Speciality breads and morning goods (bakery
snacks) continue to be the bright spots of an otherwise static retail bread market in the

Retail sales of bread and morning goods are
currently worth about £2.8 billion and only marginal year on year growth is envisaged in
the future. According to Key Note, the bread and morning goods market will increase by
just 3.1% between 1999 and 2003, when retail sales will reach £2.93 billion (see Table

Changing lifestyles and eating habits have
resulted in falling consumption of standard loaves of bread but have helped revive sales
of morning goods. The development of more cosmopolitan tastes by consumers, inspired by
international travel, and a greater willingness to try new products have fuelled growing
sales of ethnic and speciality breads. However, the growth in out of home eating,
particularly the sandwiches sector, has meant a growing demand for sliced bread from the
food service industry to counteract the decline in the retail market.

Growth Sectors

Morning goods, which derive their name from
the fact that they were traditionally sold in the morning and consumed the same day of
baking, have benefited from the consumer trend towards snacking and eating on the move.
Advances in ingredients, baking and packaging technology have extended the shelf life of
these products, and indeed, ‘bakery snacks’ is now probably a more appropriate
description for this sector. Retail sales of morning goods are expected to reach about
£915 million in 1999, with rolls and baps generating the majority of sales, and bagels
are exhibiting very strong growth.

Ethnic and speciality breads such as naan,
pitta, focaccia, ciabatta and baguettes, continue to increase in popularity and retail
sales will exceed £600 million this year.

Intense Competition

The UK bread and morning goods market is
intensely competitive and highly concentrated. The UK’s two largest plant bakeries –
Allied Bakeries (part of Associated British Foods) and British Bakeries (Tomkins) –
dominate the bread market, accounting for over half of sales by both value and volume (see
Table Two). Over a dozen other plant bakeries, including Warburtons and Kears Group (owned
by Greencore), are responsible for about 21% of bread sales by value and 26% by volume.
The balance is from in-store bakeries (18% by value and 17% by volume) and master bakers
which hold 9% by value but just 3% in volume terms.

Margin Squeeze

Although bread prices have risen in recent
months, the market has been characterised by severe price competition over the past number
of years, putting severe pressure on manufacturers’ margins. Price discounting has
also undermined moves by plant bakers to establish less price sensitive premium and super
premium bread sectors. However, the introduction of branded white sliced premium and super
premium loaves has helped to loosen the hold of retailer own labels on the wrapped bread
sales, which has fallen from a market share of 60% in the mid-1990s to just over 50%

The Rise of In-Store Bakeries

Another notable characteristic of the bread
and morning goods market has been the sharp rise in the number of in-store bakeries,
chiefly at the expense of traditional craft bakers but also plant bakers. Competition
between these various sectors has resulted in aggressive price competition which explains
the poor performance of the overall market in value terms.

Initially introduced into large
supermarkets, in-store bakeries are now becoming commonplace in smaller retail outlets and
garage forecourts. Reacting to this threat, some plant bakers have started to make
products for in-store bakeries. Allied Bakeries, which has been supplying bake-off good to
the major multiples since 1996 has now branched into the convenience sector. Meanwhile,
Tomkins (British Bakeries) has strengthened its part-baked bread and rolls business with
the acquisition of Le Pain Croustillant and Martine Specialites during 1998.

Irish food and agribusiness group IAWS has
also established a significant presence in the UK part-baked speciality bread market
through its Cuisine de France subsidiary which has since been strengthened by the £35
million acquisition of Delice de France during the summer.

Table One: Forecast Retail Sales* of Bread
and Morning Goods, 1999-2003

Sector 1999 2000 2001 2002 2003
White bread £896m £900m £903m £908m £914m
Brown and
wholemeal bread
£405m £393m £389m £388m £387m
Rolls and morning
£915m £943m £960m £970m £978m
£624m £637m £643m £646m £650m
Total £2,840m £2,873m £2,895m £2,912m £2,929m
1.4% 1.2% 0.8% 0.6% 0.6%
Key Note  * at current prices

Table Two: UK Bread Market by Value and
Volume, 1998

Manufacturer Value
Allied Bakeries 26% 28%
British Bakeries 26% 26%
Other large plant
21% 26%
In-store bakeries 18% 17%
Master bakers 9% 3%
Total 100% 100%
Key Note