Soaring costs turn bakeries to toast

Research firm Key Note says these costs are being reflected in higher retail prices. “The rising cost of bread may be detracting consumers from buying it as much, particularly in terms of volume, with many opting for other items as a replacement to bread,”​ it warns.

“Soaring commodity prices and energy costs have also negatively impacting the market, as there are only so many costs that manufacturers can feasibly absorb before they must be passed on to the consumer.”​

Export demand drives wheat prices​

Wheat is the UK’s most widely grown arable crop and 90% of it is consumed domestically, and the nation's self-sufficiency in wheat and therefore flour gives some insulation from global price rises,​said Key Note. However, “Russia’s recent export ban on wheat has forced other countries to look elsewhere for wheat crops, with the UK being a prime location to pick up such trade." ​

“As a result, UK exports increased by 50% in October 2010 alone, making it more lucrative to export the crop rather than keep it for domestic use. This caused some uncertainty in the market and instigated further price increases as result, for both domestically-grown wheat and crops imported from overseas.”​

Key Note cites government statistics that count 1,885 bread, fresh pastry and cake manufacturers operating in 2010, compared to 1,910 the previous year. “The drop is mainly down to a reduction in the number of small- to medium-sized enterprises in operation, which have been unable to cope with the challenging economic conditions,”​ the report said.

Consolidation within the industry means that 95 of those businesses have a turnover of more than £5 million, with the majority achieving a turnover of between £100,000 and £249,000.

Bread ‘not keeping pace with spending’​

The report said the sector had been hit fairly hard by the recession, and had not kept pace with general increases in household spending on food.

Despite this, consumer expenditure on bread and bakery products "increased sharply”​ from 2006 to 2010, growing by 9% to £4.15bn in 2009. In 2010, Key Note predicts that consumer expenditure will rise by a further 6% to £4.4 billion.

Speciality breads, which typically use more expensive ingredients and realise higher retail prices, have helped to fuel sales growth, although their share of the market has fallen slightly since the peak of 30.6% in 2008.