The US market for fresh bread – a category comprising sandwich breads, bagels and English muffins – might not be one of the sexiest in the basket but it’s more interesting today than it’s been for a great many years.
It’s a big category, generating more than US$14bn in annual sales in the US, according to IRI. It’s also a market controlled by a handful of players. Mexico-based Grupo Bimbo, Flowers Foods, Campbell Soup Co. and retailer private-label brands combined hold about a 75% share of the fresh bread market, IRI says.
However, there are segments in US fresh bread where sales are buoyant and offer bakery groups opportunities for stronger growth.
Centre-store is the primary segment in the fresh bread category. It includes sliced sandwich bread, bagels and English muffins. The other segment is perimetre bread, which is where specialty loaves like french bread, sourdough and others are merchandised and sold. The big brands control the centre of stores. Smaller regional brands are most often found in the perimetre segment.
The Covid-19 pandemic and inflation have put the spotlight back on the fresh bread category among US retailers and consumers.
Prior to 2020, a higher percentage of American consumers were eating away from home (about 55%) than were eating at home, which meant grocery store sales were on the decline and food sales outside of the home, primarily at restaurants, were ascending.
The long months of restaurant shutdowns, combined with working from home (which to a large degree has stuck or at least morphed into a hybrid home-and-office model) changed that. Food-at-home now has the majority share – about 55% compared to 45% for away from home – and consumers are making more sandwiches at home, along with eating more bagels and English muffins at home, than they were pre-pandemic.
Inflation is also a positive for the retail fresh bread category. The price of food at the grocery store is up by double digits over the last year but it’s still much less expensive to eat at home than it is to eat out at restaurants.
Bread remains a staple for American households and brands are keeping consumer interest with strong promotions of as much as 50% off the everyday retail price despite rising costs in ingredients, transportation and labour.
Retailers also are heavily promoting their private-label brands at about the same promotional dollar level as the national brand bread companies and, because store brands are regularly priced lower than the big brands, it has allowed for growth in the overall market share for private labels. Retailer brands have the second-largest overall share of the market after leader Bimbo. Flowers Foods is third overall.
NPD to drive growth in mature US fresh bread
Because it’s a mature category, don’t expect to see big overall sales growth in the US fresh bread market. I expect 1-2% growth a year at best over the next few years.
Instead, where the growth will be is in innovation in specialty segments like organic, gluten-free and keto breads, bagels and English muffins, along with better quality bread that’s priced in the $5.99 to $7.99 retail price range.
Less expensive breads, which still account for the majority of category sales, are viewed more as a carrier. The nutritional element comes from, say, the peanut butter on top rather than the bread itself. Higher-quality breads like whole and multi-grain varieties tend to be bought by consumers looking for nutritional value as well as taste in the bread itself.
Loaf innovation, like what Illinois-based Lewis Bakeries is doing with its Lewis Half Loaf (“half loaf, full flavor” is the marketing tagline for the small loaf) also offers growth opportunities in the dominant sliced bread segment of the fresh bread category.
For the 52-week period ended March 2022, family-owned Lewis Bakeries, which was founded in 1925, had the highest sales growth, 15%, for all brands in the fresh bread category, according to IRI. That was largely because of its pioneering shorter loaf of bread, which has gained strong consumer acceptance, particularly among single and two-person households, and repeat sales in the markets it’s been launched in.
Bread, famously called “the staff of life”, is at least 10,000 years old, and sliced bread (the Wonder Bread brand, owned today by Flowers Foods) was first sold in grocery stores in the US in 1928, according to the Smithsonian Institute, making it one of the very first consumer packaged foods categories.
Looking forward, here are my key points summary of where the market is headed over the next few years.
Big Bread – Bimbo and Flowers Foods – will continue to consolidate their respective positions in the industry, acquiring brands and to a lesser degree creating new brands organically. The big prize for either would be an acquisition of the Pepperidge Farm bread brand, which has an about 7% market share nationally according to IRI, from Campbell. The bigger players may choose to invest and buy shares in smaller peers, as Flowers Foods has recently done with better-for-you baker Base Culture.
Despite this heavy consolidation, there’s still room for smaller, innovative players and even start-ups, particularly in the perimetre bread segment and even, albeit to a lesser degree, in the centre-store segment.
What family-owned Lewis Bakeries, which does about $350m in annual sales compared to the billions that Bimbo and Flowers Foods turn in annually, is doing with its Half Loaf product is a perfect example that space exists for smaller players within the space dominated by three major companies and private labels. The key is to find a niche and fill it. Getting on store shelves is the most difficult part for the smaller players.
Most of the innovation in the fresh bread category will come from perimetre specialty breads – full loaves of french, sourdough and other premium loaves – rather than centre-store.
The centre of the store, however, will continue to dominate the category in terms of overall dollar sales. Within the centre-store segment, growth will come from niche bread varieties like organic, gluten-free, keto, new multi-grain varieties and new innovations not yet created.
Additionally, bagels will continue to be the star segment of the centre-store category. Of the three – sliced bread, bagels and English muffins – bagels have experienced the most sales growth over the last few years.
And bagels particularly, as well as to a lesser but significant degree English muffins, have injected new life into the US fresh bread market. Americans love bagels and since they’re eating at home more rather than going to the bagel shop, it’s become the standout segment in the category.
US consumers also are preparing breakfast at home more, in part because so many continue to work from home all or at least part of the week. This new phenomenon is also helping sales of English muffins. Retailers are seeing this in their sales data and giving both added shelf space, along with devoting secondary display space to both as a way to increase impulse sales.
In the centre-store segment, store brands of sliced bread, bagels and English muffins rank four to five percentage points behind category leader Bimbo. If the current food inflation climate continues, I expect private-label brands to pick up one, maybe two share points over Bimbo.
However, both Bimbo and Flowers Foods have made only small price increases on their brands and continue to promote heavily, which is serving as a hedge against the proposition that private labels, which are generally priced 30% lower than the big brands, will gain significant share as consumers trade down.
Bread, unlike many other categories, has fairly strong brand loyalty, although retailers have been improving the quality of their offerings over the last decade and building increased consumer loyalty for their brands as well.
Retailers are a stiff competitor for brands in the fresh bread category. They own the in-store real estate (shelf space) but depend on the big bread companies to produce their store brands. Because of this symbiotic relationship, I predict the two, bread-makers and retailers, will continue to cooperate and co-exist without any major problems.
The overall long-term consumer trend in the US fresh bread market has been towards an increased flight to quality. This is reflected in the key brand acquisitions Bimbo (Oroweat and Sara Lee) and Flowers Foods (Dave’s Killer Bread) have made in recent years, as well as in the quality improvements and line additions they’ve made to many of their respective brands.
The low-priced, sliced loaf of white balloon bread still exists and sells but consumers have shown increasingly over the last decade that they’re willing to pay a little more for better quality bread.
This fits into the rise of better-for-you and premium in the packaged food industry as a whole. Price still matters but it’s become more of a relative variable when it comes to centre-store bread. For specialty items like bagels and English muffins, quality and taste are trumping price, within reason of course.
The advent of specialty breads like gluten-free and keto have actually opened up the sliced bread segment to consumers who previously avoided it for health and dietary-related reasons. Elsewhere, look for more gluten-free, keto and other specialty versions, as well as new flavour innovation in bagels.
The good news for those who play in the fresh bread category is the gloomy predictions of some years ago that consumers would turn away from sliced bread were wrong. Overall sales growth may be flat to minimal but, within segments, there are strong opportunities.
Just Food columnist Victor Martino is a California-based strategic marketing and business development consultant, analyst, entrepreneur and writer, specialising in the food and grocery industry. He is available for consultation at: firstname.lastname@example.org and https://twitter.com/VictorMartino01.