Innovation in Bakery and Cereals 2010

Innovation in Bakery and Cereals
Emerging markets, key trends and future product innovation
Reference Code: BI00012-025 Publication Date: December 2010
About the author

Business Insights has a team of in-house consumer goods analysts drawn from consulting, R&D and competitive intelligence backgrounds. Our analysts specialize in providing detailed insight into the future of the industry and have extensive analytical, forecasting and research experience in the food & drinks, ingredients and packaging sectors. Our team maintains regular contact with industry executives to track market developments and base their market models on a wide range of proprietary databases to provide up to date, accurate strategic insight on the future of the consumer goods market.
Disclaimer
Copyright 2010 Business Insights Ltd This report is published by Business Insights (the Publisher). This report contains information from reputable sources and although reasonable efforts have been made to publish accurate information, you assume sole responsibility for the selection, suitability and use of this report and acknowledge that the Publisher makes no warranties (either express or implied) as to, nor accepts liability for, the accuracy or fitness for a particular purpose of the information or advice contained herein. The Publisher wishes to make it clear that any views or opinions expressed in this report by individual authors or contributors are their personal views and opinions and do not necessarily reflect the views/opinions of the Publisher.
Table of Contents
About the author
Disclaimer
2
2
Executive summary
Market drivers and resistors Growth opportunities in bakery and cereals Innovations and NPD in bakery and cereals Key trends and product examples
11
11 12 13 14
Chapter 1 Introduction
What is this report about? The market defined Report structure
15
15 16 19
Chapter 2 Market drivers

Summary Introduction Mature markets
Competitive pressures
Economic recession Raw materials prices Tightening of health regulations
20
20 21 22
22
22 23 24
Growing sophistication of consumer demand

Ethical consumerism Shift to mass customization Requirements for better targeting and credibility
25
26 28 32
Immature markets
Socioeconomic drivers
Middle class expansion Smaller households
33
33
33 35
The increasing proportion of women in the labor force
36
Impact on consumption
Emergence of premium bakery and cereals Changes in consumption patterns
38
38 39
Chapter 3 Growth opportunities in the bakery and cereals market 40

Summary Introduction Bakery and cereals market overview Value by geography Market value by country Market value by category Value by sub-category The bakery and cereals market in Europe The bakery and cereals market in the Americas The bakery and cereals market in Asia-Pacific Emerging markets for bakery and cereals
Russia Mexico Brazil China India
40 41 41 42 43 45 47 52 53 56 58
58 59 60 60 60
Chapter 4 Innovation and NPD in bakery and cereals

Summary Introduction Innovation type Regional analysis
Europe Asia-Pacific North America 4
61
61 61 62 63
65 69 72
Category analysis
Cookies Breakfast cereals Bread and rolls Cakes and pastries Crackers Cereal bars Morning goods
76
78 80 82 83 86 88 90
Packaging analysis The changing position of bakery and cereal products Flavor trends
93 94 96
Chapter 5 Key trends and product examples

Summary Introduction Health and wellness
Using healthy ingredients found in other food categories
Probiotics Energy bakery and cereal products
98
98 99 99
99
99 100
Targeting niche markets

Gluten-free products Alternative-sweetener-based bakery and cereals
101
101 102
Wellness ingredients
Plant sterols Palm oil the new alternative to hydrogenated oils Whole grains Use of fruits and superfoods
106
106 107 108 110
Weight management
Portion control Satiety products
112
112 113
Private label Sustainability

5
115 116
Packaging developments Provenance
116 118
Indulgence
Tiers of premiumization Key trends in indulgence
120
120 121
Chapter 6 Conclusions
Five key trends for the future
1 - Alternative natural sweeteners 2 - Whole grains and healthier ingredients 3 - Indulgence in developed and developing markets 4 Crossover with other product categories 5 - Provenance
123
123
123 123 124 124 124
Table of figures
Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: US wheat prices ($ per metric ton), 2005-2010 Premiumization in mature bakery and cereals markets Number of farmers markets in the US, 1994-2010 The growth of online grocery retail UK market Mymuesli website Me & Goji custom artisanal cereal website Marketing health the increased importance of specificity and credibility Trends in global middle class growth Global bakery and cereals market value ($bn), 200914 23 25 27 29 30 31 32 33 42 45 47 51 59 63 64 65 67 69 70 71 73 75 77 78 80 81 83 86 88 90 91 7
Figure 10: Top 10 bakery and cereal markets, by value ($bn), 200914 Figure 11: Global bakery and cereals market value, by category (%), 2009 and 2014 Figure 12: Growth in top 10 bakery and cereals sub-categories, CAGR (%) 200914 Figure 13: Emerging bakery and cereal markets, by value ($bn), 200914 Figure 14: Share of new product launches by innovation type (%), 200710 Figure 15: Share of new product launches by region (%), 200710 Figure 16: Share of top 10 countries in NPD in Europe (%), 200710 Figure 17: Share of products launched in Europe, by category (%), 200710 Figure 18: Food For Life's Ezekiel 4:9 Sprouted 100% Whole Grain Bread Figure 19: Share of products launched in Asia-Pacific (%), by category, 200710 Figure 20: Sunfeast Marie Light Oats biscuits Figure 21: Share of products launched in North America (%), by category, 200710 Figure 22: Hot-Kid Organic Toddler Mum-Mum caramel flavored rice biscuits Figure 23: Share of new bakery and cereal launches, by category (%), 2007 and 2010 Figure 24: Lotte's Margaret Five Grains Black Cookie Figure 25: Sentir Bem Biscoito Integral Figure 26: Ik Wil Bolletje Brod in de Melk breakfast cereal Figure 27: Woolworths sandwich bread Figure 28: Nestl's Toll House Ready to Bake Brownie Limited Edition Fudgy Brownies Figure 29: Kashi's Heart to Heart Whole Grain Crackers Figure 30: Mareblu Naturals' Premium Crunch Bar Strawberry Pomegranate Trail Mix Figure 31: Vitalicious' VitaTops Muffin Tops
Figure 32: Isabella's Healthy Bakery Activate Probiotic Raisin Bran enriched muffins Figure 33: Kellogg's Frosted Flakes space-saving cereal box Figure 34: Attune's All Natural Digestive Health Probiotic Granola Munch Figure 35: Isostar Pulse Easy Power cereal bars Figure 36: Vitalin Racao Humana Quinoa e Amaranto Figure 37: GrandyOats Goji Agave Organic Granola Figure 38: Granix Cereal Free Figure 39: Nickanedit Gluten-free Chocolate Torte a la Cocoa Gourmet Dessert Figure 40: Kashi's Heart to Heart Whole Grain Crackers Figure 41: Coppenrath's Diatgenuss Wiener Sandringe cookies Figure 42: Wasa's Whole Grain Crispbread Figure 43: Carrefour's Musli cu Fructe
92 94 100 101 102 103 104 105 107 108 109 110
Figure 44: New England Naturals' Organic Granola Antioxidant and Gluten-Free variants 111 Figure 45: Doctor in the Kitchen's Flax Seed Crackers, packaging and nutrition information 112 Figure 46: FullBar - 100% Natural Bar - Cinnamon Roll Figure 47: Otsuka Soyjoy Snack Bar strawberry variant Figure 48: Gardenia's Slim 'n Fit Wheaten Bread Figure 49: Share of private labels in new product launches (%), 200710 Figure 50: Casino's Sans Gluten Tartines Craquantes Riz et Mais Figure 51: Pure NRG's Fresh Baked Vegan Nutrition Chia Breakfast Bar Figure 52: Immaculate Baking's Dark Chocolate Biscotti Crunch 113 114 114 115 116 117 118
Figure 53: Sustainability and provenance bringing in wider values of health and exclusivity 119 Figure 54: Tiers of premiumization in food and drinks Figure 55: Key trends in indulgence 120 121
Table of tables
Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Definition of bakery and cereal categories Middle class population size (m) & share of global total (%), 2009-2030 Average household size by selected countries, (number of people), 19902015 Proportion of labor force which is female (%), 1990-2015 Global bakery and cereals market value ($bn), 200914 Global bakery and cereals market shares, by geography ($bn), 200914 Top 10 bakery and cereals markets, by value ($bn), 200914 Global bakery and cereals market value, by category (%), 2009 and 2014 16 34 36 37 41 43 44 46
Global bakery and cereals market value, by category and sub-category ($bn), 200914 49
Table 10:
European bakery and cereals market value ($bn), by category and sub-category, 200914 52
Table 11:
Americas bakery and cereals market value ($bn), by category and sub-category, 200914 54
Table 12:
Asia-Pacific bakery and cereals market value ($bn), by category and sub-category, 200914 57 62 64 66
Table 13: Table 14: Table 15: Table 16: Table 17: Table 18:
Share of new product launches (%), by innovation type, 200710 Share of new product launches, by region (%), 200710 Share of products launched in Europe (%), by category, 200710
Top 10 claims made by bakery and cereal products launched in Europe, 200710 68 Share of products launched in Asia-Pacific (%), by category, 200710 69
Top 10 claims made by bakery and cereal products launched in Asia-Pacific, 200710 71
Table 19: Table 20:
Share of products launched in North America (%), by category, 200710
72
Top 10 claims made by bakery and cereal products launched in North America, 2007 10 74 76 79 81 82 84
Table 21: Table 22: Table 23: Table 24: Table 25:
Share of new bakery and cereal launches, by category (%), 2007 and 2010 Top 10 claims for cookies (%), 200710 Share of new breakfast cereals launches by regions (%), 2007 and 2010 Top 10 claims for breads and rolls (%), 200710 Share of new cakes and pastries launches, by region, 2007 and 2010 9
Table 26: Table 27: Table 28: Table 29: Table 30: Table 31:
Top 20 claims for cakes and pastries (%), 200710 Top 10 claims for crackers (%), 200710 Top 10 flavors for crackers (%), 200710 Share of new morning goods launches (%), by region, 2007 and 2010 Top 10 pack types for new bakery and cereal launches (%), 200710
85 87 89 90 93
Top 20 claims for new bakery and cereals launches (% of products with claims), 200710 95
Table 32:
Top 20 flavors for new product introductions (% of bakery and cereal product launches), 2007 and 2010 97
10
Executive summary
Market drivers and resistors
Regulatory and consumer awareness campaigns promoting the health benefits of baked goods and cereals that are largely made from whole grains have increased new product development (NPD) in healthier products. Tighter health claims regulation in Europe will restrict the development of functional bakery and cereals products. However, this will also create opportunity for companies looking to capitalize on this precarious market niche. Rising consumer demand for 100% natural and organic foods has increased NPD in bakery and cereals that are free from artificial additives. The combination of longer working and commuting hours has increased consumer demand for convenient yet nutritional meal alternatives, such as ready-to-bake or ready-to-eat cereals and baked goods. Emulating the mass customization initiatives of foodservice chains, bakery and cereals manufacturers are trying harder to involve consumers in choosing the ingredients used in their products through novel distribution channels, such as the internet.
11
Growth opportunities in bakery and cereals

The global bakery and cereals market was worth $358bn in 2009, an increase of 3.2% over 2008. Business Insights forecast this market to grow at a compound annual growth rate (CAGR) of 3.4% to reach $423bn in 2014. Europe was the largest market for bakery and cereals in 2009, worth $165bn, and is forecast to grow at a CAGR of 2.3% to reach $185bn in 2014. As part of the staple diet for European consumers, bread will continue to drive demand for baked goods in the region. The top 10 countries together accounted for over 65.6% of the global bakery and cereals market by value in 2009, with the US being the largest market, worth $60bn. Bread and rolls is the largest bakery and cereals category, $179bn in 2009 and forecast to grow at a CAGR of 2.3% to reach $201bn in 2014. This expansion will be primarily driven by increased demand for products that fall under the artisanal and industrial bread and rolls sub-categories. India is a low value but high growth country. With more middle class consumers working longer hours, breakfast cereals provide a convenient option as a breakfast. As a consequence it will be the fastest growing category in India, although per capita consumption will still be very low.
12
Innovations and NPD in bakery and cereals

Among all new product launches during 200710, only 0.5% were innovative. Innovations in formulation accounted for 83.3% of all innovations in bakery and cereals in 2010, an increase of 15.1 percentage points over 2007. Europe accounted for 43.2% of all new product launches in bakery and cereals in 2010, an increase of 9.4 percentage points over 2007. The majority of NPD has taken place in the cookies category over 200710, which accounted for 34.5% of new launches globally in 2010. Packaging innovation has taken a back seat, with little significant development since 2008. Boxes have been the most commonly used packaging for bakery and cereals products launched over 200710. Chocolate has continued to dominate among all flavors since 2007, with a share of 9.6% in 2010, but there is a growing trend of dual and fused flavors, such as chocolate vanilla and strawberry banana.
13
Key trends and product examples

Manufacturers growing focus on reducing fat, sodium and sugar in bakery and cereals has led to the development of trans-fat-free products, calorie-counted portion packs and the further fortification of baked goods and cereals with nutritious ingredients such as whole grains. Regulatory pressures in developed markets such as Europe, which require bakery and cereals manufacturers to provide sufficient evidence for functional claims, are driving the use of ingredients found in rival categories, such as dairy products and soft drinks. By using established ingredients such as prebiotics, probiotics and guarana, companies are avoiding having to conduct new and expensive research and development. Bakery and cereals manufacturers are targeting niche segments such as children, and healthcautious and ailing consumers by offering healthier alternatives such as low calorie sweeteners, superfoods and gluten-free products. Innovations in packaging are being driven by sustainability and the potential of recyclable and biodegradable materials to help limit environmental impact. The natural tag is increasingly being used for new product launches, to display product characteristics such as traditional and authentic ingredients.
14
Chapter 1 Introduction
What is this report about?
The global bakery and cereals market was worth $358bn in 2009, an increase of 3.2% over 2008. The market will grow at a CAGR of 3.4% over 200914 to reach a value of $423bn in 2014. Emerging markets such as Mexico, Russia, Brazil, China and India will play a pivotal role in the development of the bakery and cereals industry, driven by the growing influence of Western culture, a rising demand for staple foods, and a growing acceptance of alternative forms of bakery and cereals as opposed to traditional meal products. In Europe and the US, meanwhile, the growing demand for bakery and cereals is primarily being driven by health conscious and time-constrained consumers. This report contains a summary of the important and novel bakery and cereal products launched between June 2006 and May 2010, as reported by Product Launch Analytics, an in-house database of new product launches in the fast moving consumer goods industry. This allows the analysis of innovation and NPD by region and category. In addition, market data on the value growth of the bakery and cereals market is examined and emerging market trends are highlighted, thereby enabling manufacturers to identify key growth opportunities.
15
The market defined

Within this report, the bakery and cereals market is segmented into seven categories:
Table 1: Definition of bakery and cereal categories
Categories Bread and rolls Artisanal bread and rolls
Definition
Bread products produced by small local bakeries. Associated with the fundamentals of the age-old bread-making tradition with greater attention to ingredients and the baking process. Pre-packed industrially manufactured bread products generally made at dedicated premises and sold through retail outlets. For example Warburton's, Hovis and Sara Lee. Bakery products sold through non-specialist stores that have been baked or semi-baked ('finished off') at the point of sale. Breakfast cereal that requires heating before consumption. Includes traditional products (e.g. porridge oats), instant mixes (e.g. Ready Brek), and ready-to-heat products (e.g. Quaker Instant Oatmeal Express) Breakfast cereal that does not require heating. Includes dry cereals and prepackaged cereal/milk kits (e.g. Kellogg's Cornflakes and Weetabix). Cakes and pastries produced by small local bakeries for sale on the premises. Excludes morning goods. Pre-packed industrially manufactured cakes and pastries generally made at dedicated premises and sold through retail outlets (e.g. Mr Kipling cakes, Entenmann's cakes). Excludes frozen cakes and pastries, and morning goods. Cakes and pastries sold through non-specialist stores that have been baked or semi-baked ('finished off') at the point of sale. Excludes morning goods.
Industrial bread and rolls
In-store bakery Breakfast cereals Hot cereals
Ready-to-eat cereals
Cakes & pastries Artisanal cakes & pastries Industrial cakes & pastries
In-store bakery
16
Categories Cookies (sweet biscuits) American cookies Artisanal cookies Assortments Butter-based cookies Chocolate cookies
Definition A small, usually flat and crisp biscuit made from sweetened dough (e.g. Maryland cookies, Chips Ahoy!). Cookies produced by small local bakeries for sale on the premises. Variety boxes usually packaged in metal tins. Examples include Veno's Danish butter biscuits and Delacre Assorted Biscuits. Products that position themselves as butter-based (e.g. Leibniz Butter) or as shortbread (e.g. Walker's Shortbread). Products coated with chocolate on one or both sides, such as chocolate digestives. Only includes products sold in the cookie section of retail outlets: product lines such as Kit-Kat are excluded. A cream-based filling sandwiched between two cookies and not coated in chocolate (e.g. Custard Creams, Oreos). Cookies sold through non-specialist stores that have been baked or semi-baked ('finished off') at the point of sale. Also known as 'semi-sweet.' Slightly sweet crackers made with whole-wheat flour (e.g. McVities' Digestives, Keebler Graham crackers). A light, sweet product slightly thicker than a wafer, with a creamy filling (e.g. Manner). All other sweet biscuit products.
Cream filled In-store bakery Plain cookies
Wafer biscuits Other cookies Crackers (savory biscuits) Bread substitutes Cheese-flavored crackers Plain crackers
Dry, thin, crisp biscuits generally used as an alternative to bread, also known as dry wafers (e.g. Ryvita). Cheese-flavored savory biscuits of any kind (e.g. Cheez-It, Cheddars). Hard, dry savory biscuits, generally hard or crisp. Can be salted, such as Ritz, or unsalted such as Jacobs' Cream Crackers. Does not include cheese flavored crackers. All savory biscuits other than cheese, plain crackers, and bread substitutes.
Other crackers
17
Categories Morning goods Artisanal morning goods
Definition Breakfast bakery products created by small local bakeries. Includes bagels, croissants (plain and flavored), donuts, muffins, and scones. Excludes Danish pastries. Pre-packed industrially manufactured breakfast bakery products generally made at dedicated premises and sold through retail outlets. Includes bagels, croissants (plain and flavored), donuts, muffins, and scones. Excludes frozen products and Danish pastries. Breakfast bakery products sold through non-specialist stores that have been baked or semi-baked ('finished off') at the point of sale. Includes bagels, croissants (plain and flavored), donuts, muffins, and scones. Excludes frozen products and Danish pastries. Bars made from a mixture of cereals, fruits and active ingredients for performance enhancement bound together by syrup and designed specifically for active consumers. Bars made from a mixture of cereals, fruits and nuts bound together by syrup. All other cereal bars.
Industrial morning goods
In-store bakery
Cereal bars Sports and energy bars
Granola/muesli bars Other bars

Source: Business Insights
BUSINESS INSIGHTS
18
Report structure
The chapters of this report are structured as follows: Introduction report overview and methodology. Market drivers highlighting the factors that are influencing consumer demand and helping to drive and restrict NPD in the bakery and cereals industry. Growth opportunities in bakery and cereals review of market value by region, country and category, with market projections to 2014 (using 2009 as the base year), including an evaluation of growth potential. Innovation and NPD review of innovation by category, region and type. This chapter also identifies flavor trends and analyzes the use of key product tags on product packaging. Key trends overview of emerging trends within the bakery and cereals market. Conclusions summary of key trends and future opportunities within the bakery and cereals market.
19
Chapter 2 Market drivers

Summary
Regulatory and consumer awareness campaigns promoting the health benefits of baked goods and cereals that are largely made from whole grains have increased new product development (NPD) in healthier products. Tighter health claims regulation in Europe will restrict the development of functional bakery and cereals products. However, this will also create opportunity for companies looking to capitalize on this precarious market niche. Rising consumer demand for 100% natural and organic foods has increased NPD in bakery and cereals that are free from artificial additives. The combination of longer working and commuting hours has increased consumer demand for convenient yet nutritional meal alternatives, such as ready-to-bake or ready-to-eat cereals and baked goods. Emulating the mass customization initiatives of foodservice chains, bakery and cereals manufacturers are trying harder to involve consumers in choosing the ingredients used in their products through novel distribution channels, such as the internet.
20
Introduction
Broadly speaking there are two distinct sections of the global bakery and cereals market: mature and immature markets. With stark differences in their level of development, the driving forces for each can be quite different. As a staple product, bakery and cereals have reached a level of saturation in many markets. In these areas manufacturers are under pressure to add value to their products and appeal to the growing sophistication of consumer demand. In immature markets there are fundamental socio-economic shifts which serve as the primary influencers of change. Mature markets o Competitive pressures o Economic recession Wheat prices Tightening of health regulations
Growing sophistication of consumer demand Ethical consumerism Shift to mass customization Requirements for better targeting and credibility
Immature markets o Socioeconomic forces Middle class expansion Smaller households Growing female workforce 21
Impact on consumption Changing consumption patterns Emergence of premium bakery and cereals
Mature markets
Competitive pressures
In mature markets, there are a wide range of internal competitive pressures as well as changes in consumer behavior and lifestyles which are currently influencing the bakery and cereals market. The core pressures include the recent recession, rising raw material price increases and tightening health regulations. Economic recession Given the maturity of Western consumer goods markets, the recent economic downturn represented the key threat to overall market growth. European and US demand for many products contracted in the immediate aftermath of the financial crisis towards the end of 2008. However, unlike many consumer areas, the bakery and cereals market has been relatively well insulated against the impact of the recession. Product categories classed as essentials, such as bread, breakfast cereals have proved resilient, helped by a downward movement in prices from their 2008 peak. In some cases, where consumers have traded down from foodservice such as eating out or buying takeaway food, products that offer a sense of indulgence or luxury have actually benefited: a good example of this is premium ready meals. At the same time, in some markets artisanal bread or more premium cereals have also seen growth as consumers cut back on more conspicuous luxuries but indulge on groceries brought into the home.
22
Raw materials prices The rising cost of staples such as corn, rice and wheat since June 2010 has raised fears of a global food crisis, with even the US government warning of dramatically lower supplies. The US is the worlds largest corn grower and its exports make up the majority of global trade in the grain. The USDA had forecast a record corn crop for 2010 but unfavorable heat and heavy rains forced a re-evaluation of yields. Wheat prices have soared following poor harvests in several countries, including Russia and Brazil, while heavy rain in Canada and Europe damaged the production of many grain and oilseed crops through 2010. Commodities prices are forecast to continue to rise through the next few years, but are not expected to reach 2008 levels. Nevertheless, combined with the effects of the recession, food manufacturers are under mounting competitive pressures and this has already brought an impact to food prices on supermarket shelves. In the bakery and cereals market this leaves companies particularly vulnerable to the threat of private-label.
Figure 1:
500 450 400 Market price per ton ($) 350 300 250 200 150 100
US wheat prices ($ per metric ton), 2005-2010
Average
Mar 06
Mar 08
Mar 07
Mar 09
Mar 10
Jun 07
Jun 06
Jun 08
Dec 05
Dec 07
Sep 07
Dec 08
Jun 09
Dec 06
Sep 06
Dec 09
Sep 08
Sep 09
Jun 10
Source: International Monetary Fund
BUSINESS INSIGHTS
23
Sep 10
The impact of rising wheat prices in developed markets will be clear: there will be consumer demand for budget products that help mitigate the impact of rising prices. At the same time, manufacturers will seek to add value to bakery and cereals products as a way increasing prices and maintaining margins. Manufacturers with no clear price positioning between budget and premium products will suffer. Tightening of health regulations Functional bakery and cereals manufacturers in Europe are awaiting the full impact of impending health claim legislation. According to the Article 13 of the Nutrition and Health Claims made on Foods Regulation, the European Food Safety Authority (EFSA) will evaluate all claims other than those referring to the reduction of disease risk and to childrens development and health". This article states that all functional claims made by manufacturers on the label of their products must be supported by appropriate evidence. This regulation requires companies to provide data to support: The role of a nutrient or substance and its effects on the functioning of the body; Possible benefits to psychological and behavioral functions; Products that claim to increase satiety, reduce weight and offer energy to consumers.
EFSAs recommendations will be used by the European Commission to form the foundation of necessary legislative measures, with a positive list of permitted claims. Although this overall process has been delayed due to the large number of claims submitted, the net result will be the same - more stringent health claim regulation will force food manufacturers to invest in research and development in order to prove new claims. Tighter regulations may be particularly damaging for private label manufacturers with higher R&D costs threatening the price point advantage associated with such products. Moreover, the positive list of functional health claims will restrict manufacturers to using only those claims that have already been approved. This will lead to a decrease in flavor innovation and a subsequent decline in innovative product introductions in this market. 24
While it will be difficult for manufacturers to launch foods and beverages with functional claims in Europe, such product launches will be much more straight-forward in other parts of the world. Although regulations are present in other developed markets, such as the US and Japan, they are not as stringent as in Europe. Competition will intensify in the US and Japan with industry leaders trying to increase revenues to compensate for difficulties in Europe.
Growing sophistication of consumer demand

The growing sophistication of consumers ensures that the demand for greater choice, particularly in valueadded products continues to be a key driver of product innovation.
Figure 2:
Premiumization in mature bakery and cereals markets

Mass customization Premium ingredients New flavor combinations
New occasions Competition with confectionery
Indulgence
Organic and artisanal Focus on ingredients Simple
Convenient
Ethical & sustainable
With fruit and vegetables Alternative healthy formats
Made with love Ethical as safe
Healthy
Performance management Weight management Credible health claims
BUSINESS INSIGHTS
25
Ethical consumerism The bakery and cereals market is, inevitably, being influenced by the growing ethical awareness among consumers. Across a wider range of product categories, consumer interest in the sourcing and manufacturing process is growing and not only for more premium products. The pervasive belief that ethical products are better for you is also filtering down into mainstream products and creating opportunities in natural and organic foods to target health conscious consumers. Sustainability Environmental concerns are driving ethical awareness among consumers, with manufacturers taking greater measures to reduce their environmental footprint. These not only involve reductions in packaging waste, but also include cutting the resources and energy used in the manufacturing process. One controversial issue central to the bakery and cereal market is intensive farming, characterized by the high inputs of capital, labor, or heavy usage of technologies such as pesticides and chemical fertilizers relative to land area. The sensitivity to such farming techniques was seen recently with the incorporation of palm oil in bakery and cereals as an alternative to the harmful hydrogenated oils. In 2009, the World Wildlife Fund (WWF) warned manufacturers about the importance of sustainability after the production of palm oil was found to have had a huge environmental impact in South Asia, where forests were being cleared to make way for more plantations. Promoting sustainability has become a key and in some cases almost mainstream - marketing tool being used by bakery and cereal manufacturers. Production methods, along with the provenance of ingredients, are prominently highlighted on product packaging to emphasize the amount of care that has been taken in overall production process. In December 2009, Unilever, the world's largest user of palm oil for food, cleansers and cosmetics, canceled its $32.6m supply contract with Sinar Mas after independently verifying a 2008 Greenpeace report implicating the Indonesian palm oil provider in rainforest destruction. Moreover, the company also pledged to use only certified sustainable palm oil by 2015 without passing on any added costs to consumers.
26
Local sourcing In the wider food and drinks industry there has been an increased focus on the source and supply chain of food and drinks. The increasing significance of sustainability and local sourcing to consumers can be seen in the continued growth of farmers markets, both in Europe and North America. New markets appear regularly, and existing marketssome well over a century oldare enjoying somewhat of a revival.
Figure 3:
Number of farmers markets in the US, 1994-2010

7,000
Number of farmers markets
6,000 5,000 4,000 3,000 2,000 1,000 0 1994 1996 1998 2000 2002 2004 2006 2008 2009 2010 +249% 4,377 more farmers markets
Source: USDA-AMS-Marketing Services Division
BUSINESS INSIGHTS
The importance of local sourcing is crucial to the bakery and cereals market, given the growth of the supermarket and hypermarket retailing as a share of grocery sales in developed markets. Sales of bread products supermarkets have risen at the expense of local bakers but across all channels artisanal bread and rolls continue to represent the largest sub-category by value in the global bakery and cereals market. This is an interesting paradox, because as consumers continue to challenge the ethical credentials of the products they buy, the artisanal nature of supermarket bakeries will come under some scrutiny. Already, in countries such as France, artisanal bakers are seeking to emphasize the true artisanal nature of their products. The challenge for major manufacturers and the supermarkets is to introduce more artisanal 27
qualities, and proper artisanal credentials, into the products they sell. One example of this is UK retailer Waitroses agreement with legendary baker Poilne to sell artisanal sourdough loaves a move which dates as far back as 2002. At the same time, several other UK retailers, including market leader Tesco, are creating local produce programs to mitigate concerns that they are not sufficiently sensitive to local concerns around the survival of small scale food producers. Shift to mass customization Another key trend is the shift towards mass customization. Although this is still a minor trend at present, mass customization is becoming a more mainstream tool for manufacturers to encourage consumer engagement in their products. In particular, there are two areas in which consumers are being given the chance to actively select particular products or product features and interact with their food more: Interactive online product sales; Cereal kits.
More bakery and cereal manufacturers are using the internet as a platform for consumers to customize their diet and order products that are delivered directly to their home. The internet has given companies such as Nature's Path the ability to allow the consumer to customize the meals they receive (to some extent) and at the same time, provide nutritious, gourmet meals that consumers do not always have time to prepare. This process is also designed to increase consumer loyalty and encourage repeat purchasing. The figure below provides a clear example the fast growth of the online grocery channel. In the UK, forecast growth over the period 2000-2014 is nearly 2000%, and from a tiny base the online market will capture over 5% of total grocery sales. This familiarization with online grocery shopping, both its convenience and, increasingly, additional benefits (such as the store remembering your regular purchases) underpins the use of the online channel for mass customization efforts in food.
28
Figure 4:
The growth of online grocery retail UK market

Forecast market growth, 2000-2014
Online retail share of grocery market 6% 5% 4% 3% 2% 1% 0% 0.4% 2000 0% 2014 1,000% 5.2% 2,000%
1,924.9%
62.3% Overall grocery Online grocery

BUSINESS INSIGHTS
Source: Verdict Research
However, there have been notable failures also: General Mills introduced mycereal.com in 2001 to allow consumers to mix up their own cereals. This service has since been discontinued. In 2007, Kelloggs launched Coco Pops Creations in the UK, a new 'pick n mix' cereal targeted at children, in the UK. The product came with a choice of four different cereal shapes and sizes (Coco Pops, Crunchers, Coco Rocks and Mega Munchers), and allowed children to mix and match according to their preference. However, in February 2010 Kelloggs announced it would pull Coco Pops creations as part of an exercise to pare back its ranges. The message is clear: while consumers want customization, customization alone is not enough. At the moment, the additional costs implied by customization can only support true premium products. Examples of online, customized retailers include: Breakfast cereals: MyMuesli; MeAndGoji.com; Custom energy bars: Element Bars; YouBar. 29
Mymuesli www.mymuesli.com was the first platform worldwide that allowed consumers the option of choosing the ingredients that they wanted and then to purchase the final product online. Launched in 2007 in Germany, it allows consumers to choose from 80 ingredients to create their combinations. The ingredients on offer include eccentric and exotic ingredients such Tibetan goji berries, cedar nuts and jelly babies. Additionally, consumers can also name their creation.
Figure 5:
Mymuesli website
Source: Mymuesli website
BUSINESS INSIGHTS
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Me & Goji A similar website was introduced in the US in 2008 called Me & Goji. Targeted at consumers who have strict dietary requirements, such as athletes, the ingredients are stamped as US Department of Agriculture (USDA) certified, to reinforce the brands health credentials. In addition to naming the cereal, the site also allows consumers to upload their picture. Moreover, the store also has a range of pre-mixed cereals available in gluten-free and energy varieties to cater to health conscious consumers.
Figure 6:
Me & Goji custom artisanal cereal website
Source: Meandgoji
BUSINESS INSIGHTS
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Requirements for better targeting and credibility EFSAs impact manufacturers use health claims in Europe will be profound. Elsewhere, however, manufacturers have also had to reevaluate health claims. For example, Danone has come under scrutiny in the US for claims made against some of its probiotic products. Even with these changes, some terms such as natural are used heavily to the point of becoming almost generic. Changing consumer expectations and a harsher regulatory landscape will drive development on two fronts: specificity and credibility of claims. Of the two, credibility of health claims will be more important. Soft claims will have to become even softer to the point of being both vague and generic and in many cases will be rejected by consumers. By contrast, R&Dsupported, more credible health claims will allow manufacturers to mine niches and develop proprietary positionings, although the specificity of the benefit will determine how quickly products commoditize.
Figure 7:
Marketing health the increased importance of specificity and credibility
Lack of credibility: needs further R&D
Credible and specific: Opportunities to mine niche and develop proprietary positioning and/or ingredients
Specificity
Generic soft claims, increasingly rejected as credible
Credible, but possibly vulnerable to commoditization
Credibility
BUSINESS INSIGHTS
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Immature markets
The rapid pace of economic development of many countries in Asia and South America will have a massive impact on consumption patterns. Across these emerging markets, urban populations are rising; more women are entering the workforce; the emerging middle classes are driving consumption of more sophisticated, premium products.
Socioeconomic drivers
The single most important factor influencing the development of immature markets is the rise in disposable incomes and the growth of the middle class. Middle class expansion The rise in disposable income in the newer economies is closely allied to the development of the middle class. As economies have developed and moved from a situation of primarily export-led growth to one in which industries develop to feed domestic consumer demand, increasing numbers of the population have been able to move up into the middle classes, with a corresponding rise in income and consumption.
Figure 8:
Trends in global middle class growth

Expanding global middle class Rising GDP/disposable income Convert savings to consumption
Pre 1970s World's middle class concentrated in Europe, North America & Japan
s 1970s-1980s Brazil, South Korea, Mexico and Argentina built sizeable middleclass populations
Current/future Middle class expansion in Asia particularly China and India

BUSINESS INSIGHTS
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In China and India middle class expansion is most marked, although in other areas, such as South America, Russia and East European countries there have also been significant increases in disposable income. The OECDs definition of middle class is households with daily expenditure between $10 and $100 per person in purchasing power parity terms. It estimates that there were 1.8bn people in the global middle class in 2009. Europe has the highest share of the global middle class population at 36%, with North America on 18% as shown below. In both cases, these account for almost all the entire population of the region. The largest opportunity is Asia-Pacific, where 28% of the global middle class, lives amounting to 525m people or less than a quarter of the regions total population. Over the next 10 years, the OECD forecasts that 1.2bn people in the Asia-Pacific region will be born into or move into the global middle class. This represents the largest single expansion in consumer spending power ever recorded, with the number of global middle class consumers increasing by 75% between 2009-2020 due to rising incomes in India, China, Indonesia, and across the region. Although relatively poorer, the number of middle class consumers in Africa is nonetheless forecast to almost double between 200920, representing further opportunities.
Table 2: Middle class population size (m) & share of global total (%), 2009-2030
2009 Actual (m) North America Europe Central & South America Asia-Pacific Sub-Saharan Africa Middle East North Africa Overall
Source: OECD Development Centre
2020 Share 18% 36% 10% 28% 2% 6% 100% Actual (m) 338 706 251 1,740 57 165 3,257 Share 10% 22% 8% 54% 2% 5% 100%
2030 Actual (m) 332 680 313 3,228 107 234 4,894 Share 7% 14% 6% 66% 2% 5% 100%
338 664 181 525 32 105 1,845
BUSINESS INSIGHTS
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In ten years' time, the proportion of the global middle classes living in the traditional western markets of North America and Europe will have fallen from over half in 2009 to less than one-third, as the proportion living in Asia-Pacific increases to 54% and onto 66% by 2030. Smaller households Another feature of the rising levels of disposable income in emerging markets is the decreasing size of the average household. Globally, the number of people living alone has increased from 153.5m in 1996 to 202.6m in 2006. The trend to small or single person households reflects economic and cultural standards. Living alone is more expensive than sharing; there is a direct correlation between wealth and the proportion of people living alone. Smaller households are more likely to buy more expensive or premium products for three reasons: A great likelihood of buying convenience and single serve foods which tend to be premium priced; Fewer members of household, invariably children, to support hence a greater discretionary income; People are far more likely to buy premium goods for themselves or their partner than children. Research undertaken in the UK in 2007 found that 81% of shoppers will buy premium products for themselves, 60% will buy for their partner but only 26% would buy premium products for their children. The table below shows the change in the average household size from 1990 to 2015 in a range of significant economies.
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Table 3: Average household size by selected countries, (number of people), 19902015
1990 Brazil China Germany India Japan Spain United Kingdom United States
2000 4.04 3.87 2.31 5.76 2.78 3.2 2.43 2.61 3.2 3.4 2.19 5.49 2.71 2.89 2.39 2.5
2010 2.82 2.97 2.11 5.3 2.71 2.82 2.17 2.44
2015 est. 2.74 2.82 2.09 5.28 2.71 2.82 2.09 2.44
% change 1990-2015 -32% -27% -10% -8% -3% -12% -14% -6%
BUSINESS INSIGHTS
Even in highly westernized societies where this trend has been evident since the 1970s the average household size continues to fall by around ten percent (the only exception being Japan, estimated to fall by just 3% over this 25 year period). In many of the developing economies, illustrated here by Brazil and China, household size is falling rapidly. The increasing proportion of women in the labor force The table below shows the percentage of the workforce which is female in a selection emerging markets. In all countries, except for Russia, China and India, the female proportion of the labor force has increased significantly since 1990 and continues to increase, most markedly in Brazil (from 32% in 1990 to an estimated 44% in 2015) and Argentina (28% to 42%). In China and India, it is the equivalent rapid growth in the number of males in the workforce that has kept the proportion of females unchanged rather than a lack of growth in the absolute number of women working.
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Table 4: Proportion of labor force which is female (%), 1990-2015
% Argentina Brazil Chile China Columbia India Mexico Russia Saudi Arabia South Africa
1990 28.4 32.1 30.5 44.8 37.7 27.6 30.0 48.5 11.2 41.9
2000 38.9 40.8 33.4 45.6 43.8 27.9 33.2 48.4 12.9 43.9
2010 41.9 44.1 37.1 45.9 46.7 28.6 37.0 49.9 16.0 45.5
2015 est. 42.5 44.7 38.3 45.8 47.0 29.2 38.8 50.1 17.3 45.8
BUSINESS INSIGHTS
The impact of a greater proportion of women working outside the home is well documented. The pressure of combining work, family life and / or social life means there is less time for cooking and a trend towards convenience. Women, who continue to be the main grocery shoppers, have been increasingly the source of the money that they are spending in the supermarket. This and the fact that (until the economic downturn), there was more money to spend in the supermarket, has led to an increasing comfort with, and desire to trade up beyond the products that would have previously been purchased.
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Impact on consumption
Emergence of premium bakery and cereals These socioeconomic factors are leading to the emergence of premium bakery and cereals in immature markets. While the nature of premiumization in western countries post-recession is one of concerned consumerism, with an interest in health, provenance and even conspicuous altruism, in the developing countries the more traditional consumer motivations of luxury, indulgence, and conspicuous consumption dominate. The effect of the economic and social factors rising income, smaller households, more women working represent the major forces leading to increased demand for more premium products, but other specific consumer issues have been important: Continued increase in sophistication of tastes resulting from a higher frequency of eating out; a greater number of, and variety in, restaurants and takeaways offering food from different cultures, and increasing foreign travel; Allied with the above, an increase in food as status; a badge to indicate how sophisticated / refined / knowledgeable one is; An increased interest in cooking and entertaining. Food has become of much greater interest, as evidenced by the growth in cooking magazines, cookery books, gastronomy or cooking based holidays and, more than all else, the rise of the TV chef genre; Concerns with food safety and production values. In stark contrast to the 1970s and early 1980s when highly processed foods were embraced for their modernity and time-saving qualities, a series of concerns has led to a willingness to pay more for food whose quality can be assured.
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Changes in consumption patterns While increased wealth and the rising demand for premium products is driving NPD in immature markets, manufacturers are also being led by the growing influence of Western culture. This has particular significance in the bakery and cereals market which consists of product categories that are generally associated with the West. In Asia, the market for bakery and cereals is increasing as consumption patterns continue to westernize. In India, the popularity of breakfast cereals is expected to continue to increase over the coming years, with major participants being multinationals such as Kellogg's, Quaker Oats (owned by PepsiCo), Bagrry's, and Mohan Meakins Limited. China is a good example of the extent of these changes. In China, although 60% of the population still lives in rural areas, the 40% that reside in its cities (World Bank, 2008) have embraced many of the consumer behaviour traits seen in Europe and North America. Harnessing this growth, China hosted Bakery China Expo in 2008, a major exhibition in the countrys economic hub, Shanghai, which attracted local suppliers and participants along with a growing international contingent of exhibitors. There are a number of key factors driving the bakery and cereals market in China: Chinese consumers are starting to eat bread for breakfast instead of traditional rice porridge and meat buns because they think bread is a better complement to milk and is also a healthy item; Unpackaged/artisan bread in China is increasingly being sold in hypermarkets and bakery stores; Western lifestyles and the expanding snacking culture is increasing demand for packaged/industrial bread in China. Whole-wheat sandwich and white are the two most popular varieties of packaged bread; most Chinese consumers prefer soft white bread to hard bagels or baguettes. Whole-wheat sandwich bread is popular among older and young female consumers due to its health benefits; Green tea and fruit-flavored breads are also growing in popularity. Children and teenagers are the main consumers of flavored bread.
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Chapter 3 Growth opportunities in the bakery and cereals market

Summary
The global bakery and cereals market was worth $358bn in 2009, an increase of 3.2% over 2008. Business Insights forecast this market to grow at a compound annual growth rate (CAGR) of 3.4% to reach $423bn in 2014. Europe was the largest market for bakery and cereals in 2009, worth $165bn, and is forecast to grow at a CAGR of 2.3% to reach $185bn in 2014. As part of the staple diet for European consumers, bread will continue to drive demand for baked goods in the region. The top 10 countries together accounted for over 65.6% of the global bakery and cereals market by value in 2009, with the US being the largest market, worth $60bn. Bread and rolls is the largest bakery and cereals category, $179bn in 2009 and forecast to grow at a CAGR of 2.3% to reach $201bn in 2014. This expansion will be primarily driven by increased demand for products that fall under the artisanal and industrial bread and rolls sub-categories. India is a low value but high growth country. With more middle class consumers working longer hours, breakfast cereals provide a convenient option as a breakfast. As a consequence it will be the fastest growing category in India, although per capita consumption will still be very low.
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Introduction
This chapter analyzes the value growth projections of the global bakery and cereals market during the period 201014. It provides an overview of the major markets for bakery and cereals and analyzes the performance of the categories and sub-categories within the sector. Additionally, this chapter also highlights the growth opportunities available to bakery and cereal manufacturers in emerging markets.
Bakery and cereals market overview

The global bakery and cereals market was worth $358bn in 2009, an increase of 3.2% over 2008. Business Insights forecasts the market to grow at a CAGR of 3.4% over 200914 to reach $423bn in 2014. Increasing consumer sophistication in mature markets and socio-economic shifts in emerging markets will drive demand for bakery and cereals.
Table 5: Global bakery and cereals market value ($bn), 200914
2009 Market value ($bn) Growth rate

2010 369.9 3.3%
2011 382.2 3.3%
2012 395.1 3.4%
2013 408.6 3.4%
2014 422.8 3.5%
CAGR 200914 3.4%
358.1
BUSINESS INSIGHTS
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Figure 9:
Global bakery and cereals market value ($bn), 200914

440 420 4%
Market size ($bn)
380 360 340 320 2009 2010 2011 2012 2013 2014 1% 2%
Market Value
Growth Rate
Year end December 31, 2009.

BUSINESS INSIGHTS
Value by geography
Although Europe and the Americas represent the largest markets in the bakery and cereals industry by value, Asia-Pacific will have the fastest growth rate, a CAGR of 6.6% during 200914. Growth in Asia-Pacific will be driven by the following factors: Rising disposable income and middle class expansion; Increasing exposure to Western culture and dietary habits.
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Growth rate (%)
400
3%
In particular, Asia-Pacifics expanding middle class will create strong demand for premium/gourmet bakery and cereals. The Middle East and Africa region will have the second highest growth rate, a CAGR of 4.8%, to reach a market size of $21bn in 2014.
Table 6: Global bakery and cereals market shares, by geography ($bn), 200914
Region Europe Americas Asia-Pacific Middle East and Africa Total

2009 165.0 118.8 58.0 16.3 358.1
2010 168.6 122.2 61.9 17.2 369.9
2011 172.4 125.8 66.0 18.0 382.2
2012 176.4 129.5 70.3 18.9 395.1
2013 180.5 133.3 75.0 19.8 408.6
2014 184.7 137.3 80.0 20.7 422.8
CAGR 200914 2.3% 2.9% 6.6% 4.8% 3.4%
BUSINESS INSIGHTS
Market value by country

The top 10 countries together accounted for 65.6% of the global bakery and cereals market value in 2009, with the US being the largest market, worth $60bn. The US will continue to be the largest market for bakery and cereals, growing at a CAGR of 2.9% during 200914.
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Table 7: Top 10 bakery and cereals markets, by value ($bn), 200914
Country United States China Germany Russia Mexico Brazil Italy United Kingdom France Japan Rest of the world Total
2009 59.7 23.1 31.5 27.3 15.7 20.2 16.8 15.6 13.3 13.2 121.7 358.1
2010 61.4 25.4 32.0 28.3 16.3 20.8 17.1 16.1 13.5 13.3 125.7 369.9
2011 63.1 27.9 32.5 29.4 17.0 21.4 17.4 16.5 13.6 13.5 129.8 382.2
2012 65.0 30.8 33.1 30.5 17.7 22.0 17.7 17.0 13.7 13.7 134.1 395.1
2013 66.9 33.9 33.6 31.8 18.3 22.6 18.0 17.5 13.8 13.8 138.5 408.6
2014 69.0 37.3 34.1 33.1 19.0 23.2 18.3 18.0 14.0 13.9 142.9 422.8
CAGR 200914 2.9% 10.1% 1.6% 3.9% 3.9% 2.8% 1.7% 2.9% 0.9% 1.1% 3.3% 3.4%
BUSINESS INSIGHTS
China and Japan are the only two Asian countries that make it into the list of the top 10 bakery and cereals markets. From a market value of $23bn in 2009, China will grow at a CAGR of 10.1% during 200914 (the highest among all of the top 10 countries) to become the second most valuable national market with a value of $37bn in 2014.
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Figure 10:
80 70 Market size ($bn) 60 50 40 30 20 10 0
Top 10 bakery and cereal markets, by value ($bn), 200914

11% 10% 9% 7% 6% 5% 4% 3% 2% 1% 0% Germany Russia Mexico France Japan China Italy US Brazil UK CAGR (200914) 8%
2009
Additional value in 2014 Year end December 2009.
CAGR 200914
BUSINESS INSIGHTS
Market value by category

Bakery and cereals comprises seven different categories: bread and rolls; cakes and pastries; cookies; breakfast cereals; morning goods; crackers; and cereal bars. Bread and rolls is the largest category, $179bn in 2009. The category is forecast to reach $201bn in 2014, growing at a CAGR of 2.3% through 200914, with artisanal bread and rolls being the largest sub-category in value terms. Stated below are some of the factors that will drive demand for bread and roles: Increasing demand for handmade and fresh bread and rolls led by sophistication in consumer preference in matured markets;
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Shift away from traditional breakfasts in Asia-Pacific towards more bread-based breakfasts; and Smaller households is driving demand for industrial bread and rolls in immature markets.
The cakes and pastries category was worth $65bn in 2009 and will outperform the overall industry growth rate (with a CAGR of 5.2%, during 200914) to reach $84bn in 2014. Countries such as Japan will be one of the major contributors to this growth, due to high consumption and acceptance of cakes in the region. Cereal bars, many of which are positioned as healthy and/or convenient, will be the fastest growing category growing at a CAGR of 5.3% during 200914 to reach a market value of $9bn.
Table 8: Global bakery and cereals market value, by category (%), 2009 and 2014
Category Bread & rolls Cakes & pastries Cookies Breakfast cereals Morning goods Crackers Cereal bars Total
2009 178.6 64.9 44.9 28.5 17.4 16.8 7.01 358.1
2010 182.6 68.1 46.5 29.7 18.0 17.5 7.42 369.9
2011 186.8 71.6 48.2 31.0 18.6 18.2 7.83 382.2
2012 191.2 75.4 49.9 32.3 19.2 18.9 8.25 395.1
2013 195.7 79.4 51.6 33.6 19.9 19.6 8.66 408.6
2014 200.4 83.7 53.5 35.0 20.6 20.4 9.08 422.8
CAGR 200914 2.3% 5.2% 3.6% 4.2% 3.4% 3.9% 5.3% 3.4%
BUSINESS INSIGHTS
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Figure 11:
Market value by category 2009 & 2014 (%)
Global bakery and cereals market value, by category (%), 2009 and 2014
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 Bread & rolls Morning goods Cakes & pastries Crackers Cookies Cereal bars 2014 Breakfast cereals 49.9% 47.4% 2.0% 4.7% 4.9% 8.0% 12.5% 18.1% 2.1% 4.8% 4.9% 8.3% 12.6% 19.8%
Year end is December 2009. Note: Legend depicts categories from bottom to top
BUSINESS INSIGHTS
Value by sub-category
Artisanal bread and rolls is the largest sub-category of the total bakery and cereals market. Worth $98bn in 2009, it is forecast to grow at a CAGR of 2.3% during 200914 to reach a value of $105bn. Some of the main factors driving this sub-category are as follows: Innovations in new flavors and ingredient combinations; Locally sourced ingredients and a more ethical, sustainable and authentically artisanal positioning; 47

Use of particularly nutritional ingredients, such as rye and spelt; Awareness campaigns by government bodies such as the FDA on the benefits of whole grains.
In-store bread and rolls will see the highest level of growth within the bread and rolls category at a CAGR of 3.8%, to reach a market value of $21bn in 2014. Future demand will be mainly driven by higher consumption by grab and go consumers. With a CAGR of 7.1% during the period 200914, artisanal cookies will see the fastest growth within the bakery and cereals market and will be worth around $1.4bn in 2014. Sports and energy bars will equal the growth of artisanal cookies and reach a market value of $4bn in 2014. Increasingly, consumers are snacking on sports and energy bars to: Get an energy enhancement; Stave off hunger; Get a healthier snack and help manage their weight; and Feel healthier where they are buying products with functional ingredients.
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Table 9: Global bakery and cereals market value, by category and sub-category ($bn), 200914
Category/subcategory Bread & rolls Artisanal bread & rolls Industrial bread and rolls In-store bakery Cakes & pastries Industrial cakes & pastries Artisanal cakes & pastries In-store bakery Cookies Plain cookies Butter-based cookies Chocolate cookies Cream filled American cookies Wafer biscuits Assortments Other cookies Artisanal cookies In-store bakery Breakfast cereals Ready-to-eat cereals Hot cereals Morning goods Industrial morning goods Artisanal morning goods In-store bakery
2009 178.6 98.3 62.8 17.5 64.9 30.0 20.6 14.3 44.9 7.5 7.3 7.6 5.4 4.7 4.5 3.4 3.2 1.0 0.2 28.5 24.9 3.6 17.4 8.6 4.8 4.1
2010 182.6 99.6 64.9 18.1 68.1 31.7 21.5 15.0 46.5 7.9 7.6 7.8 5.6 4.9 4.6 3.5 3.3 1.1 0.2 29.7 26.0 3.7 18.0 8.9 4.9 4.1
2011 186.8 100.9 67.1 18.8 71.6 33.6 22.3 15.7 48.2 8.3 7.9 7.9 5.8 5.0 4.7 3.6 3.4 1.1 0.3 31.0 27.1 3.9 18.6 9.3 5.1 4.2
2012 191.2 102.2 69.4 19.5 75.4 35.7 23.2 16.5 49.9 8.7 8.3 8.1 6.0 5.2 4.9 3.8 3.5 1.2 0.3 32.3 28.2 4.0 19.2 9.7 5.3 4.3
2013 195.7 103.6 71.9 20.2 79.4 37.9 24.2 17.3 51.6 9.1 8.6 8.3 6.2 5.4 5.0 3.9 3.6 1.3 0.3 33.6 29.4 4.2 19.9 10.0 5.5 4.4
2014 200.4 105.0 74.4 21.0 83.7 40.4 25.1 18.2 53.5 9.6 9.0 8.4 6.4 5.6 5.1 4.0 3.7 1.4 0.3 35.0 30.7 4.3 20.6 10.5 5.7 4.4
CAGR 200914 2.3% 1.3% 3.5% 3.8% 5.2% 6.2% 4.0% 5.0% 3.6% 4.9% 4.3% 2.0% 3.3% 3.4% 2.7% 2.9% 3.3% 7.1% 4.2% 4.2% 4.3% 3.8% 3.4% 4.1% 3.6% 1.7%
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Category/subcategory Crackers Plain crackers Cheese-flavored crackers Bread substitutes Other crackers Cereal bars Sports and energy bars Other bars Granola/muesli bars Total
2009 16.8 6.5 5.1 2.8 2.5 7.0 2.5 2.5 2.0 358.1
2010 17.5 6.7 5.3 2.9 2.6 7.4 2.6 2.7 2.1 369.9
2011 18.2 7.0 5.5 3.0 2.7 7.8 2.8 2.9 2.1 382.2
2012 18.9 7.2 5.7 3.1 2.8 8.2 3.1 3.0 2.2 395.1
2013 19.6 7.5 6.0 3.2 2.9 8.7 3.3 3.2 2.2 408.6
2014 20.4 7.8 6.2 3.3 3.1 9.1 3.5 3.3 2.3 422.8
CAGR 200914 3.9% 3.8% 4.1% 3.7% 4.2% 5.3% 7.1% 5.5% 2.6% 3.4%
BUSINESS INSIGHTS
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Figure 12:
Growth in top 10 bakery and cereals sub-categories, CAGR (%) 200914

Market size 2009 ($bn) 0 10 20 30 40 50 60 70 80 90 100
Artisanal bread and rolls 1.3% Industrial bread and rolls 3.5% Industrial cakes and pastries 6.2%
Ready-to- eat cereals
4.3%
Artisanal cakes and pastries
4%
In-store bakery bread and rolls
3.8%
In-store bakery cakes and pastries
5%
Industrial morning goods 2%
4.1%
Chocolate cookies
Plain cookies 0% 1% 2% 3% 4%
4.9% 5% 6% 7%
CAGR 200914 (%) 2009 CAGR 200914

BUSINESS INSIGHTS
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The bakery and cereals market in Europe

Bread and rolls is the largest category in Europe, with artisanal bread and rolls accounting for the biggest share within this category. Worth $59bn in 2009, artisanal bread and rolls are forecasted to grow at just 0.6% CAGR in Europe, to reach $61bn in 2014. Cereal bars consumption in Europe, will have the highest growth rate of all categories, at a CAGR of 6.9%, to reach a market value of $3.1bn in 2014, up from $2.2bn in 2009. This growth will be powered by consumers switching to healthier and convenient products.
Table 10: European bakery and cereals market value ($bn), by category and subcategory, 200914
Category/subcategory Bread & rolls Artisanal bread & rolls Industrial bread and rolls In-store bakery Cookies Butter-based cookies Chocolate cookies Cream filled Plain cookies Wafer biscuits Assortments American cookies Other cookies Artisanal cookies In-store bakery Cakes & pastries Industrial cakes & pastries Artisanal cakes & pastries In-store bakery
2009 105.9 58.9 37.3 9.7 19.5 3.8 4.3 2.4 2.2 1.6 1.7 1.5 1.3 0.4 0.1 17.5 7.9 7.1 2.6
2010 107.7 59.2 38.4 10.0 20.1 4.0 4.3 2.5 2.3 1.7 1.8 1.6 1.4 0.4 0.2 18.0 8.1 7.2 2.7
2011 109.6 59.6 39.6 10.4 20.7 4.2 4.4 2.6 2.4 1.8 1.8 1.6 1.4 0.4 0.2 18.5 8.3 7.4 2.8
2012 111.5 59.9 40.8 10.8 21.4 4.3 4.4 2.7 2.4 1.9 1.9 1.7 1.4 0.4 0.2 19.0 8.6 7.5 2.9
2013 113.6 60.3 42.1 11.2 22.0 4.5 4.5 2.8 2.5 1.9 1.9 1.8 1.5 0.4 0.2 19.4 8.8 7.7 3.0
2014 115.8 60.8 43.5 11.6 22.7 4.7 4.6 2.9 2.6 2.0 1.9 1.9 1.5 0.4 0.2 20.0 9.0 7.9 3.1
CAGR 200914 1.8% 0.6% 3.1% 3.5% 3.1% 4.0% 1.4% 3.3% 3.4% 4.3% 2.2% 4.4% 2.8% 4.1% 5.1% 2.7% 2.7% 2.2% 3.6%
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Category/subcategory Breakfast cereals Ready-to-eat cereals Hot cereals Morning goods Industrial morning goods Artisanal morning goods In-store bakery Crackers Plain crackers Cheese-flavored crackers Other crackers Bread substitutes Cereal bars Sports and energy bars Other bars Granola/muesli bars Total
2009 8.6 7.6 1.1 6.8 3.0 2.9 0.9 4.4 1.8 1.2 0.7 0.6 2.29 0.94 0.85 0.49 165.0
2010 8.9 7.8 1.1 7.0 3.1 2.9 0.9 4.5 1.9 1.3 0.8 0.6 2.46 1.03 0.93 0.51 168.6
2011 9.2 8.1 1.1 7.2 3.2 3.0 1.0 4.7 1.9 1.3 0.8 0.6 2.64 1.12 1.01 0.52 172.4
2012 9.5 8.4 1.2 7.3 3.3 3.1 1.0 4.8 2.0 1.4 0.8 0.7 2.82 1.21 1.08 0.53 176.4
2013 9.9 8.6 1.2 7.5 3.4 3.1 1.0 5.0 2.0 1.4 0.8 0.7 3.01 1.3 1.16 0.54 180.5
2014 10.2 8.9 1.3 7.7 3.5 3.2 1.0 5.2 2.1 1.5 0.9 0.7 3.19 1.39 1.24 0.56 184.7
CAGR 200914 3.4% 3.4% 3.6% 2.5% 2.9% 2.1% 2.5% 3.4% 2.9% 3.8% 3.0% 4.4% 6.9% 8.1% 7.8% 2.7% 2.3%
BUSINESS INSIGHTS
The bakery and cereals market in the Americas

As in Europe, bread and rolls is the largest category in the Americas, with a market value of $47bn in 2009. Sales of bread and rolls will reach $52bn in 2014, a CAGR of 2.1% over the five year period. Although a mature and highly saturated market, growth in artisanal bread and rolls category will still be almost three times the rate of that in Europe.
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Sales of morning goods will rise from $10bn in 2009 to $12bn in 2014, growing at a CAGR of 3.8% during 200914. Artisanal morning goods will have the highest growth within this category, recording a CAGR of 5.8% during 200914 to reach a market value of $2bn. Breakfast cereals and cereal bars will be the two fastest growing categories in the Americas, with a forecast CAGR of 4.3% over 200914. Sales of healthier products have been supported by the launch of products with higher fruit or nut contents. Sports and energy cereal bars will be the fastest growing sub-category in the Americas, with a CAGR of 6.4% during 200914, to reach $1.5bn.
Table 11: Americas bakery and cereals market value ($bn), by category and subcategory, 200914
Category/subcategory Bread & rolls Artisanal bread & rolls Industrial bread and rolls In-store bakery Cakes & pastries Industrial cakes & pastries In-store bakery Artisanal cakes & pastries Breakfast cereals Ready-to-eat cereals Hot cereals
2009 46.6 28.4 14.4 3.8 18.2 9.4 6.5 2.4 16.6 14.7 2.0
2010 47.6 28.8 14.8 4.0 18.8 9.7 6.6 2.5 17.3 15.3 2.0
2011 48.6 29.2 15.2 4.1 19.5 10.0 6.8 2.6 18.1 16.0 2.1
2012 49.6 29.6 15.7 4.3 20.2 10.4 7.0 2.8 18.9 16.7 2.1
2013 50.7 30.0 16.2 4.5 20.8 10.7 7.2 2.9 19.7 17.5 2.2
2014 51.8 30.4 16.8 4.6 21.6 11.1 7.5 3.0 20.5 18.2 2.3
CAGR 200914 2.1% 1.4% 3.1% 3.9% 3.4% 3.4% 2.9% 4.6% 4.3% 4.5% 3.1%
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Category/subcategory Cookies Plain cookies Cream filled Butter-based cookies Chocolate cookies American cookies Wafer biscuits Other cookies Assortments Artisanal cookies In-store bakery Morning goods Industrial morning goods In-store bakery Artisanal morning goods Crackers Plain crackers Cheese-flavored crackers Bread substitutes Other crackers Cereal bars Other bars Sports and Energy bars Granola/muesli bars Total
2009 15.6 3.1 2.2 2.0 2.0 1.8 1.7 1.4 1.0 0.3 0.1 9.7 5.0 3.1 1.6 8.3 3.4 2.4 1.7 0.8 3.7 1.5 1.1 1.1 118.8
2010 16.0 3.2 2.2 2.1 2.1 1.8 1.7 1.4 1.1 0.3 0.1 10.0 5.2 3.1 1.7 8.6 3.5 2.4 1.8 0.9 3.9 1.5 1.2 1.2 122.2
2011 16.3 3.3 2.3 2.1 2.1 1.9 1.7 1.5 1.1 0.3 0.1 10.4 5.5 3.1 1.8 8.8 3.6 2.5 1.8 0.9 4.1 1.6 1.3 1.2 125.8
2012 16.7 3.4 2.3 2.2 2.1 1.9 1.8 1.5 1.1 0.3 0.1 10.8 5.7 3.2 1.9 9.1 3.7 2.6 1.9 0.9 4.2 1.7 1.4 1.2 129.5
2013 17.1 3.5 2.3 2.3 2.2 1.9 1.8 1.6 1.1 0.3 0.1 11.2 6.0 3.2 2.0 9.4 3.9 2.7 2.0 0.9 4.4 1.7 1.4 1.2 133.3
2014 17.4 3.6 2.4 2.3 2.2 2.0 1.8 1.6 1.2 0.3 0.1 11.6 6.3 3.3 2.1 9.7 4.0 2.7 2.0 0.9 4.6 1.8 1.5 1.3 137.3
CAGR 200914 2.2% 2.8% 1.9% 2.4% 1.6% 1.9% 1.6% 3.2% 2.3% 1.9% 2.3% 3.8% 4.5% 1.3% 5.8% 3.2% 3.6% 3.1% 3.1% 2.2% 4.3% 4.1% 6.4% 2.2% 2.9%
BUSINESS INSIGHTS
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The bakery and cereals market in Asia-Pacific

The Asia-Pacific bakery and cereals market is growing rapidly. Between 2009 and 2014, it with increase from $58bn in 2009 to $80bn in 2014, a CAGR of 6.6%. Growth is between two and three times that of Europe and the Americas. Cakes and pastries is the largest category in Asia-Pacific. It will grow at a CAGR of 7.8% to reach 42bn in 2014, from $29bn in 2009. The market is dominated China and Japan. In China, especially, many consumers are moving to more western-based diets and also seeking more convenient products to eat out of the home. At the same time, manufacturers have sought to introduce more exotic flavors and flavor combinations while still retaining an essentially Chinese flavor to the products. Led by rising demand in India, artisanal cookies will see growth of (13.9%), although this will remain a relatively small sector in terms of total value ($0.6bn in 2014).
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Table 12: Asia-Pacific bakery and cereals market value ($bn), by category and sub-category, 200914
Category/subcategory Cakes & pastries Industrial cakes & pastries Artisanal cakes & pastries In-store bakery Bread & rolls Industrial bread and rolls Artisanal bread & rolls In-store bakery Cookies Plain cookies Butter-based cookies American cookies Chocolate cookies Wafer biscuits Cream filled Assortments Artisanal cookies Other cookies In-store bakery Crackers Cheese-flavored crackers Plain crackers Other crackers Bread substitutes Breakfast cereals Ready-to-eat cereals Hot cereals
2009 28.6 12.6 10.9 5.1 13.1 6.7 4.9 1.3 8.6 1.7 1.3 1.4 1.2 1.1 0.6 0.6 0.3 0.3 0.01 3.9 1.4 1.2 0.9 0.4 2.6 2.2 0.5
2010 30.7 13.8 11.4 5.5 13.8 7.0 5.1 1.4 9.2 1.9 1.4 1.4 1.3 1.1 0.7 0.6 0.4 0.3 0.01 4.1 1.5 1.3 0.9 0.4 2.8 2.3 0.5
2011 33.1 15.2 12.0 5.9 14.4 7.4 5.4 1.5 9.7 2.1 1.5 1.5 1.3 1.2 0.7 0.7 0.4 0.3 0.01 4.4 1.6 1.4 1.0 0.4 3.0 2.4 0.5
2012 35.6 16.6 12.6 6.4 15.1 7.7 5.7 1.5 10.4 2.3 1.6 1.5 1.4 1.2 0.8 0.7 0.5 0.3 0.01 4.6 1.7 1.4 1.1 0.4 3.1 2.6 0.6
2013 38.4 18.3 13.2 6.9 15.8 8.1 5.9 1.6 11.0 2.5 1.8 1.6 1.4 1.2 0.8 0.7 0.5 0.4 0.01 4.9 1.8 1.5 1.1 0.5 3.3 2.7 0.6
2014 41.5 20.2 13.9 7.5 16.5 8.4 6.2 1.7 11.7 2.8 1.9 1.7 1.5 1.2 0.9 0.8 0.6 0.4 0.01 5.2 1.9 1.6 1.2 0.5 3.5 2.8 0.6
CAGR 200914 7.8% 9.8% 5.1% 8.0% 4.6% 4.5% 4.8% 4.3% 6.5% 10.4% 7.8% 4.1% 4.1% 1.9% 7.1% 5.3% 13.9% 4.1% 5.1% 5.9% 5.9% 5.6% 6.7% 4.7% 5.7% 5.5% 6.6%
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Category/subcategory Morning goods Industrial morning goods Artisanal morning goods In-store bakery Cereal bars Other bars Sports and Energy bars Granola/muesli bars Total
2009 0.7 0.4 0.2 0.1 0.7 0.3 0.3 0.1 58.0
2010 0.8 0.5 0.2 0.1 0.7 0.3 0.3 0.1 61.9
2011 0.8 0.5 0.2 0.1 0.8 0.3 0.3 0.2 66.0
2012 0.9 0.5 0.2 0.1 0.8 0.3 0.3 0.2 70.3
2013 0.9 0.6 0.3 0.1 0.8 0.4 0.3 0.2 75.0
2014 1.0 0.6 0.3 0.1 0.9 0.4 0.3 0.2 80.0
CAGR 200914 6.7% 6.6% 7.0% 6.4% 5.1% 6.5% 4.0% 2.7% 6.6%
BUSINESS INSIGHTS
Emerging markets for bakery and cereals

Figure 13 below shows the top 10 emerging markets for bakery and cereals. Apart from the BRIC nations, which are potential areas, Mexico and Brazil are expected to have good performance in this industry.
Russia
Worth $27bn in 2009, the Russian bakery market will reach $33bn in 2014, driven by factors such as higher consumer purchasing power. While local products currently dominate the market, demand for Western European and US-style upscale products is on the rise. Foreign manufacturers such as Kelloggs and Fazer have started to strategically acquire dominant local companies since 2007 in order to penetrate the market
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Figure 13:
Emerging bakery and cereal markets, by value ($bn), 200914

12% India 10% China
CAGR 200914 (%)
8% 6% 4% Chile 2% 0% 0 5 10 15 20 25 30 Market size 2009 ($bn) Saudi Arabia Turkey Argentina Poland Russia Mexico Brazil
BUSINESS INSIGHTS
Mexico
Mexico is another emerging market for bakery and cereals and is poised to grow at a CAGR of 3.9% to reach a market value of $19bn in 2014, up from $16bn in 2009. Some of the major reasons for this growth are: Higher numbers of women in the workforce, leading to lesser mealtime occasions and more families eating bread-based products; Increase in the per capita consumption due to higher disposable income of families; and Changes in consumption patterns among younger Mexicans with an increased preference for baked goods.
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Brazil
The Brazilian bakery and cereals market was worth $20bn in 2009, and is forecast to reach a market value of $23bn in 2014, at a CAGR of 2.8%. Despite the GDP growth and increasing purchasing power, inflation and rising raw material prices have driven a number of Brazilian consumers to trade down to lower priced products, fuelling demand for private label products. The breakfast cereals category will have the highest growth over 200914, with a forecast CAGR of 9.1% and projected sales of $23bn in 2014.
China
The bakery and cereals market in China is undergoing rapid growth, with a forecast CAGR of 10.1% 200914, to grow from $23bn to $37bn in 2014. Although 60% of Chinese consumers still live in rural areas, many urban consumers have started replacing traditional rice and meat buns for breakfast with breads, which are regarded as healthier and more readily associated with milk. Additionally, the introduction of traditional-flavor such as green tea in bread to cater to the younger consumers has contributed to the growth in demand for the product in China.
India
India is a low value but high growth country. The Indian market stood at $4bn in 2009, but is forecast to have the highest growth among the emerging markets, at a CAGR of 10.9% during 200914, to reach a market value of $7bn. A large number of innovations have been focused on introducing health and wellness products. Breakfast cereals are becoming generally accepted, relative to more traditional forms of breakfast. With more middle class consumers working longer hours, breakfast cereals provide a convenient option as a breakfast. As a consequence it will be the fastest growing category in India, although per capita consumption will still be very low. Cereals will reach a market value of $0.4bn in 2014, with a CAGR of 14.3%.
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Chapter 4 Innovation and NPD in bakery and cereals

Summary
Among all new product launches during 200710, only 0.5% was innovative. Innovations in formulation accounted for 83.3% of all innovations in bakery and cereals in 2010, an increase of 15.1 percentage points over 2007. Europe accounted for 43.2% of all new product launches in bakery and cereals in 2010, an increase of 9.4 percentage points over 2007. The majority of NPD has taken place in the cookies category over 200710, which accounted for 34.5% of new launches globally in 2010. Packaging innovation has taken a back seat, with little significant development since 2008. Boxes have been the most commonly used packaging for bakery and cereals products launched over 200710. Chocolate has continued to dominate among all flavors since 2007, with a share of 9.6% in 2010, but there is a growing trend of dual and fused flavors, such as chocolate vanilla and strawberry banana.
Introduction
This chapter provides an overview of innovations and NPD in bakery and cereals by product type and region. It profiles the key innovative bakery and cereal products introduced during 200710, while analyzing the new product launch strategies of manufacturers. Leading product tags and flavors are also evaluated in order to indicate evolving trends in the market.
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Innovation type
Among all new product launches during 200710, only 0.5% truly innovative, of which innovations in formulation accounted for 83.3% of all innovations overall in bakery and cereals in 2010, an increase of 15.1 percentage points on 2007. However, rising agricultural commodities prices and the economic downturn have forced manufacturers to limit investment in R&D operations. As a result, formulation-based innovations declined during 200910. Positioning and technology innovations accounted for 12.5% and 4.2%, respectively, of all innovations in bakery and cereals in 2010, representing an increase in NPD for both innovation types over 2007.
Table 13: Share of new product launches (%), by innovation type, 200710
Innovation type Formulation Positioning Technology Merchandising Packaging benefit
2007 68.2% 9.1% 0.0% 6.8% 15.9%
2008 69.6% 6.5% 4.3% 8.7% 10.9%
2009 92.9% 7.1% 0.0% 0.0% 0.0%
2010 83.3% 12.5% 4.2% 0.0% 0.0%
Growth
Note: year end May 31, 2010.

Source: Product Launch Analytics
BUSINESS INSIGHTS
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Figure 14:
Share of new product launches by innovation type (%), 200710

Formulation 68.2% 83.3% 9.1% 12.5% 2007 2010 15.9%
Positioning
Technology
4.2%
Packaging Benefit
Merchandising 0%
6.8%
20%
40%
60%
80%
100%
Share of NPD (%) Year end May 31, 2010

BUSINESS INSIGHTS
Regional analysis
During 200710, Europe, Latin America, and Middle East and Africa increased their share of NPD in bakery and cereals. In 2010, share of European NPD was 17.7 percentage points higher than that of Asia-Pacific, and more than three times that of North America. Latin America and Middle East and Africa also increased their share of NPD to 10.9% and 4.8%, respectively.
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Table 14: Share of new product launches, by region (%), 200710
Region Europe Asia-Pacific North America Latin America Middle East and Africa Multi regions* Note: year end May 31, 2010.
2007 33.8% 33.2% 19.9% 7.0% 3.7% 2.4%
2010 43.2% 25.5% 13.3% 10.9% 4.8% 2.3%
Growth
*Multi regions indicate new product launches in two or more regions.

BUSINESS INSIGHTS
Figure 15:
Share of new product launches by region (%), 200710

Europe Asia Pacific North America Latin America 19.9% 2007 2010 33.8% 33.2% 25.5% 13.3% 7.0% 10.9% 3.7% 4.8% 2.5% 2.3% 0% 10% 20% 30% Share of NPD by region (%) Year end May 31, 2010 40% 50% 43.2%
Middle East & Africa Multi regions
Multi regions include countries in Europe, Asia-Pacific, North America, Latin America and Middle East & Africa
BUSINESS INSIGHTS
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Europe
Europe accounted for 43.2% of all new product launches in bakery and cereals in 2010, an increase of 9.4 percentage points over 2007. The focus of both regulators and consumers on the health benefits of high fiber cereal-based food has been driving product development activities in bakery and cereals market. The UK had the highest share of 20.9% of NPD in bakery and cereals in Europe in 2010.
Figure 16:
Share of top 10 countries in NPD in Europe (%), 200710

Share in NPD by country in Europe (%), 2010 0% Europe UK France Italy Netherlands Spain Germany Hungary Latvia Portugal Sweden 12.8% 10.8% 8.0% 7.7% 7.6% 6.2% 2.8% 2.2% 1.9% 19.2% Year end May 31, 2010. 20% 40% 60% 80% 100% 100% 20.9%
Other European countries

BUSINESS INSIGHTS
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Cookies had the highest share of 31.8% of NPD in bakery and cereals in 2010 in Europe. Despite a decline of 1.9 percentage points over 2007, the dominance of the segment is largely due to the following factors: Healthier, and more natural, cookies; Cookies with exotic flavors and unconventional ingredient combinations.
Breakfast cereals share in NPD also declined by 1.2 percentage points since 2007, but managed to retain its position in the ranking order due to the following reasons: Addition of a wider range of fruits and cereals to create more premium/healthy breakfast cereals; More science-led nutraceutical breakfast cereals. Table 15: Share of products launched in Europe (%), by category, 200710
Category Cookies Breakfast cereals Cakes and pastries Bread and rolls Crackers Cereal bars Morning goods Note: year end May 31, 2010.
2007 33.7% 17.3% 13.0% 16.3% 6.9% 9.8% 3.0%
2010 31.8% 16.1% 16.0% 15.1% 9.1% 8.0% 3.9%
Growth
BUSINESS INSIGHTS
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Figure 17:
Share of products launched in Europe, by category (%), 200710

100% 3.0% 9.8% 6.9% 16.3% 13.0% 17.3% 3.9% 8.0% 9.1% 15.1% 16.0% 16.1%
Share of products launched by category in Europe (% ), 200710
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Cookies Crackers
33.7%
31.8%
2007 Breakfast cereals Cereal bars
Cakes and pastries Morning goods
2010 Bread and rolls
Year end May 31, 2010. Note: Legend depicts categories from bottom to top
BUSINESS INSIGHTS
Private label accounted for 20.1% of all new product launches made in Europe in 2010, a significant increase of 17.2 percentage points since 2007.Lower price points and the emergence of health proposition comparable to branded products has resulted in consumers switching to private label bakery and cereals.
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Table 16: Top 10 claims made by bakery and cereal products launched in Europe, 2007 10
Claims Private label Organic High fiber High vitamins No preservatives No gluten Vegetarian No artificial color Kids Low fat Note: year end May 31, 2010.
2007 3.0% 5.8% 9.8% 6.6% 4.3% 3.5% 5.1% 2.4% 4.6% 5.1%
2008 5.3% 7.9% 9.1% 7.4% 4.2% 4.8% 2.9% 3.0% 3.7% 4.4%
2009 13.9% 9.3% 8.0% 5.2% 4.6% 4.2% 3.9% 3.8% 3.6% 3.4%
2010 20.1% 8.7% 6.4% 3.7% 5.3% 5.6% 3.4% 4.5% 2.9% 2.0%
Growth
BUSINESS INSIGHTS
The top 10 claims also shows the growth of organic products, which accounted for 8.7% of all claims in 2010. A good examples is the Food for Life Baking Company, a producer of private label bakery and cereals, which launched its Ezekiel 4:9 Sprouted 100% Whole Grain Bread in the UK in 2010. In addition to being organically produced, the product is free from preservatives which reduce consumers' concerns over artificial additives. The product has a low glycemic index level, making it suitable for consumers on a diet or trying to manage their weight. It also contains proteins made from the combination of wheat, barley, beans, lentils, millet and spelt, with sprouted legumes that fulfill the daily dietary requirements.
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Figure 18:
Food For Life's Ezekiel 4:9 Sprouted 100% Whole Grain Bread
BUSINESS INSIGHTS
Asia-Pacific
Asia-Pacific accounted for 25.5% of all new bakery and cereals launched in 2010, a decline of 7.7 percentage points over 2007. Among all new products launched in Asia-Pacific, cookies accounted for 38.4% in 2010, more than 2.5 times that of the bread and rolls category.
Table 17: Share of products launched in Asia-Pacific (%), by category, 200710
Category Cookies Bread and rolls Cakes and pastries Breakfast cereals Crackers Cereal bars Morning goods Note: year end May 31, 2010.
2007 38.9% 13.6% 16.2% 10.9% 13.0% 4.6% 2.8%
2010 38.4% 14.7% 14.5% 12.1% 11.7% 7.0% 1.6%
Growth
BUSINESS INSIGHTS
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Figure 19:
Share of products launched in Asia-Pacific (%), by category, 200710

100% 2.8% 4.6% 13.0% 10.9% 16.2% 13.6% 1.6% 7.0% 11.7% 12.1% 14.5% 14.7%
Share of products launched by category in Asia-Pacific(%), 200710
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
38.9%
38.4%
2007 Cookies Crackers Bread and rolls Cereal bars
2010 Cakes and pastries Morning goods Breakfast cereals
Year end May 31, 2010. Note: Legend depicts categories from bottom to top
BUSINESS INSIGHTS
Japan, China and India together accounted for 57.8% share of all new bakery and cereals launched in AsiaPacific during 200710. At 8.4%, the 'vegetarian' claim accounted for the highest share among all claims used for NPD in bakery and cereals in Asia-Pacific in 2010. 85.7% of all vegetarian products during 2007 10 were launched in the Indian market, where more than 30% of the population is vegetarian. Similarly, as in Europe, more natural, healthier healthy products continue to drive innovations, with the 'high fiber' and 'free from artificial color' products dominating NPD in Asia-Pacific.
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Table 18: Top 10 claims made by bakery and cereal products launched in AsiaPacific, 200710
Claims Vegetarian High fiber No artificial color High vitamins No artificial flavor No preservatives Low fat High calcium Kids Single serving Note: year end May 31, 2010.
2007 7.4% 7.3% 2.6% 8.0% 1.9% 2.2% 3.2% 5.5% 5.7% 13.5%
2008 6.6% 9.0% 4.1% 5.4% 2.7% 3.2% 3.5% 3.6% 4.0% 9.1%
2009 10.5% 8.0% 4.8% 6.9% 2.6% 4.5% 3.3% 4.0% 2.5% 3.5%
2010 8.4% 8.1% 7.1% 5.5% 5.4% 5.1% 4.1% 3.3% 2.1% 2.0%
Growth
BUSINESS INSIGHTS
ITC launched its naturally healthy Sunfeast Marie Light Oats biscuits in India in 2010. The product is made from high fiber ingredients such as wheat and oats, and is primarily targeted at health conscious consumers looking for natural products that are free from cholesterol or trans-fats.
Figure 20:
Sunfeast Marie Light Oats biscuits
BUSINESS INSIGHTS
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North America
North America holds 13.3% share of all NPD in bakery and cereals in 2010, a decline of 6.6 percentage points over 2007. As in Europe and Asia-Pacific, cookies accounted for the highest share (26.5%) among all new product introductions in North America in 2010.
Table 19: Share of products launched in North America (%), by category, 200710
Category Cookies Bread and rolls Cereal bars Breakfast cereals Cakes and pastries Crackers Morning goods Note: year end May 31, 2010.
2007 27.7% 16.0% 13.4% 15.7% 11.8% 10.7% 4.7%
2010 26.5% 16.9% 16.4% 14.6% 10.1% 9.7% 5.7%
Growth
BUSINESS INSIGHTS
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Figure 21:
Share of products launched by category in North America (%), 200710
Share of products launched in North America (%), by category, 200710

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007 Cookies Cakes and pastries Bread and rolls Crackers Cereal bars Morning goods 2010 Breakfast cereals 27.7% 26.5% 4.7% 10.7% 11.8% 15.7% 13.4% 16.0% 5.7% 9.7% 10.1% 14.6% 16.4% 16.9%
Year end May 31, 2010. N ote: Legend depicts categories from bottom to top
BUSINESS INSIGHTS
'Natural' was the leading claim in North America, accounting for a share of 8.5% in 2010, a 1.5 percentage point increase since 2007. As in other markets, concerns relating to the adverse health effects of artificial additives, particularly on children, have also driven demand for natural products in North America. Launches of upscale bakery and cereal products saw a decline of 3.4% over 2009 due to the effects of recession. At the same time, adoption of private label products increased.
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Table 20: Top 10 claims made by bakery and cereal products launched in North America, 200710
Claim Natural Single serving Upscale No trans fat High fiber No preservatives Private label Organic No artificial flavor High vitamins Note: year end May 31, 2010.
2007 7.0% 6.4% 7.7% 7.1% 4.4% 3.4% 2.8% 3.8% 2.2% 2.7%
2010 8.5% 6.5% 5.6% 4.7% 4.7% 4.2% 3.7% 3.3% 2.9% 1.9%
Growth
BUSINESS INSIGHTS
There has been a steady growth in the sophistication and premiumization of products aimed at children, caused, in part, by slowing or low birth rates in many developed countries. Want Want Group, a Taiwanbased foods and beverages manufacturer, launched Hot-Kid Organic Toddler Mum-Mum caramel flavored rice biscuits in Canada in 2010. The product is meant for toddlers and is made from USDA-approved organic rice and has no added flavors or colors to prevent health hazards from additives. Further, the biscuit contains less than 1 gram of sugar per serving (2 biscuits) and does not contain trans fat. The Hazard Analysis Critical Control Point (HACCP) certification also does away worries related to product safety among parents. In addition, the biscuits have been shaped and sized such that it can be gripped by toddlers.
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Figure 22:
Hot-Kid Organic Toddler Mum-Mum caramel flavored rice biscuits
BUSINESS INSIGHTS
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Category analysis
The majority of NPD during 200710 took place in the cookies category. Cookies accounted for 34.5% among all new launches made globally in 2010. At 14.8%, breakfast cereals' share was less than half that of the cookies category in 2010. Besides these two categories, cakes and pastries and morning goods were the only other categories to record a growth in share of new product launches.
Table 21: Share of new bakery and cereal launches, by category (%), 2007 and 2010
Category Cookies Breakfast cereals Bread and rolls Cakes and pastries Crackers Cereal bars Morning goods Note: year end May 31, 2010.
2007 34.3% 14.7% 14.8% 13.9% 10.1% 9.2% 3.0%
2010 34.5% 14.8% 14.6% 14.3% 9.9% 8.7% 3.1%
Growth
BUSINESS INSIGHTS
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Figure 23:
Share of new bakery and cereal launches, by category (%), 2007 and 2010
Share of new snack launches by category (%) 0% 5% 10% 15% 20% 25% 30% 35% 40%
34.3% Cookies 34.5%
14.7% Breakfast cereals 14.8% 14.8% Bread and rolls 14.6% 13.9% 14.3% 10.1% Crackers 9.9%
Cakes and pastries
9.2% Cereal bars 8.7%
Morning goods
3.0% 3.1%
2007
2010
Year end May 31, 2010.

BUSINESS INSIGHTS
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Cookies
New product introductions in this category had a marginal increase of 0.2 percentage points during 200710. A typical example of innovation in ethnic flavors includes Lotte's Margaret Five Grains Black Cookie, launched in South Korea in 2010. This cookie has been made from ingredients that are typical to the Korean diet and culture, such as black soybean, black rice, barley, brown rice, and black sesame seeds.
Figure 24:
Lotte's Margaret Five Grains Black Cookie
BUSINESS INSIGHTS
Private label topped all the product tags with a share of 10.9% in 2010, more than three times the share in 2007. Consumers have increasingly opted for private labels, as they seek both to cut grocery budgets and also conspicuously not spend.
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Table 22: Top 10 claims for cookies (%), 200710
Claim Private label No trans fat Organic No preservatives Natural Vegetarian No artificial color No gluten Upscale Kids Note: year end May 31, 2010.
2007 3.3% 4.0% 3.7% 3.7% 4.7% 3.9% 2.6% 2.0% 6.4% 7.0%
2008 4.1% 4.4% 4.3% 4.2% 4.9% 3.3% 3.6% 2.5% 8.3% 4.5%
2009 9.8% 5.8% 6.0% 3.8% 3.6% 5.3% 4.2% 2.5% 5.6% 4.6%
2010 10.9% 5.8% 5.0% 5.0% 4.7% 4.6% 4.5% 4.4% 3.9% 3.8%
Growth
BUSINESS INSIGHTS
In 2010, Petit Sable launched its private label whole grain biscuits, Sentir Bem Biscoito Integral, in Brazil, in three varieties (banana and cinnamon, chocolate and caramel, and guava). The product is free-from trans fat, lactose and cholesterol, and is rich in fiber. Whole grains enhance the nutrition quotient of the product by improving insulin sensitivity, which in turn reduces the risk of diabetes. Additionally, the biscuits are made from wheat flour enriched with iron and folic acid, providing consumers with vitamin B.
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Figure 25:
Sentir Bem Biscoito Integral
BUSINESS INSIGHTS
Breakfast cereals
Breakfast cereals accounted for 14.8% of global new product launches in bakery and cereals in 2010, a change of 0.1 percentage point since 2007. Europe is the largest market for breakfast cereals, and its share of NPD is growing accounting for almost half of launches in 2010. In contrast Asia-Pacific and North America actually declined in share of product launches over the same period. Although emerging markets, especially in Asia, are becoming more receptive to breakfast cereals, expenditure per capita remains low.
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Table 23: Share of new breakfast cereals launches by regions (%), 2007 and 2010
Region Europe Asia-Pacific North America Latin America Middle East and Africa Multi regions Note: year end May 31, 2010.
2007 39.8% 24.8% 21.2% 8.1% 3.6% 2.6%
2010 46.8% 20.8% 13.1% 9.7% 7.5% 2.2%
Growth
BUSINESS INSIGHTS
In 2009, Bolletje launched Ik Wil Bolletje Brod in de Melk, a breakfast cereal for consumers in the Netherlands. The cereal, name of which translates into "I want bread in my milk", comprises baked wheat pieces in the shape of mini bread rolls and freeze-dried raspberries and strawberries. The fruits are designed to regain their original freshness and flavor when milk is added and the cereal is said to retain its crunchy texture, even after thirty minutes in milk.
Figure 26:
Ik Wil Bolletje Brod in de Melk breakfast cereal
BUSINESS INSIGHTS
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Bread and rolls

The bread and rolls category has seen its share of NPD in the bakery and cereals market decline slightly, with a 14.6% share in 2010. Private labels accounted for 14% of products launched in 2010. The majority of claims for bread and rolls reflected an affinity for natural, organic and additive-free products.
Table 24: Top 10 claims for breads and rolls (%), 200710
Claim Private label High fiber No preservatives No trans fat Natural No artificial color Organic No artificial flavor No gluten Low fat Note: year end May 31, 2010.
2007 5.2% 9.9% 5.6% 7.0% 4.8% 2.1% 2.9% 1.5% 1.4% 3.1%
2008 4.6% 8.6% 6.0% 5.5% 5.7% 2.4% 3.3% 2.4% 2.7% 3.2%
2009 9.4% 9.4% 5.8% 5.9% 4.7% 2.5% 3.4% 1.9% 1.9% 2.5%
2010 14.0% 8.8% 7.2% 5.4% 4.7% 4.3% 3.8% 3.7% 3.5% 3.3%
Growth
BUSINESS INSIGHTS
A good example of the move towards a healthier positioning, even for mainstream products is Woolworths' sandwich bread, which was launched in Australia in 2010 to cater to the needs of health conscious consumers, and is available in four different varieties: Grains+, Hi Fibre, White and Wholemeal. Each of the varieties has been fortified with fiber to aid digestion.
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Figure 27:
Woolworths sandwich bread
BUSINESS INSIGHTS
Cakes and pastries

Share of cakes and pastries in NPD activities increased by just 0.4 percentage points since 2007, to reach 14.3% in 2010. Almost half of this new product development was in Europe. The value of the global cakes and pastries market is forecast to grow at a CAGR of 5.2% over 201914, and one of the key outputs in innovation will be the adaptation of European and US-style cakes and pastries for Asian palates..
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Table 25: Share of new cakes and pastries launches, by region, 2007 and 2010
Region Europe Asia-Pacific North America Latin America Middle East and Africa Multi regions Note: year end May 31, 2010.
2007 31.7% 38.8% 16.9% 5.4% 4.3% 2.9%
2010 48.3% 25.9% 9.4% 8.8% 4.3% 3.2%
Growth
BUSINESS INSIGHTS
The increasing prevalence of private label cakes and pastries is perhaps unsurprising given the economic downturn, with consumers looking for quality products at lower price points. Private label more than tripled its share of claims for new product launches to reach 20.6% in 2010, with Europe accounting for the highest share of all regions. Single servings had the highest decline among all claims, with a 13.4 percentage point slump since 2007, holding a share of 5.4% among all new product launches in 2010.
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Table 26: Top 20 claims for cakes and pastries (%), 200710
Claims Private label No artificial color No preservatives Single serving No artificial flavor No gluten Upscale No trans fat Natural Organic Vegetarian Microwaveable Fresh Kids Low calories Quick Double trademark Real High vitamins No wheat Note: year end May 31, 2010.
2007 5.6% 2.7% 3.8% 18.8% 2.3% 1.5% 6.3% 3.2% 4.2% 1.4% 2.1% 2.2% 3.6% 3.1% 1.5% 1.8% 1.5% 2.4% 1.4% 0.9%
2010 20.6% 5.7% 5.7% 5.4% 4.8% 4.4% 3.9% 3.8% 3.6% 3.1% 2.8% 2.5% 2.3% 2.3% 2.0% 2.0% 1.7% 1.7% 1.6% 1.6%
Growth
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Innovations in this category were largely focused on developing new and more exotic flavor combinations. As a result, manufacturers are experimenting with superfruits such as raspberries and goji berries. They are also moving away from using additives, trans fat and gluten to mine niches among highly health conscious consumers. Nestl's Toll House Ready to Bake Brownies Limited Edition Fudgy Brownies with Raspberry
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Filling was launched in the US in 2009. This product differentiates itself from the traditional flavor of brownies by incorporating a raspberry filling. Additionally, the trans-fat-free product has been fortified with vitamins A, B1 and B3, to add nutritional value.
Figure 28: Brownies
Nestl's Toll House Ready to Bake Brownie Limited Edition Fudgy
BUSINESS INSIGHTS
Crackers
The cracker categorys share of NPD across the bakery and cereals market has dipped marginally by 0.2 percentage points since 2007, to have a 9.9% share in 2010. As in other bakery and cereal categories, convenience and health have been driving product development in this category over 200710. The impact of private label has also been evident across the crackers category, with a share increase of 7.1 percentage points during 200710 to reach 9.1% in 2010. The rising consumer focus on natural and organic ingredients has led to manufacturers producing new products that are free from dairy, nuts, gluten and allergens.
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Table 27: Top 10 claims for crackers (%), 200710
Claims Private label No trans fat Natural Organic No gluten High fiber No preservatives No artificial color No artificial flavor No cholesterol Note: year end May 31, 2010.
2007 2.0% 7.2% 6.1% 4.7% 2.9% 8.6% 3.3% 2.2% 2.0% 4.8%
2010 9.1% 7.6% 6.8% 5.9% 5.7% 5.4% 5.3% 4.7% 4.0% 3.7%
Growth
BUSINESS INSIGHTS
The 'free-from' tag, comprising claims such as 'no trans fat' and 'no preservatives', constituted 31.1% of all new product launch claims in 2010, an increase of 8.9 percentage points since 2007. As consumers become more aware of specific connections between health and poor diet, 'natural' and 'free-from' claims will play a pivotal role in making purchase decisions. The addition of whole grains will help products reach consumers who are choosing less calorie-dense and more fiber-rich foods. While enhancing the nutrition quotient of the product, whole grains will also help deliver a distinct taste and provide differentiation from mainstream products. In 2010, Kashi launched its Heart to Heart Whole Grain Crackers in Original and Roasted Garlic. This product is a wholewheat cracker that contains plant sterols, whole grains and antioxidants, and is low in sodium. Plant sterols reduce cholesterol with their low sodium content, making it suitable for heart patients. Moreover, the product contains green tea, white tea and grape seed extracts, vitamins E and C and beta 87
carotene, and is free from trans-fat and saturated fat. The green tea and white tea extracts are rich in antioxidants that help lower cholesterol, further reinforcing the product's position among patients with heart problems.
Figure 29:
Kashi's Heart to Heart Whole Grain Crackers
BUSINESS INSIGHTS
Cereal bars
Cereal bars share of new product launches in 2010 remains at 2007 levels. Although small, this category is actually highly dynamic because manufacturers are able to use a wide range of ingredients and to position cereal bars along the spectrum from competing with snacks and confectionery to being a much healthier delivery mechanism for functional benefits, such as heart health or sports nutrition. The category is still relatively small in terms of value because it is yet to penetrate consumer segments such as the elderly and children.
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Table 28: Top 10 flavors for crackers (%), 200710
Flavor Chocolate Almond Apple Strawberry Apricot Cranberry Banana Cereal Blueberry Coconut
2007 7.0% 3.8% 5.1% 3.5% 2.0% 2.5% 2.2% 1.5% 1.3% 1.8%
2010 7.5% 3.8% 3.4% 3.1% 2.5% 2.5% 2.4% 2.4% 2.3% 2.0%
Growth
BUSINESS INSIGHTS
In an effort to drive demand and compete more effectively against confectionery products as a healthier alternative, cereal bar manufacturers have also looked towards flavor innovation. Chocolate was the leading flavor among all new launches over 200710, accounting for 7.5% in 2010. Fruit and nut flavors gained grounds in the cereal bars category, with 90% of the top 10 flavors portraying this trend. In line with this trend, Mareblu Naturals launched its Premium Crunch Bar in the US in 2010. This product is high in fiber and antioxidants as it contains almonds and pomegranates. It also helps in weight management by promoting the feeling of satiety for a longer period of time. Moreover, the product is natural and free from gluten, trans-fat and peanuts, allowing Mareblu Naturals to target vegans.
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Figure 30:
Mareblu Naturals' Premium Crunch Bar Strawberry Pomegranate Trail Mix
BUSINESS INSIGHTS
Morning goods
Morning goods accounted for just 3.1% of NPD in the bakery and cereals market in 2010, most of which is in Europe, where consumption of morning goods is highest. Morning goods are still far less common in Asian countries, where more traditional breakfasts, such as mntou (steamed breads) in China, predominate.
Table 29: Share of new morning goods launches (%), by region, 2007 and 2010
Region Europe North America Asia-Pacific Latin America Middle East and Africa Multi regions Note: year end May 31, 2010.
2007 32.9% 30.9% 30.3% 4.6% 0.7% 0.7%
2010 54.0% 24.7% 13.5% 4.2% 1.9% 1.9%
Growth
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Manufacturers are incorporating a wider range of healthy ingredients such as aai berries, plant sterols and pomegranates in morning goods to reposition what was previously a butter-rich, traditional product as both more exotic and in some cases, healthier. This trend was reflected by the 2007 launch of Vitalicious' VitaTops Muffin Tops in Dark Chocolate Pomegranate and Fudgy Peanut Butter Chip variants in the US. The product contains plant sterols, an ingredient that is clinically proven to reduce cholesterol, enabling Vitalicious to position it as a heart-healthy product. Both varieties are naturally sourced and contain no preservatives. In addition, the pomegranate variety serves as a source of antioxidants, while wholewheat enhances the fiber content. The product also targets consumers interested in weight management, with each serving providing just 100 calories. Furthermore, it meets the regulatory requirement of low sodium content, and is fortified with 15 vitamins and minerals, thus enhancing its nutritional value.
Figure 31:
Vitalicious' VitaTops Muffin Tops
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The acceptance of probiotic dairy products has also encouraged bakers to emulate this success in their products. In 2009, Isabella's Healthy Bakery launched a line of enriched muffins in the US in the following varieties: Activate Probiotic Raisin Bran; and Revitalize Peanut Butter and Chocolate Chip. The Activate muffins are fortified with GanedenBC30 probiotic which helps strengthen the immune system, while the peanut butter and chocolate chip variety is formulated with vitamins B6 and B12, for health conscious consumers.
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Figure 32:
Isabella's Healthy Bakery Activate Probiotic Raisin Bran enriched muffins
BUSINESS INSIGHTS
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Packaging analysis
Packaging innovation has taken a back seat to product innovation, with little change in packaging type in the past two or three years. Boxes were the most commonly used packaging type over 200710, accounting for 30.9% of all new bakery and cereal launches in 2010. After boxes, wrappers were the most common type of packaging, with a 24.3% share in 2010. Plastic was the most commonly used material for packaging bakery and cereals over 200710, driven by its cost competitiveness and its flexibility.
Table 30: Top 10 pack types for new bakery and cereal launches (%), 200710
Package types Box Wrapper Bag Packet Tray Pillow bag Stand up bag Resealable Pouch Bag-in-box
2007 33.4% 20.1% 15.0% 7.3% 4.1% 7.1% 2.3% 2.4% 0.8% 1.1%
2008 34.1% 21.7% 15.1% 6.1% 4.3% 5.8% 2.8% 1.9% 1.0% 1.0%
2009 33.4% 22.2% 17.2% 6.0% 4.5% 4.0% 2.8% 1.9% 0.7% 0.7%
2010 30.9% 24.3% 17.1% 5.5% 5.0% 3.3% 3.6% 2.3% 0.5% 0.5%
Growth
Note: year end May 31, 2010.

BUSINESS INSIGHTS
In an illustration of how the issue of sustainability represents the dominant influence on the development of new packaging, Kellogg launched its Frosted Flakes brand of cereal in a space saving box in the US in 2009. The box is designed to make more efficient use of shelf space, aid stacking and open up more merchandising options.
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Figure 33:
Kellogg's Frosted Flakes space-saving cereal box
BUSINESS INSIGHTS
The changing position of bakery and cereal products

Private label was a dominant product tag among new product introductions over 200710. Private lable than tripled its share of new product launches over the last four years, to reach a 9.5% share in 2010. In contrast, upscale product launches saw a decline of 1.9 percentage points through 200710, indicating the impact that the recession on consumer preferences. While price has been the primary motivator for the switch from branded to private labels, particularly during challenging economic environment, what is concerning for branded manufacturers is degree to which consumers may see the switch as permanent, i.e. that the price/quality compromise is acceptable. Consumer demand for healthier products has spurred the growth for additive-free, pure and minimally processed bakery and cereals. A key link is that of good health and natural ingredients: other claims, such as 'no preservatives', 'no artificial color', 'no artificial flavor' and 'organic' also make it into the top 20 claims list. 'High fiber' also accounts for a 6.4% share of all claims for new launches in 2010.
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Table 31: Top 20 claims for new bakery and cereals launches (% of products with claims), 200710
Claims Private label High fiber Natural No preservatives Organic No artificial color No gluten No trans-fat High vitamins Single serving No artificial flavor Vegetarian Kids Low fat Upscale High minerals No cholesterol Low calories No wheat High calcium Note: year end May 31, 2010.
2007 3.0% 6.7% 4.7% 3.5% 3.4% 2.3% 1.8% 4.2% 5.3% 6.1% 1.9% 2.8% 3.8% 3.3% 4.2% 2.2% 2.3% 2.1% 1.1% 2.8%
2008 3.5% 6.9% 4.8% 3.8% 4.1% 2.9% 2.5% 3.9% 5.3% 5.0% 2.2% 2.1% 3.2% 3.2% 5.1% 2.6% 2.0% 2.1% 1.2% 2.3%
2009 7.0% 6.5% 4.3% 3.6% 5.0% 3.0% 2.4% 4.4% 5.4% 3.9% 2.1% 3.0% 3.0% 2.9% 4.0% 2.6% 2.5% 2.4% 0.8% 2.3%
2010 9.5% 6.4% 5.3% 4.6% 4.5% 4.0% 4.0% 4.0% 3.9% 3.6% 3.3% 2.9% 2.4% 2.3% 2.3% 1.9% 1.8% 1.8% 1.8% 1.6%
Growth
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Flavor trends
Table 32 below outlines the top 20 flavors used in the bakery and cereals market. However, these flavors account for only 41.2% of all flavors used in new product launches in 2010, which is indicative of the diverse range of new flavors being introduced onto the market. Chocolate continues to be the most commonly used flavor: 9.6% of NPD in the bakery and cereals market in 2010 was chocolate flavored, a marginal increase of 0.5 percentage points since 2007. Fruit flavors have also risen in importance, having 11.3% of the top 20 claims for new launches in 2010. Ongoing regulatory campaigns that encourage consumers to include fruit and vegetables in their daily diet have, in part, triggered innovations in fruit flavors. These are being led by strawberry, which was the second most common flavor among all launches in 2010. The market has also seen the growth of flavor combinations such as chocolate vanilla and strawberry banana. Flavor blends will continue to growth, as manufacturers develop more variations on traditional single flavors, such as oatmeal and honey, or vanilla and honey.
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Table 32: Top 20 flavors for new product introductions (% of bakery and cereal product launches), 2007 and 2010
Flavor Chocolate Strawberry Vanilla Oat Almond Apple Honey Wheat Cookie Hazelnut Cream Raisin Cocoa Coconut Cinnamon Orange Milk chocolate Cheese Lemon Banana Note: year end May 31, 2010.
2007 9.1% 3.1% 2.5% 2.5% 1.8% 2.6% 2.0% 2.7% 0.6% 1.3% 1.7% 1.5% 1.1% 1.6% 1.5% 1.4% 1.3% 1.2% 1.4% 1.1%
2010 9.6% 2.9% 2.4% 2.3% 2.1% 1.9% 1.9% 1.7% 1.6% 1.6% 1.5% 1.5% 1.4% 1.4% 1.3% 1.3% 1.3% 1.3% 1.2% 1.2%
Growth
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Chapter 5 Key trends and product examples

Summary
Manufacturers growing focus on reducing fat, sodium and sugar in bakery and cereals has led to the development of trans-fat-free products, calorie-counted portion packs and the further fortification of baked goods and cereals with nutritious ingredients such as whole grains. Regulatory pressures in developed markets such as Europe, which require bakery and cereals manufacturers to provide sufficient evidence for functional claims, are driving the use of ingredients found in rival categories, such as dairy products and soft drinks. By using established ingredients such as prebiotics, probiotics and guarana, companies are avoiding having to conduct new and expensive research and development. Bakery and cereals manufacturers are targeting niche segments such as children, and healthcautious and ailing consumers by offering healthier alternatives such as low calorie sweeteners, superfoods and gluten-free products. Innovations in packaging are being driven by sustainability and the potential of recyclable and biodegradable materials to help limit environmental impact. The natural tag is increasingly being used for new product launches, to display product characteristics such as traditional and authentic ingredients.
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Introduction
The four major prevailing trends in the bakery and cereals market are health and wellness, private label, sustainability, and indulgence.
Health and wellness

The industry-wide trend to reduce fat, sodium and sugar in bakery and cereals has led to the development of trans-fat-free products and calorie-counted portion packs, as well as the increasing use of nutritious ingredients such as whole grains. The impact of this trend on different product ranges, including functional bakery and cereal goods, sports and energy products, and natural bakery and cereal produce, are analyzed in this section. This section also highlights how key players in the traditional bakery and cereals market have reformulated their product lines in order to meet consumer and regulatory demand for healthier foods. The main sub-trends are detailed below.
Using healthy ingredients found in other food categories

In an effort to replicate success in new product development, bakery and cereal manufacturers have used ingredients more commonly associated with other food and drinks categories. This has been particularly evident in the area of health and wellness. By adding functional benefits that have already been proven elsewhere, bakery and cereal products are able to target a wider consumer base, and specific niches at an age and lifestyle level. Probiotics Probiotics are a reasonably mature concept in dairy products. They have been shown to aid digestion, a common problem globally, and have now found their way into certain baked goods. Although the concept is currently at a nascent stage, with probiotic bakery and cereal products constituting only 0.2% of all new launches made during 200710, the use of these ingredients will help new products gain a wider audience. However, incorporating probiotics into baked goods poses several challenges as they are sensitive to heat,
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moisture and oxygen. This limits the application of probiotics to dairy or chocolate-based fillings, grain toppings and icing. Probiotic products are common in developed countries such as the US and the UK. Attune's All Natural Digestive Health Probiotic Granola Munch, launched in the US in 2010, exemplifies this trend. Available in three different flavors, this granola product has been made with whole grains to provide consumers with fiber. Each serving of the Apple Cinnamon with Yogurt Chips variety has been infused with one billion colony-forming units (CFU) of probiotics, as well as prebiotic yoghurt chips, which are suggested to help good bacteria balance the system of the body.
Figure 34:
Attune's
All
Natural
Digestive
Health
Probiotic
Granola
Munch
BUSINESS INSIGHTS
Energy bakery and cereal products Manufacturers are also incorporating ingredients that are usually found in energy drinks, such as ginseng and guarana, to target active consumer segments, such as gym and sports enthusiasts as well as more mainstream active and busy consumers. Increasingly, the shift is from harder, sports-oriented positioning to a softer lifestyle one. Some of ginseng's claimed medicinal benefits include treating depression, fatigue, nervousness and stress. Similarly, guarana reduces mental fatigue and can help improve mood and mental alertness.
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Isostar's Pulse Easy Power cereal bars were launched in Germany in 2010 and represent an attempt to capitalize on the growing demand for energy products. The product range includes coconut, chocolate and guarana; chocolate and guarana; and chocolate, hazelnut and guarana variants. The combination of chocolate with cereals and guarana also helps position the bars as indulgence products. Additionally, they have 50% less fat than conventional chocolate bars, thus allowing consumers to indulge and stay healthy. Graphics on the packaging indicate that the product is targeted at consumers who are involved in sports and other physical activities.
Figure 35:
Isostar Pulse Easy Power cereal bars
BUSINESS INSIGHTS
Targeting niche markets

Certain innovations in the bakery and cereals market have targeted niche consumers segments. Key areas include gluten-free products and alternative-sweetener-based bakery and cereals. Gluten-free products Driven by a growing perception among consumers of gluten intolerance the gluten-free foods market is expanding. Consumers who do not have gluten intolerance are also purchasing gluten-free products for digestive health, weight management and nutritional reasons. An example of a new product in this market is Racao Humana Quinoa e Amaranto, launched in Brazil in 2010 by Vitalin Alimentos Saudaveis. The product is labeled as gluten-free, due to the absence of wheat. Additionally, it has been made from ingredients such
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as quinoa, amaranth and flax flour, which are claimed to help in weight management and strengthen hair, nails and skin.
Figure 36:
Vitalin Racao Humana Quinoa e Amaranto
BUSINESS INSIGHTS
However, removing gluten poses a technological challenge, particularly in bakery and cereals goods, because it possesses unique properties that are often necessary for the retention of gas during fermentation and the preservation of moisture levels in dough. This, in itself will limit the appeal of gluten-free ingredients for both consumers and manufacturers alike. Alternative-sweetener-based bakery and cereals Through the use of natural sweeteners, the bakery and cereals industry is following soft drinks. High fructose corn syrup (HFCS), which is commonly used to sweeten bakery and cereal products, has come under severe criticism as it has a high glycemic index rating and can raise blood glucose levels, in which increases the risk of type 2 diabetes. Manufacturers are therefore substituting HFCS with natural sweeteners to reduce health concerns and accommodate the growing effort to combat obesity. These sweeteners could even help to purge the negative image of sweet baked goods. Some of the commonly used sugar substitutes are agave nectar, stevia/sucralose, and maple syrup.
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Agave nectar Agave nectar is extracted from the agave plant, and is approximately 25% sweeter than sugar. Agave nectar primarily consists of fructose and glucose, and has a lower glycemic index than table sugar. An example of a bakery product sweetened with agave nectar is GrandyOats' Goji Agave Organic Granola, launched in the US in 2010. The juice of antioxidant-rich blueberries is combined with agave nectar to impart a sweet taste to the granola. While the agave nectar helps in weight management, the fruit contained in the product, including goji berries, cranberries and raisins, further enhance the nutritional quotient of the product. In addition, the ingredients have been organically farmed, putting any consumer fears of contamination to rest. Furthermore, the product is packaged in an environment friendly non-Bisphenol-A recyclable plastic cup, enhancing its sustainability credentials. The product can be combined with milk, yogurt and ice cream, as well simply being eaten by the handful. The low preparation time for the product makes it a convenient yet healthy option for time-constrained consumers on a diet.
Figure 37:
GrandyOats Goji Agave Organic Granola
BUSINESS INSIGHTS
Stevia Stevia is another sweetening option that manufacturers are leveraging to reduce the sugar content in baked goods. While commonly used in carbonated beverages, its thermal and pH stability allows for a number of bakery applications in different baking and storage conditions. Granix Cereal Free from Alimentos Granix, launched in 2010 in the Argentinean market, is sweetened using stevia. The cereal is also free from trans fat 103
and cholesterol, and is low in sodium, making it ideal for diabetic, hypertensive and obese consumers. The product is also fortified with fiber, further enhancing its nutritional credentials.
Figure 38: Granix Cereal Free
BUSINESS INSIGHTS
Maple syrup Made from the sap of sugar maple, red maple or black maple trees, maple syrup has emerged as another glycemic-index-friendly sweetening alternative. Although this sweet syrup has a distinct flavor of its own, it complements other common bakery ingredients such as butter, brown sugar, oats and whole grains, fruit and nuts. The Gluten-free Chocolate Torte a la Cocoa Gourmet Dessert, manufactured by Nickanedit in 2009 for the US market, is made using maple syrup and honey. The sweetener combination helps keep the glycemic index low, while targeting consumers with blood sugar problems. The handmade chocolate used in the dessert is indicative of the care that has been taken in the manufacturing process. Apart from chocolate, the product also contains nuts such as almonds and cashews, making it suitable for consumers allergic to gluten, as well as those on vegan diet.
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Figure 39:
Nickanedit Gluten-free Chocolate Torte a la Cocoa Gourmet Dessert
BUSINESS INSIGHTS
Other sweeteners that are still at an early stage of development in the bakery and cereals market include grain and starch-based natural sweeteners, such as rice syrup, and lactitol, a crystalline structure that acts as sugar but is only 40% as sweet.
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Wellness ingredients
This trend is mainly driven by health-conscious consumers, who want to eat healthier food compared to traditional offerings available in the market. Wellness ingredients include: Plant sterols; Palm oil, the new alternative to hydrogenated oils; Whole grains; Vegetable and fruit-based bakery and cereal products; Superfoods.
Plant sterols One form of fortification that is still at a nascent stage is the addition of plant sterols to bakery and cereal products, to help position them at health conscious consumers. Plant sterols help to reduce cholesterol levels by reducing its absorption in the intestines. In the US, the FDA recommends a daily total intake of at least 0.8 gram of plant sterols as part of a diet low in saturated fat and cholesterol, as it may help reduce the risk of heart disease. One example of a product that includes plant sterols is Heart to Heart Whole Grain Crackers in Original and Roasted Garlic variants, manufactured by Kashi Company for the US in 2010. These crackers contain wholewheat to provide consumers with fiber and are fortified with plant sterols to reduce cholesterol. Additionally, they contain antioxidant properties derived from extracts of green and white tea, to position the product as suitable for health conscious consumers. Furthermore, the product contains vitamins E and C, beta carotene, which enhances the products heart health credentials, and is free from trans-fat and saturated fat.
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Figure 40:
Kashi's Heart to Heart Whole Grain Crackers
BUSINESS INSIGHTS
Palm oil the new alternative to hydrogenated oils The introduction of palm oil as an alternative to hydrogenated oils, which have been identified as a key element in contributing to the rising levels of obesity, is helping to spur innovation in bakery and cereals products. Palm oil is trans-fat free, odorless and tasteless, rich in antioxidants, promotes cardiovascular health, and also provides longer shelf stability. When palm oil is melted and cooled rapidly, it separates into an upper liquid component and a solids fraction below. The upper fraction is preferred by manufacturers because it contains more unsaturated fatty acids, including polyunsaturated fatty acid, which is good for the heart. Additionally, it allows manufacturers to position their products as functional products, aimed at patients that are suffering from specific diseases, as well as health conscious consumers. During 200710, 7% of all new product launches were made using palm oil. Diatgenuss Wiener Sandringe cookies, manufactured by Coppenrath Feingeback in 2010 for the Saudi Arabian market, are one example. Because it uses palm oil and contains maltitol, a sugar alcohol that has almost the same amount of sweetness as sugar but fewer calories, the product is marketed towards diabetic patients.
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Figure 41:
Coppenrath's Diatgenuss Wiener Sandringe cookies
BUSINESS INSIGHTS
However, the use of palm oil has also attracted controversy as manufacturers of the oil usually clear large sections of rainforests for their plantations, causing environmental disruption. In 2009, the World Wildlife Fund (WWF) issued a warning to all manufacturers to adopt sustainable practices after a number of forests were cleared to make way for more palm plantations in South Asia. Whole grains Whole grains were used in 3.6% of all new product launches across the bakery and cereals market during 200710. Wasa's Whole Grain Crispbread, launched in the US in 2010, is made with only natural ingredients, indicating that the product is free from preservatives and additives. Rye whole grains offer various nutrients including dietary fiber, protein and vitamin B1 and are a rich source of antioxidants. Wasa's product is also low in calories and sodium, and contains no fat, making it a suitable option for weight watchers as well.
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Figure 42:
Wasa's Whole Grain Crispbread
BUSINESS INSIGHTS
Increasingly, flour mills are going beyond their traditional wholewheat offerings to create flours for a range of specialty products and markets. For example, ConAgra Mills in Nebraska is now producing Yoshon flour for the Jewish community. Yoshon is a Hebrew term for 'old', and refers to a grain that has taken root before the second day of Passover. Another development is the introduction of whole-wheat and premium flours. In addition to acting as a substitute for white flour in baked products, wholewheat flours provide the consumer with the health benefits of whole grains. At the same time, renewed interest in artisanal bakery is driving demand for different types of flours, and particularly small scale, sustainable bakery ingredients.
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Use of fruits and superfoods Fruits and nuts have always had a role in cereals such as muesli products. The key change occurring at the moment is the range of fruits being used, the volume of fruits used in some breakfast cereals and the way in which superfoods are being integrated into bakery and cereals. As an indication, the private label product Carrefour's Musli cu Fructe, manufactured by SC Rommac Trade and launched in Romania in 2010, contains nine fruits, which are labeled as comprising 40% of the product. While muesli has nutritional benefits such as fiber and proteins, the addition of fruits to the product enhances its nutrition quotient.
Figure 43:
Carrefour's Musli cu Fructe
BUSINESS INSIGHTS
Foods that are high in phytonutrients that impart specific health benefits are known as 'superfoods'. Although this term has only recently emerged, the interest in superfoods will grow because they are rich in antioxidants. New England Naturals' Organic Granola, available in Antioxidant, Gluten-Free and Omega Hemp and Flax variants, was launched in the US in 2010. The product is sold in re-sealable pouches designed to aid convenience and to maintain freshness. In addition to using all organic ingredients, the Antioxidant variety has been infused with cranberries, goji berries and blueberries, which are all sources of nutritious ingredients such as fiber.
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Figure 44: variants
New England Naturals' Organic Granola Antioxidant and Gluten-Free
Source: Product launch Analytics
BUSINESS INSIGHTS
Since 2008, flaxseeds have increasingly been used in bakery and cereal products, as they contain alpha linolenic acid, which helps to lower cholesterol, blood triglycerides and blood pressure. Flaxseeds also serve as a good source of fiber and antioxidants. An example of the use of flaxseeds in bakery products is Doctor in the Kitchen's Flackers Flax Seed Crackers, available in Dill, Rosemary and Savory variants, launched in the US in 2010. Made from organic flaxseeds, the product is high in Omega-3 fatty acid, which helps to reduce the risk of heart disease and cholesterol. Additionally, the product is gluten free, making it suitable for consumption by consumers allergic to gluten, as well as vegans and vegetarians. Moreover, the product has a low glycemic index level and is low in sodium, thus reducing the chance of obesity and hypertension.
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Figure 45: Doctor in the Kitchen's Flax Seed Crackers, packaging and nutrition information
BUSINESS INSIGHTS
Weight management
Manufacturers have responded to consumers wanting more options to slim down or maintain their weight with a range of weight management products, which address issues such as portion control and satiety. Portion control Portion control not only allows manufacturers to target consumers that are interested in weight management, but also children, whose choices are often closely monitored by parents. FullBar diet bars are specially designed for consumers that wish to manage their weight. These all-natural ingredient products offer individual serving sizes that help consumers track their calorie intake. The product also trades on the fact that it was created by a weight-loss surgeon.
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Figure 46:
FullBar - 100% Natural Bar - Cinnamon Roll
BUSINESS INSIGHTS
Satiety products This trend is relatively new to the bakery and cereals market, and continues to make an impact. This is because most existing satiety products aim to stop consumers from indulging in bakery and cereal items between meals, rather than encouraging their consumption. Satiety products ensure a sustained release of carbohydrates into the blood, thereby prolonging the feeling of fullness. Additionally, low glycemic products lead to small fluctuations in blood glucose and insulin levels, resulting in a reduction in the risk of heart disease and diabetes, while at the same time enabling weight loss. One example of such a product is the Otsuka Soyjoy Snack Bar. This product, launched by Otsuka Pharmaceutical Company in 2010 for consumers in China and Japan, is made from powdered whole soybeans and real dried fruit. Containing a low glycemic index level, the product has been positioned as one that releases glucose more steadily and slowly into the system, thus helping in weight management.
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Figure 47:
Otsuka Soyjoy Snack Bar strawberry variant
BUSINESS INSIGHTS
Appetite suppressants are also being used in bakery and cereals products to assist with weight management. Slim 'n Fit Wheaten Bread, manufactured by Gardenia Bakeries and launched in the Philippines in 2010, contains L-Carnitine, an ingredient which is said to reduce fat mass, increase muscle mass and reduce fatigue, thus helping weight watchers maintain their fitness regimes. In addition, the product is also free from cholesterol and trans fat, and includes high levels of fiber, iron and vitamins B1, B2 and B3, to enhance its positioning as a weight management product.
Figure 48:
Gardenia's Slim 'n Fit Wheaten Bread
BUSINESS INSIGHTS
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Private label
Private label product launches grew significantly over 200710, to account for 43.9% of all new product launches in 2010 in the bakery and cereals market, compared to 11% in 2007. This growth can be attributed to two main factors: A lower price point driving sales in a challenging economic environment; and The emergence of a more effective value proposition.
The economic downturn has made many consumers switch to private label products. At the same time private label manufacturers are using higher quality ingredients and better product packaging - and in some cases are innovating before branded manufacturers. Claims made on private label bakery and cereal products in 2010 were consistent with the health, natural and sustainability trends. These trends will continue to grow, with manufacturers seeking to include exotic ingredients and develop new flavor combinations.
Figure 49:
Share of private labels in new product launches 200710 (%)
Share of private labels in new product launches (%), 200710

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2007 2008 2009 2010 11.0% 15.5% 29.6% 43.9%

BUSINESS INSIGHTS
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One good example of a health and wellness private label product is the Sans Gluten Tartines Craquantes Riz et Mais (rice and corn crispbreads) launched in France in 2010, manufactured by Casino in association with the French Association of Gluten Intolerance (AFDIAG; l'Association Franaise des Intolrants au Gluten). The product is marked as gluten-free, identifiable by the "ear of wheat logo on the package.
Figure 50:
Casino's Sans Gluten Tartines Craquantes Riz et Mais
BUSINESS INSIGHTS
Sustainability
Although green issues are not always the defining factor in a purchase decision, consumers are increasingly concerned with a companys approach towards sustainability. Two sub-trends in this category are packaging developments making product packaging greener - and provenance being more transparent about the products journey from field to store.
Packaging developments
In addition to reducing waste, environmental friendly packaging is being used as a marketing tool to make consumers feel better about what they buy. This has increased investment in the development of biodegradable plastic packages, either made from botanicals or from recyclable/recycled materials. Stringent environmental and recycling regulations imposed by governments are also influencing such packaging developments.
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Flax4Life's Chocolate Chip Granola, launched in the Canadian and US markets in 2010, is contained in a biodegradable package made from recycled material and lined with polylactic acid, a corn-based compostable product. Another such product is Pure NRG's Fresh Baked Vegan Nutrition Chia Breakfast Bar, manufactured in 2010 by Pure NRG for consumers in the US. This nutrition bar is free from preservatives, dairy, gluten, chemicals and animal products. Additionally, the product is made from 100% recycled paper, using soy-based ink and a water-based coating, which makes it biodegradable, thus catering to the sustainability trend. One of the main trends is green credentials are migrating over from niche, ethical brands to mainstream brands.
Figure 51:
Pure NRG's Fresh Baked Vegan Nutrition Chia Breakfast Bar
BUSINESS INSIGHTS
Packaging developments are not restricted to the materials used. For instance, Immaculate Baking's Dark Chocolate Biscotti Crunch with Cinnamon and Almond, launched in the US in 2010, uses eco-friendly ink on the packaging to address ethical considerations. In addition, the cookies are available in stand-up bags or a reusable tin, to cater to the convenience demands of consumers.
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Figure 52:
Immaculate Baking's Dark Chocolate Biscotti Crunch
Source: product Launch Analytics
BUSINESS INSIGHTS
Provenance
Contamination scares especially in Asia Pacific are a key reason for consumers seeking products that are made from ingredients procured from particular regions. Contamination issues led the FDA to restrict the importation of Chinese food and other products from entering into the US market in 2007. Such regulatory actions are increasing the level of interest in the origin of particular products and ingredients. Manufacturers are beginning to use the issue of provenance as a way to differentiate products, particularly from cheaper private label options. A defining factor, however, is the way in which sustainability and provenance are being used as indicators of product quality. Sustainability, by itself, is less an inherent feature than a complementary one: It enhances health or premium credentials. But many consumers are unwilling to specifically pay a price premium; And lack of sustainability is increasingly a corporate liability.
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In essence, sustainability and provenance are becoming part of a larger ecosystem, whereby being able to show a products ethical credentials and lifecycle bring in wider ideas about how healthy the product is and how exclusive it is.
Figure 53: Sustainability and provenance bringing in wider values of health and exclusivity
Biodegradable/recyclable
Authentic Good for you Exclusive Tasty Local Guilt-free Made with care
Transparent / certified
Natural/organic
Fresh
Fair
BUSINESS INSIGHTS
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Indulgence
Tiers of premiumization
The primary effects of the recession on indulgent products have been a pronounced shift towards tiering among premium products and consumers choosing to trade down to what they consider to be everyday indulgences, as opposed to eating out or conspicuous consumption. A secondary, related, effect has been that consumers have reevaluated what they consider worth paying a premium for. However, in many countries, especially in Asia Pacific, where the impact of the recession has been negligible, indulgence is still a massive driver of growth. The emerging middle classes are not only choosing to buy more indulgent products, but they are also using those products as a way of denoting their economic status.
Figure 54:
Tiers of premiumization in food and drinks

Super or ultra premium is not present in all categories. Denoted by low volumes, highest price point and highly specific product claims.
Super premium
Premium
Consists of smaller brands but may be made by a large manufacturer. Denoted by a high price point and the product image and quality contribute to the premium status.
Masstige
Consists of premium private labels, premium variants of mainstream brands and brands with accessible premium" positioning.
Mainstream
Includes standard quality private label brands. Examples include historical brand/product leaders.
Budget
Basic private label and budget brands.
BUSINESS INSIGHTS
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Key trends in indulgence

The diagram below outlines key trends in indulgent bakery and cereals products. It is worth reiterating that there is a considerable degree of difference between the application of those trends in developed and developing economies. Especially in developed economies with high levels of breakfast cereals and bread consumption, the main trends will be allowing consumers to interact and engage more during the purchasing process (feeling, choosing the product, understanding how it has been made) and when they prepare (home baking) and eat the product (challenging them with new types of products, flavors or textures).
Figure 55:
Key trends in indulgence

Ethnic and artisanal products, new flavors and formats
Discovery
Home baking
Interactivity
Personalization
Cupcakes, portioned treats, flavor combinations
Guilt-free treats
Fulfilment
Customization
Online breakfast cereals
Comfort
Traditional and luxurious products, ethically sound indulgence
BUSINESS INSIGHTS
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Underlying more indulgent bakery and cereal products are two broad positionings: Pure indulgent the product is positioned as a luxury or a treat; Less guilty indulgent the product is still a luxury, but its ingredients or manufacture make it healthier and/or more sustainable and may even enhance how exclusive it is. The idea of not only managing guilt when consumers are indulging, but refocusing it as a positive feature is a key feature of the bakery and cereals market: Weight issues > portioned products, and every day indulgence. Health concerns > promoting the flavors of ingredients such as spelt and whole grains in bakery, and exotic fruits and nuts in cereals. Concerns about the environment > local, sustainable, artisanal products with a low carbon footprint that are made with care. Insecurity > retreating to the comfort of known, traditional, or childlike products. Wanting to engage > home baking, making your own cereal.
At the same time, especially in less developed markets, indulgent bakery and cereal products are heading in a different direction: Conspicuous consumption > upscale, more luxurious products being used to indicate status, and used as gifts. Changing consumption patterns > consumers shifting to a more European/US type diet, driving growth of cakes and pastries and breakfast cereals. Innovation in flavors > Products are taking traditional forms in many cases, but with unconventional, and often local, flavors.
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Chapter 6 Conclusions
Five key trends for the future
This chapter presents the key trends that are likely to drive growth in the global bakery and cereals market over the next five years.
1 - Alternative natural sweeteners

With consumers looking to manage their weight by cutting sugar from their diets, manufacturers are emphasizing the use of alternatives to sugar and high-fructose corn syrup in their sweet baked goods. While artificial sweeteners have come under a great deal of criticism, led by their adverse health effects, the emergence of low glycemic natural sweeteners such as stevia has led bakers to increasingly incorporate them in their products. Although they are still a nascent concept in the bakery and cereals market compared to other categories such as soft drinks, the trend toward alternative natural sweeteners will gain momentum, as manufacturers look to respond to growing consumer demand. Moreover, the pH stability of these natural sweeteners and their ability to perform well in extreme temperatures further facilitates their incorporation into bakery and cereal products.
2 - Whole grains and healthier ingredients

Government initiatives educating consumers about the health benefits of whole grains and traditional wheats such as spelt have raised awareness and demand for whole grain-based products. Whole grain blends will also see greater traction as ingredients for bakery and cereals products because they help to create distinct flavor and texture profiles, while also enhancing the nutritional profile of the product. The key development is positioning healthier wheat-based products away from being just about health to promoting the flavor, texture and in some cases the heritage of new ingredients.
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3 - Indulgence in developed and developing markets

There is a clear division in terms of how the trend for indulgent bakery and cereals products is happening in developed and developing markets. In many developed markets, there is a noticeable swing towards managing guilt products that make some health claims and/or are positioned as sustainable. In developing markets, the trend for indulgent products has been much more about conspicuous consumption, and gifting is much more important.
4 Crossover with other product categories

Taking cues from other categories such as soft drinks and dairy products, manufacturers have started using a wider range of functional ingredients in bakery and cereal products. Largely used in the dairy market and known to impart digestive health benefits, probiotics and omega-3 are increasingly being incorporated in new bakery and cereals products. It is also clear that in areas such as cereal bars that manufacturers are positioning brands more directly as a healthier alternative to confectionery.
5 - Provenance
Contamination fears and consumer trust in supplies from particular regions are driving the trend for provenance. This trend is growing stronger, with consumers increasingly seeking natural and healthy food products, particularly in developed countries. Manufacturers are responding to this trend by procuring ingredients from trusted regions. This trend will increasingly support the growth of artisanal bakeries and private label products, as they procure ingredients from local sources, enabling traceability, while also enhancing consumer confidence.
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Innovation in Bakery and Cereals 2010

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Innovation in Bakery and Cereals

Emerging markets, key trends and future product innovation

Reference Code: BI00012-025 Publication Date: December 2010

About the author

Chapter 2 Market drivers

Growing sophistication of consumer demand

The increasing proportion of women in the labor force

Chapter 3 Growth opportunities in the bakery and cereals market 40

Chapter 4 Innovation and NPD in bakery and cereals

Chapter 5 Key trends and product examples

Targeting niche markets

Private label Sustainability

Packaging developments Provenance

Table 19: Table 20:

Share of products launched in North America (%), by category, 200710

Growth opportunities in bakery and cereals

Innovations and NPD in bakery and cereals

Key trends and product examples

The market defined

Table 1: Definition of bakery and cereal categories

Categories Bread and rolls Artisanal bread and rolls

Industrial bread and rolls

In-store bakery Breakfast cereals Hot cereals

Cream filled In-store bakery Plain cookies

Categories Morning goods Artisanal morning goods

Industrial morning goods

Cereal bars Sports and energy bars

Granola/muesli bars Other bars

Chapter 2 Market drivers

US wheat prices ($ per metric ton), 2005-2010

Source: International Monetary Fund

Growing sophistication of consumer demand

Premiumization in mature bakery and cereals markets

New occasions Competition with confectionery

Organic and artisanal Focus on ingredients Simple

Ethical & sustainable

With fruit and vegetables Alternative healthy formats

Made with love Ethical as safe

Number of farmers markets in the US, 1994-2010

Number of farmers markets

Source: USDA-AMS-Marketing Services Division

The growth of online grocery retail UK market

62.3% Overall grocery Online grocery

Source: Verdict Research

Source: Mymuesli website

Me & Goji custom artisanal cereal website

Marketing health the increased importance of specificity and credibility

Lack of credibility: needs further R&D

Generic soft claims, increasingly rejected as credible

Credible, but possibly vulnerable to commoditization

Trends in global middle class growth

Current/future Middle class expansion in Asia particularly China and India

338 664 181 525 32 105 1,845

Table 3: Average household size by selected countries, (number of people), 19902015

2010 2.82 2.97 2.11 5.3 2.71 2.82 2.17 2.44

Table 4: Proportion of labor force which is female (%), 1990-2015

Source: Business Insights

Chapter 3 Growth opportunities in the bakery and cereals market

Bakery and cereals market overview

Table 5: Global bakery and cereals market value ($bn), 200914

2009 Market value ($bn) Growth rate

2010 369.9 3.3%

2011 382.2 3.3%

2012 395.1 3.4%