Sector Trend Analysis – Baked goods in the United States and Canada

Consumer trends

Increasingly health-conscious Canadian and American consumers are moving away from highly processed products containing artificial ingredients and flavours in recent years, in favour of food perceived to be more natural due to shorter ingredient lists and less reliance on added preservation ingredients.

Additionally, Canadian as well as American consumers have increasingly waged what many in the food industry have referred to as a war on sugar and salt, strongly avoiding sweet products, and limiting their sugar and salt intake, in an effort to avoid diabetes and high blood pressure that can often come with heavy consumption of sugary or salty products.

At the same time, however, many of these same consumers in both countries, have recently put aside these concerns when shopping in baked goods sections of supermarkets and other food retail outlets, mainly when in front of indulgence products shelves.

In response to consumer demand and over-arching wellness trends, the bakery industry in Canada and the United Sates have increased the availability and variety of healthy baked goods, such as high-fibre breads, gluten-free ranges and low-fat flat breads. Many bread, cake and pastry products have also been launched with added benefits, or highlighting health-related properties, such as multi-grain or whole-grain, as well as claims such as low/no/reduced fat, and no additives/preservatives.

Health is generally a more important consideration for consumers with regard to bread and bread products, as cakes, pastries and sweet goods tend to be considered as an indulgence or treat.

Overall, the world is experiencing an increase in demand for bakery products with a compound annual growth rate (CAGR) of 4.5% from 2013 to 2017. Moreover, this trend is expected to hold for the years of 2018 to 2022 with global sales reaching US$464.4 billion or a CAGR of 5.7%. The global consumer trend remains a greater health conscience, as health issues such as obesity and food avoidance and food allergies are more than ever prevalent globally.

Mintel also noted that convenience continues to be a significant trend as busy consumers seek out "minis", single packs and other types of sweet baked products packaged for on-the-go snacking.

Smaller-size products like these also address the needs of the growing single or dual household segment, older people, and consumers watching their weight or overall health.

United States market sizes

Euromonitor International research shows that the American baked goods is quite a mature market, with innovation heavily focused on premium and health lines.

The retail sales of baked good products reached US$58.5 billion in 2017 in the United States market, 1.6% up from the previous year. The 1.6% value sales growth in baked goods seen in 2017 was entirely due to price increases and the greater importance of premium lines. In contrast, baked goods expenditure on bread, dessert mixes and frozen baked goods continued the trend of decline, while increasing for cakes and pastry during the 2013 to 2017 period.

United States' sales of baked good products segment amounts to US$58.6 billion in 2017 and projected to reach US$60.2 billion in 2018. The market is expected to grow annually by 2.9% based on CAGR from 2018 to 2022.

However, the artisanal bread, artisanal pastries and cakes in the US market have also benefited greatly from expansion into supermarket in-store bakeries in recent years. Euromonitor International predicts that the baked goods category has a bright future, since the sector invested in products innovation and offers higher quality, fresher and more elaborate types of breads, pastries, cakes and dessert mixes.

In-store bakeries plays a pivotal role in turning around the sector by positioning such products prominently displays in handy thin wall plastic packaging, in the hope of generating impulse purchases.

Subsector analysis

Breads

Euromonitor International notes that within bread category, sales have been challenged, particularly for packaged varieties, by increasing health consciousness among consumers and a growing aversion to artificial ingredients and flavours, leading many to limit purchases or opt for healthier bread brands that avoid the use of artificial ingredients and present health attributes like high fibre content or grains.

In the United States, flat bread sales have grown by a 3.9% on CAGR basis from 2013 to 2017. Products such as tortillas and other alternative formats such as pita and flatbreads enjoy a boost from other trends as well as a healthy perception and easy eating for on-the-go lifestyles. These bread varieties complement ethnic dishes Americans are seeking out and carry a healthy claim of having fewer carbs and calories than conventional sandwich bread.

As demographics continue to change and Latino cuisine continues to grow in popularity in the United States, added growth is anticipated for flat bread. Euromonitor International predicts a CAGR of 5% from 2018 to 2022. The leavened bread will see a renaissance and opportunities for growth for bread and flat bread, particularly for organic and gluten free varieties to answer American consumers that seek to purchase foods made from organic ingredients and Americans, both with coeliac disease and without, who look to reduce their intake of gluten.

Cakes and pastries

Americans clearly love their oven-baked products and though they may crave a high-protein diet, most also like to indulge their sweet tooth also.

Cake sales in the United States reached US$17.1 billion in 2017, and are expected to record a CAGR of 3.3% between 2018 and 2022 to reach US$20.1 billion.

While cake and pastry producers have taken advantage of consumers nostalgia by offering portable products for increasingly busy consumers, particularly millennials to secure a success and maintain a study growth, this nostalgia is expected to face challenges not only from health conscious consumers, but also from new innovative products launches, according to Mintel.

Further, more and more manufacturers are seeking to combine the demand for portability and convenience with the increasing health consciousness of consumers, launching healthy portable snacking products that will likely also serve to slow the sales of regular indulgent cakes and pastries in the upcoming years.

Euromonitor International makes the parallels with recent success of healthy and natural bread products at the expense of varieties like white bread, it is expected that cake and pastry manufacturers will seek to produce more cake and pastry products offering high fibre and protein content, containing healthy grains and even offering organic and gluten-free qualities.

Pastry sales were US$14.3 billion in 2017 and projected to reach US$17.2 billion in 2022 or a CAGR of 3.7% from 2018 to 2022.

Growth can still probably be expected for cake and pastry manufacturers that make the shift, at least in the near future, as demand remains high according to Euromonitor International. Additionally, as portable snack cakes and pastries have seen strong demand growth, there will likely continue to be a focus by manufacturers on product innovation in this segment, with portability and high protein content remaining core goals.

Dessert mixes and frozen baked goods

The market for dessert mixes and frozen desserts were valued at nearly US$3.6 billion in 2017. These two sub-categories continue to shrink, following a pattern that has endured for much of the past decade. That lack of growth is not necessarily the result of consumer discontent with the products, but it is resulting more from a consumer interest in options that are even more convenient and easy such as baked goods from in-store bakeries.

Total US sales of dessert mixes declined by a CAGR of 5.1% from 2013 to 2017 to $1.4 billion, while the frozen baked goods saw a decline of CAGR of 0.6% during the same period. Euromonitor International forecast that these sub-categories will recoup slightly with dessert mixes will see a slight increase of a CAGR of 0.3% while frozen dessert will see a CAGR of 1.9% from 2018 to 2022.

Euromonitor International also notes that American consumers are migrating away from packaged foods that contain artificial ingredients and preservatives and toward fresh product offerings found at in-store bakeries and specialty pastry shops. In addition younger generations are very likely to use baking mixes but also very likely to bake from scratch and use ready-made products.

New product launch analysis

Bakery products in the United States are constantly being updated or revised in order to be in line with the latest developments in an already mature category. As a result of this, manufacturers/artisans of private labels and brands are offering a wide range of baked goods products that are premium, standard, and economical. American consumers are more likely to purchase healthy products that align with the current health and wellness trends.

In Mintel's Global New Products Database (GNPD), from January 2013 to May 2018, there were 7,846 new product launches within the baked goods category.

The baking ingredients and mixes had 3,367 launches, followed by cakes and pastry with 2,372 launches and bread and bread products, with 2,107 products launches.

New product examples

This section includes a small sample of the new product introductions in the United States marketplace.

FlapJacked S'mores

FlapJacked S'mores is a microwavable muffin with probiotics. The muffin is fortified with protein and provides 20 grams (g) protein per 55g serving. This gluten-free non-GMO muffin contains Ganeden BC30 probiotic and claims to support immune health. The product is easy to make, and retails in a newly designed 55g pack, featuring the Instagram logo and retails for US$2.99.

The Blooming Cauli-Crust

The Blooming Cauli-Crust claims to be perfect for those with dietary restrictions or people who are simply looking to eat a healthier kind of pizza. It is gluten-free, GMOs, preservatives, wheat, dairy, nut, soy and trans fats is made of cauliflower, chia seeds and flax seeds. The kosher product retails in a 5 ounce (oz.) pack, bearing Celiac Support Association logos and retail for US$9.99.

Betty Crocker Mug Treats

Betty Crocker Mug Treats Soft-Baked Chocolate Chip Cookie mix with Fudge Topping is a kosher certified and microwaveable. The treat can be served with whipped cream or ice cream, and can be served topped with a favorite candy bar, cut into small pieces. It retails in a 13.9 oz. recyclable pack containing four mix pouches and four topping pouches for US$2.99.

Canada market sizes

Baked goods in Canada, including categories such as bread, pastries, frozen baked goods, dessert mixes and cakes, grew by a meagre CAGR of 0.4% in retail volume and by 2.2% in value to reach respectively 974,600 tonnes and US$5.6 billion in 2017. This was primarily an extension of the stagnation seen in the past five years, particularly in volume sales.

The bakery product market in Canada is expected to reach US$6.6 billion in value sales by 2022, expanding at a CAGR of 3.4% during the 2018 to 2022 period. In terms of volume growth, it is expected to be stagnant at a CAGR of 0.6%.

However, some sub-categories, which experienced a slow value growth over the 2013 to 2017 period, are expected to show a turnaround during the 2018 to 2022 period, but volume sales growth will likely remain stable.

The baked goods category in Canada is mature with a high penetration rate among Canadian families according to Euromonitor International. Expenditure on baked goods was fairly stable averaging US$150.9 per capita in the past 5 years except for the bread and pastries categories, which saw a CAGR of 1.3% and 1.1% respectively. However, Euromonitor International predicts that baked goods will see a positive growth by 2022 to reach US$173.2 per capita.

The forecasted increase in value sales will certainly focus on health and wellness, which lead Canadian consumers to look for healthier alternatives such as fresh, artisanal, ethnic and added value baked goods. The traditional packaged industrial baked goods category is facing strong competition from these products.

Subsector analysis

Breads

The cosmopolite population of Canada has further helped the development of the trend in bread consumption. Canadian consumers not satisfied with regular packaged/industrial breads, are looking for products with better quality and healthier ingredients. Furthermore, consumers are becoming more health-conscious and curious, not just about new grains, but also flat breads, bread with olives, nuts, apricots and other ingredients, which they are willing to try. Manufacturers have noticed the health trend and the shift in the breads consumers eat, and adapted their offering.

Euromonitor International predicts that the bread category will post a value CAGR of 3.8% from 2018 to 2022 period, reaching US$4.2 billion in 2022. The bread category is facing a transition period as more consumers shift to healthier alternatives.

According to Mintel, an opportunity exists for manufacturers to increase the health quotient of their products by adding healthy or functional ingredients. Furthermore, the bread category is also demand-driven by consumer quest for convenience food. The Canadian market drivers include the convenience of ready-to-eat products, changing lifestyles and food preferences, and large varieties of flavored foods.

Cakes and pastries

In Canada, pastries are the second largest bakery products subcategory with US$1.0 billion in retail sales in 2017 and a CAGR of 2.2% from 2013 to 2017. This growth is largely driven by unpackaged pastries, which tend to outperform packaged pastries and validates the observation that Canadian consumers are embracing the trends of buying fresh bakery products.

In the forecasted period from 2018 to 2022, pastries are expected to have a CAGR of 2.7 % and reach a US$1.2 billion in volume sales.

Innovation in pastries and cakes subsector has become an important sales driver in recent years in Canada, particularly for packaged and unpackaged pastries and cakes, due to the increasing demand for these subsectors suitable for specific dietary needs, such as gluten-free and pulses based breads, pastries and cakes.

Innovative product development of no trans-fat, low fat, free from and organic baked products, are anticipated to provide an incentive to the pastries and cakes subsectors according to Euromonitor International. The unpackaged and premium segments are expected to provide further opportunity to the growth of the Canadian market.

In Canada, it appears to be a growing overall consumer preference for artisanal bakery products, or those that are more closely positioned to home baking. For example, in the cakes category, focusing on freshness and the use of more natural ingredients has helped to encourage consumption and mitigate concerns over the ingredients used in shelf-stable or long-life products. Euromonitor international is forecasting that by 2022, unpackaged/artisanal cakes will lead sales in the cakes category, while cakes
sub-category continues to grow at a CAGR of 3.1% value terms to reach US$869.9 million in 2022.

Dessert mixes and frozen baked goods

The market for dessert mixes and frozen desserts in Canada were valued at nearly US$286.0 million in 2017. These two sub-categories stagnated over the last 5 years, following a pattern that was observed in other markets. The historic dismal growth is resulting more from a consumer interest in options that are even more convenient and choosing products with health and wellness attributes and easy such as baked goods from in-store bakeries.

Canadian consumers are gradually shifting in preferences towards more natural and less processed food and beverages, and the move towards reducing sugar intakes, as a result, categories such frozen baked goods and dessert mixes were negatively impacted due to the high sugar content of the products.

However, Euromonitor International forecasts sales of dessert mixes and frozen baked goods driven by convenience of the frozen baked goods sub-category, which are still showing healthy growth for the years ahead.

New product launch analysis

Leading a healthy lifestyle remains top of mind for Canadians consumers. Awareness about product ingredients is a key trend as Canadians strive to eat healthier according to Mintel. In fact, more than half (56%) of respondents in a recent Mintel survey said that they actively seek out and purchase products that protect their family's health.

According to the survey, 54% of consumers are looking for healthy baked goods. Consumers are also mindful of moderating how much of certain ingredients are in the products they buy: 49% are looking for products with less sugar, 32% seek out less salt, 23% are drawn to small portions, and 27% are driven by the presence of natural ingredients.

In Mintel's Global New Products Database (GNPD), from January 2013 to May 2018, there were 2,930 new product launches within the baked goods category.

There were 1,265 bread and bread new products launched in the Canadian market between January 2013 and May 2018, followed by cakes and pastry with 906 launches and baking ingredients and mixes with 759 products launches. Of the total products launched, 1,161 were new varieties, and range extensions; 788 products were new packaging, 759 were new products, 201 relaunches and 31 were new formulations.

New product examples

This section includes a small sample of the new product introductions in the Canadian marketplace.

Kimberley's Bakeshoppe pecan pie cupcakes

Kimberley's Bakeshoppe pecan pie cupcakes are described as a gooey pecan pie filling surrounded by vanilla cake, topped with pecan flavoured frosting and pecan pieces. The cupcakes are certified kosher and retails in a 332g clear packaging for US$4.25.

Fibre 1 chocolate fudge brownies

Fibre 1 chocolate fudge brownies have a new design package. The brownies claim to contain 20% of the daily fibre value per serving, 90 calories per 25g. The product has no artificial colour, flavours or sweeteners. The brownies are certified kosher and are made with real cocoa. The recyclable pack of 125g containing five brownies and retails US$2.99.

La Petite Bretonne madeleines tea cakes

La Petite Bretonne madeleines tea cakes are sold in a newly designed 280g pack. The kosher certified product claims to have zero trans-fat and is made in a peanut and nut free facility. The low/no/ reduced allergen product retails for US$2.99.

Conclusion

Today's baked goods retail market is a display of health trends, label claims, niche market and more, all aimed to connect products to the right consumers. Manufacturers in Canada and the United Sates are finding success by offering a variety of products that attract not only health conscious shoppers but also those craving classic indulgence.

Canada and the United States demographic landscape is changing and getting more diverse ethnically. Brands that are better connected with population segments that are going to drive population growth in the future stand the best chance of finding success according to Mintel.

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

• Overview of Trade Commissioner Services in the United States
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For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found on the International agri-food market intelligence page, arranged by region.

Resources

• Euromonitor International - Packaged food in the US, 2017
• Euromonitor International - Health and Wellness in the US, 2017
• Euromonitor International - Lifestyles in the US, 2017
• Euromonitor International - Baked goods in the US, 2017
• Euromonitor International - Packaged food in Canada, 2017
• Euromonitor International - Health and Wellness in Canada, 2017
• Euromonitor International - Lifestyles in Canada, 2017
• Euromonitor International - Baked goods in Canada, 2017
• Mintel - Global New Products Database, 2018
• Global Trade Tracker, 2018

Sector Trend Analysis – Baked goods in the United-States and Canada
Global Analysis Report

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