Bread and cake producers struggling for identity against supermarket bakeries

With the rise of the supermarket in-store bakery, bread, cake and pastry manufacturing industries are struggling to hold on to market share, according to IBISWorld. While value-conscious customers gravitate towards the private-label offerings of supermarkets, consumers concerned with health and quality are increasingly purchasing high-margin products from artisanal bakeries. Mass-producing operators are being squeezed out and must look to new products and smarter business models to regain their foothold with consumers.

Bread producers have recorded modest growth of an annualised 2.1% over the past five years, with revenue expected to total $2.6 billion in 2014-15. Much of this stagnation is attributed to supermarket in-store bakeries, who target consumers’ desires for both value and freshness.

Meanwhile, shifting consumer preferences are also harming bread producers at the other end of the market. Rising health consciousness is driving consumers to seek organic, wholegrain, seeded or gluten-free options.

Mass producers of bread have only recently started to respond to this trend and are beginning to focus on producing premium, innovative products in an effort to take back market share from bakeries. In May 2014, Goodman Fielder’s Helga’s brand released three low-carbohydrate bread options geared towards health-conscious customers.

Operators in the cake and pastry manufacturing sector are being affected by the same trends as bread producers. The majority of factory-produced cake and pastry products are destined for sale in supermarkets; however, consumers are increasingly turning to artisanal bakeries in search of fresh, innovative baked goods of high quality. By contrast, the mass-produced, often frozen products offered by the industry have lost appeal.

At the same time, budget-conscious customers who are content to purchase cakes and pastries from supermarkets are increasingly turning to private-label products from in-store bakeries to satisfy their desire for fresh products at a low price. This has left cake and pastry manufacturers struggling to hold on to market share. The industry has recorded low annualised growth of 1.3% over the past five years to total an expected $1.5 billion in 2014-15. According to IBISWorld, operators are expected to address this by developing new product lines and targeting the convenience store sector.

Artisanal bakeries have strongly benefited from the growing focus on quality and health consciousness, with the industry expected to post growth of 3.1% to $3.9 billion over the five years to 2014-15. Artisanal bakeries can tailor their offering according to their local demographic and their goods attract higher prices than supermarket offerings, allowing the bakeries to enjoy better profit margins than cake and bread manufacturers.

However, the threat of supermarket in-store bakeries looms large for artisanal bakeries too. Supermarkets are increasingly emphasising freshness and value, and allow customers to complete all their shopping under one roof. Intensifying competition from supermarket in-store bakeries will put pressure on artisanal bakers, even as demand for high-quality baked products remains robust.