

Fig 3: Driving Forces of Consumer Preference

While consumer preferences vary by Companies need to ensure that their products
provide both indulgence and adequate
geographic location, globally, the four fac-
for Baked Goods tors outlined in Figure 3 are the main criteria sustenance. It also contributes to the continued
consumers consider when purchasing bakery fragmentation in the global bakery market
products. where artisanal bakeries dominate and the top
Freshness Taste/Flavour five companies in the industry only hold just
Consumers prefer freshness, taste/flavour over 15% of sales - please see Figure 4.
and price over health benefits. This indicates
that despite the ever increasing importance This, of course, does not mean that health
of health benefits, bakery products are at the concerns do not drive growth in the industry.
pleasure end of the pleasure-sustenance In fact, with regards to consumer preferences;
spectrum in the minds of consumers. health factors are almost always ranked above
other factors such as product origin, brand,
Flavours and freshness are the key package size, tradition, production method
Consumer Preference considerations in the consumers’ perspective. employed (i.e. artisan or mass production) and
Drivers This makes the bakery industry somewhat presence or lack thereof of specific ingredients.
paradoxical.
Fig 4: Global Market Share – Top 5 Bakery Companies
Mondelez Grupo Bimbo
Private Label International SAB de CV
9% 5% 4% Kellogg General Mills
4% 2%
PepsiCo
1%
Other
22%
Price Health/Natural

Artisanal
53%

Pg7 Source: Euromonitor International 2016

Executive Report: Bakery Industry: A Paradox
Real expertise
Farrelly & Mitchell International Agribusiness, Food & Beverage Specialist from strategy to implementation
Page 7
 The Health Perspective

Health consciousness is a rising trend more as an occasional treat, such as weekend

globally and is impacting all food and drink brunches.
product categories. It has resulted in
consumers feeling guilty and being overly Influenced by rising health consciousness,
cautious when it comes to consumption of demand for healthier and nutritional fortified
bakery products. bread has increased and the fastest growing
brands are those that specialise in innovative
For example, a survey carried out by Brennan’s “healthy” bakery products, made from high
While consumers want Bread on the consumption of white bread in quality ingredients and that target demand for
healthier products in greater Ireland found that consumers were largely mis- “free-from” and convenience food.
informed with widespread negative
varieties, they are not sure perceptions around white bread. Despite over However, manufacturers need to ensure that
80% of respondents enjoying the taste of white they effectively communicate their product
what exactly they want bread, the survey found that: messages to consumers. While consumers
beyond ‘healthy’, or even want healthier products in greater varieties,
they are not sure what exactly they want
• Over a third of those surveyed said they
what exactly ‘healthy’ means. don’t eat it because they think it is bad for beyond ‘healthy’, or even what exactly ‘healthy’
them; means. Effective marketing can help consumers
discover new products and features, but also,
• A quarter of people revealed that they and perhaps more importantly, communicate
don’t eat it because they think white bread the health benefits of their products.
is ‘too fattening’; and
This requires an in-depth understanding of
• A further 21% stated that it makes them how consumers think when making purchasing
feel bloated. decisions as well as knowledge of the best
communications channels to use to reach
This is a common theme in many western consumers. In addition, there is significant
countries, where studies consistently find large potential for manufacturers to grow sales of
portions of the population report feelings of these traditional bakery products that have
guilt about consuming white bread. been in decline in recent years. This can be
done by educating misinformed consumers
Bakery products are increasingly treated less as and using simple flavours and clean ingredients.
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Executive Report: Bakery Industry: A Paradox Real expertise
Farrelly & Mitchell International Agribusiness, Food & Beverage Specialist from strategy to implementation
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 Variety is Key

Bakery manufacturers need to be aware that consumption needs. Portable and snackable Additional product benefits or attributes that
options continue to be on the rise, while the add a little excitement to their routine can sway
consumption patterns are changing. In partic-
global grab-and-go breakfast market is set to the consumer away from their usual product
ular, consumers are eating a greater variety of
expand by 46% by 2026. purchases. With more time on their hands
food products.
during the weekend, consumers are able to
Bakery consumption has traditionally been look for indulgence and reward for their week’s
In the baked good market, particularly when
more of a functional task to get sustenance, hard work. Therefore, weekend baked good
treating themselves, consumers want to ex-
rather than for indulgence purposes. It purchases are more exploratory and
periment through the consumption of small
remains so during the week, when consumers sophisticated. Value is still somewhat important
servings of different baked products. They also
want quick and practical solutions that are also but consumers are willing to pay more for the
want to indulge without negatively impacting
familiar, convenient and good value. experience and variety.
their health.

Most bakery products purchases are planned Fig 5: Impulse or Planned Purchases by Consumers in England – Bread and Baked Goods
and relatively routine. However, baked goods 100%
19
are closely related to snacking and treating be- 80% 36 38 41 42 43 46 46 52 52 56 61 61
haviours, and are more likely to be purchased 63 64 72
60%
on impulse than breads - please see Figure 5.
40% 81
64 62 59 58 57 54 54 48 48
20% 44 39 39 37 36
In addition, consumption patterns also differ 28
over relatively short time frames. This is 0%
evident in the desire for weekday convenience
and weekend experience.

Consumers increasingly lead busy lifestyles with

limited time to shop for food during the week.
This has led to the increased demand for Planned Purchases Buy on Impulse

convenient solutions to consumers’ food

Source: Bord Bia (Irish Food Board)
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Executive Report: Bakery Industry: A Paradox
Real expertise
Farrelly & Mitchell International Agribusiness, Food & Beverage Specialist from strategy to implementation
Page 9
 Variety is Key

Companies who want to capture a bigger slice

of the market need to understand this so that
they can appropriately tailor their product of-
fering and marketing communication efforts. To
date, bakery companies have failed to influence
the consumers’ decision-making process to
the fullest extent. This is mainly due to lack of
The desire for variety in the investment in consumer research and product
bakery market is substantial innovation.

and likely to continue to grow The desire for variety in the bakery market is
into the future. substantial and likely to continue to grow into
the future. Companies must have the
flexibility to continuously wow consumers
through tailored new product innovations,
while maintaining a core product range that
meets weekday needs. Without this variety in a
company’s product mix, the core range suffers
and become easily substitutable.

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Executive Report: Bakery Industry: A Paradox
Real expertise
Farrelly & Mitchell International Agribusiness, Food & Beverage Specialist from strategy to implementation
Page 10
 Staying on Top of the Game

A major challenge for the bakery industry has Another example is a suite of sensor-driven
software and hardware packages from
always been the clash of the need for control
Mecatherm SAS, a Paris-based fabricator of
systems and the artistry of baking.
integrated baking lines. The suite includes:
Nonetheless, a competitive market encourages
bakery companies to reduce costs and increase
• A vertical proofer and a hybrid oven that
margins through automation.
combines cyclothermic and impingement
Employing technical heating;
Employing technical innovations that improve
innovations that improve processes and help reduce costs can be just
processes and help reduce as important as tailored product innovations • A maintenance pack that provides
condition-monitoring data that enable a
costs can be just as important in the bakery industry. Progress in machine
predictive approach to machine
intelligence is becoming more central to staying
as tailored product technically innovative for many food compa- maintenance;
innovations in the bakery nies, including industrial bakeries.
• A traceability pack which captures
industry. electronic signatures for every human
Recent years have seen some major technical
input; and
innovations for the bakery industry. One
disruptively innovative example comes from
• An energy and exhaust monitoring system
PreciBake GmbH, a German software
to benchmark consumption of gas,
developer. Their technology, also in use in the
electricity, compressed air and steam.
automotive sector, helps regulate and refine
the production process through sensors and
The adoption of these types of innovations can
software for bakery equipment. As the software
significantly reduce costs and increase plant
collects data, the more informed the program’s
efficiency.
decisions become almost allowing “the
machinery to program itself”.

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Executive Report: Bakery Industry: A Paradox Real expertise
Farrelly & Mitchell International Agribusiness, Food & Beverage Specialist from strategy to implementation
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 Conclusion

The key conclusions from our research are the

following:

• It has never been more important for

• Demographics
• Income bakery manufacturers to listen to their
Drivers • Urbanisation customers and adapt their product mix
• Growth of retail channels accordingly;

• Resolving the health vs. indulgence paradox

represents a significant opportunity for
• Healthy eating manufacturers to grow sales and achieve
• Convience & out-of-home success;
dinning
Trends
• Indulgence
• Offering a variety of products is very
• Diet diversity
• Globalisation of diets important to cater to the ever-busy
consumers, it is not by itself enough.
Companies must also be able to
• Strong growth in niche communicate the features of their products
products to their customers;
• Greater sector investment
Outlook - M&A & adoption of
technichal innovations • An industry this competitive requires
• Drive for quality & innovation pulling all means for success: Offering a
variety of innovative products is not
enough. To be profitable, companies must
be technically innovative as well.

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Executive Report: Bakery Industry: A Paradox
Real expertise
Farrelly & Mitchell International Agribusiness, Food & Beverage Specialist from strategy to implementation
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 Senior Research Team About Farrelly & Mitchell

200 Plus Global Value Chain

Michael Sweeney Farm to Fork
Senior Analyst Sector Specialists Reach & Experience
[email protected]

Established Strengths Clients

Over 12 years Operational & Strategic Corporate & Government
Beste Yildiz
Food & Beverage Business Analyst
[email protected]

Farrelly & Mitchell is a leading international management consulting firm specialised in food, beverage and
agribusiness with offices in Europe and the Middle East.

We help our clients to build and implement sustainable restructuring, transformation or growth strategies across
each link of the food and agribusiness value chain – from large scale crop and animal farmland investments and
agribusinesses to consumer food or beverage manufacturing, distribution, retail and hospitality.

Headquartered in Ireland with an office in the Middle East, the firm works with corporate, investment bank,
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Food & Beverage Business Analyst
[email protected]

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