With so many external challenges to face, a bakery with a firm grip on who the consumer is and what the consumer wants has a decided advantage.
As the light at the end of the economic recovery tunnel flickers more brightly, ours is a nation in transition. Today’s consumers aren’t the same as they were five years ago, and five years from now, they will be different still. Despite the changing face of the consumer, demand for bakery products remains high, and plenty of opportunity exists for bakers who recognize who the consumer is now, and plan for who the consumer will be tomorrow.
Baking Management presents 10 of the biggest trends affecting the baking industry in 2011.
Fewer launches meet with greater success
New product launches will be infrequent in coming months, as food producers exercise extreme caution in bringing new products to market. A positive effect of this caution will manifest itself in greater care in vetting potential products among different regions and demographics. If a company is going to release only one new SKU in the next 12 months, it had better be good.
In an effort to curb the new product introduction failure rate, expect food producers to employ extensive product sampling, consumer testing and focus groups.
“The impact of store brands woke up consumer packaged goods and we can expect more meaningful thought and customer input,” says Phil Lempert, food industry analyst and contributing editor with Supermarket News.
Store brands’ increasing popularity with consumers should be a shot across the bow for bakeries.
The continued rise of private label and store brands vs. national brands: 44 percent of customers saying they believe store brand products are better today than they were five years ago. Only 19 percent say it’s worth paying more for name-brand products.
If consumers can’t distinguish between a store brand and a national brand, they are going to go with the less expensive option. So they key questions bakers have to ask themselves revolve around differentiation. What distinguishes a product and allows it to stand out over the din of the bread aisle?
“Forget brand extensions as consumer packaged goods battle it out with true innovations. Expect fewer new-product introductions but more successes,” Lempert says.
Volatile commodity prices
The good news is that it doesn’t look to be as bad as 2008. Relative to three years ago, the world supply of wheat and other grains is high, so the increased stock alone will mitigate the peaks. But make no mistake that volatility looms.
The next few months are likely to be very erratic for wheat, according to Scott Custard, vice president of Moving Parts, Omaha, Neb., a commodities consultancy firm. “For both corn and soybeans, supplies are so tight that we don’t have a lot of room for error. The wheat balance sheet looks a lot healthier than either beans or corn, but having said that, wheat doesn’t trade in a vacuum. It takes a lot of its cues from corn. And corn is king.”
Corn currently holds the throne because synthetic economic pressures, namely, bio-fuels, placed on farmers on how best to use their acreage. “We’ve created a non-food incentive to produce corn, incentivizing farmers to produce it instead of wheat,” Jim Hess, Horizon Milling, told the Independent Bakers of America.
Also, Sugar has already seen high prices during the past several months. The floods in Australia along with droughts in Brazil, the world’s largest sugar producer, have led to shortages in the international sugar supply. In addition, freezing weather in Florida damaged the U.S. cane crop. Sugar hit $752.70 on the New York Stock Exchange in January, compared to $383.70 at the end of June 2008, and prices are at a 30-year high.
“We don’t have any room for error,” Custard says. “There is a way out of the forest, we just can’t take any wrong turns.”
You should have an app for that
It’s hard to believe that in human years the iPhone would still be in preschool. But four years in the tech world is enough time to spawn four generations of the device, with a fifth due out this summer, and the applications that were so groundbreaking at its original release are now cemented as a part of everyday mobile life.
Although apps are available for every smartphone brand on the market, as well as the iPad, the iPod touch and even Facebook, Apple is the de facto app leader, with more than 350,000 available from its App Store and more than 10 billion downloads racked up. Retail bakeries like San Diego Desserts and D.C.-based Cakelove have been in the app game for a couple of years now, and some may argue that apps are best left to smaller brands that can take advantage of a local presence. But apps also can be for the big boys, as some brands are showing.
In June, General Mills unveiled its Betty Crocker app for the iPad, a 2,500-recipe cookbook that expanded on the brand’s original iPhone app. In July, Dunkin Donuts launched an iPhone app that allows customers to collect friends’ donut requests and place the group order for pick up at a nearby retail location. Pepperidge Farm, which has racked up more than 45,000 Facebook fans, developed an app for the social networking site that lets users send virtual bags of MilanoR cookies to other Facebook users.
As a result of these apps, these three brands are in consumers’ minds even when they’re not at the store, watching TV or flipping through a magazine. What company doesn’t want that?
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Getting sensitive to food sensitivities
Anyone in the baking business knows that gluten-free has taken the retail industry by storm, and the sales power it wields is increasing exponentially. Annual sales of gluten-free products hit $2.6 billion last year, according to market research firm Packaged Facts, and are projected to approach $6 billion by 2015 – and that’s just in the United States. The numbers are astonishing, seeing as the University of Chicago Celiac Disease Center puts the number of people with celiac disease in the U.S. at just 1 in 133. But what’s really exciting for food producers is that it’s not just celiacs who are buying gluten-free foods. According to consumer research firm The Hartman Group, 93 percent of people following a gluten-free diet don’t actually have celiac disease. Instead, they may have a gluten intolerance or sensitivity, they may live in a household with a celiac sufferer, or they just feel that eliminating gluten is a more healthful choice. Clearly, a gluten-free label appeals to a lot more people than just 1 in 133. Add that number to the millions of Americans suffering from other food intolerance and allergies, and suddenly you’ve got a hot new market segment. Four percent of American adults have a food allergy, and that number is rising; millions more suffer from food intolerances or sensitivities.
With billions of dollars up for grabs, manufacturers can’t afford not to make a stab at this niche of the health-focused market. For some, it can be as simple as making a gluten-free claim by just switching from a barley-based sweetener to molasses, as General Mills did with its Rice Chex cereal. For others, it may require the construction of a dedicated allergen-free facility, and that’s a cost that requires much more consideration. But the bakeries that take the plunge may find themselves handsomely rewarded.
American D-ficiency
“Supported by medical research that shows vitamin D deficiencies in Americans, look for naturally occurring vitamin D to be touted everywhere,” Lempert says.
Following the research, the Recommended Daily Allowances for vitamin D for Americans, which assumes minimal sun exposure, were recently increased by a multiple of three for children and most adults. Seniors are expected to consume twice the previous recommended volume.
This means a big bump in popularity for white milk, but bread and bakery products can also be good sources of the nutrient. And if consumers want to get their recommended daily dose of D, they’ll have to consume more products with D, be it a natural source or fortified.
A fundamental premise of the Dietary Guidelines is that nutrients should come primarily from foods. Since there are few natural sources of vitamin D (fatty fish and egg yolks) and they are not consumed on a daily basis, fortification is used as a food-based means for increasing vitamin D intake.
“With the new recommendations, it’s three times more difficult to meet Vitamin D guidelines by food alone. This presents a great opportunity for bakers that use yeasts which are vegetarian sources of vitamin D to make their bread and baked products,” says Jacinthe Côté, corporate communications manager for Lallemand Inc.
Farm and garden
According to consumer research firm Mintel International Group Ltd., Chicago, urbanites have a growing love of gardening and a need for nature. But with fresh, organic produce still economically out of reach for many, so more people are taking a DIY approach.
“In the US, 26 percent of internet users purchased vegetable seeds in past year, 19 percent bought vegetable/flower garden fertilizer and 27 percent like to grow vegetables at home,” company experts say.
For retailers, the affect will be felt primarily in the types of products being launched and, specifically, the names of new lines.
At its core, the gardening trend appeals to the recent localvore movement, espousing a social responsibility to eat locally and a personal responsibility to know where food comes from. The idea in itself might be nice, but it’s not all that practical for volume food producers.
Instead, look for the idea and appeal of localvore to appear in large regional or even national product launches trying to capture lightening in a bottle with homespun, down on the farm-sounding names referencing freshness and farmers market ambiance.
Also, Mintel predicts that rural tourism, working farm holidays and garden leisure may benefit will see an uptick in coming months, further evidence of where consumers’ heads are at.
Competition for shelf space
The shrinking footprint of the modern supermarket leaves shorter shelves in the bread and snacks departments, and more competition.
“Food stores to continue to get smaller (10,000-13,000 square feet)–as the economy continues to sputter–with fewer employees, but more affordable mainstream prepared-food and service departments,” Lempert says. “These stores will be owned by both independents and chains, become pervasive in the hippest downtown areas of major cities where the new emerging workforce–and aging Baby Boomers–are moving.”
When they arrived in the U.S. three years ago, Tesco’s Fresh & Easy stores were a benchmark for the new format. Hy-Vee, Jewel-Osco, Safeway and a host of others launched their own smaller models in 2008. These stores’ expansion into new markets stalled with the recession, but the trend is already picking back up. In October of last year, WalMart threw its hat into the small-footprint ring with a new, 20,000 sq. ft. model aimed at urban areas like New York and Chicago.
This is going to equate to a shorter bread aisle and shorter shelves in these new stores, so in those particular markets, competition for shelf space will grow. Again, differentiation is important for bakers in this case.
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A more informed clean label
The clean label trend is easy to describe–consumers appear to be seeking out food products with shorter ingredient lists and with labels containing more natural-sounding ingredients. What’s more difficult to pin down is its cause. There is no study or dietary recommendation stating that simple ingredients are better for you. And there’s no consistent metric that distinguishes what constitutes “clean.” Like the farm and garden consumer preferences, the clean label trend is likely built more on vague perceptions of wholesomeness and than facts. A common example of this phenomenon is the comparison between sodium bicarbonate and baking soda–they’re both the same thing, but one sounds cleaner, more homespun.
The good news is that as consumers become more engaged in their food and more habituated to reading labels, they begin to learn more about different ingredients. The recently released 2010 Dietary Guidelines will help, as they encourage consumers to choose nutrition-packed foods over empty calories. In the produce aisle, for instance, look for individual pieces of produce to wear a sticker proclaiming its positive attributes.
Also, the new clean label consumer will be more rigorous than previous iterations, less likely to be swayed by vague claims of “natural.” Lempert says that all-natural claims will decline as a more informed consumer seeks substance in health. And Mintel tells use to prepare for an all-natural “shakedown.” Though the clean label trend may have been borne out of vague perceptions, look for it to continue on steadier ground with a better-informed consumer.
Disambiguation of health claims
The food industry has long grappled with health claims. As of late, the cacophony of different labels, claims, seals and badges have consumers unsure who to trust. But recent events indicate that some standardization may be on the way.
With more consumers seeking out healthful information than ever before, and a palpable consumer fatigue from the mixed messages resulting in distrust of claims being made, something had to give. The Food Marketing Institute and the Grocery Manufacturers Association announced a new, voluntary front-of-label health statement called Nutrition Keys, designed to provide a singular, recognizable method of conveying health information. If it succeeds, the labeling system will go a long way in restoring consumer trust in label claims.
Sustainability stabilizes
There is still plenty of potential for finding eco-friendly ways to bring products to market, but experts expect a plateau on new technologies and practices designed to be environmentally sound. “Sustainability is not slipping down the priority list, but instead of seeing new developments, expect to see a continuation of what we have seen, with a few twists,” according to Mintel’s 2011 list of consumer packaged goods trends. For bakery products in the retail space, packaging trends will continue to skew toward minimal, reducing waste generation.
