In UK and Ireland, Consumers Took the Hit

Supply chain woes, the war in Ukraine and Brexit lead to significant increases in the price of bread, affecting the shopping decisions of the most vulnerable populations in the UK and Ireland. But there are many market segments that thrive.

While the political and economical problems of the past five years took their toll on the manufacturing costs of bread in UK and Ireland, which lead to much higher prices for the mass-market products, the baked good market’s value increased by 8% in UK and 11% in Ireland thanks to new market segments that thrive: pemiumization, plant-based, nutrition-forward. The market analysts at Euromonitor International looked at all the factors that influenced the two baked good markets in 2023 and what’s in store for bakers the following years.

Baked Goods in the United Kingdom

• Retail value sales increase by 8% in current terms in 2023 to GBP8.9bn
• Cakes is the best performing category in 2023, with retail value sales rising by 9% in current terms to GBP2.7bn
• Retail sales are set to grow at a current value CAGR of 4% (2023 constant value CAGR of 2%) over the forecast period to GBP10.9bn
• High production costs challenge retail volume sales of baked goods

According to Euromonitor International, the performance of baked goods has been particularly hit by the supply chain crisis, as wheat shortages are putting severe pressure on production costs. The tight global supplies of raw materials have in turn forced manufacturers and retailers to increase their prices. With consumers seeing their budgets increasingly restricted, retail volume sales of baked goods declined in 2022, and the negative trend is expected to continue in 2023. Despite the negative performance in volume terms, double-digit price increases are set to support the category’s growth in current value terms.

This pressure is particularly evident in bread, forcing price-sensitive consumers to trade down to cheaper options; hence, private label offerings saw their combined share further increase in 2022, and this is set to continue in 2023. The growth of private label is also attributed to the positive performance of discounters, in which private label prevails, which have gained extra share in the market. Reducing the size of their offerings without reducing prices (“shrinkflation”) has also been one of the actions adopted by manufacturers as a way to tackle inflationary pressures.

Despite the cost-of-living crisis, the desire for premiumization remains strong

Despite the cost-of-living crisis forcing many consumers to trade down, there is also a desire for premium products offering added-value, for which consumers are willing to pay more. As a result, sales of artisanal bread are growing, with more and more manufacturers investing in sourdough bread, or using alternative flours such as whole grain. Unpackaged flat and leavened bread are also expected to record growth in 2023. Increasing consumer awareness of healthy nutrition has contributed to the development of such products, as consumers perceive them as more nutritious and higher quality.

Retail volume sales projected to return to growth as inflationary pressures ease

Following two consecutive years of strong inflationary pressure, from 2024 onwards price increases are expected to start easing. With deflation being a less likely scenario, prices are set to continue growing, but at a more moderate pace. Consequently, as consumer finances gradually improve, so will demand for baked goods. As a result, over the forecast period 2023-2028 marginal growth is expected in retail volume terms, with the unpackaged categories in bread, cakes, and pastries outperforming overall baked goods. Packaged and unpackaged leavened bread are expected to contribute the most to the absolute volume gains in baked goods, with the significantly smaller category of flat bread also set to record steady growth.

With bread being an affordable staple food, demand for more premium offerings is expected to attract innovation in this space, as consumers are expected to remain willing to elevate the quality of their at-home consumption occasions.

Baked Goods in Ireland

• Retail value sales increase by 11% in current terms in 2023 to EUR1.5bn
• Dessert mixes is the best performing category in 2023, with retail value sales increasing by 13% in current terms to EUR32m
• Retail sales are set to grow at a current value CAGR of 6% (2023 constant value CAGR of 4%) over the forecast period to EUR2.1bn
• Rising preference for plant-based and vegan baked goods leads to innovation

Read the rest of the story in the second 2024 issue of European Baker & Biscuit.