Changing demographics prompt bakery volume declines

by L. Joshua Sosland
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SCOTTSDALE, ARIZ. — Throughout the past year, the baking industry has experienced a lot of ups and downs in the retail channel, and that’s not necessarily positive news, noted Todd Hale, senior vice-president of consumer and shopper insights, The Nielsen Co., Cincinnati.

On the upside, rising commodity prices, energy and other input costs have forced baking companies to increase prices during the past year, Mr. Hale told attendees at the American Bakers Association’s convention in Scottsdale in April.

“Retailing has always been about location, location, location,” he said. “In 2011, retailing was all about inflation, inflation, inflation.”

On the flipside, volume and unit sales have declined during the past year in many key bakery categories, including packaged bread, buns, muffins, donuts and breakfast foods, according to Nielsen Scantrack data for the 52 weeks ended Feb. 18, 2012.

Many factors contribute

Mr. Hale noted a plethora of factors continue to nibble away at unit volume, including a combination of higher prices and a drop in promotional activity. He said volume has declined not only for bakery products, but also for nearly all major food categories in the retail market.

“There are a lot of questions, mainly where has the volume gone? The good news is you’re not alone,” he said. “Even though the recession technically will have been over in June for three years, we still have a lot of angst in terms of consumers.”

He said angst is being felt by 80% of the population that earns less than $100,000 in annual income and is making fewer purchases and shopping trips. The remaining households that make more than $100,000 have essentially exited the recession and are spending as much or more than they were two years ago.

Baby boomers buying less

Perhaps most significantly, an evolution in demographics may be the cause for the loss of volume and unit sales in the bread category and other bakery segments. Baby boomers, empty nesters and other smaller households don’t need family packs of snack cakes or large loaves of bread.
“Unfortunately, when you age or your kids age, you start eating less,” he said.

Moreover, a declining marriage rate has resulted in a 1% population growth, which has created a challenging environment for the baking industry.

“It’s not like the ‘80s or ‘90s,” Mr. Hale said. “We’re not popping out babies left and right that helps drive growth.”

A long-term shift in the population’s ethnic makeup could be another factor that influenced volume declines in conventional baked goods. Non-white and Hispanic groups account for nearly all of the growth in population in metropolitan areas, and that prompted a big question from Mr. Hale.

“How big is bread to the Hispanic population or the African American population or the Asian population?” he asked.

The increase in tortilla and flatbread consumption may have had an impact on sliced sandwich bread sales. Additionally, Mr. Hale said, the popularity of wraps has had a detrimental effect on overall sandwich making. The baking industry, he noted, needs to find new ways to create innovative products and make bread more relevant to a more diverse group of people.

Nielsen data also shows that packaged lunchmeat and other sandwich filler has declined in volume, suggesting a correlation that households are making fewer sandwiches and seeking more convenient alternatives such as premade meals at supermarkets or on-the-go alternatives offered by fast-casual restaurants.

“People have to work to make a sandwich,” he said.

More demand in other channels

Mr. Hale noted consumers also are buying bread and other baked goods outside of the traditional supermarket channel, including drug stores, convenience stores and other small box chains that have added the greatest number of stores between 2007 and 2011. In response to the proliferation of smaller retail formats, even some of the nation’s largest mass merchandisers are testing downsized versions of their stores that offer a more convenient shopping experience. Value-driven dollar stores and club stores, he added, continue to take a share of the market from mainstream grocery stores.

Even within supermarkets, significant shifts in shopping patterns may be affecting the bread aisle as more consumers shop the perimeter of the store instead of the center of the store, the latter of which accounts for 67% of sales and 69% of profits for grocers. The eroding of sales in the center of the store poses another long-term challenge not only for retailers, but also for any packaged food that’s merchandised there.

Mr. Hale suggested that bakers need to think about a change of course and roll out new products that compete outside of their core product lines.

“How do we innovate to get people into the bread category?” he asked.

For the baking industry, value is not just about price. It’s about a combination of price, innovation and quality.

“Companies are figuring out how to turn a commodity into a premium offering, and that is the challenge you guys have, too,” he said. “How do you reinvent the sandwich? How do you reinvent the breakfast meal occasion?”
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