Rising to the challenge

Ben Slater, writer/analyst at market intelligence provider Key Note, discusses the key challenges in the UK biscuits and cakes market.

The increasing value of UK biscuit and cake sales is disguising the challenging nature of market conditions for manufacturers. According to Biscuits & Cakes 2015, a new report from Key Note, combined value sales grew by 1.8 per cent in 2014, with higher retail prices offsetting the impact of stagnant volume sales.

While performance varied between the two key sectors – biscuits and cakes – and their several subsectors, two overarching trends are threatening the demand for shop bought biscuits and cakes in the UK: health and baking from scratch. The outlook for the coming years is arguably slightly more positive, owing to the influence of emerging trends and manufacturers’ focus on new product development, although the saturated nature of the marketplace means that growth prospects remain fairly limited.

The market

It is difficult to say which is the greater threat to the biscuits and cakes market – the rising popularity of baking at home or an increasingly health conscious consumer base.

On the one hand, many Britons are wondering whether it is worth buying biscuits and cakes at retail, when alternatives can be made from scratch at home. The extreme popularity of the BBC television programme The Great British Bake Off – the 2014 final attracted more than 12 million viewers – is primarily responsible for this resurgence in home baking, although consumers also perceive it to be cost effective and a good way of avoiding additives.

Both market sectors are suffering from lower demand as a result; in the cake sector, for instance, Key Note estimates that consumption of non-frozen shop bought cakes and pastries fell to a historic low of 100g per person per week in 2014.

Of course, this decline can also be attributed to the growing number of Britons trying to make healthier decisions at the point of sale; public health campaigns, extensive media focus and general concern about obesity and diabetes have all enhanced this trend in recent years. In addition to saturated fat, reducing sugar intake has also been a main health focus since early 2014 and, given that the majority of biscuit and cake formats contain high levels of both, this has further limited the growth prospects of the overall market.

Despite an expanding population and increasing demand for certain biscuit types, such as breakfast and savoury variants, the largely negative influence of these two trends meant that combined volume sales remained stagnant in 2014.

Both threats also remain present in 2015, but whereas health is expected to become an increasingly important driver at point of sale, the current popularity of baking at home is unlikely to be sustainable among an increasingly convenience driven consumer base.

Innovation

The UK biscuit and cakes market is highly saturated and fiercely competitive, with branded manufacturers forced to contend with a strong own label presence as well as other products from sectors such as confectionery, snack foods and ice cream. Stagnant volume sales are exacerbating the challenging nature of market conditions, with leading brands investing in new product development, as well as marketing and in-store promotions, to generate interest and strengthen brand loyalty.

So far in 2015, manufacturers have largely focused on bringing brand extensions to market rather than investing heavily in a brand new format or range. For example, Burton’s Biscuits recently launched Jammie Bakes and Maryland Soft Baked Cookies, while Premier Foods has developed several new flavours in its Cadbury Mini Rolls range. Even the recent launch of the DeliChoc brand by United Biscuits does not represent a major risk, given that it has already proved popular overseas and features the McVitie’s master brand on the packaging.

Perhaps the most notable new product trend to emerge in 2015 so far has been the move into savoury snacking. United Biscuits recently launched Jacob’s Cracker Crisps, bolstering a cracker line up that already includes sub-brands such as Mini Cheddars and Oddities, while Mondel?z has diversified its Ritz cracker brand with the release of Crisp & Thin – a baked savoury snack made using potato flour. Both products have been launched to exploit the growing influence of convenience and the demonisation of sugar, which are driving the demand for on-the-go formats and savoury goods.

But growth prospects for bagged savoury biscuits are somewhat limited by their inclusion in the wider bagged snacks category, which has become saturated and is dominated by established potato crisp brands. Despite being launched five years ago, belVita’s breakfast biscuit innovation remains significant because it signalled the creation of a brand new subcategory, which was developed to target an untapped biscuit occasion.

Breakfast biscuits have been the major success story in biscuit innovation over the past few years, driving substantial growth in the wider healthier biscuits subsector. Between 2013 and 2014 – several years after the initial launch – figures released by Kantar Media revealed that household penetration for breakfast biscuits and cereal bars almost doubled. Many consumers are living fast paced lifestyles, and the availability of a convenient breakfast solution that can be eaten on the go has struck a chord with many Britons, increasingly becoming part of their regular routines.

However, belVita dominates the breakfast biscuit category with rivals struggling to tap into this dramatic growth. Of course, Mondel?z took the biggest risk in bringing the products to market in 2010, and reaped the initial benefits of being first on the scene. It has largely maintained its hold on the sector, even as rival products from established breakfast brands such as Weetabix and Hovis have been launched.

Brand loyalty trumps brand awareness and successful marketing, combined with the regular introduction of new flavours like Yoghurt Crunch, have enabled belVita to retain initial customers, while also diversifying interest among potential first time buyers.

While its success highlights the potential for new category growth, it also reflects the cost of remaining competitive in the biscuit and cakes market. The influence of huge multinationals such as Nestlé and Mondel?z is forcing rivals to increase expenditure on marketing and innovation, potentially pricing small and medium sized enterprises out of the market.

Emerging trends

The saturation of the marketplace is part of the problem, with many of the prospects provided by established trends like health and convenience already having been exploited.

Crossover products such as Dairy Milk with Ritz (which Cadbury maintains is a confectionery product) are further blurring the line between competing snack markets, and biscuit and cake manufacturers need to invest in new opportunities if subdued volume sales are to be improved upon.

Key Note’s Biscuits & Cakes 2015 report identifies several potential avenues for growth in this market, including the rising popularity of savoury biscuits and crispbreads and growing demand for British biscuits and cakes overseas.

Particularly notable is the growing consumer focus on ingredients. On one hand, this simply relates to increasing demand for products that are seen as ‘natural’. While this is obviously an ambiguous term, consumers are looking for greater transparency in food supply chains, which helps to explain the rise in home baking as well as the emerging popularity of organic products and brands such as Rude Health and Nairns.

On the other hand, albeit closely linked, the focus on ingredients is contributing to the rapid growth in free from products throughout the UK food industry. The aforementioned brands sell wheat and/or gluten free biscuits, and similar demands are emerging in the cakes sector. Although this might sound like a niche trend, sales of free from products are rocketing in the UK, and there is an opportunity for biscuit and cake manufacturers to tap into this.

It is also expected that sales of premium biscuits and cakes will rise in the coming years and, although this is unlikely to benefit volume sales, this will certainly contribute to value growth. As economic recovery continues, a growing number of consumers will be able to prioritise quality rather than price at point of sale. In addition to taste, the superiority of ingredients is again likely to be a significant factor. However, it remains to be seen whether up and coming premium brands can rival high end, private label products.

Outlook

Between 2015 and 2019, Key Note forecasts total value growth of 9.3 per cent, which is significant given the maturity of the market. However, despite the current dip in inflation, rising prices rather than volumes are expected to continue to be the main factor behind growth over the next five years. Biscuits and cakes remain extremely popular in the UK, but although certain categories continue to deliver growth, increasing consumption in a saturated, competitive and health conscious marketplace is likely to remain challenging when considering the market as a whole.

Related content

Leave a reply

Sweets & Savoury Snacks World