Why the U.S. Fresh Bread Market Isn’t as Outdated as Some Might Think
The U.S. market for fresh bread — a category that includes sandwich breads, bagels and English muffins — may not be one of the sexiest in the basket, but it’s more interesting today than it was. has been for many years.
It’s a big category, generating more than $14 billion in annual sales in the United States, according to IRI. It is also a market controlled by a handful of players. Mexico’s Grupo Bimbo, Flowers Foods, Campbell Soup Co. and private label retailers together hold about 75% of the fresh bread market, according to IRI.
However, there are segments of American fresh bread where sales are dynamic and offer bakery groups stronger growth opportunities.
The store center is the main segment of the fresh bread category. It includes slices of bread, bagels and English muffins. The other segment is perimeter bread, where specialty breads like French bread, sourdough and others are marketed and sold. The big brands control the center of the stores. Smaller regional brands are most often found in the perimeter segment.
The Covid-19 pandemic and inflation have brought the fresh bread category back into the spotlight with US retailers and consumers.
Prior to 2020, a higher percentage of US consumers ate out (about 55%) than at home, which meant grocery store sales were down and food sales outside the home were down. house, mainly in restaurants, were increasing.
The long months of restaurant closures, combined with working from home (which to a large extent has remained or at least morphed into a hybrid home-office model) has been a game-changer. Food at home now holds the majority share – around 55% compared to 45% for out-of-home dining – and consumers are making more sandwiches at home, while eating more bagels and English muffins at home, than they weren’t before the pandemic.
Inflation is also positive for the retail fresh bread category. The price of food at the grocery store has increased by double digits over the past year, but it’s still much cheaper to eat at home than to eat out.
Bread remains a staple for U.S. households and brands are keeping consumers interested with strong promotions of up to 50% off the daily retail price despite rising ingredient, freight and labor costs -work.
Retailers also promote their own brands extensively at about the same promotional level as national brand bread makers and, as private label prices are consistently lower than big brands, this has allowed for growth. of the overall private label market share. . Private labels hold the second largest overall market share after leader Bimbo. Flowers Foods is third overall.
NPD will drive the growth of ripe fresh bread in the United States
As this is a mature category, do not expect strong overall sales growth in the US fresh bread market. I expect growth of 1-2% per year at best over the next few years.
Instead, growth will be in innovation in specialty segments such as organic, gluten-free and keto breads, bagels and English muffins, as well as higher-quality breads with retail prices between $5.99 and $7.99.
Less expensive breads, which still account for the majority of sales in the category, are seen more as carriers. The nutritional element comes from, for example, the peanut butter on top rather than the bread itself. Premium breads like whole and multigrain varieties tend to be purchased by consumers looking for nutritional value as well as the taste of the bread itself.
Bread innovation, like what Illinois-based Lewis Bakeries is doing with its Lewis Half Loaf (“half loaf, full flavor” is the bun’s marketing slogan) also offers growth opportunities in the dominant sliced bread segment of the fresh bread category.
For the 52-week period ending March 2022, family-owned Lewis Bakeries, founded in 1925, saw the strongest sales growth, 15%, for any brand in the fresh bread category, according to IRI. This is largely due to its pioneering shorter loaf of bread, which has been strongly accepted by consumers, especially among one- and two-person households, and repeat sales in the markets it has been in. spear.
The bread, known to be called “the stick of life”, is at least 10,000 years old, and sliced bread (the Wonder Bread brand, now owned by Flowers Foods) was first sold in grocery stores in the United States in 1928, according to the Smithsonian Institute. , making it one of the premier consumer packaged food categories.
Looking ahead, here is my summary of the key points of where the market is heading over the next few years.
Big Bread – Bimbo and Flowers Foods – will continue to consolidate their respective positions in the industry, acquiring brands and, to a lesser extent, creating new brands organically. The grand prize for either would be the acquisition of the Pepperidge Farm bread brand, which has a roughly 7% market share nationally according to IRI, from Campbell. Larger players may choose to invest and buy shares in smaller peers, as Flowers Foods recently did with the Best-for-You Baker base crop.
Despite this strong consolidation, there is still room for smaller and more innovative players, and even start-ups, particularly in the perimeter bread segment and even, although to a lesser extent, in the central store segment.
What family-owned Lewis Bakeries, which makes about $350 million in annual sales compared to the billions that Bimbo and Flowers Foods make each year, is doing with its Half Loaf product is a perfect example that there is a space for small players in the space dominated by three big companies and private labels. The key is to find a niche and fill it. Getting to store shelves is the hardest part for small players.
Most innovations in the fresh bread category will come from perimeter specialty breads – whole loaves of French bread, sourdough and other premium breads – rather than from the central store.
The store center, however, will continue to lead the category in terms of overall dollar sales. Within the central store segment, growth will come from niche bread varieties such as organic, gluten-free, keto breads, new multi-grain varieties and new innovations not yet created.
Additionally, bagels will continue to be the star segment of the mall category. Of the three – sliced bread, bagels and English muffins – bagels have seen the strongest sales growth in recent years.
And bagels in particular, as well as, to a lesser but significant extent, English muffins, have breathed new life into the US fresh bread market. Americans love bagels and since they eat more at home rather than going to the bagel store, it has become the category’s flagship segment.
American consumers are also making more breakfast at home, in part because many continue to work from home all week or at least part of the week. This new phenomenon also promotes sales of English muffins. Retailers see this in their sales data and give both extra shelf space, while dedicating secondary display space to both as a way to increase impulse sales.
In the central store segment, house brands of sliced bread, bagels and English muffins rank four to five percentage points behind category leader Bimbo. If the current climate of food inflation continues, I expect private labels to gain one, maybe two points of market share on Bimbo.
However, Bimbo and Flowers Foods have only made small price increases on their brands and continue to promote heavily, which serves as a hedge against the proposition that private label, which is typically priced 30 % to that of the major brands, will gain considerably. apart as consumers go down.
Bread, unlike many other categories, is fairly brand loyal, although retailers have improved the quality of their offerings over the past decade and gained more consumer loyalty to their brands.
Retailers are a strong competitor for brands in the fresh bread category. They own the in-store real estate (shelf space) but depend on the big bread companies to produce their private labels. Because of this symbiotic relationship, I predict that the two, bread makers and retailers, will continue to cooperate and co-exist without major issues.
The general long-term trend of consumers in the US fresh bread market has been towards an increased flight to quality. This is reflected in the major brand acquisitions that Bimbo (Oroweat and Sara Lee) and Flowers Foods (Dave’s Killer Bread) have made in recent years, as well as the quality improvements and range additions they have made to many of their respective brands.
Cheap sliced white bread still exists and sells, but consumers have increasingly shown over the past decade that they are willing to pay a little more for better quality bread.
This is part of the boom in best for you and premium in the whole packaged food industry. Price still matters, but has become more of a relative variable when it comes to central store bread. For specialty items like bagels and English muffins, quality and taste trump price, within reason of course.
The advent of specialty breads like gluten-free and keto has actually opened up the sliced bread segment to consumers who previously avoided it for health and dietary reasons. Elsewhere, look for more gluten-free, keto and other specialty versions, plus new flavor innovations in bagels.
The good news for those playing in the fresh bread category is that the grim predictions of a few years ago that consumers would turn away from sandwich bread were wrong. Overall sales growth may be flat or minimal, but within segments there are strong opportunities.
Just Food columnist Victor Martino is a California-based strategic marketing and business development consultant, analyst, entrepreneur, and writer, specializing in the food and grocery industry. It is available for consultation at: [email protected] and https://twitter.com/VictorMartino01.