The demand for consumer goods is generally positively related to real disposable income. This, however, is not true of staple products such as bread. IBISWorld presents an industry report on bread manufacturing in Australia.
Higher incomes facilitate the purchase of higher quality, more nutritious foodstuffs, and as real disposable income has increased in Australia, a tendency to purchase more protein and less carbohydrates has emerged.
In recent years, however, purchasing patterns have once again seen change as consumers have been prepared to purchase more expensive specialist breads. Changing lifestyles have also had an important impact on the demand for the products of the bread industry. In many cases the main meal of the day is no longer the evening meal, and consequently sandwich lunches have been replaced in popularity with hot meals eaten out.
The growth in home freezer usage affected bread consumption by reducing wastage and enabling shoppers to take advantage of supermarket specials, and this has depressed the average value of sales.
Consumers are increasingly concerned about the calorific content of bread and bread products. However, increasing awareness of the links between certain foods and diseases such as cancer and heart disease have resulted in much greater awareness of the importance of high-fibre diets. This has encouraged the consumption of wholemeal and mixed grain breads.
The demand for a more varied range of bread and bread products has also been reinforced by the changing ethnic structure of the Australian population. This has had its greatest impact on non-factory bread production.
Taking more dough
During 2007-08 the Australian bread manufacturing industry recorded a revenue total of $2,020.3 million, an increase of 4.5% from the previous year. The industry, which comprises of around 135 establishments, employed 11,524 people who gained $539.7 million in wages and salaries.
Australia is the largest single market for locally manufactured bread, and Australians have traditionally been large consumers of bread goods. It is estimated that at least 90.0% of all households purchase bread, although consumption appears to be declining over the long term. In 1948-49, each Australian consumed an average of 64 kg of bread annually, but by 1998-99 per capita consumption had fallen to 54 kg per annum. In the future, rising competition from other food sectors may help to continue this ongoing decline.
Historically, Australian bread manufacturers have focused heavily on supplying the domestic market. The relatively short life of bread, its bulkiness and low per-unit value, continue to make exporting unattractive. As a result, the industry’s participation in the international market is minor.
In the twelve months to June 2008, Australian bread exports are estimated to be valued at $13.1 million and account for just 0.6% of total industry turnover, with New South Wales being the nation’s top bread-exporting state.
The industry is yet to fully take advantage of Australia’s reputation as a safe producer of food. Meanwhile, the technologically advanced nature of production in the industry add to the international competitiveness of Australian bread products.
New Zealand was the most dominant country that Australia exported to in 2006-07, accounting for 32.5% of the export market, followed by French Polynesia, which accounted for 30.7% of exports.
Think outside the bread-box
Traditionally, price has been the most important basis of competition since bread products have long been regarded as staple items and thus have not generated much interest from consumers. Today, price continues to be a major basis of competition, although greater marketing efforts by the industry have increased the importance of non-price competition.
Recent years have seen industry participants invest considerable resources in branding their products within particular segments. High-profile brands also often extend the life-cycle of products, resulting in higher sales.
Manufacturers are developing innovative new products, incorporating natural ingredients such as nuts, raisins, pumpkin, barley and vegetables, and introducing bread with functional qualities enriched with fibre and vitamins.
Outside the industry, bread manufacturers encounter competition from bakeries and other hot bread shops. The spread of franchises like Brumbies and Bakers Delight is weakening the competitive advantage of manufacturers. Today, consumers can expect standardised products from these outlets, much like factory-produced bread. However, baking franchises have also successfully tapped into increasing demands by consumers for high-quality, freshly baked bread.
Factory-bread makers also face significant competition from supermarket bakeries.
The best in sliced bread
The introduction of new technology and the adoption of greater automation are inevitably reducing the role of labour in the production process. This is especially true in factory baking where, in the last decade, high speed production lines have dramatically increased throughput, allowing manufacturers to significantly raise production without requiring corresponding increases in employment.
Most Australian bread makers lack the critical mass necessary to conduct basic research in food science. This is especially evident in the development of new functional bread products. In many cases, limited funds make the commercialisation of high-technology products in Australia difficult.
Whilst local product innovation is low, the industry has invested large sums in production-technology, especially automation. In the typical large-scale bakery or factory, there is now little manual labour directly involved in production. After the dough is mixed in large steel vats, it is sheeted and moulded by machine, then left to prove in a heated chamber before proceeding on a conveyor belt to the ovens where it is baked. After being taken from the oven, the bread is extracted from the tin by suction and is then sent off by conveyor belt once again, to the cooling cabinets. Fully mechanised slicing and wrapping machines have also been introduced. Finally, the bread is dropped into plastic trays ready for delivery.
The development of instant doughs and pre-mixes by upstream flour millers has had a positive impact on bread manufacturers. Both products have helped speed up production and reduce the degree of skill required of the baker. This has made small bakeries more competitive with major players in the last few years.
New firms wishing to compete against large-scale bread producers face many hurdles. The industry’s recent history suggests that small bread makers are most likely to prosper in the competitive environment by introducing sufficiently specialised products.
Loking ahead
One of the biggest threats facing the profitability of the industry is the ongoing consolidation of the retail food client base. The continuing reduction in the number of retailer buyers and the growth of giant food supermarket chains and use of category management practices is weakening the negotiating strength of the industry’s players in supply contracts.
Buying patterns are also changing as more large retailers elect to purchase from companies that can meet their nationwide, rather than just regional needs. Greater buying power and negotiating strength by the industry’s key client base is also resulting in increasing complex demands that can add to production and packaging costs.
Traditionally, most Australian consumers have based purchasing decisions on taste, quality, packaging, price and use-by-dates. However, the increasing sophistication of consumers in the past five years has driven greater product development than recent decades.
Leading industry players GWF and Burns Philp have been the first to take advantage of the developing functional breads market. GWF’s Tip Top Up range has captured 12% of the total bread market since its release in 2002. Meanwhile, Burns Philp’s Wonder White enriched bread has been the top selling bread in most Australian states.
The trend towards greater product diversity is expected to continue as the industry faces an increasingly dynamic and evolving marketplace. In particular, greater developments are expected in the area of organic food. This trend has already begun to take off in the U.K. and many European countries where consumers can now access a wide variety of organic products in major supermarket chains. However, the success of organic bread in the Australian market will depend on the availability of organically produced inputs such as milk powder and butter.
One of the biggest threats currently facing the Bread Manufacturing industry is the rising popularity of low-carbohydrate diets. The U.S. bread industry has already recorded lower sales due to the media publicity surrounding popular fads such as the Atkins Diet.
Anecdotal evidence suggests that the Australian industry is likely to face a similar situation as the media continues to focus on the correlation between bread consumption and weight promoted by diets, and Australian bread manufacturers will need to work hard to develop a cohesive industry strategy to combat falling sales caused by this trend.
Lena Zak is the editor of FOOD Magazine.