Contrary to popular belief, the popular low-carbohydrate, high-protein diet has not chased consumers away from the bakery aisles. In fact, bakery products have weathered both a stormy economy and a deluge of obesity-related press to continue as a staple of the American diet.
Regardless of economic downturns, people need to eat. Newly reminded of the benefits of wholesome foods, many consumers have begun actively seeing whole-grain, organic and non-genetically modified baked products as part of a healthy diet. Meanwhile, a simultaneous -- and counter-intuitive -- resurgence of comfort foods and decadent desserts has driven up bakery sales significantly. In short, the focus has shifted from low fat and no fat to wholesomeness and decadence.
At the same time, increasingly hectic lifestyles are propelling the growth of convenience products in the bakery category, be they value-added, portable or par-baked mixes. ACNielsen's 2003 Consumer Pre*View survey of attitudes and behaviors found that the majority of households are too tired to prepare evening meals. Hence, convenience-oriented bakery products are growing rapidly, as are miniaturized items, often "hand held" for the "on the go" consumer.
But "convenience" shouldn't be regarded as a convenient substitute for authenticity in the baking sector. The nation's increasingly diverse population has prompted increased awareness and acceptance of ethnic foods. As a result, more and more consumers demand authentic ethnic bakery products. More frequent travel and restaurant visits among consumers are likewise fueling demand for authenticity.
Our daily bread
The U.S. bread sector netted $8.6 billion in 2002, according to Information Resources Inc (IRI). Less stringent price-cutting, a feature of last decade's marketing culture, actually helped boost bread sales figures above those of the previous two years. Products were repositioned in their categories thanks to new "value-added" features, as well as ethnic twists. Willing to pay more for quality and variety, consumers responded to these products with increased patronage. With almost 100 percent household penetration, however, the bread sector has little room to achieve dramatic growth. Hence, future growth will most likely rely on similar "value added" features, probably at the expense of more traditional offerings.
While many Americans claim to have adopted healthier eating habits, recent market data suggest otherwise, at least for the sweet baked goods sector. The American appetite for high-calorie, low-nutrient foods has soared, with sweet baked goods (including packaged cakes, snack cakes, cookies, doughnuts, pastries, pies and muffins) netting $13 billion in 2002 alone. During the same period, Americans topped the sugar consumption chart globally with an intake of 152 lbs. per person annually, 15 percent above the world average and 30 lbs. more per person than in1980. Candy, ice cream and even beverage makers have begun encroaching upon the traditional sweet baked goods market with indulgent concoctions loaded with chocolate, caramel, peanut butter and other gooey delights. Absence of any truly exciting new products or technological innovation may compel insatiable consumers to turn to other product categories to fill the resulting void.
Restructuring the sector
The recent spate of mergers and acquisitions in the U.S. baking industry has reduced the playing field to two or three large players, a few medium-size companies and numerous smaller operations. Much of this redistribution of wealth can be traced to corresponding consolidations among the retail, distribution and ingredient sectors. In response, larger players in the category went into an acquisition mode and smaller ones merged, the idea being to capitalize on economies of scale. Subsequent growth relied on volume driven innovations, producing Giants that rewrote the rules on procurement, manufacture, distribution and logistics. In the meantime, larger retailers centralized in order to reduce costs, making the procurement of retail shelf space even tougher for small bakeries. These retailers also imposed slotting fees and performance guarantees on manufacturers, prompting many smaller companies to sell to competitors with better distribution, or acquire or form strategic partnerships with other bakers in order to achieve a critical mass in the areas of production and distribution.
Innovation and differentiation often are the big losers in the battle among food industry giants. In fact, innovations, if they occur at all, generally belong to the realm of smaller players and suppliers. These companies are often acquired by larger players hoping to leverage differentiation as a competitive advantage, though more often than not the outcomes are eclipsed by the "commoditization culture" of the acquirers.
So it has been with the baking industry. The Goliaths focused on economies of scale while the Davids opted to differentiate. The former leveraged distribution and logistics while the latter employed technology and science to achieve presence and market share.
As a result of in-store labor problems, large retailers have turned to commissaries to produce fresh-baked, consistent products. Along with automation, commissaries allow in-store bakeries to meet the growing demand for convenient, portable, healthful, premium products that are fresh and healthful, albeit at the expense of wholesale bakeries. In the meantime, smaller bakeries have turned to prepared mixes and blends to produce artisan quality breads, cakes and desserts at a fraction of the price of in-store bakery offerings. By paying greater attention to consumers' needs, and by leveraging their creativity and customization capabilities, artisan bakeries captured market share from wholesale bakeries.
Regardless of their size, more and more baking companies are outsourcing for expert assistance in the areas of new product /process development, testing and quality assurance. Gretchen Stewart, Principal and Vice President with Kansas City-based CII Laboratory Services, a leading laboratory for the baking, milling and grain industries, says CII is receiving numerous requests for shelf life testing studies , previously the purview of in-house labs. "Our competency affords them peace of mind while our capability allows for efficiency at a fraction of the cost of a dedicated laboratory," she says.
The baking industry is, without doubt, in a state of flux. Consolidation, distribution and logistics are no longer enough to sustain leadership in this category. These days, the key to success is providing differentiated products and services to an astute and diverse market. Along with science, keen insights about the American appetite will serve as the foundation for reinvention.
Key developments in the kitchen
Shelf life extension is probably the only successful innovation to come from the baking industry in the past decade. Interstate Baking led the movement by extending the shelf life of its breads up to 10 days.
While baking companies blame declining sales on the high-protein diets, their attempts at revising formulations accordingly have been slow, according to Gretchen Stewart, principal and vice president CII Laboratory Services. The proliferation of low-carbohydrate products are largely the work of a daring few , generally newer and smaller players such as Atkin's Nutritionals Inc., Ronkonkoma, N.Y., Ovens of Oconomowoc (Wis.), and Carbolite Foods Inc., Evansville, Ind.
Federal regulations, particularly those concerning nutritional labeling, will probably be the strongest motivators for new developments this sector. Recent trans-fatty acid regulations, along with greater expectations on the part of the consumer, have forced the baking industry to being innovating and evolving in a healthier direction. Recent world events, notably bioterrorism and resulting regulations, are significantly changing product procurement and labeling. Also, look for obesity-related class action suits to result in bakery products with fewer calories and less sugar.