Cost-sensitive and inflation-wary consumers in Germany are bound to increasingly head to the supermarket and discounters for their bread for baked goods in 2023, as they search for a cheaper weekly shopping basket overall. However, the country continues to favor traditional bread. Health awareness and consumers’ unwavering appreciation for local and regional products are bakeries’ best bet.
Before we talk about 2023, it is necessary to summarise the events and consequences of 2022 on consumers, the food industry and, in particular, bakeries and bakers. 2022 was the third crisis year in a row and brought a heap of problems and challenges for both consumers and producers.
Where we are, after 2022
In Germany, the inflation rate in 2022 was 6.9%, which was just very recently revised downwards. However, the level alone shows how extreme and also unfamiliar inflation is for consumers in Germany, especially since younger generations have often never had to worry about inflation itself.
Similar to many other countries, food was the category with the biggest price increases in 2022, along with energy, with increases averaging around 20%. The big reasons for this are well known, so only a brief overview is included here. Due to Russia’s war of aggression on Ukraine and its consequences, energy in virtually all its forms rose sharply in price, which has an impact on all industries, but of course the greater the share of energy costs in the overall price calculation, the greater the increase.
Supply chains, some of which were already under great strain during the pandemic, became less reliable and transport costs increased immensely. In addition, some materials and ingredients became scarce, such as edible oil or cereals, especially those ingredients that had been exported in large quantities from Russia or Ukraine to Europe in the past.
Roughly speaking, the production of baked goods was disproportionately affected by all three factors and in particular the much higher prices for basic ingredients, such as various types of flour. Also, the high share in the price calculation for energy, for example in a bakery for its ovens, ultimately led to strongly increasing consumer prices for baked goods, especially bread, in Germany, although often the production costs were not even passed on 1 to 1. These increased consumer prices come up against consumers who are becoming increasingly price-sensitive as they feel their own loss of purchasing power more and more, which is also one of the Top 10 Global Consumer Trends we published.
Although prices, in general, are likely to rise less in 2023 and energy prices are falling again slightly, at least for the time being, this is, of course, not an all-clear for the industry, as high prices in manufacturing as well as for consumers will continue to have a major impact on the consumption of baked goods in 2023.
Consumers in 2023
Despite this, we at Euromonitor forecast only a 3.5% decline in retail volume in Germany in 2023 and there are several arguments for this. In general, it is important to understand that baked goods and food are essential to life, so a complete abandonment is impossible, but really only a switch for the consumer comes into question. This can either lead to other product categories – for example, in 2022, some consumers switched from sunflower oil to other oils, fat, or margarine/butter, but this is only possible to a limited extent because many types of food have increased in price. And especially with bread, there are hardly any alternative products that could be eaten instead at breakfast or dinner.
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Or, consumers try to save on quality, for example from products in the mid-price segment to private label or in the case of baked goods instead of bread fresh from the baker to that from the supermarket/discounter, which is and will definitely be a phenomenon in 2023. Real abandonment, on the other hand, is likely to hit other industries that are more of a luxury than a necessity, such as the restaurant industry or tourism. Nevertheless, a switch by customers from local bakeries to often cheaper baked goods in supermarkets is of course a problem for the bakeries themselves.
Another argument for the fact that the consumption of baked goods is not declining strongly is that consumers are and will become increasingly price-sensitive, but they tend to inform themselves relatively little about the exact prices of food. To put it bluntly, consumers naturally notice that they have spent more money at the end of the month or at the end of a regular week’s grocery shopping. However, they only notice to a limited extent what proportion of this is accounted for by the individual grocery. This is usually different for more expensive products.
Furthermore, it should be mentioned that different groups of consumers are affected to different degrees. While many Germans are hardly able to build up financial reserves, on the one hand, and are now trying to save a lot from overall higher prices and accordingly also from food, Germans of the upper middle class or high earners are, on the other hand, at least so far, not necessarily dependent on reducing consumption.
Despite the price increases in bread and other baked goods and, for sure, a difficult time for bakers and baked good producers, Germany remains a country with a high consumption of such traditional products, as a classic breakfast contains bread or buns in some form for many Germans. And despite increasing price sensitivity and tension in the market, there are trends and developments for bakers and producers of baked goods that offer opportunities.
The long-term trend of increasing health awareness as well as tendencies to appreciate local or regional production, will continue gaining importance among consumers in Germany. German consumers have a strong attachment to traditional baked goods, such as bread, pretzels, and pastries, and they usually appreciate products that are made using traditional recipes and methods. Adding value for the consumer by using either local ingredients or more healthy ones, will attract certain consumer groups that bakeries can focus and specialize on and thereby justify higher prices. So consumers are willing to pay more.
Due to this increasing health consciousness of many Germans, there are also various innovations in baked goods such as vegan and high-protein products as well as superfood ingredients. There are even bakeries that offer insects as ingredients in some traditional forms of baked goods, as a source of protein. This is obviously very niche, at the moment, but demonstrates that it is extremely important to know one’s own customers and not to close oneself off to new ingredients and trends, especially in such uncertain times. Moreover, Germans are becoming more aware of the ingredients in baked goods. While white bread is often criticized for its low nutritional value, consumers are mainly concerned about its high sugar, fat and salt content.
And finally, despite the current crisis, a convenience trend has been observed in Germany for years, with no end in sight. This is reflected in the fact that Germans want to spend less and less time on cooking and baking, despite a short-lived trend during the pandemic. The purchase of sandwiches on the way to work or on the road will hardly decrease and at the same time, the trend of people in the home office should be observed as a new possible buyer group with its own demands.
In conclusion, traditional bakeries cannot compete with the baked goods from the discounters in terms of price. But, they simply have to emphasize their own qualities even more in order to attract customers for whom these are important.
