There’s no escaping it: gluten, grains and starchy carbs are about as fashionable as a Kevin Spacey box set right now. So you might expect sales of bread and other baked goods full of all three to be tanking. Think again. Dough is undergoing something of a revival. 

And this resurgence is happening at the grass roots. Only one of the big three bread brands (Hovis) is in growth [IRI 52 w/e 3 March 2018]; Warburtons and Kingsmill’s respective 4.8% and 14.9% volume losses equate to roughly 17 million and 38 million fewer loaves apiece.

It seems shoppers are eschewing mass-produced sliced bread in favour of something more artisanal. Just as beer has had its craft revolution, bread now looks set for its own shake-up as a host of smaller players enjoy rocketing growth. Seven of Britain’s 50 fastest-growing food & drink companies last year were bakers, making bread & baked goods the most represented sector in our 2017 Fast 50 report.

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With wrapped bread volumes more or less static and nearly 96% of households already buying the stuff regularly [Kantar], is buying smaller, higher-value players a likely path to growth for Britain’s biggest bakers? And how else can the giants of bread grow?

Of course, artisan loaves are never going to usurp good old white sliced’s place as Britain’s bestselling bread. Take-home sales of traditional wrapped bread stand at £1,431.2m, or 37.8% of the total market [Kantar Worldpanel 52 w/e 32 December 2017]. What’s more, they’re up 4.3% in value and volumes have inched up for the first time in five years, albeit by only 0.3%.

This growth has been driven by the ­development of a much wider range of loaves and formats (particularly smaller loaves). Much of this NPD has a nod towards the artisanal. Hovis partly attributes its 9.8% value growth on flat volumes [IRI] to its seeded loaves, while both Kingsmill and Warburtons have launched new seeded variants in recent months.

“We’re seeing things move from what we would call the cake to the cookie jar - historically, you would bake a really big cake, cut it into pieces and sell it,” says Till Dudler, MD and consumer goods lead at consultancy Accenture Strategy. “But consumers don’t want the same cake any more. They want the variety and choice of the whole cookie jar.”

Hence the big bakers’ diversification into seeded loaves and bread alternatives such as crumpets, muffins and wraps (30.9% of Warburtons’ sales came from such products last year, according to Nielsen). But the type of product is only part of the issue. How it is made, freshness and provenance are of growing importance to today’s shoppers.

Bread: data download and tables from Ebqiuity, Kantar, Iri

“This means you have to go from optimising for scale and mass to manufacturing more tailored offerings,” says Dudler. “For that you have to be much more agile and nimble. Look at the beer industry and the way AB InBev’s been buying smaller companies and operating them almost as separate businesses. In bread we’d expect some consolidation of this type. But I’m not sure if it will go quite as far as it has in beer.”

Consolidation on the cards?

Of course, bread isn’t beer. Brewers don’t face the same challenges as bakers in terms of shelf life and logistics, so it is arguably easier for craft brewers to achieve scale and develop nationally recognisable brands. Artisan ­bakers or so-called ’micro bakeries’, on the other hand, are often local outfits ­that wouldn’t mean much to punters outside their immediate area.

There are some, though. Bread Holdings, owner of Gail’s Bakery, is both widely recognised and up for sale. With more than 40 outlets across London and the south east, it is likely to be a draw for rival Patisserie Valerie, which last year voiced potential interest if the business became “available at an attractive price”. (This price is expected to be as much as £150m.) Then there’s family-owned Paul and its more than 30 ­outlets in the capital, Oxford and Newbury, and Le Pain Quotidien, whose estate spans from London to Madrid.

A far larger deal isn’t out of the question in bread, either. With US private equity house Gores Group having held a majority stake in Hovis for the past four years, in which time it’s overtaken Kingsmill to become Britain’s second-biggest bread brand, many expect a sale to be imminent. (In our annual Britain’s Biggest Brands supplement, Hovis added £27.1m to its value and moved up two places in the rankings to number 17, while Kingsmill fell from 18th to 26th place on the back of a £51.6m decline [Nielsen, 52 w/e 30 December 2017].)

Some have suggested one of the other big three players could buy Hovis and capitalise on the synergies such a deal would bring, though it’s clear that regulatory approval would be unlikely without divestments.

“If the brand was snapped up by either Warburtons or Allied Bakeries - which, together with Hovis, account for 75% of sales of wrapped bread in the UK - the transaction would face close scrutiny from the UK Competition & Markets Authority,” says Hilary Ross, head of retail, food & hospitality at the firm DWF.

“The authority would look at the merging businesses’ position in the overall baked goods sector and at specific sub-sectors such as sliced bread. An acquisition by one of these buyers would struggle to receive clearance as it would reduce the number of suppliers in the sector from three to two.”

A buyer for Hovis would be more likely to come from elsewhere, adds Ross. “A smaller bakery business or a buyer in another food services category would be of much less concern to the authorities,” she says. “It’s ­possible that Hovis could be acquired by another private equity investor, but this is somewhat unlikely. It’s difficult to see how any new private equity buyer could improve on the profits achieved by Gores.”

Plus, Hovis’s recent market share gains probably aren’t as attractive to rivals as they might seem. In spite of the growth in the brand’s higher value seeded lines, such as Seed Sensations and Seven Seeds, it’s the bestselling Soft White variant that’s driving most growth, up 20% to £125m, according to the brand. This gain has been at the expense of Warburtons and Kingsmill’s white lines, which have lost distribution.

But that could all change. “It ebbs and flows,” says Megan Harrison, marketing director at Britain’s fourth biggest bread brand Roberts (and formerly marketing director at Warburtons). “Whether somebody is winning in white bread is linked to prices, customer relationships and distribution - there’s a plethora of reasons why Hovis is gaining share and Warburtons and Kingsmill have been hit. If market volume is not growing there will always be share exchange between the big brands. Sometimes certain brands win; sometimes they don’t.”

None of the big players would speculate on further consolidation of the market when asked. What is clear is that they are making greater efforts to mimic the smaller operators that could be likely future acquisition ­targets. Warburtons has already launched a sourdough (albeit only under its gluten-free line) and The Grocer understands similar big brand offerings are in the pipeline. Retailers are getting in on the act, too. Waitrose has launched five different pre-packaged sourdoughs under its premium Waitrose 1 line. And it specifically referenced the “trend for craft baking” in this month’s introduction of lines from The Black Sheep Bakery, including a sourdough sliced bloomer exclusive to Waitrose.

Asda has used its Extra Special brand to take the plunge. “Sourdough is becoming increasingly popular and we have worked hard to develop more lines to extend our range with new shapes and flavours,” says Asda master baker Maddie Munden.

Artisan for the masses

They’ll have their work cut out in convincing consumers a mass-produced ­sourdough can measure up to an artisan product, though. For one, there are considerable technical challenges to be overcome, including the slow fermentation of such products, which can last four days. Mass-produced sourdough - a phrase that will be anathema to many craft bakers and their punters - couldn’t simply be sliced and bagged up like a loaf of plant bread either.

“We showcase our artisan sourdough bread range via naked bread display tables with fluted baskets and trays to truly demonstrate the beauty of the loaves,” says a ­spokeswoman for Cumbrian artisan baker Bells of Lazonby, which launched its signature sourdough range into Booths in 2016. “The rustic nature of this is a hit with consumers, as they are able to explore the whole range in one place.”

In much the same way craft beer brands have positioned themselves as the antidote to mass-produced lager, artisan bakers have been at pains to highlight the difference between their products and those of the ­baking giants. Still, as yet, none has driven a tank through the streets of London calling for a craft bread revolution, à la BrewDog.

So far, the artisan bakers have been rather more restrained, but no less focused on the craft of what they do. Take London’s Gradz Bakery, which claims its sourdough breads are derived from a 15-year-old ‘natural mother dough’ and based on family recipes but given a modern twist. In February, Gradz won a ­listing with Ocado for six of its artisan loaves.

“Our breads are completely natural, with absolutely no preservatives added,” says founder Agnes Gabriel-Damaz. “We carefully select ingredients like spirulina, amaranth, natural honey and use only sea salt to benefit both our wellbeing and the flavour of every loaf we make.”

Such premium credentials also hold sway in the fast-growing gluten free sector. “Within the gluten-free sector, speciality breads are enjoying high levels of success, showing a 118% increase in year on year sales,” says Roger Harrop, category lead at gluten free bakery brand Schär, which has recently won low FODMAP (fermentable oligo/di/mono-saccharides and polyols) certification for 10 of its products.

While none of the big players have gone down the FODMAP road yet, they are ­paying growing attention to the low carb/high ­protein movement, which has taken some of the blame for bread’s fall in popularity in recent years. Last year Hovis launched a range of lower carb loaves and Warburtons expanded its Protein range. This year, the brand launched its Pulses & Seeds Batch Loaf, marketed as a way for consumers to increase their protein intake.

Clearly, health matters. Indeed, the rise in premium artisan breads is also linked to the growing health consciousness of consumers. Partly, it’s the notion that products which have been made by hand and not manufactured in factories are somehow better for us that is driving the growth. It’s also the low ­glycaemic index of products such as rye breads and the gut health benefits associated with sourdough that’s helping.

” Constant innovation is required to achieve a varied shelf in line with out-of-home trends”

“One area of growth for Carrs Foods is bread formats considered to be healthier,” says Jeremy Gilboy, MD of Carrs (the 18th fastest-growing company in our 2017 Fast 50 report). “Our Baker Street rye breads meet the needs of consumers looking for a healthy choice that delivers on texture and flavour. Launched last year, they’ve been well received by our ­customers as they deliver a less dense bread with a more subtle flavour.”

Keeping pace with the changing demands of consumers is crucial, says fellow fast-growing baker Signature Flatbreads ­(number 29 in the Fast 50). “The category needs to keep up with consumer appetite for different ­innovations in bread and sandwich carriers,” says joint MD David Laurence. “Constant product innovation is required to achieve a varied shelf in line with out-of-home trends.”

There’s certainly been no shortage of product innovation from the big players of late. Allied, for example, launched Kingsmill Super Seeds in January along with a new range of craft-style loaves under the Allinson’s brand. This paper-packaged range is “designed to tap into the artisanal bakery boom”, says Allied Bakeries category director Zoe Taphouse.

“Inspired by the spirit of the brand’s founder, Thomas Allinson, and cut by hand, the range provides the best bread experience within the wrapped bread category,” claims Taphouse. “It bridges the gap between ­in-store and wrapped bread by providing the shelf life of wrapped bread but the taste cues of in-store bakeries.”

Allied isn’t the only one going head to head with in-store bakeries, which have seen sales falter in the past year (see p50). Roberts, whose 2017 rebranding as ‘the next generation bakery’ led to the development of products including G&T Fun Buns and corn rolls flavoured with chilli and Moroccan spices, launched its four-strong Modern Artisan range of bloomers, including Heroic Wholemeal and Seriously Seeded variants, in September.

“We actively looked at that premium end of the market with this,” says Harrison. “It’s an open top, beautifully crafted bloomer with cuts in the top and seeds or flour. We moved to paper packaging because that was so ­important in terms of the way the consumer perceives quality. It’s the sort of product you would expect from an independent bakery or farm shop. For the category to grow, brands need to be doing things differently.”

“People are remembering how convenient and versatile bread can be as part of a balanced diet”

Such efforts by the big brands might just be working. Sara Green, head of insight at Hovis, points to Kantar data for the 12 weeks ending 8 October last year that suggests an extra 397,000 households bought plant bread versus the same period a year earlier, marking a five-year high in terms of penetration.

“There is strong evidence to support the fact the British public is falling back in love with bread, as people remember how convenient and versatile bread can be as part of a healthy lifestyle and a balanced varied diet,” adds Green. “Value has returned to the category through consumers being happy to pay a little bit more in return for a better ­quality product.”

Taphouse at Allied goes further than that. “We’ve seen a big trend towards more ­premium products in various categories - the rise of craft beer and Fever-Tree tonic water are just two examples, as consumers look to replicate out-of-home quality at home,” she says. “Now it is bread’s turn, as consumers increasingly want the great taste of fresh bread, every day.”

But which players will be at the vanguard of bread’s craft revolution? Which of the artisans will sell out? And who will be bread’s answer to BrewDog?

Innovations in bread & baked goods

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