Millers see opportunity for baking despite alarming sales trends
February 21, 2012
by L. Joshua Sosland
A diverse range of forces are contributing to a period of weak demand for sliced bread rivaling, even eclipsing, downturns at the peak of the Atkins era, but a number of promising new product trends offer the hope of staunching erosion. That was the conclusion of marketing and technical services representatives of the three largest flour milling companies.
Representatives of ADM Milling Co., Overland Park, Kas.; ConAgra Mills, Omaha; and Horizon Milling L.L.C., Wayzata, Minn., recently offered their perspectives of the bread market in interviews with the editor of Milling & Baking News.
Trends in the fresh bread category are genuinely worrisome.
According to SymphonyIRI Group (a Chicago-based market research firm), unit sales of fresh bread declined 4.5% in the 52 weeks ended Jan. 22. Dollar sales were up 0.9%.
The one-year volume decline likely was the steepest in the history of sliced bread. In the 52 weeks endedFeb. 2, 2003, at the peak of Atkins, unit sales of bread fell a modest 1.2%. The following year, unit sales were down 1.7%.
The weakness in demand clearly was on the minds of the millers interviewed.
“The fact of the matter is the industry lost ground, additional ground last year,” said R. Michael Veal, vice-president of marketing, ConAgra Mills, Omaha. “Our insights team picked up additional information. We’re investing a lot in research to try to understand what is happening and what we as an industry will need to do to turn things around.”
Drilling deeper into the decline, some additional information gathered by ConAgra Mills was surprising, even puzzling.
“These days you expect white bread to be down, and it was down 3%,” Mr. Veal said. “But whole grain breads were down as well, down 8% for the year.”
He noted five-year trends were more in line with expectations, showing a steep decline in demand for white bread, off 20% in the five years beginning in 2005-06, and whole grain bread up 9%. The data were based on retail outlets other than club stores or Wal-Mart, he said.
“A 20% decline over five years is huge,” Mr. Veal said. “The 11% decline for the (sliced bread) category is a real concern. White bread, as we know it today, is at risk of becoming a niche market. Innovation in enriched flour, consumer products that will bring incremental volume growth is desperately needed. On the other hand, whole grains are doing very well over the long term.”
At Horizon Milling, the weakness in the bread market is viewed as a leading indicator of broader challenges facing grain-based foods, said Megan E. Speas, marketing director, Horizon Milling.
“When we look at the industry, we look at bread as the driver,” Ms. Speas said. “We see the baking category declining from a volume standpoint, again with bread as a key.”
A mitigating factor Ms. Speas suggested could be at play is the growing importance of club stores as an outlet for bread. Club stores are not included in the bread sales data from Cargill and others.
“I think with the growth in club stores, there is a small shift that could be a major driver of the overall decline in volume,” Ms. Speas said. “We don’t have that data. We’ll begin to get that data this year.”
Still, bread volume trends are weak, and three larger forces are thought to be part of the decline, beginning with an increased focus on value, she said. In particular, consumers are wasting less (through freezing or taking greater advantage than in the past of extended shelf life) and are buying more infrequently.
“We also see some channel shifting impacting the bread market,” Ms. Speas said. “Consumers are moving from a value channel like Wal-Mart to even more value, such as dollar stores. There also is shifting to higher end specialty retailers, such as Trader Joe’s. So there is real polarity there.”
Consistent with heightened con-sumer interest in value, bakers have intensified their search for ways to save money on ingredient costs in recent years as commodity prices have surged, said Nicholas
C. Weigel, director of technical services for ADM Milling Co.
“Since the perfect storm in 2008, we’ve seen a lot of baking companies trying to save money on their raw ingredients, which is mainly flour,” he said. “More people are looking at formulation changes, maybe shift to a hard winter-spring blend rather than just spring wheat, and then using other ingredients to
In keeping with the five-year sales data shared by ConAgra Mills, share of bread sales has shifted away from white bread and toward whole grains, but only slowly. In 2006, white bread held a 39% share of the sliced bread category, a figure that slipped to 35% last year, Mr. Veal said. Whole grains over that period have climbed from 17% to 21% last year. Holding steady over this period is the more ill-defined “other” category of variety bread not included in whole grain, maintaining a 44% share.
While some bread varieties in the “other” category may contain whole grains, others do not.
“The overall trend is that consumers are transitioning from white bread to whole grain products,” Mr. Veal said. “‘Made with’ whole grain is included in the whole grain category.”
Asked whether the 2011 decline in whole grain bread sales suggests bakers have lost interest in the trend, Mr. Veal saw other forces at work.
“I would say no, bakers have not lost interest,” he said. “There are certain customers who are more at the forefront of incorporating whole grains than others, and we spend a lot of time with those companies. However, it needs to be more widespread throughout the industry, with an emphasis on adding whole grain content to core product lines in addition to new products or line extensions.”
Technical factors also are an influence as consumers gradually shift away from enriched grain products, said Brian J. Walker, technical service manager at Horizon.
“Baking companies, working in cooperation with suppliers, are grappling with the shift from white bread to whole grains, looking for ways to improve quality and maintain efficiency on high speed bakery lines,” Mr. Walker said. “With whole grains, there are more ingredients that need to bind together. There are a lot more things happening in that dough than is the case with white bread. We’re all learning how to make that better in all areas. We’re running them on the same production lines as in the past. Think about 2004 as the key point in time when whole grains became part of our everyday category. I don’t know how many bakeries have been built in the last eight years. Not many. So we’re trying to run product on the same bakeries that were operating then.”
Elaborating further on the “other” category (beyond whole grains or white bread), Mr. Veal said sales of variety bread made from enriched flour are declining, particularly so-called “wheat bread” baked with little or no whole grains.
“A lot of people like those breads because of their taste and texture,” Mr. Veal said. “There may be an opportunity to reverse the decline by incorporating whole grains that maintain the taste and texture that drives consumers to that style of bread. It’s the taste and texture of white bread with the dark color of traditional whole wheat bread. It’s a very large sector in the fresh bread category.”
While changes in the mix between white, whole grain and other bread may be changing slowly, Mr. Weigel noted changes under way within the whole wheat category itself.
“The big thing in bread is whole grains, whether it is transitional, ‘made with whole grains’ or more robust traditional whole wheat bread,” he said. “In the transitional products, we’re talking about adding whole grains to breads without impacting the taste and texture. What’s going on here is bakers are trying to maintain or increase consumer appeal while also gradually increasing the level of whole grain in those products. Bakers are trying to step up the whole grains from those early levels.
“The second category is the more robust, 100% whole wheat breads, where you know the whole grains are there. Here, bakers want to add more texture. Instead of just 100% whole wheat flour, other grains and forms of grains, like flakes or pieces, are added to give these breads a robust, almost old-world appearance.”
Within the market for whole grains, bakers are becoming more sophisticated in the kinds of whole grain flour they are buying, Mr. Weigel said.
“In the past, when bakers specified the kinds of whole wheat flour they wanted, they focused on specifications like protein,” he said. “Now, more customers are looking for functional properties and customization. The customization is mostly about what the baker is trying to achieve with texture and flavor.”
“I think the whole grains space is definitely evolving,” Ms. Speas said. “Customers are going beyond 100% whole wheat and 100% whole grain. They are trying to go into more specialty grain items, more highly textured bread. They want something that will differentiate you in that space. I also think there is consumer confusion with offerings including made with whole grain, 100% whole wheat, the new Great For You label from Wal-Mart (for which grain-based products need to be half whole grains to qualify), the Whole Grain Stamp and the whole grain claim.”
Intensive scientific work around product appeal will build demand for whole grains going forward, Mr. Walker said.
“In the marketplace, we know there are millers and bakers doing research on flavor, trying to improve flavor and texture with the addition of whole grains,” he said. “One of the things they have done is adding sugar, sweetness, to complement whole wheat. They are trying to make the loaf a little more pleasing to the palate.
“We’re also working with our customers trying to work on formulations with current ingredients trying to keep calories low and keep ingredient deck looking healthy.”
One explanation for the decline in bread sales that doesn’t hold water is cannibalization from sandwich thins, Ms. Speas said. Sales in the once surging category were down in 2011, albeit not as much as sliced bread.
As the sandwich thins segment has matured, bakers are seeking to inject new energy into the category, Mr. Weigel said.
“The consumer interest that has been driving sales of thins is in reducing the portion size, the calories,” he said. “We started with these base level thins. Now we are adding texture and improving the nutritional content. ”
Mr. Weigel suggested marrying consumer interests in gluten-free and “thins” could be a winner for baking companies.
“Producing gluten-free bread has been a challenge due to the volume and texture requirements,” he said. “I think there is an opportunity for gluten-free with the thin category. You don’t need the structure. You don’t need the volume. It will be interesting to see how the gluten-free market develops over time.”
Another hopeful area identified by the millers is bread with functional ingredients, even if efforts to date have not generated blockbuster successes.
“This idea of ‘superbreads’ where you are trying to pack in functional benefits such as omega-3 or high protein bread is something we will continue to see,” Mr. Weigel said. “But it will likely be niche type products. For the mainstream consumer, whole grains is where we see the biggest opportunity to transition to healthier products.”
Ms. Speas also was guarded discussing functional ingredients in baking, describing the move as a “teeny” emerging trend, particularly around satiety and energy.
“Satiety is helping you feel fuller, longer,” she said. “It’s another way to weight management versus reduced calories or fat. It’s a more positive approach. It is ingredients, mostly around fiber and protein. We have seen it in bread in the past but also in the bar space. We’ve seen protein as a functional ingredient growing in the bread space. The difference from the past, the protein we’re seeing today isn’t driving the health claim.
“Energy is interesting. There have been studies done around moms and what resonates with them. ‘Getting more energy.’ ‘Having more energy.’ ‘Being able to go all day.’ We’ve seen energy drinks products in the bar space. Is it something that could be interesting in bread? I saw a sustained energy product in the cookie category. It could lend itself to bread very nicely.”
A brighter area for bread is the food service arena, Mr. Veal said. Volume has been rising with the sector’s recovery, he said. How bread fits into restaurant as well as institutional menus is changing, he said, particularly where children are served.
“With all the attention on restaurant menus from a nutrition labeling standpoint, specifically with children’s menus, there is a lot of discussion about ways to improve core menu items,” he said. “As industry traffic figures rebound and external groups continue their menu assaults operators are looking to address the nutrition profile of their core menu.
“With school nutrition, there will be tremendous whole grain growth. They will really increase the inclusion of whole grains over the next three years, driven by government policy. More whole grain in schools will be very positive for the industry.”
Ms. Speas said millers and bakers alike are working to help reformulate bread and rolls to allow schools to meet tightening federal government requirements for whole grain content.
“Obviously, with the school nutrition guidelines being put into action recently, we will definitely be working with customers to help get more whole grains into their products,” she said. “Getting more nutrition into kids’ nutrition space is a definite focus, getting more whole grains into all their products, not just with school lunch.”
In food service, the number of bread servings relative to overall traffic has held up well, but traffic had been weak, Ms. Speas said.
“Bread servings in food service are recovering but are still down,” she said. “As far as trends in food service, we’ve been seeing more whole grains. Now we’re really going beyond that to focaccia and flat bread. Really pushing the envelope in terms of flavors and texture is a trend we’ve been seeing.”
New products that appear to be emerging include tortas, Mexican sandwiches served on an oblong 6- to 8-inch toasted sandwich roll, called a telera, bolillo or birote. The sandwiches are made with meat and vegetable fillings.
“I wouldn’t call it big yet, but I would call it an emerging trend,” Ms. Speas said. “It has Hispanic origins. About a year ago, it began showing up here and there in the food service space.”
Still another area of strength is indulgence and specialty categories, which are doing well, Ms. Speas said.
“In times when you are pinching your wallet, bread can be an affordable indulgence, products like the Archer (Farms) chocolate cranberry bread; Safeway flat bread with figs and gorgonzola and Costco Innkeeper’s, with its decadent apple strudel breakfast bread.”
Finding cooperative ways for millers and bakers to improve the market environment for bread is crucial, Mr. Veal said.
“We as an industry are really in an interesting position, and other industries have been through the same cycle,” he said. “There is a lot of negative press associated with bread. The same thing happened to the egg industry, pork and even chocolate. At one point they were all demonized. They were able to change the tide of popular opinion through research that defined the positive benefits of the product and then the industry boldly communicated these benefits directly to the consumer.”
The key to reversing the tide of public opinion about bread is clear, Mr. Veal said.
“The quicker we move to make the fresh bread category all about whole grains, the faster we will be able to address the negative press we are getting from the critics of bread,” he said. “The key is getting the consumer on board. That’s the tough thing right now. I think as an industry, we aren’t advertising fresh bread a lot these days. If the bakers aren’t doing a lot of bread advertising and the industry associations aren’t doing a lot of advertising, we’re at the mercy of the critics out there. We need someone out there with advocacy at the consumer level. That will take a pretty significant investment.”
Ms. Speas said a voice in support of enriched grains is crucial as well.
“We’re not in the Atkins era any more, but there is a constant message to consumers that enriched flour is not healthy,” she said. “It’s important both for the milling and baking industries that consumers understand enriched flour is healthy. Both enriched and whole grain products have distinct health benefits. Baked foods are not unhealthy by virtue of the flour.
“I’m very optimistic because I know the bakery industry is an innovative industry. We’ve talked about negatives, but there is opportunity not just around whole grains, but other qualities and kids’ health. I think bakers will find ways to take advantage of the niches.”