Growth Strategies in Bakery and Cereals

CONSUMER
Growth Strategies in Bakery and Cereals

Key trends and future product opportunities By Helen Lewis
Helen Lewis
Helen Lewis is a freelance food and drink specialist with more than six years experience including market research, trends analysis, copywriting, editorial and nutrition. Helen has an NCTJ-accredited BA Honors degree in Journalism from City University, London and has recently acquired a NCTJ diploma (distinction) in Public Relations. Helen is managing director of online food and drink media resource food&drink towers (www.foodanddrinktowers.co.uk), and works with a wide range of clients including the leading weekly industry publication in the UK, The Grocer, and a number of small to medium food and drink companies. Helen has a specialist interest in health and nutrition.
Copyright 2007 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Business Insights. Business Insights Ltd accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon. While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy.
ii
Table of Contents
Growth Strategies in Bakery and Cereals
Executive Summary
Market developments The bakery and cereals market Innovation and NPD Key trends in bakery and cereals Conclusions
10
10 11 12 13 14
Chapter 1
Introduction
16
16 16 17
Research methodology What is this report about? Report structure
Chapter 2
Summary Introduction
Market developments
20
20 20 21 23 24 26 27 29
The role of bakery and cereals in the obesity debate Healthy line extensions of indulgent brands Importance of high quality ingredients Opportunities in healthy indulgence Increasing the importance of breakfast Taking an ethical interest
Chapter 3
Summary
The bakery and cereals market
34
34
iii
Introduction The growing potential of the bakery and cereals market Bakery and cereals market value in Europe and US Value of the bakery and cereals market by category Bread and rolls Breakfast cereals Cakes and pastries Cookies Crackers Morning goods The bakery and cereals market volume and growth, by country Company shares The dominance of artisanal producers and private label Top 10 innovative bakery and cereals companies in the world Case study: Sara Lee
35 35 35 36 37 38 39 40 40 41 42 44 45 47 48
Chapter 4
Innovation and NPD
52
52 53 54 55 56 58 61 62 64 66 68 69 71 72 74 78 80 81 81 82 83 84 85 86 89
Share of new product launches within bakery and cereals Category analysis Bread Case study: Hovis Cakes Cereals Cookies Crackers Mixes and other baking Regional analysis Europe Asia-Pacific Americas Middle East & Africa Future growth potential by region Innovative bakery and cereal brands Formulation Positioning Packaging benefit Case study: Alara Innovation by category Product tag analysis Flavor trends
iv
Chapter 5
Summary Introduction Health Natural and fresh Low fat / low calorie Functional Glycemic Index
Key trends in the bakery and cereals market
96
96 97 97 99 102 103 106 107 108 110 111 113 114 116 117 120
Indulgence Gourmet and luxury Private label Home cooked meals and authentic ingredients Convenience Eating out and on-the-go Impulse purchasing Customization and individualization Targeting children in todays highly sensitive market
Chapter 6
Conclusions
124
124 125 125 126 127 128 129 131 133
Innovation opportunities, barriers and solutions Health Indulgence Convenience Targeting consumer groups From breakfast-time to all-the-time Index
List of Figures
Figure 2.1: Figure 2.2: Figure 2.3: Figure 3.4: Figure 3.5: Figure 3.6: Figure 3.7: Healthy line extensions offering choice to the consumer Combining health and indulgence in new products The importance of ethical trends in bakery and cereals NPD over the next 5 years Bread and rolls, sub-category segmentation by value, 2009 Breakfast cereals, sub-category segmentation by value, 2009 Cakes and pastries, sub-category segmentation by value, 2009 Cookies, sub-category segmentation by value, 2009 24 26 30 38 39 39 40
Figure 3.8: Figure 3.9: Figure 3.10: Figure 3.11: Figure 3.12: Figure 3.13: Figure 3.14: Figure 4.15: Figure 4.16: Figure 4.17: Figure 4.18: Figure 4.19: Figure 4.20: Figure 4.21: Figure 4.22: Figure 4.23: Figure 4.24: Figure 4.25: Figure 4.26: Figure 4.27: Figure 4.28: Figure 4.29: Figure 4.30: Figure 4.31: Figure 4.32: Figure 4.33: Figure 4.34: Figure 4.35: Figure 4.36: Figure 5.37: Figure 5.38: Figure 5.39: Figure 5.40: Figure 5.41: Figure 5.42: Figure 5.43: Figure 5.44: Figure 5.45: Figure 5.46: Figure 5.47: Figure 5.48: Figure 5.49: Figure 6.50: Figure 6.51: Figure 6.52: Figure 6.53:
Crackers, sub-category segmentation by value, 2009 41 Morning goods, sub-category segmentation by value, 2009 41 Bakery and cereals market value versus volume forecast, 2009 43 Bakery and cereals top 5 company shares, (%), by region, 2004 45 Market shares of artisanal and private label manufacturers, (%), by region, 2004 46 Company types expected to have the most influence on innovation levels in bakery and cereals now and in five years 47 Sara Lee EarthGrains bread 49 Share of bakery & cereal product launches, by sector, 2004-2006 54 Percentage growth in market value bakery and cereal categories are likely to experience over the next five years 56 Bread products made with natural and healthy ingredients 58 Hovis products 59 Innovative frosting products 61 Innovative cereal products 64 Right Direction Chocolate Chip Cookies 66 Healthy crackers 68 Crayola Crafty Cooking Kits 69 Percentage share of bakery and cereals products launched by region, 2004 versus 2006 70 New product launches in Europe 72 Gluten Free Choc Cake Mix 74 New product launches in the Americas 77 Anytime Crumpet Mix 79 Regions expected to experience the most growth in bakery and cereals market value over the next 5 years 80 Innovation in formulation - Sultana Hartig 82 Bimbo Mr Dipps 83 Alaras packaging 84 Percentage of innovative bakery and cereals products launched in each category, 20042006 85 Buitoni Fresh Rolled Dough 86 Pasco Mainichi Seni Bread 88 Flavors and ingredients that will experience the most growth usage in bakery and cereals over the next five years 92 Importance of health trends in bakery and cereals NPD over the next five years 98 Yayas Raw Rah Organic Kracker 99 Barilla Fratellis Molino Bianco cereals 102 Low calorie and portioned products 103 Sales growth potential of bread types over the next five years 104 Country Harvest Prairie Bran Loaf 105 Importance of indulgent trends in bakery and cereals NPD over the next five years 108 Duchy Originals gourmet bread and biscuits 109 Gourmet private label bakery products 111 Bobs Red Mill Gluten Free Bread Mix 113 The features of most importance to the success of a bakery or cereal product 113 Dai Ichiya White Caf Ogura Milk 115 Impulse product for the on-the-go breakfast market 117 Vitalicious Foods 126 Tohatos Tohato Hitokuchi Kuro Goma Cream Sando Biscuit 127 Frozen Fruit Filled Snack Pie called Pie-Oh-My! 129 Consumer groups expected to provide the most sales growth potential for bakery and cereal manufacturers over the next five years 130
vi
Figure 6.54: Figure 6.55:
Sales growth potential of consumption occasions for bakery and cereal manufacturers over the next five years 131 Nestls Ski Up & Go 132
List of Tables
Table 3.1: Table 3.2: Table 3.3: Table 3.4: Table 4.5: Table 4.6: Table 4.7: Table 4.8: Table 5.9: Table 5.10: Table 5.11: Table 6.12: Value of the bakery and cereals markets by key product markets, $m, Europe and US, 2005-2009 36 Value of bakery and cereals market by category and sub-category, $m, Europe and US, 2005-2009 37 Volume of the bakery and cereals markets by key product markets, kg m, Europe and US, 2005-2009 42 Top 10 innovative bakery and cereals companies 48 Diversification within the Hovis bread range 60 Bakery and cereal product innovation by type, 2004-2006 81 Top 25 product tags on new product packaging, % of bakery and cereal products launched, 2004-2006 87 Top 20 flavors in bakery and cereal product launched, % of product launches, 20042006 90 Percentage and total number of natural and fresh (including organic) food and drink consumers by usage status, Europe and US, 2004 and 2009 100 Percentage and total number of natural and fresh (including organic) food and drink consumers by usage status, Europe and US, 2004 and 2009, continued 101 Family structures across Europe and the US, (m), 2000-2005 118 Innovation opportunities and potential barriers in bakery and cereals NPD to 2009 125
vii
Executive Summary
Executive Summary
Market developments
Cereals brands that are high in sugar are losing their appeal as parents seek products that are naturally sweetened by dried fruit and other natural ingredients. Products that contain natural ingredients with perceived health benefits such as fruits, seeds, nuts and oats, appeal to parents keen to provide the best possible start to the day for their family. The quality of ingredients used in bakery and cereals products, whether they are positioned as healthy, healthy indulgent, or indulgent, is imperative. High quality ingredients are associated with a superior taste, and a better-for-you perception. Bakery and cereal brands must shake off their traditional reputation as a staple food by adding value to the product offering by tapping into the major trends of indulgence, health and convenience. There are opportunities for manufacturers to produce ready-to-eat cereals for children that can be eaten on-the-go (in the car on the way to work for example) and provide added health benefits such as omega-3, vitamin C and calcium. It is expected that organic will continue to heavily influence NPD in bakery and cereals with 26% of respondents believing it will become very important. Local sourcing and Fairtrade were also rated highly.
10

The bakery and cereals market in Europe and the US is forecast to reach a value of $216.7 billion by 2009, following growth of 10.1% from 2005. Growth in the breakfast cereals category between 2005 and 2009 (28.4%) will exceed all other bakery and cereals categories over the period. It is also expected to be the second largest in value terms by 2009 (behind bread and rolls). In Europe, Germany is the largest bakery and cereals market by value in 2007 at $23.1bn. Significant growth of 9.4% over the forecast period (2005 to 2009) will lead to a value of $24.2bn. Bread and rolls contribute the largest value share in the total European and US bakery and cereals sector. The overall bakery and cereals market volume in Europe and the US will reach 91.8bn kg in 2009, following growth of 3.9% from 2005. The Netherlands is expected to witness the fastest volume growth at 5.1%, which is 0.6 percentage points higher than is forecast for the US market. Consolidation is forecast as the larger multinationals seek to acquire emerging and rapidly evolving start-ups and local manufacturers. It is also likely that M&A activity will occur between the leading companies in order to strengthen the resources and distribution networks at the top of the bakery and cereals market. Kellogg, the company with the strongest global presence in terms of market share in Europe, Asia-Pacific and the Americas regions, is also voted as the most innovative bakery/cereals company in the industry survey. Sara Lees research identified that consumers spend 71% more on trips to the grocery store when bread is purchased, and believes this is an untapped opportunity for retailers to maximize sales by point of sale merchandising, and increasing availability of impulse purchases around the fresh bakery sections within stores.
11
Innovation and NPD

The cookies sector has experienced the most NPD activity within the overall bakery and cereals industry. In 2006, 33.1% of total new product launches in the bakery and cereals sector were cookies. This is followed by pastries and baked goods. The vogue for home baking has been driven by the availability of easy to use products such as flour mixes, ready-made pastry cases, and cake making kits. Between 2004 and 2006 baking categories increased in share of product launches. The cake mixes, frosting and decorations category increased from 1.6% of all bakery and cereals launched to 3.6% and mixes, baking and other non-baking increased from 4.6% to 4.9%. Hovis, a brand with more than 120 years in the bakery business, has developed a series of successful strategies to increase its market share. In January 2007, Hovis repackaged its Invisible Crust White and Best of Both products to encourage greater awareness among parents. Bread is the most innovative category in the global bakery and cereals market. Over the past two years, bread has experienced a major resurgence as more and more consumers, particularly in the West, have returned to a back to basics style diet incorporating more carbohydrates in their natural, unprocessed form. 1.5% of cereals launched between 2004 and 2006 were classed as innovative. There is a rising prominence of more ethical issues within the market. The recyclable tag was on 3.7% of bakery and cereals launches in 2006, increasing by 0.9 percentage points from 2004. Also, organic increased from 2.0% in 2004 to 3.5% in 2006. Sweet flavors dominate the bakery and cereals market. Chocolate is the leading flavor, in 9.1% of bakery and cereal launched in both 2004 and 2006.
12
Key trends in bakery and cereals

Natural ingredients will be the most important health trend in bakery and cereals innovation over the next five years according to the industry executives. This is closely followed by low calorie/low fat, and functional. The target audience for natural and fresh products in Europe and the US is growing. By 2009, the number of loyal natural and organic food consumers in Sweden will have grown by a CAGR of 13.3% from 2004. Industry executives expect gourmet/luxury to be most important indulgent trend in bakery and cereals NPD over the next five years. 49% of industry executives believe greater convenience is feature that is important to the success of a bakery and cereal product More and more consumers want food and drink to be tailor-made to meet their personal and individual requirements. Personalized food will become a more omnipresent trend within the industry over the next five years, particularly in the healthy arena where functional ingredients can be included. Kraft Foods in the US has reformulated its childrens cereals and has begun advertising the new products in the hope of stalling declining sales in a sensitive market. The company stopped advertising its childrens cereals in January 2005 to restrict the marketing of products that did not meet certain health criteria.
13
Conclusions
Consumers are traveling and experimenting more and more, as such they are aware when a product is falsely promoted as authentic. Research the origin of the recipe and ingredients, and avoid over-reliance on terms such as authentic or regional unless they are truly justified. Functional and fortified, lower and lighter, and smaller portions are three key emerging trends in the bakery and cereals market worldwide. In the more developed and established markets such as Europe, manufacturers are already investing heavily in research and development to identify the next big ingredient to add health value to their products. Technologies that make the product taste and look more appealing will continue to be popular with those consumers choosing the convenient option but who are not prepared to compromise on quality. Consumers are also prepared to pay a premium for products that improve their consumption experience, or save them time; linking together convenience and indulgence. Young adults will be a focus for future NPD according to industry executives with 50% stating they offer significant or the most growth potential. Despite the ever-growing senior population around the world, industry executives do not believe adults aged 60 years and above hold much sales growth potential for bakery and cereal manufacturers. Over the next five years, breakfast will continue to offer the strongest sales potential, as consumers switch to more convenient and healthier items such as cereal for themselves and their family. Nearly a third of survey respondents rated the breakfast occasion highly.
14
CHAPTER 1
Introduction
15
Chapter 1
Introduction
Research methodology
Every year thousands of new products in the food and drinks industry are launched by manufacturers hoping to gain consumers interest with innovative developments.
A section of this report provides a summary of food and drink products in the bakery and cereals sector, which were introduced between 2004 and 2006, as reported by Productscan Online. It is a comprehensive review of the bakery and cereals market and provides an in-depth look into the new and emerging trends in this sector. The graphics and tables demonstrate trends in innovation, growth in product launches in the bakery and cereals market and the number of new product launches by region.
Also, this report provides market value and volume data looking at the bakery and cereals market by country and category to demonstrate the key growth opportunities in the market.
What is this report about?

The bakery and cereals market is one of the most established and mature in the global food industry. Over the past two years, the sector has experienced dramatic changes led by changing consumer consumption habits, the increasing focus on health and nutrition, the importance of convenience and industry-led changes, such as the positioning of products for consumption throughout the day and not just at the traditional breakfast time. The report analyzes both the bakery and cereals categories together as they share many drivers and trends.
16
Many consumers are looking for bakery and cereals to be of a high quality, healthy and convenient. Others associate bakery and cereals products with indulgence and treating. In line with growing health and nutrition awareness, this sector is expected to go from strength to strength as manufacturers capitalize on consumer demands for products that tick all the boxes. Its success will be fuelled by manufacturer-led, marketing, PR and advertising campaigns to inform consumers of a products unique selling point (USP) in terms of taste, health and/or indulgence. New product development will be essential to growth in this market, and will continue to be led by multinationals, although smaller brands are providing a solution for shoppers looking for products that are perceived to be more authentic, natural and less processed.
The NPD data used in this report to substantiate analysis and future forecasts is from Productscan Online, which is the worlds longest-established and largest database of new product launches in the consumer packaged goods industry. It contains detailed reports on all key new products launched, including full product details plus an innovation rating that determines whether, and how, a product breaks new ground. The Productscan Online database is updated using a variety of different sources, including store checks, trade fairs, notification from manufacturers, and press releases.
Report structure
The report is structured as follows:
1. Introduction: Report overview and methodology
2. Market developments: Key developments that are influencing bakery and cereals NPD and marketing strategies.
17
3. The bakery and cereals market: Review of the market value and volume of the bakery and cereals market by country and category to identify key growth opportunities in the market.
4. Innovation and NPD: Review of the categories that lead in the bakery and cereals markets and identification of the fast-growth categories. Analysis of market opportunities and key categories by country. Reviews innovative products launched in bakery and cereals, outlining how products are innovative. Provides analysis of the most innovative category within bakery and cereals, as well as identifying key product tags and flavor trends evolving in the market.
5. Key trends in bakery and cereals: Review of the key trends in the market.
6. Conclusions: Analyzes the opportunities, barriers and solutions in the bakery and cereals market. Also looks at future key target audiences and meal occasions.
18
CHAPTER 2
Market developments
19
Chapter 2
Summary
Market developments
Cereals brands that are high in sugar are losing their appeal as parents seek products that are naturally sweetened by dried fruit and other natural ingredients. Products that contain natural ingredients with perceived health benefits such as fruits, seeds, nuts and oats, appeal to parents keen to provide the best possible start to the day for their family. The quality of ingredients used in bakery and cereals products, whether they are positioned as healthy, healthy indulgent, or indulgent, is imperative. High quality ingredients are associated with a superior taste, and a better-for-you perception. Bakery and cereal brands must shake off their traditional reputation as a staple food by adding value to the product offering by tapping into the major trends of indulgence, health and convenience. There are opportunities for manufacturers to produce ready-to-eat cereals for children that can be eaten on-the-go (in the car on the way to work for example) and provide added health benefits such as omega-3, vitamin C and calcium. It is expected that organic will continue to heavily influence NPD in bakery and cereals with 26% of respondents believing it will become very important. Local sourcing and Fairtrade were also rated highly.
Introduction
This chapter looks at the key drivers in the bakery and cereals market and the main issues affecting NPD. Leading consumer drivers in the bakery and cereals sector include: Nutrition education; Premiumization; Ethical issues;
20
Wider product availability and choice; Guilt-free indulgence; Treating; Convenience and on-the-go consumption; Natural and whole health; Functional and fortified health.
The role of bakery and cereals in the obesity debate

It is well known that obesity levels are rising as people find it increasingly difficult to balance the amount of food consumed against the amount of energy used during an average day. Numerous campaigns are now in place around the world to educate consumers about the need to increase exercise and decrease consumption of high calorie, high fat products.
Although products such as bread, cakes and biscuits are associated with an indulgent image, and are regularly associated with the rising level of obesity, the same brands are also reformulating recipes to be lower in fat, sugar and salt, and introducing diet variants, which allow consumers to have their cake and eat it. Bakery and cereals brands are in a strong position to target the growing number of consumers concerned about their weight by promoting the ability of traditional ingredients such as fiber, to make consumers feel fuller for longer.
The obesity issue will continue to be a contentious and complicated area for food manufacturers over the next few years and although individuals are being encouraged (by government campaigns, consumer associations, the media and the food industry) to eat a balanced diet, the blame continues to fall on manufacturers, suppliers and retailers. The International Obesity Task Force (IOTF) has criticised food companies
21
for profiting from selling high fat and low nutrient products in the developing world and tempting poor consumers. The elimination of all indulgent products is clearly not the answer; consumers will continue to desire treats. However, companies that are involved in the indulgent bakery and cereals market will continue to fight criticisms such as those made by the IOTF.
Brands in the bakery and cereals market are advised to consider their role in the indulgent versus the healthy market, and ask the following questions of their brand(s): Is it possible to position the brand as a purely indulgent product for special occasions, treats, and gifts? Will the brands indulgent image be threatened by the launch of a diet variant? Or, will a diet line extension encourage new customers to the brand, while maintaining the loyal customer base with the traditional, indulgent product?
Childhood obesity is a major cause for concern in society around the world. Parents are looking for healthy, natural and convenient options for their children to take to school, and to consume at home. Cereals brands that are high in sugar are losing their appeal as parents seek products that are naturally sweetened by dried fruit and other natural ingredients. Products that contain natural ingredients with perceived health benefits such as fruits, seeds, nuts and oats, appeal to parents keen to provide the best possible start to the day for their family.
In the US in November 2005, Country Choice Organic launched Fit Kids Instant Oatmeal Variety Pack. The oatmeal is available in two flavors with high child-appeal: Caramel Apple/Berry Blast. While parents must be assured of the high nutrient content of the product, attention must also be paid to the taste: children are particularly fussy when it comes to new flavors and anything that is too bland or adult-focused will not appeal. The Country Choice on-pack communications state: We start with whole grain organic oats and add things kids need to be active and healthy, like calcium, iron and vitamins. Then we add things to make it taste really good, like real organic cinnamon,
22
berries and chocolate chips. The result is a great tasting breakfast that can help anyone be a Fit Kid.
Successful adult brands also focus on taste, although the primary focus for many products in 2007 is health. Kelloggs Smart Start Cereal - Healthy Heart exemplifies how a major manufacturer has evolved in line with changing consumer demands. Cardiovascular health is an adult concern, and one that is important to many consumers, particularly those over the age of 40. Containing oat bran, potassium and low in sodium, the product is claimed to contain ingredients that can help lower both blood pressure and cholesterol. The taste is also a priority and the product is described as Lightly sweetened, toasted oat bran flakes and crunchy oat clusters.
Healthy line extensions of indulgent brands

More and more manufacturers are choosing to extend their ranges by introducing diet or lower and lighter versions of existing indulgent brands with the aim of appealing to a wider target audience. This is often viewed as a less risky way of creating a healthier product, but it can also cause confusion for the consumers who enjoy consuming the traditional product because of its indulgent qualities. However, line extensions can build on the current brand image and reputation, and utilize existing distribution networks and production facilities. The decision of whether to launch a line extension, or an entirely new brand, is entirely individual to the company in question.
One innovative example of a company that has launched a healthier alternative to its indulgent products is leading bakery company Bimbo. The company launched a diet version of its popular Tortillas product in Venezuela in November 2006. Promoted as a practical and quick low calorie food, the Diet Tortillas claim to be free from cholesterol.
23
In the UK, a new, independent cereal company called LoveDean launched an original (No.1) version of its granola breakfast in 2006 to appeal to consumers looking for a healthier breakfast. Shortly after the launch, LoveDean Lite was introduced to appeal to health-conscious consumers who are watching their weight. The product contains oats, nuts and seeds that are toasted with oils including hemp and pumpkin and sweetened only with honey. It is positioned as a low GI (glycemic index) food, as well as providing an essential intake of vitamins, minerals and nutrients as well as omega-3 oils.
Lucy ODonnell, founder and managing director of LoveDean, told Business Insights:
Shoppers have the option to buy a cheap product containing lots of preservatives and e-numbers or a premium product like mine with only healthy ingredients.
Figure 2.1: Healthy line extensions offering choice to the consumer
Source: LoveDean
Business Insights Ltd
Importance of high quality ingredients The quality of ingredients used in bakery and cereals products, whether they are positioned as healthy, healthy indulgent, or indulgent, is imperative. High quality ingredients are associated with a superior taste, and a better-for-you perception. While high quality ingredients can create a premium product, the mainstream market is also focusing on the importance of quality ingredients as a unique selling point to enable brands to stand out from the competition. Quality, Premium, Authentic. Superior, and Real are regularly employed terms for new products; not only on the
24
packaging and in accompanying communications (public relations, marketing, advertising) but also in the brand name. For example: Antica Forneria Padana Finest Quality Mini Bruschette. Launched in October 2006 in Italy, France, Belgium, Netherlands, Japan, New Zealand and Australia, the bread alternative is oven-baked and available in 150g boxes in Mediterranean and Garlic flavors; YogActive Crunchy Rice Cereal - Yogurt and Real Strawberries; Yogurt and Real Blueberries; Yogurt and Real Kiwis. YogActive Crunchy Rice Cereal was introduced in mid-2006 for Canadian consumers by A&V 2000 Inc. The crunchy rice flakes with probiotic contains real fruit flavors; Khong Guan Premium Cookies - Macadamia And White Chocolate; Chocolate Pecan; Apricot And Coconut; Sticky Date And Caramel; Ginger; Raisin And Oats. Launched in November 2006 in Singapore, the premium line is manufactured by Khong Guan Biscuit Factory S Pte. Ltd; Dhat Island Foods Dhat Authentic Creole Style Bread. Dhat Authentic Creole Style Bread is now available in the US. It is offered in Creole Sausage, Creole Onion Spice, Black Creole Mushroom and Sweet Yam varieties. The Sweet Yam variety is available in a 2 lb. Format and is manufactured by Dhat Island Foods, Inc; Albany Superior Best of Both Bread. Albany Superior Best of Both was launched in 2005 in South Africa by Tiger Foods. Claimed to have the taste and look of Albany White Bread and the goodness and nutrition of Albany Brown Bread, this loaf with added wheat fiber is free from the bits that children often dont like to eat.
25
Opportunities in healthy indulgence Healthy indulgent products are lower calorie, lower fat, natural, whole and/or organic variants (often line extensions of existing indulgent food). Convenience often supersedes health and indulgence in todays time-rich, cash-poor society, so a product that offers healthy indulgence with added convenience will provide a best-practice solution for consumers.
Bakery and cereal products can solve the dilemma facing consumers when it comes to their food choices by combining health and indulgence. There are various different levels of healthy indulgence, which are highlighted in Figure 2.2.
Figure 2.2: Combining health and indulgence in new products

Nutri-Gran Fruit & Nut Bars Berry & Almond and Cranberry, Raisin & Peanut (US) provide 3g of fibre, 120 calories per serving and 3.5 grams of fat.
PepsiCo, Quaker Oats: Life Chocolate Oat Crunch (US), a chocolate cereal aimed at adults that provides two servings of whole grains per portion, 3-grams of fiber and 10 essential vitamins and minerals.
Healthy
Indulgent
Kashi Vive (US) contains 46% of the daily value of fiber, 20% of the daily recommended values of calcium and vitamin D, as well as natural broccoli extracts.
Strawberry Milkstars Breakfast Cereal from Nestle (China) aimed at Children. Contains nine Vitamins including C, Niacin, B6, B1, B2.
Source: Author analysis
Markets such as the Netherlands and Italy continue to promote bakery and cereals as mainstream, mass-market staples, while more mature and established markets such as the US, Germany and Sweden are optimizing profit opportunities through added value
26
enhancements such as fortification, diet variants and super-premium. Line extensions are a popular, and less risky, way of creating a stronger brand experience. This type of innovation can invigorate the consolidated bakery and cereals market. For example, in the US, Ralcorp Frozen Bakery Products (a subsidiary of St. Louis-based Ralcorp Holdings Inc.) is considering adding a new line to produce cinnamon rolls. The expansion would represent an investment of $4.7m, according to plans on file with the Kentucky Economic Development Finance Authority, and could bring up to 120 new jobs to the Louisville area. The company currently manufactures frozen biscuits, hotcakes, and pre-blended mixes for foodservice and retail grocery product lines.
Increasing the importance of breakfast

Marketing communications explaining the importance of eating breakfast to maintain a healthy diet, and to avoid over-eating later in the day, are starting to make an impact on consumers. Medical research continues to point to the physical and cognitive benefits of eating a healthy, balanced breakfast in relation to weight control, concentration, energy levels and performance at work or in school. Whole grains in particular are benefiting from hugely positive PR following numerous scientific studies published worldwide. However, there is still some way to go in terms of education and awareness regarding which products are good for you and which contain whole grains; this activity will be directed by the leading bakery and cereals companies over the next two years. According to the Home-Grown Cereals Authority (HGCA), 56% of the British population are unaware that oatcakes contain whole grains, 44% didnt realize porridge is made from whole grains, and 34% failed to recognize a granary loaf as a wholegrain product. Although more consumers are aware of the health benefits of eating whole grains, this does not translate into more specific product knowledge. Nearly 60% of the 1,400 people surveyed by the HGCA in 2006 knew that whole grains can help reduce the risk of heart disease and 63% were right in thinking they are good for the digestive system.
In the US, the Whole Grain Stamp (the black and gold symbol created by the Whole Grains Council to help consumers easily identify wholegrain products) now appears on
27
more than 1,000 products (as of January 2007). The Stamp, which was introduced in January 2005 and revised in June 2006, details the whole grain content, in grams, of each food. Products must contain a half serving (8 grams) or more of whole grains per serving, in order to qualify for the Whole Grain Stamp. According to the Whole Grains Council, 76% of the products currently using the Stamp contain a full serving or more of whole grain.
In the US, General Mills cereals are now all made with whole grains and throughout 2006 the company made a rigorous effort to educate consumers about the health benefits of eating whole grain foods. The back of packs on certain General Mills cereals state: 9 out of 10 Americans arent getting enough wholegrainthe plant nutrients, antioxidants, vitamins, minerals and fiber in whole grain work together to help keep you healthy!
The companys research substantiated the UK findings: most consumers knew that whole grains were healthy, but hurdles exist in the form of negative perceptions such as whole grains taste awful or that only brown products contain whole grains not white foods such as bread and crackers.
In 2006, General Mills introduced the 11th variety of its Cheerios brand, Fruity Cheerios. Each serving contains 16g of wholegrain, 25% less sugar than the leading fruit cereals brand (according to the company) and is made with natural fruit flavors and real fruit juice. The Cheerios brand is also teaming up with the National Heart, Lung and Blood Institute (NHLBI) and health advocacy group WomenHeart to raise awareness and provide education about heart disease among women. Such joint venture strategies are likely to increase in prevalence in developed bakery and cereals markets, as brands strive to achieve a healthy reputation based on science, credibility and approval from medical associations.
On the functional food front, Kashi (which was acquired by Kelloggs in 2000) recently unveiled its Vive Breakfast Cereal, promoted as being the first shelf-stable
28
probiotic food to be launched. Probiotics are referred to as the good bacteria, but are usually found in cheeses and yogurt. Each bowl of Kashi Vive contains 46% of the daily value of fiber, 20% of the daily recommended values of calcium and vitamin D, as well as natural broccoli extracts.
Kashi also introduced Kashi Go Lean Crunch Honey Almond Flax, a naturally sweetened multigrain cluster with 500mg of omega-3, 9g of protein and 8g of fiber. It reportedly provides a longer sensation of fullness and is claimed to be delicious, crunchy and hard to resist. The new cereal contains flaxseed, one of the few plantbased sources of omega-3 fatty acids that have been shown to lower blood pressure, triglycerides and total cholesterol levels. In addition, the new product contains sliced almonds, which also contribute to the amount of healthy fat per serving.
Taking an ethical interest

Ethical consumerism is now almost as trendy as it was in the 1970s in many parts of the world. A general awareness of environmental issues such as recycling, food miles and now carbon footprints is starting to influence shopping habits, particularly among middle and high-income consumers, who are starting to adopt a more ethical approach to shopping and are increasing their spend on local, Fairtrade, organic, natural, fresh, unprocessed products. Ethical products are attracting a greater share of wallet because consumers are now more knowledgeable and sophisticated in their purchasing than they have ever been. More and more consumers are aware of ethical issues such as animal welfare, the impact of pesticides on food and the environment, the use of antibiotics in meat, food miles and provenance in general, and Fairtrade issues. The bakery and cereals market is well placed to promote its positive relationship with many, if not all, of these ethical viewpoints. Manufacturers should not assume that marketing a product simply as green or ethical is sufficient in todays market, and over the next five years, shoppers will become more sceptical about companies corporate social responsibility tactics. Brands that are keen to tap into the ethical consumer trend should ensure their entire brand proposition is ethical and not just a small part of it. Producing a bread roll that is natural, organic, and made with local
29
ingredients is one step in the right direction, but more and more people will be deterred from making the purchase if it is sold in over-sized, non-recyclable packaging, or by a multinational company that is oblivious to the size of its carbon footprint.
Figure 2.3: The importance of ethical trends in bakery and cereals NPD over the next 5 years
Recycling Carbon footprint Food miles Local sourcing Organic
Not important
Very important
Fairtrade
Source: Business Insights Industry Opinion Survey Business Insights Ltd
Figure 2.3 provides an overview of the ethical issues that will be important to food and drink industry executives over the next five years. It is expected that organic will continue to heavily influence NPD with 26% of respondents believing it will become very important, although as previously mentioned, organic food in isolation will not be sufficiently appealing to more ethically-minded consumers. Instead, a combination of factors should be incorporated into a brand image to bolster its ethical reputation such as local sourcing, which is viewed as the second most important trend, and Fairtrade (in third place). The recycling issue has been around for a long time now, but shows no sign of losing its prominent role, despite falling behind more recent issues such as Fairtrade. Food miles and a companys carbon footprint were viewed as not important by a larger percentage of respondents, which may come as a surprise to some industry analysts and executives.
30
Directly related to climate change is the issue of food miles, and the rise in local purchasing and interest in farmers markets is representative of such concerns. Food miles are the total distance a food or drink product travels from field to fork. Increased food miles are contributing negatively to climate change, and activists are encouraging people to eat local. Nutritionists and dieticians strongly advocate the consumption of local food as this encourages seasonal eating habits, which are more in line with our bodys needs. Bakery and cereals manufacturers are well placed to benefit from the growing awareness of food miles if they already are well known for being natural, Fairtrade, organic, or even those with a generic healthy reputation. Organic farming is more environmentally friendly, which in turn reduces the use of fossil fuels. According to the UK Department for the Environment, Food and Rural Affairs (Defra), food miles increased by 15% between 1992 and 2002.
Retailers are starting to show an interest in meeting the local needs of consumers, and where possible, bakery and cereals can positively promote the locality and provenance of ingredients to increase coverage and sales. UK food retailer, Marks & Spencer, started to label food that has been imported to the UK by air in March 2007. The label, which features a small aeroplane symbol and the words air freighted, will initially appear on over 20 different food products such as beans, mangetout and strawberries, rising to 150 by the end of the year. This move is part of Marks & Spencers new 200m eco-plan, Plan A, which includes a commitment from M&S to become carbon neutral within five years.
Guy Farrant, Director of Food, Marks & Spencer said:
Our customers want to know more about how food is transported into the UK. We already label all our food with its country of origin, and in many cases we also include the name of the farmer on pack. Were putting an aeroplane symbol on the small amount of food we transport by air because we know this is something our customers increasingly care about.
The UKs organic body, The Soil Association, which is responsible for certifying more than 70% of the organic produce sold in Britain, said in January 2007 that it is considering the removal of the organic classification from food that is air freighted into
31
the UK. Speaking at the associations annual conference in Cardiff, Wales, Soil Association director Patrick Holden said:
There is a strong demand, from the public and many of our licensees, to reduce food miles. Although there is very little air freighting of organic produce, we believe there is an urgent and pressing need to make every contribution to curbing climate change that we can. This is a complex issue though: especially for producers in developing countries where it involves equity and ethical trading issues, and thats why we shall actively engage a wide-range of stakeholders to ensure we get it right.
As the issues become more widely covered in the media, and discussed among consumer groups, the food industry must keep up with changing attitudes and be seen to be proactive, rather than simply jumping on board another ethical trend bandwagon. Companies that take ethical issues seriously and ahead of their competitors, such as reducing a brands carbon footprint (recording carbon dioxide emissions during production and transport of products) will be taken more seriously than those following the herd when the issues become more mainstream in the next two to three years.
Although ethical trends such as food miles, organics, and recycling will continue to climb up the priority list for more and more shoppers, only a minority of people could be categorized as loyal or regular purchasers of ethical products.
32
CHAPTER 3
33
Chapter 3
Summary
The bakery and cereals market in Europe and the US is forecast to reach a value of $216.7 billion by 2009, following growth of 10.1% from 2005. Growth in the breakfast cereals category between 2005 and 2009 (28.4%) will exceed all other bakery and cereals categories over the period. It is also expected to be the second largest in value terms by 2009 (behind bread and rolls). In Europe, Germany is the largest bakery and cereals market by value in 2007 at $23.1bn. Significant growth of 9.4% over the forecast period (2005 to 2009) will lead to a value of $24.2bn. Bread and rolls contribute the largest value share in the total European and US bakery and cereals sector. The overall bakery and cereals market volume in Europe and the US will reach 91.8bn kg in 2009, following growth of 3.9% from 2005. The Netherlands is expected to witness the fastest volume growth at 5.1%, which is 0.6 percentage points higher than is forecast for the US market. Consolidation is forecast as the larger multinationals seek to acquire emerging and rapidly evolving start-ups and local manufacturers. It is also likely that M&A activity will occur between the leading companies in order to strengthen the resources and distribution networks at the top of the bakery and cereals market. Kellogg, the company with the strongest global presence in terms of market share in Europe, Asia-Pacific and the Americas regions, is also voted as the most innovative bakery/cereals company in the industry survey. Sara Lees research identified that consumers spend 71% more on trips to the grocery store when bread is purchased, and believes this is an untapped opportunity for retailers to maximize sales by point of sale merchandising, and increasing availability of impulse purchases around the fresh bakery sections within stores.
34
Introduction
This chapter analyzes the size of the bakery and cereals market in terms of value and volume and provides analysis on the fast-growth countries and categories to identify and pinpoint key growth opportunities for bakery and cereals manufacturers.
The growing potential of the bakery and cereals market

Although the bakery and cereals market has become consolidated in many Western countries, it is experiencing a boom in popularity around the world, as healthy eating messages start to make an impact on consumers. The food and drink industry must now respond to increased consumer health awareness, sophistication, experimentation and interest in new flavors and textures, with innovative new products.
Bakery and cereals market value in Europe and US The bakery and cereals market in Europe and the US is forecast to reach a value of $216.7 billion by 2009, following growth of 10.1% from 2005. The US will show the strongest growth rates at 14.1% between 2005 and 2009 to reach a higher overall market value than is forecast for France, Germany, Italy, Holland and Sweden combined.
In Europe, Germany is the largest bakery and cereals market by value in 2007 at $23.1bn. Significant growth of 9.4% over the forecast period (2005 to 2009) will lead to a value of $24.2bn. In terms of predicted value growth, Sweden takes second place behind Germany at 9.2%, although overall values are significantly lower than most European countries at an estimated $2.6bn in 2007. The Netherlands is only slightly higher in value with a forecast value of $2.9bn by 2009. The mature bakery and cereals markets in the UK and France will experience slower growth to 2009 (5.8% and 5.3%
35
respectively). The UK edges ahead of France in value terms and will reach $13.9bn versus $12.2bn by 2009.
Table 3.1: Value of the bakery and cereals markets by key product markets, $m, Europe and US, 2005-2009
2005 France Germany Italy Netherlands Spain Sweden UK Rest of Europe US Total 11,598 22,125 15,286 2,740 8,812 2,500 13,130 66,759 53,934 196,884 2006 11,729 22,617 15,537 2,773 8,964 2,550 13,337 68,231 55,423 201,160 2007 11,887 23,127 15,794 2,821 9,125 2,606 13,523 69,925 57,721 206,530 2008 12,050 23,663 16,061 2,864 9,314 2,671 13,704 71,743 59,396 211,466 2009 Overall Growth 12,212 24,194 16,344 2,910 9,479 2,730 13,891 73,505 61,521 216,786 5.3% 9.4% 6.9% 6.2% 7.6% 9.2% 5.8% 10.1% 14.1% 10.1%
Source: Business Insights
Value of the bakery and cereals market by category Bread and rolls contribute the largest value share in the total European and US bakery and cereals sector. In 2006, the overall bread and rolls market in the US and Europe reached $112.0bn. A growth rate of 7.1% from 2005 to 2009 is forecast to reach $118.1bn.
Growth in the breakfast cereals category (28.4%) will exceed all other bakery and cereals categories over the five-year period, placing it as the second largest in value terms by 2009 (behind bread and rolls). This significant growth rate is even more impressive when compared to the lower growth forecasts in other categories such as crackers (6.6%) and cakes and pastries (8.9%).
36
Table 3.2: Value of bakery and cereals market by category and subcategory, $m, Europe and US, 2005-2009
2005 Bread & rolls Artisanal bread & rolls In-store bakery bread & rolls Industrial bread & rolls Breakfast cereals Hot breakfast cereal Ready-to-eat breakfast cereal Cakes & pastries Artisanal cakes & pastries In-store bakery cakes & pastries Industrial cakes & pastries Cookies (sweet biscuits) American cookies Assortment cookies Butter-based cookies Chocolate cookies Cream-filled cookies Other cookies Plain cookies Wafer cookies Crackers (savory biscuits) Bread substitutes Cheese-flavored crackers Other crackers Plain crackers 110,274 58,992 11,656 39,626 21,935 2,142 19,793 23,901 6,437 6,854 10,610 19,515 1,841 1,709 3,367 4,860 2,512 1,472 1,939 1,814 6,970 1,637 2,130 917 2,287 2006 111,999 59,685 11,943 40,371 23,091 2,194 20,897 24,398 6,539 7,057 10,803 19,972 1,890 1,732 3,490 4,933 2,584 1,491 1,991 1,862 7,092 1,663 2,165 931 2,333 14,607 3,826 3,616 7,165 201,160 2007 113,939 59,129 12,212 42,598 25,072 2,239 22,833 24,953 6,678 7,270 11,005 20,412 1,932 1,759 3,582 5,018 2,646 1,512 2,049 1,914 7,184 1,687 2,194 944 2,359 14,971 3,932 3,656 7,383 206,530 2008 116,058 58,551 12,485 45,022 26,405 2,287 24,118 25,471 6,798 7,485 11,188 20,913 1,993 1,792 3,688 5,100 2,725 1,541 2,107 1,968 7,302 1,721 2,224 957 2,400 15,317 4,016 3,714 7,586 211,466 2009 118,089 57,973 12,825 47,291 28,172 2,328 25,844 26,020 6,925 7,701 11,394 21,389 2,054 1,822 3,804 5,178 2,780 1,569 2,161 2,020 7,430 1,746 2,279 969 2,436 15,687 4,119 3,760 7,808 216,786
Morning goods 14,287 Artisanal morning goods 3,712 In-store bakery morning goods 3,608 Industrial morning goods 6,967 Total
196,884
Bread and rolls By 2009, artisanal bread and rolls will take the largest value share of the overall bread and rolls category at 49%. The category is forecast to have a value of $58.0bn by 2009. This is higher than the estimated value of the industrially produced bread and rolls subcategory and reflects the major trends authenticity, provenance and regional produce
37
- influencing sales in the future. However, it should be noted, that this is also the only category predicted to decline in value sales over the forecast period at around -1.7%.
Figure 3.4: Bread and rolls, sub-category segmentation by value, 2009
Industrial bread & rolls 40%
Artisanal bread & rolls 49%
11% In-store bakery bread & rolls
Meanwhile, industrially produced bread and rolls are set for a rise in value between 2005 and 2009 at 19.3%. The decline in artisanal bread and rolls value will be driven by a gradual drop in the average unit price of these products, as consumers expect high quality ingredients and authentic, traditional goods at lower prices. Volume sales are not expected to decline in line with value sales, in fact, it is forecast that artisanal bread and rolls will increase in volume to 2009. Industrially produced bread and rolls will be increasingly sold on promotions such as buy-one-get-one-free offers to compete with the independent bakeries and delicatessens.
Breakfast cereals The dominance of the ready-to-eat (RTE) breakfast cereal category is clear in Figure 3.5, as it is expected to represent 92% of value sales by 2009. RTE cereals will also witness the fastest growth at 30.6% versus 8.6% for hot cereals. Convenience is key here; consumers are repeatedly reminded that breakfast is the most important meal of the day but time pressures mean it is often neglected. Manufacturers that can address consumers lack of time while managing to maintain product quality (consumers do not want to compromise on taste, satiety, health or enjoyment of the product for convenience) will be responsible for driving forward value and volume growth in the
38
RTE cereals sector. The overall breakfast cereals market value in Europe and the US is expected to reach $28.2bn by 2009.
Figure 3.5: Breakfast cereals, sub-category segmentation by value, 2009

Hot breakfast cereals 8%
92% RTE breakfast cereals
Cakes and pastries Unlike the bread and rolls category where artisan products are hugely popular, industrial cakes and pastries will continue to contribute the highest value share in the cakes and pastries market by 2009 at an estimated 43% or $11.4bn. However, in-store cakes and pastries stand out as the highest growth category between 2005 and 2009 at 12.4%, to represent almost a third of overall category sales and a value of $7.7bn.
Figure 3.6: Cakes and pastries, sub-category segmentation by value, 2009
43% Industrial cakes & pastries
27% Artisanal cakes & pastries 30% In-store bakery cakes & pastries
39
Cookies Chocolate will continue to hold mass-market appeal in the cookies sector to 2009 when it will contribute nearly a quarter of total category value. Indulgence is the leading trend in this category with butter-based and cream-filled cookies contributing 31% of the overall value by 2009. Butter-based cookies will experience the strongest value growth at 12.7% to $3.8bn. Plain and wafer cookies will also show strong growth (11.5% and 11.3% respectively), as consumers perceive these to be better for them. Brands in these categories will increasingly promote their healthier credentials and are likely to reformulate products to make them even lower in saturated fat and to eliminate trans fats altogether.
Figure 3.7: Cookies, sub-category segmentation by value, 2009

Wafer cookies Plain cookies 10% Other cookies 7% 13% Cream-filled cookies 9% American cookies 10% 9% 18% Butter-based cookies 24% Assortment cookies
Chocolate cookies
Source: Business Insights Business Insights Ltd
Crackers The crackers category will experience significantly lower growth rates than the other bakery and cereals categories analyzed in this report. Plain crackers will dominate at 32% of the overall category value by 2009, followed closely behind by cheese-flavored crackers. This split between plain crackers, which will be increasingly marketed as a lighter alternative to bread products, and the indulgence of cheese-flavored crackers highlights the fact there are two major opportunities for manufacturers over the next two years. It will be possible to appeal to health-conscious consumers and to those seeking a treat by extending the range to include indulgent and healthier options.
40
Brands can also tap into the growing trend of guilt-free indulgence by launching lighter versions of more indulgent products such as cheese-flavored crackers.
Figure 3.8: Crackers, sub-category segmentation by value, 2009

Bread substitutes 32% Plain crackers 31% 13% Other crackers Cheeseflavored crackers 24%
Morning goods Industrial morning goods will reach the highest value in the category at $7.8bn and represent the strongest growth rate from 2005 12.1%. Artisanal morning goods will take market share from in-store goods by 2009 and represent 26% of the total category sales with a value of $4.1bn.
Figure 3.9: Morning goods, sub-category segmentation by value, 2009

Artisanal morning goods
50% Industrial morning goods
26%
24% In-store bakery morning goods
41
The bakery and cereals market volume and growth, by country The overall bakery and cereals market volume in Europe and the US will reach 91.8bn kg following growth of 3.9% from 2005. The Netherlands is expected to witness the fastest volume growth at 5.1%, which is 0.6 percentage points higher than is forecast for the US market. This outstanding growth is due to the fact that extremely low volumes of bakery and cereals are sold in the Netherlands and despite high growth it will continue to be one of the smallest markets in the world. In 2006 just 847m kg were sold in the Netherlands compared to 7.9bn kg in Germany (the leading bakery and cereals market in value and volume terms in Europe). The market in the UK and Spain is set to grow at a similar rate (3.8%) over the forecast period, although the Spanish market is significantly smaller in both volume and value terms compared to the UK. By 2009, 4.4bn kg of bakery and cereals will be sold in the UK versus 2.9bn kg in Spain.
Table 3.3: Volume of the bakery and cereals markets by key product markets, kg m, Europe and US, 2005-2009
2005 France Germany Italy Netherlands Spain Sweden UK Rest of Europe US Total 4,796 7,800 4,972 838 2,839 909 4,195 42,480 19,513 88,341 2006 4,827 7,856 5,025 847 2,861 914 4,227 42,739 19,666 88,961 2007 4,865 7,929 5,078 858 2,888 919 4,266 43,167 19,925 89,897 2008 4,911 7,990 5,134 869 2,918 924 4,314 43,661 20,133 90,854 2009 Overall growth 4,954 8,061 5,196 880 2,946 929 4,355 44,064 20,391 91,776 3.3% 3.4% 4.5% 5.1% 3.8% 2.2% 3.8% 3.7% 4.5% 3.9%
42
Figure 3.10: Bakery and cereals market value versus volume forecast, 2009
16% 14% Overall growth, 05-09 12% 10% 8% 6% 4% 2%
-
Value Volume
0%
France France
UK
Italy
Spain
Sweden
Rest of Europe Rest of Europe
Netherlands Netherlands
Germany
Total Total
Premiumization of the bakery and cereals sector is already occurring in more established markets such as the US. This is demonstrated in Figure 3.10 which shows the stark contrast between the value and volume growth forecasts between 2005 and 2009. The US is forecast to experience value growth of 14.1% and volume growth of 4.5%. This is the biggest growth gap of all the countries analyzed in this report, and is evidence of premiumization, as value will outstrip volume growth. The Netherlands, one of the least established bakery and cereals markets within Europe, has the smallest growth gap. The growth gap is defined as the difference between the value and the volume growth forecasts between 2005 and 2009.
Although the predicted value growth (6.2%) is higher than volume (5.1%) in the Netherlands, the difference is negligible in comparison to the other countries analyzed and this highlights the fact the market is being led by mass-market products, and promotional offers to some extent, rather than premiumization.
US US
43
Premiumization is forecast to strongly influence sales of bakery and cereals in the following top three markets, which have the highest growth gaps: United States; Sweden; Rest of Europe (outside of the major seven Western European markets).
Although the bakery and cereals market is fairly mature in most parts of the world, the growing importance of industry-wide trends such as healthy indulgence, ethical consumerism, functional health and personalized products are applicable to this sector, and provide NPD opportunities for companies willing to invest. In todays increasingly health-conscious society, led by rising levels of obesity, government health campaigns and the media, natural and organic variants are welcomed by a large proportion of consumers. Countries such as Germany, the UK and US, which have established and fast-growing organic industries, will clearly attract more natural and organic bakery and cereals NPD than those with less developed, more immature markets. However, the organic message is making its way around the world, and offers countless product development opportunities. When it comes to indulgence, manufacturers of cakes and biscuits will have to innovate to survive increasing levels of competition from other indulgent snack categories such as chocolate countlines, savory bagged snacks, fruit and nut bags, and dairy-based products. Being indulgent cannot be the sole brand proposition further appeal must be provided for consumers in the form of high quality ingredients, innovative flavor combinations, interesting and attractive packaging designs, functionality and convenience.
Company shares
In the bakery and cereals market local players, such as Marhaba International in Africa & the Middle East, and Kraft Foods in the Americas, dominate. Kellogg is the only company to take a top five position in three regions (Europe, Americas, and AsiaPacific). Multinational manufacturers that sell bakery and cereals into a number of
44
countries often reformulate or change the packaging to reflect local taste preferences. In India, Kelloggs Corn Flakes are promoted as being 100% vegetarian and containing iron shakti (energy) to appeal to the target audience.
Figure 3.11: Bakery and cereals top 5 company shares, (%), by region, 2004
Africa & Middle East
Sasko 2.9% Marhaba 20.8% International 3.2% Government 6.7% sector 14.0% Private label Others Artisanal producers 52.4% Others 40.6% 19.6%
Americas
Private label
19.1%
Artisanal producers
General Mills 5.1%
7.8%7.9% Kellogg Company Kraft Foods
Asia-Pacific
Artisanal producers Others 50.6% 27.3% Groupe Danone 11.8% 1.9% Kellogg Company Private label 2.1% Kellogg Company Barilla G & R Fratelli 4.6% 5.0% Yamazaki 3.5%
Europe
Others 30.7%
Artisanal producers 46.7%
13.6% Private label
Shikisama 2.2%
The dominance of artisanal producers and private label In terms of company types within the global bakery and cereals market, artisanal producers and private label companies currently dominate. The importance of artisanal producers and private label manufacturers is apparent in Figure 3.12, which shows that in Africa & the Middle East, 64.4% of the top five company shares within bakery and cereals are dominated by the two company types. There is a similar situation in Europe where artisanal producers occupy a 46.7% share and private label takes second place at 13.6%.
45
Figure 3.12: Market shares of artisanal and private label manufacturers, (%), by region, 2004
70 60 50 40 30 20 10 0 Africa & Middle East Source: Business Insights Americas Asia-Pacific Europe Private label Artisanal % market share
In accordance with this, industry executives expect smaller producers to have more of an influence in innovation in bakery and cereals sector over the next five years. Although much influence will generally originate from the multinational manufacturing operations over the next five years, the extent of their involvement is forecast to fall slightly. Start-ups, local manufacturers, ingredients companies and packaging companies are expected to increase their role in NPD over the next five years.
Although 65% of respondents rated multinational manufacturers as the companies with the significant or the most influence on innovation in bakery and cereals, 58% of respondents believe this will be the case in five years time. 37% of respondents believe start-up and local manufacturers will have significant or the most influence on innovation in bakery and cereals in five years time, and 40% rated ingredients companies as having significant importance.
46
In the UK in particular, many of the large bakery companies are losing profit, compared with 2005, whilst emerging companies in the bakery and cereals sector are increasing sales. Consolidation is forecast as the larger multinationals seek to acquire emerging and rapidly evolving start-ups and local manufacturers. It is also likely that M&A activity will occur between the leading companies in order to strengthen the resources and distribution networks at the top of the bakery and cereals market.
Figure 3.13: Company types expected to have the most influence on innovation levels in bakery and cereals now and in five years
5 most influence Now Response average 4 Next 5 years
1 least influence
Multinational National Start-up/ local manufacturers manufacturers manufacturers
Ingredients companies
Packaging companies
Note: Respondents were asked to rate sales growth potential on a scale of 1 which was least influence to 6 which was most influence. The response average is an average of the ratings given along the scale. Source: Business Insights Industry Opinion Survey Business Insights Ltd
Top 10 innovative bakery and cereals companies in the world Kellogg, the company with the strongest global presence in terms of market share in Europe, Asia-Pacific and the Americas regions, is also voted as the most innovative bakery and cereals company in the industry opinion survey conducted specifically for this report. Nearly a quarter of respondents selected Kellogg as the most innovative followed by Nestl with 10.3% of the vote. The remaining eight companies shared a lower percentage of the vote and there are some interesting nominations including
47
Duchy Originals, the brand created by Prince Charles in the UK, which focuses on organic items produced to a high quality standard across a range of categories.
Table 3.4: Top 10 innovative bakery and cereals companies

Company Kellogg Nestl General Mills Danone Kraft Quaker Duchy Originals Local bakeries Sara Lee Warburtons % of respondents 22.7% 10.3% 4.1% 3.1% 3.1% 3.1% 2.1% 2.1% 2.1% 2.1%
Source: Business Insights Industry Opinion Survey
Case study: Sara Lee Sara Lee takes ninth place in the Business Insights survey to identify the top 10 innovative bakery and cereals companies with 2.1% of the vote. Sara Lee is a US company with a global presence. Based in Chicago, the company is divided into three business groups: Food & Beverage, Foodservice and International. The Sara Lee brand is dedicated to fresh bakery: breads, rolls and bagels, as well as frozen cakes, pies, cheesecakes, deli meats, cheeses and condiments. Earth Grains is another brand under the Sara Lee Corporations control, which was established more than 25 years ago. The brand incorporates breads, buns, rolls, bagels and muffins with a focus on nutrition and natural ingredients. The Sara Lee branded products are sold in the US, Australia and the UK. The Earth Grains products are available in North America.
In the US, Sara Lee Food & Beverage plans to launch a new initiative called S.L.I.C.E. to increase retailer relations in the fresh bakery category. S.L.I.C.E., which stands for Sara Lee Insights for Consumer Excellence, has been introduced following 18 months of research on consumer purchasing habits, product assortment and availability, and promotional and pricing best practices. Sara Lees research identified that consumers
48
spend 71% more on trips to the grocery store when bread is purchased, and believes this is an untapped opportunity for retailers to maximize sales by point of sale merchandising, and increasing availability of impulse purchases around the fresh bakery sections within stores.
Also in early 2007, Sara Lee Food & Beverage re-launched its EarthGrains brand as a 100% wholegrain bread line made with all-natural ingredients. The portfolio has also been downsized to three products from nine to focus on the core, best-selling items. The new variants are known as EarthGrains 100% Natural Stone Ground Whole Wheat; EarthGrains 100% Natural Wheat Berry with Honey; and EarthGrains 100% Natural 7-Grain. According to Sara Lee, the new bread was developed to provide consumers with a wide sliced sandwich bread that delivers the wholesome taste and hearty texture that consumers want for their favorite lunch and dinner occasions. New packaging and more natural colours and graphics have been selected to reinforce the healthier positioning.
Figure 3.14: Sara Lee EarthGrains bread
Source: Company information
49
50
CHAPTER 4
Innovation and NPD
51
Chapter 4
Summary
Innovation and NPD
The cookies sector has experienced the most NPD activity within the overall bakery and cereals industry. In 2006, 33.1% of total new product launches in the bakery and cereals sector were cookies. This is followed by pastries and baked goods. The vogue for home baking has been driven by the availability of easy to use products such as flour mixes, ready-made pastry cases, and cake making kits. Between 2004 and 2006 baking categories increased in share of product launches. The cake mixes, frosting and decorations category increased from 1.6% of all bakery and cereals launched to 3.6% and mixes, baking and other non-baking increased from 4.6% to 4.9%. Hovis, a brand with more than 120 years in the bakery business, has developed a series of successful strategies to increase its market share. In January 2007, Hovis repackaged its Invisible Crust White and Best of Both products to encourage greater awareness among parents. Bread is the most innovative category in the global bakery and cereals market. Over the past two years, bread has experienced a major resurgence as more and more consumers, particularly in the West, have returned to a back to basics style diet incorporating more carbohydrates in their natural, unprocessed form. 1.5% of cereals launched between 2004 and 2006 were classed as innovative. There is a rising prominence of more ethical issues within the market. The recyclable tag was on 3.7% of bakery and cereals launches in 2006, increasing by 0.9 percentage points from 2004. Also, organic increased from 2.0% in 2004 to 3.5% in 2006. Sweet flavors dominate the bakery and cereals market. Chocolate is the leading flavor, in 9.1% of bakery and cereal launched in both 2004 and 2006.
52
Introduction
The bakery and cereals market is a mature and established market. However, innovative companies are spotting new and emerging opportunities such as added value health benefits through fortification. Brands are widening their target audience, and moving into new sub-categories through a series of strategies including new product development, range extension, marketing and merchandising. In all regions around the world, the shift towards a greater awareness of good versus bad eating habits is leading to interest in more natural and healthier products, and there is growing interest in healthy indulgent products which can meet consumers needs for a special treat without the guilt of eating something fattening or unhealthy. This chapter considers truly innovative bakery and cereal products launched between 2004 and 2006, and assesses why they are likely to drive the market forward. Me-too innovation (when a brand closely mimics a new products appearance/taste/brand image) is inevitable in such a highly competitive market, but the rising level of new product launches will also inspire brands to consider how to optimize the potential of their portfolio to grow their market share.
Growth in the bakery and cereals market has started to slow in more mature markets such as the UK, although the pace of innovation is increasing as manufacturers realize the need to continually push the boundaries and attract the interest of existing and new consumers in an increasingly competitive marketplace.
53
Share of new product launches within bakery and cereals

The cookies sector has experienced the most NPD activity within the overall bakery and cereals industry. In 2006, 33.1% of total new product launches in the bakery and cereals sector were varieties of cookies. This is followed by pastries and baked goods, although the number of new product launches in this category fell between 2004 and 2006 to represent 19.2% of total product launches.
Most categories witnessed an increase in new product launches between 2004 and 2006, with the largest rise recorded in the cereals sector from 11.9% to 14.5%.
Figure 4.15: Share of bakery & cereal product launches, by sector, 2004-2006
2006
15.3%
19.2%
Bread Pastry & baked

23.5% 15.3% 3.6% 1.6% 11.9%
Cake mixes, frosting & decorations
Mixes, other baking & non-baking 4.9%

9.3% 4.6%
2004
Cereals
14.5%
Crackers
9.4% 33.5%
Cookies
33.1%
Source: Productscan
Between 2004 and 2006, baking categories increased in share of product launches. The cake mixes, frosting and decorations category increased from 1.6% of all bakery and cereal launched to 3.6% and mixes, baking and other non-baking increased from 4.6% to 4.9%. Convenience may be a priority for consumers in todays time-pressured world, but interest in cooking from scratch is rising, as people seek to return to more
54
traditional eating habits, which are perceived to be better for them. Home baking has declined in popularity and value since the late 1980s, but over the past 12 to 18 months there has been a notable increase in new product launches that encourage the trend. Home baking kits cater for consumers interest in making bread, cakes and pastries for friends and family often at weekends as a hobby or to help people unwind. They provide a level of assistance (recipes, tools such as greaseproof paper or cake cases, and certain pre-mixed ingredients) that makes it more convenient for consumers, but allows a level of personalization so people feel as though they have created the dish rather than purchasing the end product off the shelf. The vogue for home baking has been driven by the availability of easy to use products such as flour mixes, ready-made pastry cases, and cake making kits.
Brands that are associated with high quality products that are similar to home-baked goods such as cakes and biscuits have an opportunity to build on this heritage and brand image by introducing line extensions into the home baking categories such as cake mixes and pre-made pastry cases.
In the UK, a new online company called Angelbake Ltd (www.angelbake.co.uk) has been established to provide baking kits made using high quality, organic ingredients. The range of kits includes celebration cakes, teatime cake, muffins, biscuits and brownies and options are offered for organic, gluten-free, nut-free and dairy-free diets. Seasonal and special event kits are available such as a Love Heart Cookie Kit for Valentines Day baking.
Category analysis
In accordance with the NPD data, ready-to-eat breakfast cereals are forecast to experience the most growth in market value in the bakery and cereals market over the next five years, with 14% of industry respondents predicting hugely above average growth (15% +) in value sales. At the other end of the scale, 19% of industry executives indicated that ready-made cakes could experience negative growth, in line
55
with the growth in the popularity of home baking. The future potential of the hot breakfast cereals sector is less clear with 16% of respondents predicting a gloomy future with negative growth over the next five years, 56% expecting 0-5% growth, and 4% forecasting outstanding growth at 15% or more.
Figure 4.16: Percentage growth in market value bakery and cereal categories are likely to experience over the next five years
15+% 2-5% Morning goods (pastries croissants etc.) Crackers Cookies Cakes Ready-to-eat breakfast cereal Hot breakfast cereal Bread substitutes Bread and rolls 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of respondents 10-15% 0-2% 5-10%
Negative growth
Bread Over the past two years, bread has experienced a major resurgence as more and more consumers, particularly in the West, have returned to a back to basics style diet incorporating more carbohydrates in their natural, unprocessed form. The Atkins Diet, popular in the US, Australia and the UK in 2004 made a short-term but hard-hitting impact on the entire bakery and cereals market although most noticeably on the bread sector. The rapid rise and the even sharper decline of the Atkins diet reflects the short-
56
term nature of so-called fad diets and exemplifies the potential for damage against even the most established and mature of sectors. The rapid weight loss associated with the Atkins diet led to its high profile status in the media. However, dieticians and nutritionists criticized it as an unhealthy eating regime and pointed to potential links between the diet and epilepsy and gallbladder disease.
Low carb diets have been around for years and other popular regimes include the Glycemic Index diet and South Beach, although both allow certain types of bakery and cereal products to be consumed as part of the diet compared to the Atkins total ban.
New York based company, Atkins Nutritionals, fell into Chapter 11 bankruptcy in August 2005 and restructured for re-branding and re-launch in early 2006. The company reduced its product portfolio time and time again from more than 350 products at its peak to just a handful of nutritional bars and meal replacement-style drinks. Atkins Nutritionals has faded from the media spotlight in recent years but continues to do business in many countries around the world including the UK, US, France, Sweden, Australia, Norway, Brazil, Canada and Denmark. Atkins Nutritionals was not alone in its hunt for a majority share of the low-carb dollar: Kraft Foods for example introduced low-carb variants of popular brands such as Oreo cookies.
NPD in the bread sector is now focusing on a more natural healthy image. The following products were developed to meet consumer demand for healthy, wholesome, natural, authentic and better-for-you bread with a unique and innovative appeal achieved through the brand proposition, ingredients, or packaging format: Omega-3 rich bread has been launched with the marketing strapline bread in a different way in Norway in July 2007. Launched under the Pagen Leva brand umbrella and manufactured by Pagen AB, the Brod is made with apple marmalade and described as having a light and juicy texture. Fish oil and linseed oil are both added to the bread (constituting 4% of total volume) and anis provides additional flavor;
57
Oroweat Whole Grain & Oat with CoroWise Bread entered the US market from Bimbo Bakeries USA Inc in July 2006. It is promoted as the first bread to contain Cargills CoroWise Brand Naturally Sourced Cholesterol Reducer plant sterols. It is also claimed to be made with 100% wholegrain and whole oats, to be a good source of fiber, vitamins, minerals, phytonutrients and antioxidants, and to contain no hydrogenated oil or trans fat. Double wrapped for freshness, the sliced bread is presented in a 24 oz. (680g) clear plastic wrapper which reads: Rich in whole grain - Made with ingredients that may lower cholesterol; Claiming to make every meal a feast; Primula Artesaani bread product was launched in Finland in November 2005. The Ciabatta is available in a Chili Ananas (chili pineapple) variety and is reportedly made with the finest ingredients including wheat flour, cheese, olive oil, pineapple, sea salt, yeast, and crushed chili. The bread is manufactured by Primulan Leipomot Oy.
Figure 4.17: Bread products made with natural and healthy ingredients
Case study: Hovis UK favorite, Hovis, is one of the power brands owned by Premier Foods, which completed the acquisition of RHM (the previous owner of brands including Mr Kipling, Bisto and Hovis) in March 2007. The 1.2bn deal will result in investment into the development of the Hovis brand, as the Premier stable is expected to undergo
58
renovation, as RHM confirmed a loss in sales in the first six months of its financial year (26 weeks to October 28, 2006) of 58m. Meanwhile, Premier reported a 12.2% rise in pre-tax profit to 58.1m on turnover up 21.5% to 959.4m on 2006. It is expected that the Hovis brand, which is currently only in the bread category, will be subjected to relevant line extensions into other bakery categories to build on the associated strong reputation and heritage.
Hovis bread was first sold in the UK in 1886 and has evolved in line with consumer expectations. For example, Hovis Invisible Crust was introduced for children who dont like to eat the crusts on their toast or sandwiches. There are now two variants on the market: White Invisible Crust; Best of Both Invisible Crust.
Figure 4.18: Hovis products
Source: Hovis
Table 4.5 highlights the range of products currently available within the Hovis range and the diversity required by leading brands in order to target a wide range of
59
consumer expectations (health, indulgence, children, adult, special occasion etc). The extensive nature of the Hovis brand has contributed to its success in the UK bakery market.
Table 4.5: Diversification within the Hovis bread range

Brand umbrella White Best of Both Brown Granary Sub-brands Classic White Square White Supreme White Best of Both Best of Both Invisible Crust Best of Both Farmhouse Wholemeal Original Wheatgerm Farmhouse Wholemeal Original Granary White Seeded Granary Sunflower Seeded Granary Wholemeal Seeded Granary Oatmeal Granary Organic White Organic Wholemeal White Invisible Crust Best of Both Invisible Crust Soft White Rolls Soft Golden Wholemeal Rolls Premium White Rolls Best of Both Rolls Chunky White Rolls Positioning Traditional Traditional/sandwich Premium Ultra healthy Healthy/Children Traditional/ultra healthy Healthy Traditional/healthy Authentic/healthy Healthy Healthy/Children Ultra healthy Ultra healthy Ultra healthy Healthy/premium Healthy/premium Children Healthy/children Lunchboxes Healthy/lunchboxes Premium/lunchboxes Children/healthy/lunchboxes Lunchboxes/Adult
Organic Invisible Crust Rolls
Source: Hovis
Hovis, a brand with more than 120 years in the bakery business, has developed a series of successful strategies to increase its market share. In January 2007, Hovis repackaged its Invisible Crust White and Best of Both products to encourage greater awareness among parents. Invisible Crust was launched in August 2005 and has sales of nearly 18m according to AC Nielsen. Alongside a 2m marketing campaign including a television advert featuring a father and son (which ran between January and March 2007) the product is now sold in thicker bags in alignment with the rest of the range. Other brands such as Kingsmill have launched similar crust-free products to compete with Hovis product, and continued investment in building awareness, and encouraging trial is essential.
60
Cakes As reported earlier in the report, the rising popularity of home baking in some countries around the world such as the UK, and the continued interest in home baking in other regions has led to resurgence in cake mixes, frostings and decorations new product development. Although it is one of the most innovative categories, it is also one of the smallest categories representing just 3.6% of total bakery and cereals NPD in 2006, up from 1.6% in 2004.
Innovation in this niche sector has focused on offering more choice to consumers such as dairy-free alternatives. One innovative example is Manischewitz Rich & Creamy prepared frosting, which is promoted as the only dairy free frostings on the market. Presented in a 12 oz. (156g) resealable plastic tub flagged, it is available in Vanilla and Chocolate flavors. It is available in the US from Secaucus, NJ-based RAB Food Group, LLC.
Figure 4.19: Innovative frosting products
Another emerging trend that is likely to impact future NPD is the rise in more natural and organic products. Also, convenience continues to be key to the home baking sector in todays time-poor, cash-rich world. Pour & Frost Pourable Frosting launched in the US in 2004 is available under the Betty Crocker brand name from General Mills. Literature states, New Pour & Frost allows you to bake and frost a cake in just one
61
hour! Its the only frosting designed to be used on a warm cake. Simply microwave, pour, and frost for a delicious cake any night of the week. The frosting is made with Hersheys Chocolate and sold in 15 oz. (425g) resealable, plastic tubs with kosher dairy stamps. The label for icing states Microwave & pour!
Cereals Although there are many new product launches in the cereals category, the majority fall within ready-to-eat, which will represent around 92% of value sales by 2009. The RTE category is not regarded as highly innovative, instead the majority of launches concentrate on providing convenience and health in the form of high fiber ingredients such as whole grains; added vitamins such as B6 and B12; minerals such as calcium and magnesium; and more recently ingredients with additional health benefits such as probiotics and prebiotics.
According to the Business Insights industry opinion survey conducted specifically for this report, RTE breakfast cereals will be the rising stars in the bakery and cereals market over the next five years, with 54% of industry respondents predicting above average growth (5% and above) in value sales over the next five years. This strong growth will be driven by a focus on more innovative NPD to increase sales into a wider range of consumer groups, for example specifically targeting teenagers or seniors, and to appeal to a wider range of consumption occasions throughout the day and evening.
Currently innovation focuses on four key areas within the cereals market, all of which have a strong role to play in the development and growth of the market, but none of which stand out as being spectacularly innovative or out of the ordinary: Convenience: various pack formats and sizes are available including single-serve, multi-pack, larger standard boxes, on-the-go formats with spoons and side servings of milk, yogurt etc; Health: added ingredients to address specific health issues such as digestion, immune system, general health and bone health;
62
Indulgence: the childrens cereals market in many parts of the world has had to undergo reformulation to reduce sugar and fat as the media spotlight focuses on rising childhood obesity levels, yet indulgence will increase in importance for the adult market. Consumers will associate products containing chocolate, nuts, dried fruit and other sweet flavors with indulgence. This positioning will help shift the cereals market away from its current focus on breakfast and into new consumption occasions such as snacking. In addition, authentic and high-quality ingredients will appeal to the growing number of consumers looking for a more premium eating experience. As manufacturers continue to market the importance of eating breakfast for health, consumers will increasingly opt for a premium product to start the day in what they perceive to be an even better way.
The following products highlight innovative products recently launched in the cereals sector: Kellogg Espana, S.A. launched Kelloggs Multi Krispies Multicereales y Fibra Prebiotica Natural in Scandinavia, Spain, the UK and Portugal in May 2006. The product is described as a multi-grain cereal made with oats, corn and rice. It is the first cereal with natural prebiotic (inulin) which helps growth, improves digestion and encourages the absorption of the nutrients provided in cereals; In May 2005, Nissin Cisco introduced a vegetable based cereal product in Japan. Called Ciscos Yasai no Granola [vegetable granola] the breakfast cereal is claimed to be rich in dietary fiber, iron and six vitamins. It contains five vegetables (spinach, tomatoes, carrots, pumpkin, and asparagus). According to the company, one 40g serving served with 200g of milk supplies one third of the daily requirement of six vitamins (A, B1, B2, C, E, niacin), calcium and iron; Belgo & Bellas, Canada, launched YogActive Probiotic Muesli in Canada and the US at the end of 2004 following successful production and sale in Germany. According to brand communications, the product contains 17% yogurt pearls with active lactobacillus acidophilus bacteria, which can help to restore intestinal balance and stimulate the immune system. The three varieties: Yogurt Real
63
Cherries Almonds, Yogurt Real Strawberries Vanilla and Yogurt Real Banana Chocolate, are sold in overboxed 300g foil bags. YogActive combines the fiber of muesli and real fruits with the calcium contained in milk products to create a complete cereal. YogActive contains no preservatives and no GMO-based ingredients.
Figure 4.20: Innovative cereal products
Cookies In the cookies sector, which attracted the highest volume of NPD activity within the overall bakery and cereals industry between 2004 and 2006, there have been some truly original developments drawing upon combinations of ingredients that are not typically associated with the overall bakery and cereals sector. For example, in Poland, a limited edition range of tequila-flavored Bahlsen Hit Biscuits from Bahlsen Sweet Sp. z o.o. were introduced in November 2006. The tequila flavored sandwich cookies contain a lemon flavored cream filling and are packaged in a 250g cardboard tube. Clearly aimed at adults, the biscuits highlight the innovation in formulation that is so prominent in the bakery and cereals market.
However, the cookies sector is also regarded as one of the least innovative in terms of the innovative nature of the new product launches, despite the surge in the number of new product launches recorded in the sector between 2004 and 2006. More mainstream new product launches are the norm in the cookies sector, which is currently worth
64
$20.0bn in Europe and the US, and forecast to increase to $21.4bn by 2009. Butterbased cookies will experience the strongest value growth from 2005 at 12.7% to $3.8bn in 2009. This growth will be led by the number of launches rather than a high level of innovation or originality: it seems that when it comes to the most popular cookie type butter-based consumers are looking for traditionally made products. Conventional products continue to hold favor with consumers hence the low innovation levels. The following products demonstrate the more mainstream and traditional nature of the butter-based cookies sector: Carrefour Spritz Butter Cookies are made with 32% butter. The private label shortbread cookies are sold in France in a 400g box. They are produced by CMI Ltd and were introduced in November 2006; Colombina S.A. launched its Moments brand of Butter Cookies in Colombia in November 2006. Made with enriched wheat flour, whole eggs, and butter, the cookies are sold in a 280g stand-up bag priced at 2390 COP; Fossier Galettes Saint Remi de Reims cookies are offered in the US by Crossings since September 2006. The Butter Biscuits (scalloped edge cookies) are available in a 4.76 oz. (135g) box.
Chocolate will continue to hold mass-market appeal in the cookies sector to 2009 when it will contribute nearly a quarter of total category value. Indulgence is the leading trend in this category, and manufacturers are keen to ensure customers feel they are getting the full indulgent experience when consuming a sweet and indulgent product, rather than a healthy indulgent product, which holds a very different appeal for consumers. Despite societys constant awareness of weight levels, consumers will continue to choose to treat themselves with products such as cookies from time to time, perhaps as a reward for working hard, or to help them relax after a long journey home.
There are also opportunities for brands to develop a strong reputation as the healthier alternative in the cookies sector, although the health benefits should be clear and easy
65
for consumers to identify. Combining health messages in products that are typically associated with indulgence can cause mixed messages and dilute the brand proposition.
An innovative example of healthy cookies is Right Direction Chocolate Chip Cookies, introduced in the US in February 2006 by Kenilworth, NJ-based RDFoods, LLC. They are sold in a 14-count (classed as one-week supply) package with a significantly higher retail price than most cookie brands at $13.99. The on-pack communications state: A tasty cookie that contains plant sterols and soluble fiber in amounts clinically shown to lower cholesterol. Each cookie contains 5g of dietary fiber and 1.3g of plant sterols.
Figure 4.21: Right Direction Chocolate Chip Cookies
Crackers The crackers category is expected to witness much lower growth rates than the other bakery and cereals categories analyzed in this report, and as such innovation will be vital to the survival of manufacturers keen to maintain and grow market share in this category. Plain crackers will dominate at 32% of the overall category value by 2009, followed closely behind by cheese-flavored crackers. Cheese is predicted to become an even more important flavor across the entire bakery and cereals market over the next five years, as consumers become more experimental with new types of cheese, and interested in the partnership between cheese, wine and other savory products such as crackers. As the choice and distribution of cheeses from around the world heightens, consumers will expect a similar level of choice in categories such as crackers. In Japan,
66
Yamazaki Nabisco introduced crackers with a focus on specific types of cheese rather than the standard cheese reference that has been over-used in the past. Consumers now want to know the type of cheese that has been used to flavor the product. The two products; Nabisco Ritz Cheese Sando Smoke Bacon Cheese and Nabisco Ritz Cheese Sando Camembert Pepper, are limited edition sandwich crackers to coincide with winter party season in 2006. These crackers are promoted as ideal to serve with wine, which exemplifies how brands within the crackers sector can benefit from consumers growing interest in combining flavors across the food and drink market. The smoked bacon and cheese variety consists of bacon flavor crackers with a filling of blue cheese cream. The Gorgonzola cheese content is 11% and there are 393 kcal per pack. The Camembert pepper variety is filled with a smooth cream containing Camembert cheese and Cheddar cheese (total cheese content is 10%). These crackers are also flavored with black pepper.
As well as optimizing opportunities in the growing foodie market, cracker manufacturers can also tap into the health trend by offering guilt-free snacks and lower and lighter versions (i.e. lower fat, lower salt and lower calories) of more indulgent products. The following products have been launched to maximize potential in the health trend: In October 2005, Don Mills, Ontario-based Christie Brown & Company extended its Christie Rice Thins Crackers line to include Bruschetta and Herb & Garlic varieties. Sold in Canada in 100g boxes, label copy for the Bruschetta variety reads: Baked not fried - 0 trans fat. The product is marketed as a light-tasting, crispy cracker, which is perfect for any topping. It contains tomato flavor and seasonings; Health Valley Low Fat Crackers were launched in the US in May 2005 and are flagged as being made with organic wheat, containing no trans fats, all natural and low in fat. The crackers are available in Whole Wheat, Bruschetta Vegetable, Garden Herb, Bruschetta Vegetable No Salt Added, Cracked Pepper, Sesame and Stoned Wheat varieties. They are produced by Melville, NY-based Health Valley Co., a division of the Hain Celestial Group;
67
In early 2005, gluten and dairy-free crackers were launched in Italy by Pandea s.r.l. They are also promoted as free from wheat, soy, and GM ingredients and sold under the Pandea Prodotti Dietetici brand name in a 150g stand-up bag.
Figure 4.22: Healthy crackers
Mixes and other baking The mixes, other baking and non-baking category increased its share of total bakery and cereals NPD from 4.6% in 2004 to 4.9% in 2006. While this continues to constitute a minority share of the overall market, investment is increasing as more and more new products are launched.
Overall, there is a lack of innovative product launches in the sector, and the majority are focused on formulation and positioning, such as the Fun & Hot Pretzel Shop, which forms part of the Crayola Crafty Cooking Kits line from Beachwood, OH-based Brand Castle, LLC, which are aimed at encouraging children into the kitchen. The kit comes with squeezable nacho, pizza, and ranch sauces to add zesty flavor and decorative flair to these savory snacks. Package copy reads: Fun to make, great to eat! - Family activity - Great for all ages. Each kit also includes games, puzzles and facts, which the brand hopes will encourage dialogue and shared fun during the product preparation downtime. The line was launched in the US in early 2005.
68
Figure 4.23: Crayola Crafty Cooking Kits
Convenience is the key element driving NPD in this market, although a fresh approach is required to increase innovation and attract more consumers at the point of sale. Premiumization is one strategy that looks set to take hold in this sector as consumers choose to rely on more convenient methods of cooking to produce a home baked product to impress family and friends without having to start from scratch. High quality ingredients will be vital when appealing to foodies looking for a quick-fix solution ahead of their next dinner party or special occasion. On-pack communications, and the appearance of the packaging, should reflect the superior quality of the ingredients to reinforce this premium brand image.
Regional analysis
Figure 4.24 highlights the wide disparity between the bakery and cereals markets around the world from an NPD point of view. Europe contributed 37.8% of total category product launches in 2006 versus just 4.3% in Middle East & Africa. Following behind Europe is Asia-Pacific, with a 29.7% share of total bakery and cereal introductions in 2006, and then North America with 21.2%. In Asia-Pacific and North America the share of product launches decreased between 2004 and 2006 by 1.8 and 12.2 percentage points respectively. Manufacturers in the regions are investing in
69
building existing brands and going down the less risky (from a financial and reputation perspective) route of creating line extensions rather than new products.
In Europe, Latin America and Africa & the Middle East the share of product launches increased by 10.4, 2.5 and 1.0 percentage points respectively. Europe represents the most innovative region in bakery and cereals NPD as a result of its majority share in worldwide launches and the rise in the number of new product introductions over the two-year period.
Figure 4.24: Percentage share of bakery and cereals products launched by region, 2004 versus 2006
% share of products launched in each region 40% 35% 30% 25% 20% 15% 10% 5% 0% Asia-Pacific Europe Latin America Middle East North America & Africa
2004 2006
Source: Productscan
Latin America (6.9% of total NPD in 2006) and Middle East & Africa are forecast to experience strong growth in the bakery and cereals market to 2009 because of their comparatively less developed status against Europe, North America and Asia-Pacific.
70
Europe Europe holds many opportunities for bakery and cereals manufacturers looking to invest in a strong market with potential for high growth despite its established and mature status. Bakery and cereals products are a regular part of the average diet, and consumers are becoming more experimental with new products, unusual or original flavor combinations, and are seeking to optimize their health through the types of food they consume. The following new products reflect the types of new products currently entering the market: Bread products: Offered in Barbecue, Sour Cream, Ketchup, and Cheese varieties, KhrusTeam Sukhariki were launched onto the Russian market by PepsiCos Frito Lay, in December 2006. The miniature pieces of dried bread, which are similar to croutons, have become a very popular local snack and are typically consumed with beer; Cereals: Consumers in Poland can now purchase two new varieties of Bran Flakes that were introduced by Obst S.A. in December 2006. Platki Pszenne z Otrebami (wheat bran) and Platki Pszenne z Otrebami z Dodatkiem Truskawek i Kokosa (wheat bran with strawberries and coconut) are both sold in 375g boxes; Cakes and pastries: Conditorei Coppenrath & Wiese GmbH & Co. KG launched Conditorei Coppenrath & Wiese Cafeteria Kleine Runde Kuchen (Cakes) in Germany in December 2006. The two varieties: Plum, and Rhubarb, Strawberry and Meringue are frozen and sold in 450g boxes; Cookies: Griesson-De Beukelaer GmbH & Co. KG released a limited edition Pink Grapefruit variety of biscuits to German consumers in early 2005. Marketed under the Griesson Soft Cake brand, these biscuits are claimed to be filled with a fruity, refreshing jelly and coated with dark chocolate; Home baking: Fiddes Payne Herbs and Spices Ltd. launched a new line of homebake cupcake mixes and decorative figurines under the Disney brand name in the UK in October 2006. The Winnie the Pooh portfolio consists of the Pooh Medley pack which features a number of the characters including Winnie, Tiger, Eeyore
71
and Piglet, and the Tigger Cup Cake Kit. Also available in this range are six hard edible Royal Icing Character figurines. The Disney Princess range consists of two cup cake kits: the Princess Medley Pack, featuring Snow White, Sleeping Beauty, Cinderella and Belle, and the Cinderella Cup Cake Kit. Again, consumers can also purchase Royal Icing Princess Character Figurines for decoration.
Figure 4.25: New product launches in Europe

KhrusTeam Sukhariki Platki Pszenne z Otrebami z Dodatkiem Truskawek i Kokosa
Conditorei Coppenrath & Wiese Cafeteria Kleine Runde Kuchen
Griesson Soft Cake Pink Grapefruit biscuits
Asia-Pacific Asia-Pacific is the second most innovative region in within bakery and cereals, and the region is often associated with unique and inspiring products with a focus on functionality (added health benefits). However, the share of NPD originating from Asia-Pacific has declined as Europes share has grown.
In Asia-Pacific there is a growing focus on convenience, which has been a primary attraction for manufacturers in North America and Europe for some time now. As
72
Asian consumers increasingly adapt their eating habits to become more Western, for example by grazing throughout the day rather than eating three balanced meals, NPD must meet such demands for greater convenience, easy access to products and satiety. Consumers are also going to continue having a strong interest in nutrition, and products that provide the ultimate in convenience combined with optimal nutrition will be successful in the Asian market. The following products highlight NPD activity currently in the Asian bakery and cereals market: Bread products: Breads with fillings are becoming popular as they are viewed as a variety of ready meal that consumers can eat on-the-go. In May 2005, First Baking launched a bread bun that is filled with a creamy white sauce made with mushrooms and Camembert cheese (similar to a stew). Called Dai Ichiya La Bettola Kinoko no Pot [mushroom pot] it was created by a famous Italian restaurant called La Bettola in the Ginza in Tokyo and sold to Japanese consumers through the retail market. The single-serve portion contains 248 kcal; Cereals: Calbee Caramel Breakfast Cereal manufactured by Calbee was introduced in mid-2005 for children in Japan. The breakfast cereal was added to a series of products featuring the Peanuts cartoon characters. The caramel flavored cornflakes were sold as a limited addition product and packaged in a 190g box. Another innovative cereal launch in was Kelloggs Frostie Plus launched in May 2005. The cereal is targeting Japanese health-conscious adults. It is fortified with nine vitamins and five amino acids. One 40g serving of the product plus 200g milk is claimed to supply 50% of the daily requirement of vitamins A, B1, B2, B6, B12, niacin, C, D, and folic acid, plus 400g amino acids (valine, leucine, isoleucine, glutamine, alanine); Cakes and pastries: Shikishima Baking launched an innovative single-serve cake with an unusual flavor combination: spinach and banana in July 2005. Pasco Horenso to Banana is a sliced sponge cake roll that contains spinach leaf in the cake dough. The roll is filled with banana cream and sold in Japan; Cookies: Lotte introduced Lotte Koala no March Melon Cream Soda, koala bear shaped cookies filled with chocolate. The biscuits are also flavored with a melon
73
soda flavor. Targeted at children, the 55g hexagonal box was introduced for the spring and summer period in 2005; Home baking: Consumers in Australia can purchase a Gluten Free Choc Cake Mix that is sold under the Woolworths Freefrom brand name (first launched in July 2006). The packaging is labeled as wheat free and yeast free.
Figure 4.26: Gluten Free Choc Cake Mix
Americas The Americas contains contrasting regions with Latin America experiencing a surge in bakery and cereals NPD between 2004 and 2006 from a small base. This is a very different to the situation in North America, where the percentage share of bakery and cereal products launched fell from 33.4% in 2004 to 21.2% in 2006. The North American market is more mature and developed than Latin America. Both markets offer strong opportunities for investment but for different reasons: North Americans are keen to purchase healthy indulgent products that can be eaten without feeling guilty about the fat or calorie content. However, private label dominates the North American market, which is restricting the potential of branded manufacturers;
74
In Latin America, consumers are becoming more interested in new products, and are increasingly prepared to experiment with flavors from outside of their region. European and North American products are growing in popularity in Latin America offering opportunities for companies prepared to invest in an export distribution network into the region.
The following products have been selected to highlight the type of innovation currently witnessed in Latin and North America. In both markets healthy convenience is a priority, particularly in the bread and cereals sectors. Snacking options are likely to become more prevalent in the North American bakery and cereals market as consumers increasingly choose to graze throughout the day rather than eat regular meals. Bread products: Carrefour launched a healthy-eating line of soya-based private label products under the Carrefour Viver Soja brand in Brazil at the end of 2006. One of the products is called Pao de Forma com Semente de Girassol (Bread Loaf with Sunflower Seeds), which comes in a 350g bag and is tagged as free from trans fats and sugar, as well as high in fiber. The soya used in production is non-GM; A product of Canada, Marcys Croutons are produced by Canada-based MeMeMe Inc. The snack range was introduced in Canada in December 2006. The Lemon Pepper variety is sold in a 125g resealable, foil-like silver laminate stand-up bag. Claimed to have been freshly baked from whole wheat pita bread, the package copy states: 0 trans fat! - 0 saturated fat! - Snack it! They are also available in Canada in a Tomato Basil flavor and are touted as fantastic for salads, soups, stuffing, dipping; Cereals: Jasmine Comercio de Produtos Alimenticios Ltd. launched a new line of cereals under the Jasmine Grain Flakes Light brand in December 2006. Presented in 300g laminate bags, this line is made up of three varieties: Soja & Linhaca com Frutas (soy & linseed with fruit), Tradicional Cereais Integrais (traditional integral cereal) and Banana & Maca com Canela (banana & maca with cinnamon). The healthy cereal is now available to consumers in Brazil, the US, Japan, Peru, Venezuela, Paraguay and Uruguay;
75
In November 2006, Kellogg Canada introduced Kelloggs All-Bran Guardian Cereal in a 305g box flagged, Fibres de psyllium. The Maple Brown Sugar flavored kosher parve cereal is claimed to be made with 3.5g of psyllium fiber per serving. Accompanying literature claims that the cereal: Is a source of 10 essential nutrients - Is low in fat and saturated fat - Is trans fat free - Provides 110 calories per 1 cup serving; Cakes and pastries: Nutrella Alimentos S.A. has launched a line of Bolos Integrais (Wholegrain Cakes) in Brazil under the Nutrella brand in September 2006. The cakes weigh 250g and are available in three variants: Apple with Cinnamon, Banana and Cinnamon, and Nut Mix; The new Wegmans Food You Feel Good About Mini Scones are available in the US in a plastic tub that is designed for convenience and eating on-the-go. Introduced in November 2006 by Wegmans Food Markets, Inc. it is a two-bite scone sold in seasonal flavors such as cinnamon and toffee; Cookies: Alimentos Especiales released Galletas Sin Gluten, Azucar y Lacteos in Mexico in October 2006. The cookies are claimed to be free from gluten, sugar, dairy, artificial colorings and flavorings, and marketed under the Alimentos Especiales brand name. They are positioned as healthy and low calorie; Good & Simple Cookies, made with 99% natural ingredients, have been introduced in Canada in November 2006. They are claimed to be free from preservatives, artificial colors, artificial flavor and trans fat. According to accompanying literature, the individually wrapped cookies are high in omega-3 polyunsaturates, dietary fiber and iron, and are low in saturated fat and cholesterol. The cookies are offered in Date & Linseed and Cranberry & Pistachio varieties. They are manufactured by Rondeau Cookies Inc; Home baking: Bunuelos de Espinaca y Crepes was launched at the end of 2005 by the Argentinean company Molino Canuelas. Branded under the Mama Cocina range, it is claimed to be a pre-mix for spinach doughnuts and crepes made with flour enriched with iron, folic acid and vitamin B;
76
A dessert mix has been launched in the US in an innovative pack format at the end of 2006. The three Milk Bottle Mixes - Chocolate Chip Cookies, Chocolate Chip Brownies, and Chocolate Chip Muffins - are distributed in the US by Target Corporation. Each product is sold in a glass milk bottle.
Figure 4.27: New product launches in the Americas

Recent innovations in North America
Recent innovations in Latin America
77
Middle East & Africa Middle East & Africa (ME&A) is the smallest region in the global bakery and cereals market in terms of the number of products launched. However, it is growing and is forecast to grow rapidly over the next five years as foreign direct investment in the region increases. As the market is in an embryonic stage of development compared to Europe and Asia-Pacific, levels of innovation are not particularly high in the bakery and cereals sector. The majority of NPD is focused on regional recipes and ingredients. The products are rich in spices and flavorings such as mint, lemon, olive oil, garlic, and rosemary. Vegetarian products are also extremely popular. Health is an ongoing priority for consumers in this region, and there is a focus on high nutrient products.
In South Africa, the glycemic index diet is making an impact on eating habits among the higher income households.
The Middle Eastern diet is very similar to the Mediterranean diet and is rich in essential fatty acids, vitamins and minerals. There is also a growing trend for staple products such as bread that is fortified with additional nutrients such as vitamin C. The following products highlight the focus on traditional Middle Eastern flavors within the bakery and cereals market: Bread products: J. and E. Berman Group Ltd. introduced its new 100% Whole Wheat variety of Bread Rolls to consumers in Israel in August 2006. Enriched with vitamin C, the Bermans Bakery brand rolls are packaged in a 6-count plastic bag; Cereals: Jungle B-Fast from Tiger Food Brands Ltd, is a new cereal brand in South Africa and was launched in November 2006 in Original, Banana & Honey, Chocolate, and Apple & Cinnamon variants. The product is claimed to be low in fat and wheat-free, and contains micro-granules for fast nutrient absorption which are also claimed to release energy slowly over the course of time. It is further promoted as being rich in antioxidants and vitamins;
78
Cakes and pastries: In September 2005, a kosher parve chocolate cake that is claimed to be free from sugar and low in fat was made available under the Osem Habait name to consumers in Israel. Sweetened with acesulfame K, the cake is presented in a 400g laminate wrapper Osem Food Industries Ltd. is the manufacturer; Cookies: The Collins Jolly Bear brand of cookies is now available to consumers in Saudi Arabia. Aimed at children and launched in mid-2006, the cookies are presented in a 250g resealable zipper bag that displays a cartoon graphic of a bear. These bear shaped cookies are offered in a honey variety; Home baking: The Anytime Crumpet Mix that is marketed in South Africa under the Wheatons Brumpets brand name was extended in March 2006 with the launch of an Apple & Cinnamon variant. Touted in package copy as nutritious and packed with vitamins & minerals, the mix requires only the addition of milk. It is presented in a 300g plastic bottle to which the milk is to be added. The consumer then shakes the bottle and makes the crumpets.
Figure 4.28: Anytime Crumpet Mix
79
Future growth potential by region Eastern Europe, Latin America and Asia-Pacific are forecast to experience the strongest growth in market value out of the five regions analyzed in this report. 21% of respondents rated Eastern Europe and Latin America as regions they expect to experience growth of over 10% over the next five years. 26% of respondents expect Asia-Pacific to experience growth of over 10%.
Western Europe is expected to remain innovative in the category, but 9% of industry respondents believe the region will experience negative growth in market value over the next five years a higher rate than any other region around the world. This is due to increased competition from a manufacturer perspective, price wars from a retailer perspective, and the mature nature of the market in Western Europe.
Figure 4.29: Regions expected to experience the most growth in bakery and cereals market value over the next 5 years
15+% 2-5% 5-10% 10-15% 0-2% Negative growth
100% 90% 80% % of respondents 70% 60% 50% 40% 30% 20% 10% 0% Western Europe
Eastern Europe
Asia-Pacific North America Latin America
80
Innovative bakery and cereal brands

Of all bakery and cereal products launched between 2004 and 2006, 1.6% were classed as innovative. The majority (86.5%) of worldwide new product launches in bakery and cereals between 2004 and 2006 were classed as innovative in terms of formulation. 4.7% were innovative in terms of a new positioning and 4.1% were innovative in terms of packaging benefit.
Table 4.6: Bakery and cereal product innovation by type, 2004-2006

Innovation type Formulation Positioning Packaging benefit Technology Merchandising
Source: Productscan
% of products launched 86.5% 4.7% 4.1% 2.9% 1.8%

Formulation When it comes to innovation in terms of formulation, manufacturers in Asia-Pacific tend to have new and unique ideas to meet consumers interest in original products with a difference. Asian shoppers are keen to experiment with new flavors and ingredients and very open to the idea of tasting new products. One innovative example of unique formulation is Shikishima Bakings Pasco Kuro Cake (black cake) launched in Japan in November 2006. Following the popularity of black ingredients in Asian products, the black cake contains charcoal and black sesame seeds in the cake dough and is filled with a black sesame seed cream. This is the first time the bakery company has used charcoal to color a cake black. Each pack is sold as a single portion and contains 379kcal.
Innovation in formulation is also occurring with the combination of sweet and savory flavors. Biscuits with unusual and savory flavors are being developed. Such biscuits are increasing in popularity as consumers view them as a healthier alternative to other
81
bagged snack products such as crisps. One innovative example is a line of savory biscuits launched in February 2006 in the Netherlands under the Sultana Hartig brand. The biscuits are available in Tomaat/Kaas (tomato/cheese), Italiaanse Kruiden/Tomaat (Italian herbs/tomato), and Mexicaanse Kruiden (Mexican herbs) varieties. They are produced by Koninklijke Verkade N.V.
Figure 4.30: Innovation in formulation - Sultana Hartig
Positioning 4.7% of innovative bakery and cereal products launched were innovative due to their positioning. Positioning refers to a product that is typically associated with a particular category or trend being realigned into the bakery and cereals market. For example, in Spain, Bimbo SAU has aligned two categories: snacking and bakery into one on-the-go product with a unique offering. Presented in 74g packs containing four muffin sticks and a portion of hazelnut cream, Bimbo Mr Dipps were launched in October 2005. Each pack contains four Sticks de Magdalena in one side of the dual-compartment cup, and cream in the opposite side for consumers to dip the bakery pieces into.
82
Figure 4.31: Bimbo Mr Dipps
Packaging benefit Although only 4.5% of bakery and cereals NPD was categorized as offering an innovative packaging benefit, Business Insights believes that the importance of packaging with added benefits will grow over the next few years for numerous reasons: Functionality: Consumers will seek products with packaging that enhances the experience. This can be as simple as a resealable pack for eating on-the-go, or as complex as a format that releases vitamins and minerals upon opening to enhance the health status of the product; Sustainability: Recyclable and/or recycled packaging will become more of a priority for consumers as the issues of climate change continue to attract attention; Minimal packaging: Products with unnecessary and bulky packaging will be frowned upon by the growing number of consumers concerned about food miles and the state of waste landfills around the world.
83
Case study: Alara European organic muesli company Alara received Green Mark level 1 accreditation in early 2007. The company is one of the first food manufacturers to achieve the initial stage in the three levels of Green Mark status in the UK. Green Mark is an award scheme that enables small and medium sized businesses from any industry to demonstrate their on-going environmental improvement and commitment to customers and other stakeholders. To gain the status, Alara had to demonstrate efficient energy use and good practices in waste management and waste minimization. Steps taken by Alara include: Minimizing factory waste emission by switching to biodegradable cleaning products such as Ecover; Recycling all paper, pallet wrappings, bags and toner cartridges; Placing wormeries and composting bins have been built to eliminate kitchen waste and the planting of a permaculture forest remains an ongoing project.
Figure 4.32: Alaras packaging
Alara Wholefoods launched the first muesli with organic, gluten-free and Fairtrade certification in the UK in March 2007. Packaged in waste-saving brown paper bags, which reduced packaging by over 50%, the Active range combines superfoods and slow-releasing grains such as quinoa and buckwheat. Varieties include fruit, seed and
84
spice with cinnamon, diced prunes, pumpkin seeds and linseeds. The natural and functional benefits of the ingredients complements Alaras packaging format: this alignment will become vital for bakery and cereals manufacturers seeking a larger share of wallet.
Innovation by category
Figure 4.33 shows the level of innovation within each category. Bread is the most innovative category with 3.2% of all bread products launched, classed as innovative. Cakes, mixes, frosting and decorations was also quite innovative with 2.8% of all products launched in the category, classed as innovative. There was no innovation in the pastry and baked products category.
Figure 4.33: Percentage of innovative bakery and cereals products launched in each category, 2004-2006
Crackers Cereals Bread products
Least innovative
Most innovative
Cookies
Mixes, other baking & non-baking
Cake mixes, frosting & decorations

Source: Productscan
Bread is the most innovative category in the global bakery and cereals market. Innovation is taking place primarily in terms of formulation and new and innovative flavors. Such flavors include nacho, ranch, Guinness, pomegranate and chili pineapple. Innovation is also taking place in terms of functional ingredients. Many bread products are being fortified with flaxseed (a source of omega-3) and linseed.
85
Innovation is also taking place in the category in terms of packaging benefit. One example is Buitoni Fresh Rolled Dough launched by Nestl in April 2007 in Belgium, France, Germany, Italy, Luxembourg, the Netherlands and Switzerland. The refrigerated rolled dough, available in Pizza and Maxi Pizza variants, is packaged in 385g specially-designed boxes that are claimed to extend the shelf life of the chilled dough to about six weeks.
Figure 4.34: Buitoni Fresh Rolled Dough
Product tag analysis

The top five product tags on bakery and cereal products launched between 2004 and 2006 indicate the growing importance and relationship between health and premiumization. The top tags are: Single-serving; High fiber; Upscale; High vitamins; Natural.
86
Consumers are starting to associate very healthy products with premium, high-quality ingredients and the two key trends are becoming intrinsically linked within the bakery and cereals market.
Table 4.7: Top 25 product tags on new product packaging, % of bakery and cereal products launched, 2004-2006
Product tag Single Serving High Fiber Upscale High Vitamins Natural Kids Recyclable Organic Private Label No Trans Fat No Preservatives Low Fat High Calcium High Minerals Vegetarian Quick No Artificial Color High Iron Real Licensed
Source: Productscan
2004 8.4% 4.5% 3.7% 4.3% 4.8% 4.2% 2.8% 2.0% 1.9% 2.2% 3.2% 3.9% 2.4% 2.0% 2.8% 2.3% 2.1% 1.6% 2.1% 2.7%
2005 6.3% 5.2% 4.6% 5.0% 5.2% 4.4% 1.9% 2.5% 2.9% 3.5% 3.1% 3.8% 2.3% 2.1% 2.7% 2.7% 2.4% 1.8% 1.8% 1.8%
2006 6.0% 5.8% 5.6% 5.4% 4.5% 4.4% 3.7% 3.5% 3.5% 3.4% 3.2% 3.0% 2.5% 2.4% 2.4% 2.4% 2.3% 2.1% 2.0% 1.9%
Change 04-06 + + + + + + + + + + + + + Business Insights Ltd
Single-serve is the leading product tag on bakery and cereal products launched between 2004 and 2006, although its prevalence has decreased from being on 8.5% of bakery and cereal in 2004 to 6.0% in 2006. The rise of the product tag high fiber to just behind the single-serve lead indicates that the health trend has usurped convenience in prominence. Bakery and cereals manufacturers are keen to target health concerns with new products by highlighting the high fiber message, which has been associated with the wholegrain and whole wheat content of the products for decades. This is an easy message to communicate on bakery and cereals because it is so well accepted by consumers, and it was employed as the chief on-pack message on 4.5% of new bakery and cereal launches in 2004; by 2006 this had grown to 5.8%. An innovative example of this is Musli Biscuits launched by Emco Spol. SA in Greece in March 2006. The
87
coconut variety of the biscuits flags the high fiber content of the cookies which are made with 36% oat flakes. The product is also single-serve to moderate portion control.
In Japan, single-serve bread products are becoming more popular as consumers increase their bread consumption in line with Western habits. Single-serve bread is particularly popular for breakfast on-the-go and as a lunchtime option. An everyday fiber bread called Pasco Mainichi Seni Bread was introduced by Shikishima Baking in June 2006. The functional mini bread supplies 6g of dietary fiber and aimed at people with a busy lifestyle. It is believed that in Japan there is a deficiency of fiber in the average diet of around 6g a day. This mini bread is sold as a small portion size, convenient to eat, and has a slightly sweet flavor. Each pack contains 218kcal and is sold in a single portion pillow pack. The product is part of the Shokuhin Seni Project [dietary fiber project], a joint project between six companies - Shikishima Baking, Asahi Soft Drinks, Asahi Food and Health Care, Nippon Flour Mills, Lotte and Rohto Pharmaceutical.
Figure 4.35: Pasco Mainichi Seni Bread
Premiumization in the bakery and cereals market is already underway, and the importance of more upscale on-pack communications is becoming more important. 3.7% of total bakery and cereals launched in 2004 were upscale or premium, compared to 5.6% by 2006.
88
Within the top 25 product tags, health is the leading issue and manufacturers are most keen to highlight health properties of their products to consumers at the point of sale. The following 11 product tags are most commonly highlighted on packaging of bakery and cereal products: High fiber; High vitamins; Natural; Organic; No trans fats; No preservatives. Low fat; High calcium; High minerals; No artificial color; High iron;
It is also interesting to note the rising prominence of more ethical issues within the market, for example, the recyclable tag increased from being on 0.9% of bakery and cereal products launched in 2004 to 3.7% in 2006. Also, organic increased from 2.0% to 3.5%. As ethical consumerism grows, shoppers will increasingly expect organic products to also offer a level of ethical assurance such as recyclable or recycled packaging.
Flavor trends
Sweet flavors dominate the bakery and cereals market and chocolate maintains a lead way ahead of any other flavors, unchanged in its number one status in 9.1% of total bakery and cereal products launched in both 2004 and 2006. Traditionally sweet flavors that are very popular in NPD over the past two years (aside from chocolate) are fruits such as strawberry, apple and lemon, and dairy in the form of cream, milk and butter.
89
Table 4.8: Top 20 flavors in bakery and cereal product launched, % of product launches, 2004-2006
Flavor Chocolate Wheat Strawberry Vanilla Apple Cream Oat Honey Cinnamon Lemon Milk Chocolate Almond Rice Milk Orange Cocoa Cheese Raisin Butter Hazelnut
Source: Productscan
2004 9.1% 2.9% 2.8% 2.5% 2.0% 2.7% 1.6% 1.4% 1.9% 1.7% 1.6% 1.8% 1.4% 1.2% 1.3% 1.4% 1.3% 1.4% 1.4% 1.2%
2005 8.5% 4.1% 2.4% 2.7% 2.1% 2.5% 2.1% 1.7% 2.1% 1.5% 1.5% 1.3% 1.3% 1.3% 1.1% 1.3% 1.3% 1.3% 1.7% 1.2%
2006 9.1% 3.6% 2.7% 2.4% 2.0% 2.0% 1.9% 1.7% 1.6% 1.5% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.2%
Change 04-06 + + + + -
Flavors with a more natural image are also growing in popularity such as wheat, which now takes second place behind chocolate and has climbed from 2.9% of product launches in 2004 to 3.6% in 2006. Other flavors with a more natural image are oat, honey, cinnamon, rice and cocoa (as opposed to chocolate or milk chocolate). Honey is likely to grow in popularity as consumers seek more natural sweeteners due to perceived health benefits of consumption versus other forms of glucose or artificial sweeteners.
Nuts are also hugely popular as they have an associated healthy reputation and complement most bakery and cereal product types. Almond is the most popular nut flavor, although prevalence in NPD has fallen from 1.8% in 2004 to 1.4% in 2006. Meanwhile, hazelnuts are the 20th most popular flavor and share of NPD has remained unchanged at 1.2%.
90
The majority of the top 20 flavors have decreased in prevalence or remained unchanged between 2004 and 2006 indicating growth in more original and unique flavors. Manufacturers are choosing to introduce more exotic and unusual ingredients into products to increase experimentation and trial, and to appeal to a wider range of consumers. Incorporating a unique or new ingredient/flavor into a product containing one or more of the more traditional ingredients such as chocolate can boost interest in the new product and help it stand out from the competition on the supermarket shelf.
Business Insights selected 10 flavors as ones to watch over the next two years based on prevalence and trends in bakery and cereals NPD. It is predicted that the following flavors will become more regularly used in bakery and cereals, as manufacturers strive to offer something different to the standard offerings available at present: Cookie pieces or cookie flavoring (particularly in cakes, pastries, home baking products); Sesame (particularly in cereals, bread products and crackers); Cranberry (huge opportunities across the entire bakery and cereals market); Rye (particularly in bread products and crackers); Dark chocolate (huge opportunities across the entire bakery and cereals market); Yogurt (particularly in cakes, pastries and cereals); Brown sugar (alternative to white cane sugar across the sector); Green tea (particularly in cereals); Poppyseed (particularly in cereals, bread products and crackers); Bitter chocolate (huge opportunities across the entire bakery and cereals market).
91
Figure 4.36: Flavors and ingredients that will experience the most growth usage in bakery and cereals over the next five years
Flavors with functional benefits (e.g. pomegranate) Savory flavors (e.g. cheese) Chocolate Seeds Exotic fruits Single fruit flavors Mixed fruits 1 low growth 2 3 Response average 4 5 high growth
Note: Respondents were asked to rate sales growth potential on a scale of 1 which was low growth to 5 which was high growth. The response average is an average of the ratings given along the scale. Source: Business Insights Industry Opinion Survey Business Insights Ltd
According to the industry executives, natural flavors with functional benefits such as pomegranate will experience the most growth in usage in bakery and cereals NPD over the next five years. 60% of executives expect flavors with functional benefits will experience significant or high growth in usage in bakery and cereals over the next five years. Innovative companies are already introducing such flavors to enhance the health appeal of their brands, for example, in the US a pomegranate bread has been developed by Baldwin, GA-based Springer Mountain Farms. The Springer Mountain Farms Pomegranate Bread is sold in a 14 oz. (392g) clam-shell plastic tray and launched in August 2006. The Wheat Bran variety is labeled: A good source of calcium. No trans fats. Contains 190mg of ellagic acid (from pomegranates) in every serving. When digested, the pomegranates naturally occurring ellagotannins turn into ellagic acid. Studies have shown that ellagic acid has very powerful antioxidant properties and is a
92
potent anti-carcinogen. There is clearly a strong focus on the functional and scientific benefits of consuming pomegranate associated with the brands marketing message.
Mixed fruits, followed by exotic fruits, are forecast to witness a surge in growth in bakery and cereals NPD according to the industry opinion panel. The reasons behind this predicted growth are entirely centered on the intrinsic and accepted health benefits associated with fruit consumption. Mixed fruit combinations offer manufacturers the option of enhancing the product offering by creating new and unique combinations. Fruit and nut combinations are also likely to play a major role in NPD as consumers become more educated (through the media, government campaigns, medical advice and the food industry) about the difference between good fats the essential fatty acids contained in many nuts and bad fats such as trans fats.
Of the seven flavors assessed by the industry opinion panel, chocolate is expected to witness the lowest growth in usage in NPD over the next five years, despite its current popularity as the number one flavor between 2004 and 2006. Dark chocolate is likely to rise in prevalence within bakery and cereals NPD over the next five years rather than milk chocolate, as consumers become more aware of the health benefits associated with natural cocoa consumption. According to research from Harvard University published in February 2007i, if adults consume cocoa in its more natural, unprocessed state (i.e. dark chocolate with higher percentage of cocoa solids) it contains more flavanols, which can improve the blood-flow to the brain and even the capacity for memory and learning. This new health benefit comes on top of several studies, which show that cocoa can have beneficial effects for heart disease, asthma, high blood pressure, stress, and cancer. Products that can offer a chocolate flavor without being loaded with fat and calories will continue to appeal, particularly to women.
Research by Harvard University has shown that the flavanols in unprocessed cocoa make it effective in reducing the risks of both cancer and heart disease and help to maintain a healthy brain function in later life. http://www.eurekalert.org/pub_releases/2007-02/wsw-fic021607.php.
93
Savory flavors are also likely to be used more frequently in bakery and cereals NPD as consumers choose to experiment with a wider range of ingredients throughout the day. Sweet flavors are also sometimes associated with indulgence, which means savory products can appear to be the healthier option for some consumers. Dr Kargs organic Emmental Cheese and Pumpkin Seed crispbread meets consumer demands for a savory bakery product with a healthy proposition. The fact that the product is organic and contains pumpkin seeds increases the health appeal, while the specific type of cheese included gives the product further authenticity; consumers like to know the type of cheese included in a product not just the fact that there is some kind of cheese flavor. Launched in the UK in mid-2006, the crispbreads are made with wholegrain wheatflour and are claimed to combine protein, minerals, vitamins, omega-3 and omega-6. The combination of sunflower seeds, sesame seeds and linseeds with wholegrain cereal, provides a source of potassium, phosphorous, zinc and iron.
94
CHAPTER 5
95
Chapter 5
Summary
Natural ingredients will be the most important health trend in bakery and cereals innovation over the next five years according to the industry executives. This is closely followed by low calorie/low fat, and functional. The target audience for natural and fresh products in Europe and the US is growing. By 2009, the number of loyal natural and organic food consumers in Sweden will have grown by a CAGR of 13.3% from 2004. Industry executives expect gourmet/luxury to be most important indulgent trend in bakery and cereals NPD over the next five years. 49% of industry executives believe greater convenience is feature that is important to the success of a bakery and cereal product More and more consumers want food and drink to be tailor-made to meet their personal and individual requirements. Personalized food will become a more omnipresent trend within the industry over the next five years, particularly in the healthy arena where functional ingredients can be included. Kraft Foods in the US has reformulated its childrens cereals and has begun advertising the new products in the hope of stalling declining sales in a sensitive market. The company stopped advertising its childrens cereals in January 2005 to restrict the marketing of products that did not meet certain health criteria.
96
Introduction
The aim of this chapter is to pinpoint the major trends currently occurring in the bakery and cereals market. It also highlights emerging trends that are likely to impact on NPD and marketing within the market over the next few years.
Health, convenience and indulgence are the three key trends that have influenced NPD, marketing, promotional and sales strategies for many years within the overall food and drinks industry. In the bakery and cereals market the three trends have exerted significant influence over new product launches between 2004 and 2006, and will continue to drive future NPD forward. However, over the next five years consumers will become more interested in specific factors within the trends.
Health
Natural will be the most important health trend in bakery and cereals innovation over the next five years according to the industry opinion panel surveyed for this report. 76% of respondents rated the trend as important or very important in bakery and cereals NPD over the next five years. This is closely followed by low calorie/low fat, and functional. Of lesser significance, but still likely to cause a stir in NPD is the fresh trend, which has a lot to do with the perception of the product rather than the health value of the ingredients. Bakery and cereals NPD will also be influenced although to a much lesser extent than the primary three trends by consumer desires for more energy. People want to fit more into their day, and need more energy to keep them going at work and during leisure times.
97
Figure 5.37: Importance of health trends in bakery and cereals NPD over the next five years
Fresh Raw foods Natural Functional
Not important
Very important
Energy providing Low fat/ low calorie
Eating raw food is nothing new, but it is re-emerging as a mainstream choice rather than a committed lifestyle (most raw food followers are also vegan). Americas celebrity chef Charlie Trotter published his Rawii food cookbook in December 2003 which has re-introduced the concept to many consumers seeking a healthy, long-term approach to healthy eating. Publications such as Trotters cookbook have made an impact on urban restaurants in many parts of the world, particularly London, New York and Sydney. Raw food is promoted as a healthier alternative to processed or heated (over 110 degrees) products. Raw food no longer has to be a long-term lifestyle change; instead organic consumers in particular are dipping in and out of the trend as it suits their mood or occasion. The raw food trend will have a minimal impact on NPD according to the industry executives, although this is probably because products in the bakery and cereals market must go through a certain level of processing from its natural state, whereas the raw food trend is forecast to have a strong impact in other
ii
Raw by Charlie Trotter, Roxanne Klein, Tim Turner, Jason Smith, Published by Ten Speed Press, December 2003, United States.
98
sectors that do not require cooking or processing such as fresh produce, certain soft drinks sectors, and certain snack sectors. There remain some opportunities for manufacturers keen to explore wholegrain ingredients in their natural state, particularly in the snack market, as consumers increasingly opt for products with the guilt-free factor to fill them up between meals. In Germany, for example, ARCHE-Naturprodukte GmbH introduced a tub of guar bean flour in July 2006 to be used to thicken raw and cooked foods, and for use in desserts, dips, sauces, and soups. In the US, new varieties of Yayas Raw Rah Organic Kracker: Tomato Basil and Onion Flax were introduced in June 2006. The varieties are claimed to be natural and free of wheat, gluten and trans fat. According to the manufacturer, Yayas Raw Rah, the Krackers have 6g of protein and 6g of fiber in one ounce. They are dehydrated for more than 24 hours rather than being baked, which makes them ideal for raw food consumers.
Figure 5.38: Yayas Raw Rah Organic Kracker
Natural and fresh In the bakery and cereals market, the leading natural trend, forecast to strongly impact future NPD, is already making its mark as consumers associate the natural trend with enhanced health. Parents are keen to purchase natural, fresh and organic products for their children to minimize the number of chemicals and pesticides they consume. The growing numbers of health-conscious consumers are rejecting products that are overly processed or packed with artificial ingredients. Brands that offer the healthiest, tastiest and most natural ingredients available will continue to thrive in this competitive market.
99
The target audience for natural and fresh products in Europe and the US is growing. By 2009, the number of loyal natural and organic food consumers (users) in Sweden will have grown by a CAGR of 13.3% from 2004. This is the highest forecast growth in total natural and organic consumers, and is followed by the US with a CAGR of 10.1%. By 2009, there will be 9.1m loyal and occasional natural and organic consumers in Sweden up from 4.9m in 2004. In the US, it is expected that more than 73.6m people will be loyal users, while 177.8m will be classified as occasional users.
Table 5.9: Percentage and total number of natural and fresh (including organic) food and drink consumers by usage status, Europe and US, 2004 and 2009
% of natural users 2004 France Loyal users Occasional users Total Germany Loyal users Occasional users Total Italy Loyal users Occasional users Total Netherlands Loyal users Occasional users Total Spain Loyal users Occasional users Total Sweden Loyal users Occasional users Total 13% 48% 62% 17% 52% 70% 12% 42% 54% 14% 47% 61% 9% 29% 38% 16% 40% 55% No. of natural users (m) 2004 8.1 28.7 36.8 14.3 42.6 57 6.7 23.9 30.7 2.3 7.6 9.8 3.5 11.6 15 1.4 3.5 4.9 % of natural users 2009 22% 59% 81% 30% 79% 109% 18% 53% 70% 24% 60% 83% 15% 46% 61% 30% 74% 104% No. of natural users (m) 2009 13.4 35.9 49 24.4 65 89.4 10.1 30.2 40.3 3.9 9.7 13.5 6 18.3 24.2 2.6 6.5 9.1
CAGR 2004-09 10.6% 4.6% 5.9% 11.4% 8.8% 9.4% 8.6% 4.8% 5.6% 11.5% 5.0% 6.7% 11.4% 9.6% 10.0% 12.7% 13.6% 13.3%
100
Table 5.10: Percentage and total number of natural and fresh (including organic) food and drink consumers by usage status, Europe and US, 2004 and 2009, continued
% of natural users 2004 UK Loyal users Occasional users Total Other Europe Loyal users Occasional users Total Overall Europe Loyal users Occasional users Total US Loyal users Occasional users Total Overall Loyal users Occasional users Total 13% 63% 78% 22% 52% 74% 14% 49% 63% 12% 41% 53% 13% 45% 58% No. of natural users (m) 2004 8 37.9 46.3 14 33.6 47.7 54.2 188.4 243.3 35.2 120.1 155.3 89.4 308.5 397.9 % of natural users 2009 36% 79% 111% 21% 66% 87% 25% 66% 91% 24% 58% 82% 25% 62% 86% No. of natural users (m) 2009 21.5 47.5 67 13.5 43.1 56.3 99.2 255.7 353.7 73.6 177.8 251.3 172.8 433.5 606.3
CAGR 2004-09 21.8% 4.6% 7.7% -0.7% 5.1% 3.4% 12.9% 6.3% 7.8% 15.9% 8.2% 10.1% 14.1% 7.0% 8.8%
The word natural is frequently used within the product name to attract attention at the point of sale and reinforce brand image. As consumers become savvier shoppers, and read the front and back of packs more closely (particularly when they are considering purchasing a product for the first time), brands that use the term natural in their product name must ensure the entire product fits this image, including an ingredients list that is free from artificial flavors, colors, preservatives etc. In Italy, a new Naturale variant was added to Barilla Fratellis Molino Bianco line of cereals in December 2006. It is claimed to have a low sodium content and is made with Wheat Flakes; Bran; Roasted Oat Flakes; Sugar; Barley Malt Extract; Gluten; Salt; Dextrose; Non Hydrogenated Vegetable Fat; Oat Flakes; Wheat Bran; Glucose Syrup; Vegetable
101
Fat; Honey; Puffed Barley; Almonds; Rice Flour. The fact that the product is free from trans fats is a positive. However, the role of salt, gluten, and dextrose could be criticized by consumers seeking an unambiguously healthy and natural product as the Naturale brand name implies.
Figure 5.39: Barilla Fratellis Molino Bianco cereals
Low fat / low calorie In line with the growing concerns over obesity, manufacturers are launching smaller portion sizes to control calorie and fat intake and enable consumers to have their cake and eat it without feeling guilty. The majority of products are measured on the calorie content, as this is a concept that is very familiar to most consumers. Portion control is particularly popular in the US where products such as the Hostess 100 Calorie Pack from Interstate Bakeries provide a portion-controlled snack. Each pack contains three mini cupcakes containing the brands signature cream filling. There are three variants available: chocolate cake with chocolate icing; golden cake with chocolate icing; and carrot cake with cream cheese icing. The launch is supported by an advertising campaign that states: Three cakes, 100 calories, real satisfaction.
Also in the US, Bimbo Bakeries USA launched Oroweat Mini Loaves, which are smaller versions of the standard variety bread. There are 11 slices compared to the
102
traditional 18, and the product is available in four flavors: 100% whole wheat, seven grain, oatnut, and country buttermilk.
Figure 5.40: Low calorie and portioned products
Functional Functional is expected to be a key trend in the bakery and cereals market over the next five years, particularly in bread. The share of white bread, a staple food for many consumers particularly in the West for decades, will be replaced by healthier and functional bread variants over the next five years. Even wholemeal, which is traditionally viewed as the healthier alternative to white bread, is likely to be usurped by products that are fortified with ingredients such as omega-3, added fiber, multigrains, and added vitamins and minerals. According to the industry survey, the top three bread types that will experience the strongest sales growth over the next five years are: Added fiber; Wholemeal with added vitamins/minerals; Omega-3.
103
Figure 5.41: Sales growth potential of bread types over the next five years
Sweet and savory combinations Omega-3 Seeds Added fiber Multi-grain White and wholemeal combinations Wholemeal with added vitamins / minerals Wholemeal White with added vitamins / minerals White
1 low growth potential
3 Response average
5 high growth potential
Note: Respondents were asked to rate sales growth potential on a scale of 1 which was low growth potential to 5 which was high growth potential. The response average is an average of the ratings given along the scale. Source: Business Insights Industry Opinion Survey Business Insights Ltd
63% of respondents rated added fiber as a bread type that has the potential to experience significant or high sales growth over the next five years. High fiber is also the second most popular product tag on bakery and cereal products in 2006.
63% of respondents rated wholemeal bread with added vitamins and minerals as a bread type that has the potential to experience significant or high sales growth over the next five years. High vitamins is the fourth most popular product tag in bakery and cereals NPD. High minerals is the 14th most popular product tag.
Compared to the other health trends, omega-3 is a relative newcomer to bakery and cereals NPD. In 2004, 0.3% of total bakery and cereals innovation carried an omega3 product tag; this increased to 0.7% by 2006. 61% of respondents rated it highly.
104
A product range that combines all of the top trends (omega-3, added fiber, wholemeal, added vitamins and minerals) could be the answer for health-conscious consumers looking for a quick, easy and convenient way of enhancing their diet. Products such as bread, cereals, cereal bars, and bagged snacks are already frequently consumed within the average diet of many consumers, so the inclusion of additional nutrients such as omega-3 could help people improve their health without having to make any major changes to their eating habits. An innovative example of such a product is Country Harvest Prairie Bran Loaf, launched in Canada by Weston Bakeries Ltd. The bread provides high fiber and omega-3. The sliced 100% Whole Grain Bread is presented in a 675g clear plastic wrapper. Package copy states: 100% grains - Source of omega-3 Source of fiber - No preservatives - Low in saturated fat - No trans fat. The 100% Whole Grain Bread also comes in an Oat n Honey variety.
Figure 5.42: Country Harvest Prairie Bran Loaf
In addition to omega-3, another trend within functional bakery products is targeting consumers concerned about their internal health. Bakery and cereals manufacturers are in a strong position to appeal to consumer concerns regarding internal health from the perspective of the digestive system. The high fiber content of many bakery and cereals products enables brands to make health claims (subject to regional health claims regulations) about the benefits of consuming high fiber ingredients for digestive health. Weetaflakes, manufactured in the UK by The Weetabix Food Company, is one of the
105
many cereal brands that are appealing to the global interest in boosting internal health through the inclusion of prebiotics. In February 2006, prebiotics were added to the Weetaflakes wholegrain wheat and rice cereal, and a raisin, cranberry and apple variant was also launched. The company said at the time of the launch that the goal of the prebiotic brand was to move the breakfast category forward in line with consumer demands for products that are more focused on inner health and wellbeing. Weetaflakes prebiotic was launched at a slightly lower price than the standard variant to encourage trial.
As prebiotics and probiotics become more popular within the overall food and drink industry, synbiotics will have a stronger role to play in innovation. Without prebiotics, probiotics do not survive well or function effectively in the digestive system. Synbiotic combinations provide both probiotics and prebiotics, which work together to provide health benefits. There is currently a lack of awareness of synbiotics, or the different roles of probiotics and prebiotics. However, more and more people understand that they relate to digestive health, and manufacturers are expected to gradually introduce more information about their specific roles through on-pack communications and associated literature on websites, advertisements and through the media.
Glycemic Index Another key health trend in bakery and cereals NPD is the glycemic index. The glycemic index (GI) diet has become a popular choice for consumers seeking to lose weight, or improve health, by following a more natural diet that includes carbohydrates (as opposed to the high protein diets that proved popular two to five years ago). Originally from Australia, the GI diet is now popular in Europe, Asia and the United States as a long-term, more realistic eating plan rather than a strict fad diet.
The GI diet is based on high fiber and protein, and low fat foods. It has been described as a back to basics approach to eating, as it recommends lots of fruit and vegetables, and brown bread and brown rice rather than white, processed variants. GI fits in well with the bakery and cereals market due to the typically high fiber, low fat content of
106
products such as wholegrain bread and cereals. Over the past quarter of a century, more than 100 scientific studies have examined the relationship between GI or GL (glycemic load) and various nutrition-related illnesses such as diabetes, obesity and cardiovascular disease.
Some manufacturers, particularly in the US and the UK, are promoting their products low glycemic index to appeal to both dieters and health-conscious consumers. The incorporation of a GI label further accentuates the healthy, and often the natural, positioning of the product; many GI oriented products contain natural ingredients such as oats. For example, in South Africa Albany Bakeries Superior Brown Seed Bread is promoted as having a low GI, as it contains oats, linseed, and sunflower seeds. Packaging states: Feel the freshness. Albany Bakeries, a division of Tiger Food Brands, is the manufacturer.
Indulgence
The bakery and cereals industry represents the ultimate in indulgence for many consumers: bread, cakes, biscuits, and pastries can be luxurious, high in fat, and rich in taste. Over the next five years the gourmet/luxury trend will be most important within the bakery and cereals market according to the industry survey of food and drink executives from around the world. 59% of industry executives rated gourmet and luxury as a significant or the most important trend in bakery and cereals NPD over the next five years. The gourmet trend will outshine other trends such as ethnic and exotic flavors.
Regional/authentic will also be important to future indulgent focused NPD in bakery and cereals, although to a lesser extent than gourmet/luxury. 47% of respondents rated it highly. Local sourcing and authentic ingredients and recipes will become more important for consumers as issues such as food miles and provenance are more widely discussed within society. Although regional and authentic ingredients may not equate to an indulgent product, it will have an important role in future NPD because
107
consumers will grow to expect a range of premium attributes from the food and drink they purchase.
Figure 5.43: Importance of indulgent trends in bakery and cereals NPD over the next five years
Exotic flavors Regional/ authentic Gourmet/ luxury
Not important
Very important
Ethnic
Gourmet and luxury While some sectors within the industry, such as bread and cereals, are considered staple products within many markets, cakes and biscuits are typically viewed as more of an indulgent or treat purchase. Over the next five years manufacturers will focus on developing more premium and luxurious products to appeal to consumers desire for self-treating, including staple categories such as bread and cereals. Investment in new or improved production facilities is ongoing. In the UK, for example, Duchy Original, the organic food business established by Prince Charles, added a bespoke bakery to provide ultra-premium products in 2006. In mid-2006, Duchy Originals launched Vintage Cheddar Cheese bread to consumers in the UK. According to literature, the bread has been baked by craft bakers with organic ingredients and topped with vintage cheddar cheese. It is recommended as the ideal accompaniment to soups, salads and cold meats when served warm. Products within the Duchy Originals bakery and cereals range is also sold in Spain by a distributor called Tastes of America. The Organic Sweet Biscuits in Highland Shortbread, Lemon, Orange, Ginger and Butterscotch Shortbread varieties were introduced to Spanish consumers in March 2006.
108
Figure 5.44: Duchy Originals gourmet bread and biscuits
Premiumization is apparent in a products ingredients, recipe and appearance, as well as the packaging format, functionality and appearance. The growing taste for luxury is becoming more pronounced as consumers continue to experiment, self-reward and invest in satisfying experiences with rich flavors, textures, and variety. Indulgent products appeal to consumers looking for something special to reward or treat themselves. However, indulgent products are also becoming more of a mainstream and frequent purchase, as consumers seek the perceived best quality food in terms of taste and health. Consumers interest in premium products is being driven by rising incomes, an overall trend towards indulgence and the growth of key demographic groups such as senior consumers and single person households are all helping to fuel the rising significance of premium products.
Premiumization is also being spurred on by the growing wealth around the world that is translated into a higher available spend on fast moving consumer goods in general. The number of ultra-high net worth individuals (more than $30m in financial assets) increased by 8.9% in 2005 to 77,500iii, and the number of billionaires worldwide grew from 587 in 2004 to 691 people across 45 countries in 2005iv. An estimated 236,000
iii
World Wealth Report 2005, Merrill Lynch & Cap Gemini The Luxury Institute
iv
109
Chinese became millionaires by the end of 2004, and in India, 61,000 people have assets exceeding $1m according to figures from Cap Gemini.
Private label Private label is a dominant force in the bakery and cereals sector. In terms of company types within the global bakery and cereals market, artisanal producers and private label companies dominate, followed by multinationals and independent companies such as Kellogg and Kraft Foods. In previous years, private label products have tended to occupy the more economy end of the price spectrum, providing a cheaper alternative to branded products. As such, the reputation of private label products has suffered in many countries around the world. However, over the past five years there has been a dramatic shift in the private label market, with retailers investing in higher quality ingredients, recipes, and packaging to product products that are positioned as premium. Private label manufacturers are gaining ground on branded products by investing in NPD and healthy, premium and indulgent offerings.
In the US, private label has the largest market share at 19.6% in 2004. Products such as Creme Brulee Cheesecake, a frozen dessert sold under the Sams Choice brand name, appeal to consumers looking for a more premium offering. The perception that private label goods are of an inferior quality to branded products is being reduced, as retailers continue to invest in premiumization. The private label cheesecake is distributed in the US by Wal-Mart. The 20 oz. (566g) dessert provides six servings and is described as creme brulee cheesecake topped with a hand fired sugar glaze. It is claimed to be made with the finest ingredients including Madagascar vanilla.
In the UK, Waitrose is a retailer associated with higher quality products and there is a strong focus on private label. Waitrose added a Gooseberry Crumble to its private label dessert range in November 2006. It contains ripe gooseberries with a hint of elderflower topped with a crunchy oat and all butter crumble. The product is suitable for vegetarians and is frozen.
110
Figure 5.45: Gourmet private label bakery products

Wal-Mart Waitrose
Home cooked meals and authentic ingredients Cooking from scratch using natural ingredients is being regularly replaced by ready meals and meal kits, as the easier option for time-pressed and hungry consumers. However, cooking from scratch is starting to gain appeal as attention is paid to the eating habits associated with obesity (excessive consumption of processed, high fat, high sugar, high salt food and drink), and the quality of ready meals versus fresh, home-cooked meals. Celebrity chefs such as Jamie Oliver and Gordon Ramsay in the UK are keen to extol the virtues of cooking from scratch, and while consumers may not be returning to the kitchen every evening after work, there is growing interest in cooking high-quality meals for dinner parties, or family lunches on a weekend, at least once or twice a week.
Foodie consumers (those who are very interested in food, provenance, cooking, eating out, food magazines and television programs) are driving forward this return to cooking from scratch, and they are aiming to produce a restaurant-quality meal for family/friends using high quality ingredients. Bakery and cereals manufacturers are well placed to target foodie consumers with premium products that can be incorporated into meals that allow them to feel as though they are in charge of the preparation process rather than simply opening a packet and serving. The following products tap
111
into this trend by allowing consumers to put their own stamp on the end product without having to start entirely from scratch: The Pillsbury Ultimate Muffins line of Muffin Mixes was introduced in Blueberry Streusel, Caramel Apple Streusel and Chocolate Fudge Chocolate Chip varieties in October 2005 in the US. The boxed mixes take six minutes to bake. The manufacturer is The Pillsbury Company; In Hong Kong, Greens Foods Ltd. introduced Basco Gluten Free Food in December 2006. The gluten free and wheat free chocolate variant is marketed as a light and fluffy sponge pudding with a rich chocolate sauce. It can be made in either the microwave or oven; A dessert mix was developed under the Dells brand name for Australian consumers in November 2006. Package text indicates that the mix can be used to make milkshakes, frozen desserts, and ice lollies. It is sugar-free and available in Chocolate Delight, Banana Delight, and Strawberry Delight varieties. Capital Foods Pty. Ltd. is the distributor; Cinnamon Raisin, Cornbread, and Hearty Whole Grain varieties of Bobs Red Mill Gluten Free Bread Mix were launched in October 2006 in the US. Presented in stand-up bags, the breads are manufactured by Bobs Red Mill Natural Foods. Each all natural Bread Mix is also wheat free and dairy free.
112
Figure 5.46: Bobs Red Mill Gluten Free Bread Mix
Convenience
Figure 5.47: The features of most importance to the success of a bakery or cereal product
Clearer back-of-pack nutritional labeling Clearer front-of-pack nutritional labeling
New target audience
Greater convenience
Innovative packaging
New ingredients
1 least important
Response average
6 most important
Note: Respondents were asked to rate sales growth potential on a scale of 1 which was least important to 6 which was most important. The response average is an average of the ratings given along the scale. Source: Business Insights Industry Opinion Survey Business Insights Ltd
113
Greater convenience is most important to the success of a bakery or cereal product according to 50% of industry executives surveyed for this report (rated 5 or 6 in the survey). This is closely followed by new ingredients, which highlights the importance of combining true innovation and convenience within the market. The industry opinion panel does not associate convenience with innovative packaging; 11% said it was of the least importance, and another 11% stated it was of the highest importance. Instead, greater convenience is related to the availability of the product (so people can purchase on impulse wherever they are), and the on-the-go nature of the product. Convenience could also be related to added health benefits provided in a convenient format such as a ready-to-eat breakfast cereal.
Eating out and on-the-go European consumers are increasingly skipping meals at home and instead opting to snack or eat in restaurants, a trend that is set to continue as lifestyles become more hectic. Consumers are choosing to eat on-the-go, and this includes breakfast, lunch and dinner, as well as snack times. European consumers are increasingly skipping breakfast, especially in the UK where almost one third of breakfasts are missed every year. By 2010, this is forecast to increase, as more and more working consumers are likely to skip breakfast altogether or eat something out-of-home. Lunch on the run is also becoming routine with forecasts of 5.2bn extra breakfasts, lunches, evening meals and snacks in the UK being consumed outside the home by 2010 compared to 2005.
Italians spend the most on eating out at an average of 1,825 a year. The British follow behind spending 1,765 a year, followed then by the French at 1,543. For many consumers, eating out is no longer a special event but a necessity in order to fit in the many other activities to be completed during a standard 24-hour period. When it comes to bakery and cereals products, convenience will become even more important, although other trends such as high quality, premium ingredients, and added health benefits will also be expected. Although more consumers are choosing to eat on-the-go and in foodservice outlets, this does not mean they are willing to compromise on taste, health or quality.
114
Convenient, high quality and healthy formats are ubiquitous in the bakery and cereals market. Single-serve products are synonymous with on-the-go convenience. The following products showcase the level of innovation currently occurring in the convenient, on-the-go sector, and mark the start of a strong focus on such innovation that is forecast to increase over the next five years: Individually wrapped Lady Waltons Creamy Dark Chocolate Cookies are targeted toward impulse buyers and sold in the US. They are available in single-serve packaging from March 2006, and positioned as a gourmet, convenient, and indulgent product made with high quality ingredients; In Japan, First Baking developed a white bun filled with soy milk flavor cream and unseived azuki bean paste from Hokkaido at the end of 2005. The product, called Dai Ichiya White Caf Ogura Milk, contains 364 kcal per pack and is sold in a single portion pillow pack, which is a popular pack format in Asia-Pacific for impulse, single-serve snack products; In the UK, snack company Kitchen Range Foods Ltd. launched its Cadbury Milk Chocolate Donut in an individually-wrapped package for on-the-go snacking, at the end of 2006 A twinpack version of the product was introduced earlier in the year, and the company, under license from Cadbury, decided to introduce the milk chocolate-coated donut for impulse snackers in a single flow-wrapped package.
Figure 5.48: Dai Ichiya White Caf Ogura Milk
115
Impulse purchasing Impulse is defined as products that are purchased for immediate or almost immediate consumption, such as bagged snacks, soft drinks, confectionery countlines, pre-packed sandwiches and salads. In line with the growing number of on-the-go eating occasions, impulse sales are rising. The on-the-go breakfast occasion will become a focus for bakery and cereal manufacturers looking to utilize the fact that this is the most regularly skipped meal of the day for many people, despite increased understanding that it is also vital to avoid over-eating later in the day, and for maintaining energy levels in the morning. In the UK and Ireland, Ennis Foods re-launched its Rumblers complete snack-in-a-pack cereal range with the goal of increasing its market share within the RTE breakfast cereal sector. The 0.5m redesign positions the fresh semiskimmed and milk and bio-yogurt cereal range as a handy, healthy and heavenly option for breakfast on-the-go or healthy between-meal snacking. There are currently two types: Cereal and Low-Fat Natural Bio Yogurt with friendly bacteria (four variants); and Cereal and Fresh Semi-Skimmed Milk (three variants). The new packaging includes a clear top pot to allow consumers to see the different types of cereal available.
The brand has been revamped to target the growing number of health-conscious consumers who are looking for a convenient, out-of-home breakfast and snack option. According to TNS findings, out of home breakfast consumption is showing growth with estimates that it will be worth 1.6bn in the UK by 2009.
At the time of the relaunch, managing Director, Alan Cunningham said:
By moving away from using traditional, cereal box style photography onpack, we hope to provide a point of difference and better communicate the premium quality of Rumblers. The portable nature of the products makes the range as relevant to the sandwich cabinets in the supermarkets as to catering outlets, forecourts and C-stores, where people are looking to grab breakfast or a healthy snack on the run.
116
Figure 5.49: Impulse product for the on-the-go breakfast market
Source: The Impact Agency on behalf of Ennis Foods
Customization and individualization The focus on more specific trends within the three main trends of health, indulgence and convenience, translates into the growing importance of bespoke products that are targeted at the individual rather than the mass market. Consumers do not always want to follow the herd; instead individualization is key to todays society, particularly in relation to the younger adult market (18 years to 40 years).
The personalization trend is likely to continue in the future fuelled by changes in the global macro-environment that have been apparent in recent years, such as: Shifting demographics rising number of single person households, women giving birth later in life and focusing on their careers, etc; Growing health concerns obesity, cardiovascular disease, pollution, smoking, etc; Increasing awareness of nutritional issues relationship between optimum nutrition and optimum health; More stringent local and global regulation such as the European Health Claims.
One key major macro-economic trend that will influence bakery and cereals NPD over the next five years is the rising number of smaller households (one or two persons). This is driven by a number of factors including the growing number of senior
117
consumers, empty nesters (households where the children have left home), single parents, divorced couples, house/flat shares among friends, and couples having children later in life. Table 5.11 shows that empty nesters have grown by 1.6% in Europe and 3.4% the US between 2000 and 2005. In Europe, the second highest growth came from single households at 1.4%, followed by single parent households at 0.7%. Couples with kids grew by a modest 0.3%, while nuclear families declined by 1.6%. In the US, the only household type to experience a decline is the single household. All other household types experienced positive growth.
Table 5.11: Family structures across Europe and the US, (m), 2000-2005
2000 Europe Singles Couples without kids Nuclear families Single parent Empty nesters Overall US Singles Couples without kids Nuclear families Single parent Empty nesters Overall
2005 81.0 82.0 132.7 29.4 63.7 388.8 50.2 30.8 117.9 29.8 63.7 287.7
CAGR 2000-2005 1.4% 0.3% -1.6% 0.7% 1.6% 0.1% -1.0% 0.3% 0.5% 0.2% 1.6% 0.7%
75.6 80.6 143.9 28.4 58.9 387.4 52.8 30.4 115.2 29.5 49.8 277.7
This overall growing trend of more and smaller households in the Western world will continue in the near future, with distinct effects on when, where and why people eat bakery and cereal products. For example, individually wrapped portions of cakes will suit consumers who spend more time eating out than in, so the product can be kept in the cupboard and consumed whenever a snack is required.
Targeting the mass market can be a successful growth strategy because a product can aim to tap into generic trends. One innovative example is Cepams Disney Pixar Monstros Inc. Carrefour Panetone, which was introduced to consumers in Brazil.
118
Targeted at children, the chocolate chip cake is marketed under the Disney Pixar brand name and is an indulgent product positioned as an ideal dessert for family meals. However, targeting more specific concerns, interests or taste preferences can promote a product to a more premium status and help it stand out in the crowded mass market. More and more consumers are calling for food and drink to be tailor-made to meet their personal and individual requirements. Personalized food will become a more omnipresent trend within the industry over the next five years, particularly in the healthy arena where functional ingredients can be included to target more individual health concerns such as Type II diabetes or high blood pressure. Consumers are already choosing to purchase a wider range of products relating to personal health needs.
In addition, marketing strategies within the bakery and cereals market have become more sophisticated and conducted on an increasingly local level in order to target specific consumer groups, and tap into trends that are closely related to a particular region. In the UK, for example, Warburtons is on a crusade to increase its reputation as a family-friendly brand with traditional values and authentic recipes that also understands the needs of a modern family. Every year for seven years, Warburtons has promoted Warburtons National Bread Week to further establish this family-friendly reputation in consumers minds. Running from May 7 to May 13 in 2007, the family baker launches picnic themed initiatives across the country to raise awareness of bread as a vital part of a healthy balanced diet. The public relations strategy will involve encouraging families to spend more time together eating outside in the fresh air. A website has been created which includes health facts about white and brown bread, recipe suggestions for sandwiches, and recommends picnic sites across the UK.
119
Targeting children in todays highly sensitive market

Bakery and cereals manufacturers around the world are reformulating products aimed at children, as the focus has shifted onto the responsibility of the food industry for the rising number of unhealthy, overweight and obese children. Business Insights has identified 10 trends that are set to influence innovation for the childrens market in bakery and cereals over the next five years: More responsible marketing (in line with gradually more rigorous regional and national regulation); Focusing on the facts (supported by scientific evidence) and reducing confusing or potentially misleading claims; Organic: parents want the best for their children when it comes to the source and production of ingredients; Allergies: more dairy, wheat, gluten, and nut-free products; Linking nutrition with educational/behavioral problems; Superior quality ingredients and the importance of provenance; Targeting children as consumers in their own right and not primarily focusing on gaining the approval of their parents/gatekeepers; Sophistication to appeal to children who want to consume the same products as adults (this phenomenon is known as kids getting older younger KGOY); Providing novelty value through packaging innovation such as straws that change the flavor of a product, or add color; Flavor innovation: providing a wider choice for children including spicy and exotic flavors.
120
Manufacturers in countries such as the UK and US, where childhood obesity levels have skyrocketed in recent years, are reformulating products in line with government requests. The bakery and cereals industry has not been legally obliged to reformulate brands that are high in sugar, salt or fat, and aimed at children; however, many are voluntarily choosing to take this step. Reformulation is viewed as a necessary action by many manufacturers and retailers to avoid future imposed legislation and to remain in favor with the growing number of consumers who are shunning such products for their children. With obesity-related illnesses, such as heart disease and diabetes, reported to account for up to 7% of healthcare costs in the EU, the issue is now high on health and political agendas. In May 2006, European and US health officials met in Brussels to develop a joint strategy to stall the global rise in obesity in children and adults. A number of initiatives have seen been introduced on a national level, and conducted by the local food standards agencies. Cross-regional legislation was not introduced, and there is a clear preference for self-regulation by the industry.
Kraft Foods in the US for example has reformulated its childrens cereals and has begun advertising once again in the hope of stalling declining sales in a highly sensitive market. The company stopped advertising its kids cereals in January 2005 as part of a company-wide policy to restrict marketing of products that did not meet certain health criteria. Reformulation has been imperative to future growth, as Kraft is keen to be positioned as the ideal, convenient and healthy option for parents to purchase on behalf of their children. The reformulated kids cereals feature less sugar, with sugar content in some cereals lowered by as much as 25%. Fruity and Cocoa Pebbles now have 9g of sugar, instead of 12g, and Honeycombs have decreased from 10g to 8g.
121
122
CHAPTER 6
Conclusions
123
Chapter 6
Summary
Conclusions
Consumers are traveling and experimenting more and more, as such they are aware when a product is falsely promoted as authentic. Research the origin of the recipe and ingredients, and avoid over-reliance on terms such as authentic or regional unless they are truly justified. Functional and fortified, lower and lighter, and smaller portions are three key emerging trends in the bakery and cereals market worldwide. In the more developed and established markets such as Europe, manufacturers are already investing heavily in research and development to identify the next big ingredient to add health value to their products. Technologies that make the product taste and look more appealing will continue to be popular with those consumers choosing the convenient option but who are not prepared to compromise on quality. Consumers are also prepared to pay a premium for products that improve their consumption experience, or save them time; linking together convenience and indulgence. Young adults will be a focus for future NPD according to industry executives with 50% stating they offer significant or the most growth potential. Despite the ever-growing senior population around the world, industry executives do not believe adults aged 60 years and above hold much sales growth potential for bakery and cereal manufacturers. Over the next five years, breakfast will continue to offer the strongest sales potential, as consumers switch to more convenient and healthier items such as cereal for themselves and their family. Nearly a third of survey respondents rated the breakfast occasion highly.
124
Introduction
This chapter brings together conclusions from the whole report and identifies the key opportunities for bakery and cereal manufactures within health, indulgence and convenience by analyzing the trends, innovations and leading manufacturers in the market. It also discusses the potential barriers. The chapter then looks at target audience and occasions for bakery and cereal products over the next five years.
Innovation opportunities, barriers and solutions

Table 6.12: Innovation opportunities and potential barriers in bakery and cereals NPD to 2009
NPD opportunity Potential barriers Solutions Support claims with reliable scientific evidence Conduct taste trials throughout the NPD process & make it clear that it tastes as good as the standard variant Need to introduce other measures that consumers can identify with Ensure the entire brand proposition is in line with the premium positioning Research the origin of the recipe and ingredients, and avoid over-reliance on terms such as authentic or regional Make front of pack messages concise. Clearly highlight the primary USPs such as low fat, easy to open, convenient etc.
Health Functional and fortified Consumers becoming skeptical of the efficacy and reliability of certain health claims Lower and lighter variants Concerns over taste profile of diet variants of standard products Currently limited to calories i.e. less than 100 calories per pack The packaging, recipe and ingredients must all contribute to the gourmet image or consumers will not be prepared to pay the premium Consumers are traveling and experimenting more and more, as such they are aware when a product is falsely promoted as authentic On-pack communications may be too confusing or complex to appeal to impulse purchasers at the point of sale
Smaller portions Indulgence Gourmet and premium
Regional/authentic
Convenience Impulse formats
Single-serve
Portion size may be too small for the Offer a range of pack sizes to individual. Consumers may be looking to suit single-serve and for a product to share with others sharing occasions
125
Health Functional and fortified, lower and lighter, and smaller portions are three key emerging trends in the bakery and cereals market worldwide. In the more developed and established markets such as Europe, manufacturers are already investing heavily in R&D to identify the next big ingredient to add a health proposition to their products. Diet variants are being launched to appeal to the growing number of people choosing to reduce their sugar, salt, fat and calorie intake on a daily basis.
Portion control/smaller portions is a trend that is prevalent in the US but is only starting to make ground in other bakery and cereals markets; there are huge opportunities for manufacturers to reduce the pack size and provide single-serve portions for consumers looking for a snack with the same taste as the standard variant but with less guilt! In Canada and the US, the Vitalicious line of cake and muffin mixes cross a number of trends including healthy indulgence, convenience, cooking from scratch, and fortification. Manufactured by New York-based Vitalicious Foods the variants include Fat Free BlueBran, Low Fat Deep Chocolate, and Sugar Free Low Fat Banana Nut VitaMuffin Mixes and a Low Fat Deep & Velvety Chocolate VitaBrownie. Launched at the end of 2006, the products are packaged in 13.5 oz. (383g) stand-up bags. Label copy for the BlueBran variety reads: Makes 12 delicious 100 calorie 2 oz. VitaMuffins - Natural & delicious - No cholesterol - 6g fiber - 3g protein - 0g fat Enriched with 15 vitamins & minerals.
Figure 6.50: Vitalicious Foods
126
Indulgence Indulgence will continue to be important in bakery and cereals NPD over the next few years. Consumer expectations and perceptions of premium and indulgent products are evolving, and shoppers are becoming more difficult to please. There is now a much greater exposure to high quality bakery and cereals, and the premium end of the market is attracting a wider audience than ever before. Many consumers are willing to pay premiums for indulgent products, particularly those that are in fashion or are regarded as cool, such as Tohatos Tohato Hitokuchi Kuro Goma Cream Sando Biscuit [bitesize black sesame cream sandwich cookie]. Introduced in Japan in May 2006, the biscuits contain ingredients that are currently viewed as fashionable among young adult consumers black sesame seeds and black sesame seed paste.
Figure 6.51: Tohatos Tohato Hitokuchi Kuro Goma Cream Sando Biscuit
Consumers are also prepared to pay a premium for products that improve their consumption experience, or save them time; linking together the convenience and indulgence trends. Products that have a unique novelty factor can also be viewed as indulgent and premium, such as Naris Up Cosmetics functional biscuits aimed at relieving hunger pangs and targeted at young women. The Gupitats Functional Biscuit and a new Functional Cookie were launched in Japan in mid-2004. Each box is claimed to contain 4mg of the daily requirement of iron and 200g of the daily requirement of
127
calcium. Variants include Bitter Cocoa, Maple Syrup, and Potato & Pepper varieties, and the cookie is offered in Banana and Strawberry flavors. The cookies are priced at Yen 150 per box and the biscuits are priced at Yen 160 per box. According to Marketing News in Japan, the products are meant to prevent stomach noises during meetings or classes.
Convenience Greater convenience is the most important factor to the success of a new bakery or cereal product in todays market according to 50% of industry executives surveyed for this report. This is closely followed by new ingredients, which highlights the importance of combining true innovation and convenience within the market. Convenience can be provided in a wide number of forms including resealable packaging, packaging that is suitable for on-the-go consumption, recyclable packaging, or single-serve packs. Convenience can also refer to the product itself, for example, if it provides the recommended daily amount of a number of nutrients, or is a convenient way for parents to include essential fatty acids (omega-3 and omega-6) into their childs diets.
There are also many packaging opportunities for manufacturers seeking growth in the saturated bakery and cereals markets in Europe, Asia-Pacific and North America. Technology that makes the product taste and look more appealing will continue to be popular with consumers choosing the convenient option, but who are not prepared to compromise on quality. A Frozen Fruit Filled Snack Pie called Pie-Oh-My! was introduced under the LifeStream brand in the US and Canada in mid-2006. Available in the US from Blaine, WA-based Natures Path Foods USA, and in Canada from Richmond, BC-based Natures Path Foods Canada, the varieties are: Apple, Wildberry, Dark Cherry, and Pineapple. Described as a nutritious fruit snack that comes in its own pastry pocket ready to eat straight out of the package when thawed, or after being baked in the oven or microwave, each 3.53 oz. snack pie is sold individually packed. Literature states: New QuiltWave(tm) technology makes microwaving as good as fresh baked!...This innovative packaging technology enhances the consumer-pleasing
128
browning and crisping of microwave foods. Within two minutes consumers now have a quick and convenient method of acquiring a crisper oven-like bake. The fruit pies, made with real fruit... 2/3 of a fruit serving to each pie, have over 70% combined organic content with a 100% organic pastry and a blend of natural/organic real fruit fillings. They are also touted as the only hand held fruit pocket pie made with organic fruit and a whole grain crust. They have no pesticides, no preservatives, nothing artificial, (and are) not genetically engineered.
Figure 6.52: Frozen Fruit Filled Snack Pie called Pie-Oh-My!
Targeting consumer groups Young adults will be a focus for future NPD according to the industry opinion panel, with 50% stating they offer significant or the most growth potential. However, despite the ever-growing senior population around the world, the industry executives do not believe adults aged 60 years and above hold much potential for bakery and cereal NPD. 50% stated that senior consumers represent the least growth potential. Children aged five to 12 years old represent the second most influential age group for future NPD, closely followed by adults aged 36 to 60 years, and then teenagers (13 to 19 years).
Targeting age groups, rather than the mass-market adult or child population, will be an increasingly relied upon strategy in the bakery and cereals industry. Consumers are starting to look for products that are more closely tailored to their particular lifestyle and dietary needs, and manufacturers can tackle concerns related to specific age groups, for example, high calcium for children; energy-providing ingredients such as gingko biloba and ginseng for adults; and essential fatty acids for senior consumers.
129
Figure 6.53: Consumer groups expected to provide the most sales growth potential for bakery and cereal manufacturers over the next five years
5 Most growth potential
Response average
1 Least growth potential
Kids (5-12)
Teenagers (13-19)
Young adults (20-35)
Adults (36-60)
Seniors (60+)
Note: Respondents were asked to rate sales growth potential on a scale of 1 which was least growth potential to 5 which was most growth potential. The response average is an average of the ratings given along the scale. Source: Business Insights Industry Opinion Survey Business Insights Ltd
A host of new products are specifically targeting consumers by their age group and specific concerns including Alara Wholefoods Ltd., which developed LifeStage Nutrition cereals - Blooming Years, Prime Years and Growing Years for consumers in the UK. Blooming Years has been developed for women above the age of 18 years, Prime Years is for people over 40 years and Growing Years is for children over three years. The products were launched in mid-2006.
In China, Yashili Cereals are manufactured by Guangdong Yashili Group Co., Ltd. There are four types - High-calcium and High-iron Nutritious Cereal, High-protein Nutritious Cereal, Breakfast Oatmeal and Walnut High-calcium Oatmeal. According to the package text, it contains Australian Oatmeal and calcium and iron. The edible fiber promotes digestion and the balanced nutrition promotes absorption. It is promoted as suitable for students and middle-aged and senior consumers looking to replenish nutrients through healthy nutrition.
130
From breakfast-time to all-the-time Over the next five years, breakfast will continue to offer the strongest sales potential, as consumers switch to more convenient and healthier items such as cereal for themselves and their family. There are opportunities for manufacturers to produce RTE cereals for children that can be eaten on-the-go (in the car on the way to work for example) and provide added health benefits such as omega-3, vitamin C and calcium. According to the Business Insights industry opinion survey, bakery and cereals hold limited opportunities within the traditional mealtimes of lunch and dinner. However, there is scope for growth in between meals.
Figure 6.54: Sales growth potential of consumption occasions for bakery and cereal manufacturers over the next five years
5 - Most growth potential 2 100% 90% 80% % of respondents 70% 60% 50% 40% 30% 20% 10% 0% Breakfast Mid-morning Lunch Midafternoon Dinner Late evening 4 3
1 - Least growth potential
Positioning brands as snack products will be an increasingly relied upon marketing tool, and manufacturers will concentrate on pushing this message through communications on packs and at the point of sale. Pack formats will be imperative to success in the snacking market: manufacturers are advised to consider handheld bags,
131
on-the-go formats, multi-packs, and larger grab bags for sharing with friends or in the workplace. The most popular time to target snacking with bakery and cereals, according to 10% of respondents is mid-morning, versus just 1% supporting the midafternoon, and 4% for the evening.
Cereal manufacturers should also consider the potential impact other categories could have on their market share as innovation over the next five years will increasingly focus on providing consumers with more choice at the point of sale for impulse purchasing and on-the-go consumption. In the UK, for example, Nestl launched an onthe-go yogurt, fruit and cereal drink aimed at the breakfast and mid-morning market under its Ski brand in March 2006. Ski Up & Go variants include Mixed Berry, and Banana and Honey, and are sold in multi-packs of three 350g bottles and individual bottles. The product is aimed at busy parents who want to ensure themselves and their children are consuming something quick and easy for breakfast, as well as people going to work.
Figure 6.55: Nestls Ski Up & Go
132
Index
Alara, 84, 130 Asia-Pacific, 11, 34, 44, 47, 69, 70, 72, 73, 78, 80, 81, 115, 128 Bimbo, 23, 58, 82, 83, 102 bread, 11, 12, 21, 25, 28, 29, 34, 36, 37, 38, 39, 40, 49, 52, 55, 56, 57, 58, 59, 60, 71, 73, 75, 78, 85, 88, 91, 92, 102, 103, 104, 105, 106, 107, 108, 109, 119 breakfast, 11, 14, 16, 23, 24, 27, 34, 36, 37, 38, 55, 62, 63, 73, 88, 106, 114, 116, 117, 124, 131, 132 cakes, 21, 36, 37, 39, 44, 48, 55, 56, 76, 91, 102, 107, 108, 118 calories, 67, 76, 93, 102, 125 cereals, 1, 10, 11, 12, 13, 14, 16, 17, 18, 20, 21, 22, 24, 26, 27, 28, 29, 30, 31, 33, 34, 35, 36, 37, 38, 39, 40, 42, 43, 44, 45, 46, 47, 48, 52, 53, 54, 55, 56, 61, 62, 63, 64, 66, 68, 69, 70, 71, 72, 73, 74, 75, 78, 80, 81, 82, 83, 85, 87, 88, 89, 91, 92, 93, 94, 95, 96, 97, 98, 99, 101, 102, 103, 104, 105, 106, 107, 108, 110, 112, 114, 115, 117, 119, 120, 121, 124, 125, 126, 127, 128, 129, 130, 131, 132 children, 10, 13, 20, 22, 25, 59, 60, 63, 68, 73, 74, 79, 96, 99, 118, 119, 120, 121, 129, 130, 131, 132 convenience, 10, 13, 14, 16, 20, 26, 39, 44, 61, 62, 73, 75, 76, 87, 96, 97, 114, 115, 117, 124, 125, 126, 127, 128 cookies, 12, 37, 40, 52, 54, 57, 64, 65, 66, 74, 76, 79, 88, 128 crackers, 28, 36, 37, 40, 66, 67, 68, 91 ethical, 12, 29, 30, 32, 44, 52, 89 Europe, 11, 13, 14, 34, 35, 36, 37, 39, 42, 43, 44, 45, 47, 64, 69, 70, 71, 72, 73, 78, 80, 96, 100, 101, 106, 118, 124, 126, 128 Fairtrade, 10, 20, 29, 30, 31, 84 on-the-go, 10, 20, 21, 62, 73, 76, 82, 83, 88, 114, 115, 116, 117, 128, 131, 132 organic, 10, 12, 13, 20, 23, 26, 29, 30, 31, 32, 44, 48, 52, 55, 61, 67, 84, 89, 94, 96, 98, 99, 100, 101, 108, 129 functional, 13, 28, 44, 85, 88, 92, 96, 97, 103, 105, 119, 127 General Mills, 28, 48, 61 glycemic index, 24, 78, 106, 107 gourmet, 13, 96, 107, 109, 115, 125 health, ii, 10, 13, 14, 16, 17, 20, 21, 22, 23, 24, 26, 27, 28, 35, 38, 40, 44, 53, 60, 62, 63, 65, 67, 71, 72, 73, 83, 86, 87, 89, 90, 92, 93, 94, 96, 97, 98, 99, 104, 105, 106, 107, 109, 114, 116, 117, 119, 121, 124, 125, 126, 131 Hovis, 12, 52, 58, 59, 60 impulse, 11, 34, 49, 114, 115, 116, 125, 132 indulgence, 10, 14, 17, 20, 21, 26, 40, 44, 60, 63, 65, 94, 97, 107, 109, 117, 124, 125, 126, 127 Kraft, 13, 44, 48, 57, 96, 110, 121 natural, 10, 12, 13, 17, 20, 22, 26, 28, 29, 31, 44, 48, 49, 52, 53, 56, 57, 58, 61, 63, 67, 76, 85, 90, 92, 93, 96, 98, 99, 100, 101, 106, 107, 111, 112, 129 Nestl, 47, 48, 86, 132 North America, 48, 69, 70, 73, 74, 75, 128 obesity, 21, 22, 44, 63, 102, 107, 111, 117, 121 omega-3, 10, 20, 24, 29, 76, 85, 94, 103, 104, 105, 128, 131 fat, 13, 21, 22, 26, 29, 40, 58, 63, 67, 74, 75, 76, 78, 79, 89, 93, 96, 97, 99, 102, 105, 106, 107, 111, 121, 125, 126 food miles, 29, 31, 32, 83, 107
133
packaging, 24, 30, 44, 45, 46, 49, 57, 69, 74, 81, 83, 84, 86, 87, 89, 109, 110, 114, 115, 116, 120, 125, 128 portion, 73, 81, 82, 88, 102, 115 premium, 14, 24, 25, 27, 60, 63, 69, 87, 88, 108, 109, 110, 112, 114, 116, 119, 124, 125, 127
private label, 45, 46, 65, 74, 75, 110, 111 Sara Lee, 11, 34, 48, 49 sugar, 10, 20, 21, 22, 28, 63, 75, 76, 79, 91, 110, 111, 112, 121, 126
134

Growth Strategies in Bakery and Cereals

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Growth Strategies in Bakery and Cereals

Uploaded by

Copyright:

Available Formats

CONSUMER

Growth Strategies in Bakery and Cereals

Research methodology What is this report about? Report structure

The bakery and cereals market

Innovation and NPD

Key trends in the bakery and cereals market

Figure 6.54: Figure 6.55:

The bakery and cereals market

Innovation and NPD

Key trends in bakery and cereals

What is this report about?

1. Introduction: Report overview and methodology

The role of bakery and cereals in the obesity debate

Healthy line extensions of indulgent brands

Figure 2.1: Healthy line extensions offering choice to the consumer

Business Insights Ltd

Figure 2.2: Combining health and indulgence in new products

Source: Author analysis

Business Insights Ltd

Increasing the importance of breakfast

Taking an ethical interest

Guy Farrant, Director of Food, Marks & Spencer said:

The bakery and cereals market

The bakery and cereals market

The growing potential of the bakery and cereals market

Source: Business Insights

Business Insights Ltd

Figure 3.4: Bread and rolls, sub-category segmentation by value, 2009

Industrial bread & rolls 40%

Artisanal bread & rolls 49%

11% In-store bakery bread & rolls

Source: Business Insights

Business Insights Ltd

Figure 3.5: Breakfast cereals, sub-category segmentation by value, 2009

92% RTE breakfast cereals

Source: Business Insights

Business Insights Ltd

Figure 3.6: Cakes and pastries, sub-category segmentation by value, 2009

43% Industrial cakes & pastries

Source: Business Insights

Business Insights Ltd

Figure 3.7: Cookies, sub-category segmentation by value, 2009

Figure 3.8: Crackers, sub-category segmentation by value, 2009

Source: Business Insights

Business Insights Ltd

Figure 3.9: Morning goods, sub-category segmentation by value, 2009

50% Industrial morning goods

24% In-store bakery morning goods

Source: Business Insights

Business Insights Ltd

Source: Business Insights

Rest of Europe Rest of Europe

Source: Business Insights

Business Insights Ltd

General Mills 5.1%

7.8%7.9% Kellogg Company Kraft Foods

Artisanal producers 46.7%

13.6% Private label

Source: Business Insights

Business Insights Ltd

Business Insights Ltd

Multinational National Start-up/ local manufacturers manufacturers manufacturers

Table 3.4: Top 10 innovative bakery and cereals companies