UK & Ireland: Cost Informs Decisions
The baked goods category is getting back on its feet in the United Kingdom and Ireland, with little differences in each of the two countries. Here’s a look at how the products perform in these two markets.
Following two years of significant inflation and supply chain problems, the baked goods market is finally showing signs of stabilization and growth. The analysts at Euromonitor International looked at the available data up to November 2024 to see how the two countries evolved and what to expect in the following years.
Baked Goods in the United Kingdom: Growth Across the Board
Retail volume sales return to growth as inflationary pressures ease
According to data analytics company Euromonitor International, as inflationary pressures begin to ease in 2024, baked goods in the UK is witnessing a return to retail volume growth. The previous two years were characterised by strong inflation, which led to a decline in demand as consumers faced increased costs. However, as global wheat supplies stabilise, the cost increases are slowing, leading to more moderate price growth in baked goods. This stabilisation is expected to reverse the negative performance of previous years, resulting in modest growth by the end of 2024.
Despite this positive trend, price-sensitivity among local consumers remains high. Products such as frozen baked goods, which outperformed the category in 2023, continue to benefit from their longer shelf life, appealing to cost-conscious shoppers. On the other hand, sweet options such as cakes and sweet pies and tarts face ongoing cost pressures due to the tight supply of cocoa, leading to weaker growth in volume terms. However, current value sales of these baked goods continue to rise strongly due to price increases, reflecting the complex dynamics of baked goods amidst fluctuating economic conditions.
Demand for premium products starts to recover as consumer confidence improves
As consumer confidence improves, there is a notable recovery in the demand for premium baked goods. Despite elevated prices, baked goods remain a staple in the daily diet, particularly for breakfast. This essential status drives consumers to seek higher quality for at-home options, leading to increased demand for premium baked goods. There is also a marginal shift away from private label, which gained popularity during the inflationary period of 2022 and 2023, towards artisanal offerings. Unpackaged bread, cakes, and pastries are benefiting from the gradual recovery of out-of-home spending.
Rising concerns around UPFs and HFSS drive innovation
The rising concerns around ultra-processed foods (UPFs) and high fat, sugar, and salt (HFSS) content are driving significant innovation within baked goods. Sourdough bread, perceived as healthier and of higher quality, continues to gain popularity, boosted by its less processed nature and shorter ingredient list.
Baked goods with a sweet positioning face additional challenges due to HFSS restrictions which came into effect in October 2022. There is now limited in-store visibility of packaged cakes, pastries, and sweet pies and tarts that are classified as high in fat, sugar, and salt, based on the government’s nutrient profiling model. This has prompted manufacturers to reformulate recipes to comply with regulations. This regulatory environment is pushing companies to innovate and offer healthier options without compromising taste, reflecting a broader industry shift towards health-focused product development.
Baked Goods in Ireland: Modest, but Constant Growth
Value sales stagnate as category records deflation
According to data analytics company Euromonitor International, baked goods is set to see stagnation in current value terms in Ireland in 2024. In the previous year, baked goods experienced another year of high single-digit price increases as inflationary pressures across the supply chain persisted. The main factor was the global wheat shortages following the Russian invasion of Ukraine, which kept prices elevated. However, the category managed to record marginal growth in retail volume sales. Bread volume sales recorded modest growth, benefiting particularly from the higher demand for packaged flatbread. The latter grew as a result of consumers becoming increasingly interested in international culinary traditions, such as Mexican and Middle Eastern cuisine. Pastries sales increased as breakfast occasions remained high with consumers looking to reduce their out of home spending. Frozen baked goods outperformed the market thanks to the convenience they offer and their relatively long shelf life. However, cakes and sweet pies and tarts, which recorded even stronger price increases due to the increase in sugar and cocoa costs, lost volume sales due to consumers reprioritising their spending in the context of limited budgets. At the same time, the strong price increases translated into strong growth in current value terms in 2023.