Man may not live by bread alone, but it is one of the most popular foods, with household penetration holding steady at 99 percent. Sales of bread rose to $18.5 billion in 2007, a modest 10 percent increase since 2002 in current prices, but a loss of 5 percent after adjusting for inflation, according to London-based Mintel (www.mintel.com).
Fastest growing segments are rolls/buns/croissants and bagels/English muffins, both up approximately 10 percent in food, drug and mass merchandising stores.
Volume of bread consumed has declined gradually from 2002 through 2007 due to a confluence of factors including price increases from rising wheat and fuel costs; the low-carbohydrate diet trend; shrinking household sizes; and an increase in the number of meals eaten away from home.
Mintel expects the market will keep pace with inflation and total $20.6 billion in 2012, driven by continued price increases, product innovation and a new trend toward more meals eaten at home — a result of the lagging U.S. economy.
But rising prices may lead to bargain hunting. The average price per pound of bread increased 23 percent from 2002 to 2007 (from $1.45 to $1.79) as manufacturers raised retail prices amidst rising costs. While it is unlikely that consumers will forgo a staple like bread due to rising prices, many will switch to less expensive non-premium varieties, private labels and on-sale brands.
In fact, four of the top 10 innovators in the bread market (in terms of number of new products) are store brands (usually produced by private label manufacturers): Target, Wal-Mart, H-E-B and Kroger. Private labels are also upping the ante with upscale products (e.g., whole-grain and organic/natural varieties, breakfast breads) that can compete with brand names, but at a lower price.
Rising food and fuel prices coupled with economic uncertainty in recent months led to a drop in consumer confidence. Consumers, looking for ways to save money, are eating out less. According to Mintel’s “Attitudes Towards Dining Out—U.S., March 2008,” more than half of the respondents were cutting back on how much they spend at restaurants due to the troubled economy, with only 15 percent spending more.
Eating at home presents a significant cost savings versus eating at a restaurant: the cost of food itself is lower, there’s no tipping nor fuel used driving to a restaurant. This trend is likely to benefit the bread category, as most at-home meals include some type of bread either as a side or part of the main dish. Taking meals from home to work, or brown-bagging it, is another positive force in the bread market.
Another opportunity is one that may at first seem to be a negative: The average household size in the U.S. has been on the decline due to a number of reasons, including increased wealth (which allows adult children to move out on their own sooner), women delaying having children and medical improvements that allow people to live longer. Smaller households eat less bread.
However, manufacturers can target smaller households directly. Demand for smaller and single-serve bread products will increase. A 1.5-lb. loaf of bread (today’s standard) is rather daunting for a one- or two-person household. Cost-conscious and environmentally minded consumers who don’t want to waste food are unlikely to continue buying full-size loaves of bread, but they may be willing to pay slightly more for less.
Bread as health food
In order to compete, bread makers need to innovate and focus on healthy and/or premium offerings. The bread aisle has seen an explosion of new products with better-for-you claims, including “whole grains,” “natural,” “organic,” and “no/low trans fats.” These claims are growing sales in segments such as hamburger rolls and English muffins.
In fresh bread, growth is not as strong for these claims, but demand for “super breads” that boast functional ingredients like omega-3 fatty acids, flaxseed, plant sterols and double protein is high.
Baby boomers started entering their 60s in 2006. By 2012, nearly 40 percent of the U.S. population will be age 45 or older. An aging population, in and of itself, will not strongly impact total bread sales, as consumers of all ages eat bread, but the aging of Americans will influence the types of bread eaten.
Looking to lifestyle and diet to manage health issues, boomers will seek whole-grain bread and functional breads with heart-healthy ingredients like plant sterols and more fiber. Sure, these products cost more, but boomers have the money and the inclination to spend more on better-quality breads.
And it’s not just boomers. With rates of obesity and diabetes soaring, many Americans are taking steps to improve their health and eat better. Awareness of the benefits of whole grains has risen in recent years, due in part to USDA’s 2005 Dietary Guidelines, which recommend a 3-oz.-equivalent of whole grains per day to help reduce the risk of coronary heart disease, maintain a healthy weight, and lower risk for other chronic diseases.
According to Mintel’s consumer research, almost half (48 percent) of respondents say that they are “eating more bread advertised as wholegrain than I did last year.” In addition to whole grains, an increasing number of shoppers are buying natural and organic breads.
This is good news for bread market, which was hurt by the low-carb diet trend, which peaked in January 2004. Carbohydrates are no longer seen as something to fear, and bread is back in style—provided it’s made with whole grains.
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Highly fragmented, the bread market is dominated by seven large companies—whose combined sales account for about half of total FDMx sales, as well as dozens of smaller, regional bakeries, according to Mintel. Only George Weston Bakeries has a market share over 10 percent. Historically, there has been a trend toward consolidation, and this is likely to continue as economies of scale become even more critical in a highly competitive environment.
George Weston Bakeries leads market
Toronto-based George Weston Bakeries Inc. (www.gwbakeries.com) leads the U.S. bread market with a 13 percent share of FDMx sales in 2007. Price increases, combined with volume increases in its Arnold and Thomas’ brands, drove sales up 10 percent from 2005-07. Weston continues to be a leader in product innovation, introducing new items geared to consumers’ preferences for healthy and portion-controlled and natural products, including Thomas’ 100-Calorie English Muffins; Thomas’ Mini-Squares Bagelbread; and a line of Arnold Natural Breads.
Sara Lee fights to grow market share
Sara Lee (www.saralee.com), Downers Grove, Ill., trails George Weston in the bread market with an 8 percent market share. In 2005, Brenda C. Barnes became CEO and was charged with turning around Sara Lee’s lagging bread business as part of a company-wide transformation plan. There have been a few bumps in the road to a turnaround. First, Sara Lee received negative publicity in late 2007 when the Center for Science in the Public Interest (CSPI) claimed it fostered consumer confusion by falsely claiming its “Soft & Smooth Made with Whole Grain White Bread” is as nutritious as whole wheat bread—and threatened to sue. The company responded with a consumer education campaign, which included a tool on its website (www.thejoyofeating.com) where consumers can check the wholegrain content of Sara Lee’s—and its competitors’—bread products. The company also launched several new 100% wheat breads which have helped grow its namesake Sara Lee brand. Sales of its Earth Grain brand (which Sara Lee purchased in 2001) continue to slide. Sara Lee is also looking for opportunities to expand its bread business, which currently reaches about 75 percent of the U.S., through acquisitions.
Interstate Bakeries Corp. seeks a buyer
Interstate Bakeries (www.interstatebakeriescorp.com), Kansas City, Mo., it filed for bankruptcy in 2004, partly to prevent a takeover by Mexico-based Grupo Bimbo. With sales continuing to fall in 2007, the company hired a former Pepsi Bottling Group Inc. executive Craig Jung as its new CEO and began a restructuring effort. ISB is seeking a buyer for all or parts of its business, and has been considered by Bimbo and Sara Lee. With 41 bakeries and 6,400 delivery routes across the U.S., Interstate’s bread business could be an opportunity for another supplier to expand distribution and gain economy of scale. Interstate’s bread sales fell nearly 16 percent from 2005-07. Marketer of iconic American brands like Wonder and Hostess, IBC has likely been hurt by the healthy eating trend. IBC has tried to round out its product mix with healthier offerings; however—because many consumers equate Wonder with “white bread”—sales of the brand’s new wheat varieties have been slow to take off.
Flowers Foods watches sales blossom
Thomasville, Ga.-based Flowers Foods’ (www.flowersfoods.com) bread sales grew nearly 10 percent from 2005-07, driven by the strong success of its Nature’s Own brand, whose sales climbed 26 percent to $332 million in 2007. Much of Flowers’ success can be attributed to its emphasis on developing items with whole grains, omega-3 fatty acids, organic ingredients, fiber, calcium and lower calories. In mid-2006, Flowers launched Nature's Own All Natural Specialty Breads targeted to health-conscious consumers. Varieties include: Double Fiber Wheat (which has 5g of fiber per slice, about twice the fiber of 100% whole wheat bread, and is a source of omega-3), 100% Whole Wheat with Organic Flour, and Hearty Oatmeal. Flowers Foods produces and markets bakery products in the Southeast, Southwest and Mid-Atlantic areas. The company continues to gradually widen its distribution into areas next to current territories; in 2007 Flowers expanded its DSD system into west Texas and Missouri.
Bimbo Bakeries leverages healthy eating trend
Bimbo Bakeries USA (www.bimbobakeriesusa.com), Fort Worth, Texas, a subsidiary of Mexico-based Grupo Bimbo, increased its bread sales by almost 12 percent from 2005-07. Price increases, coupled with volume increases in its Bimbo and Oroweat brands, drove growth. In 2007 Bimbo decided not to acquire Interstate, but says it continues to look for acquisition opportunities to “strengthen the company’s market profile, generate additional economies of scale, and create a platform for long-term growth.” Bimbo has successfully leveraged the healthy positioning of the Oroweat brand (purchased from GWB in 2002), adding new organic varieties and breads with functional ingredients like heart-healthy omega-3 and plant sterols, and is also testing a new line of Oroweat Mini Loaves—aimed at smaller households or families that prefer to buy several different varieties of bread—in Cal., Ariz. and Nev.
Campbell’s Pepperidge Farm outpaces the competition
Campbell’s Soup Co. (www.campbellsoup.com), Camden, N.J., maker of Pepperidge Farm breads, outpaced all of the other major bread suppliers from 2005-07, achieving sales growth of over 16 percent in FDMx. Notably, the brand’s volume sales increased strongly as well; Campbell’s fresh bread volume sales climbed over 8 percent from 2005-07, significantly higher than the other leading suppliers. Similar to Nature’s Own and Oroweat, Pepperidge Farm’s inherent healthy image among consumers has no doubt helped its performance, along with product innovation including new whole grain extensions and products geared to weight-conscious consumers like Pepperidge Farm’s Light Style and Very Thin breads.
Consumers want it all: nutrition, quality and a reasonable price. According to Mintel’s custom consumer research, the three qualities most important to bread shoppers are: “made from whole grains,” “texture of the bread” and “bread is on sale.”
Over half of respondents agree with the statement “There are too many nutritional claims for me to keep up with these days.” There is a clear need for consumer education about these claims. Even more troubling, 50 percent agree that “a lot of bread products appear to be much healthier than they really are.” Not only are many consumers confused, many of them are cynical about nutritional claims in bread. In spite of these concerns, 47 percent value nutrition more than price when they buy bread and 42 percent read the nutritional label before buying bread.
Consumers tend to be ambivalent about the difference between private label and name brand bread in taste. Some 48 percent of respondents say they can taste the difference between store brand and name brand bread. However, when listing important attributes in choosing bread, flavor and taste are not among the top five preferences. Store brands have an opportunity to steal share from branded players by improving taste and quality because half of survey respondents say they can taste the difference between store brand and name brand bread. Target and Wal-Mart are ahead of this curve and have both launched premium-quality private label breads. Quality of the ingredients is considered by 26 percent of respondents when buying bread; another 18 percent want bread to taste like homemade.
Consumers are well aware of the rising cost of bread: 82 percent of respondents say they’ve noticed bread prices go up this year, while 77 percent say they are actually paying more for bread than they did last year. It is likely that some consumers have switched to less expensive brands like private label or are buying whatever brand is on sale. Consumers know that they can save money buy choosing private label over brand name breads, and with consumers pinching pennies in this troubled economy, 45 percent admit they are buying more store brand/private label bread than they did last year. There is a huge opportunity for companies that make healthy, better tasting, and yes, less expensive bread, since 60 percent of respondents say they would “eat healthier bread more often if it weren’t so expensive.”
Private label brands have an opportunity to steal share from branded breads. Consumers are paying more for both branded and private label bread: since 2005, the retail price of each has risen about 11 percent on average according to IRI/Mintel. Private label still represents a significant savings over brands, for example, the average retail price of a loaf of private label fresh sandwich bread is $1.56, compared to $2.84 for name brands. Consumers can save $1.28 per loaf with private label, a significant savings for a family that consumes several loaves per month. Consumers are likely to switch among bread brands and “trade down” from premium brands to buy bread that is on sale.