“In the future, the winning manufacturers will be those capable of decreasing their level of exposure to a specific channel , their degree of product specialisation, and who will have the ability to switch from one technology to another.”

Anne Fremaux Bakery Director Gira

The COVID-19 crisis, the lockdown periods and all the measures taken to limit the spread of the virus have led to considerable disruption and fear, touching every aspect of business and social life.

Since 1 ½ year the food industries have had to face challenges of an unimaginable scale. Many lessons have been learned from this Pandemic, new challenges were shared, and it has been fascinating to see how the global industry and markets have reacted. At a professional level we have faced similar challenges, and the industry had to go through a series of steps: Breakdown => Handling the direct impact => Rebuilding in a fragile consumer market.

In this crisis analysis Gira has put the first markers down, looked for the early lessons and built a base of insight for us all to move forward from. It is a challenge to be positive in these extraordinary circumstances. Uncertainty over a wave of the pandemic, the timing of foodservice recovery and concern over the economic impact are all reducing demand. We thought we had returned to a certain “New Normal” in summer 2020, but the third wave came, and even if the vaccination campaigns are well advanced in many European countries there are still big uncertainties about the spreading of new variants.

What has been the impact of this crisis for the bakery industry, and what will be the consequences in the coming months? The objective of this Gira report « COVID-19 CRISIS - IMPACT ON EUROPEAN BAKERY MARKETS » published in March 2021 was to provide clear insight into the impact of the global COVID-19 crisis on the European bakery markets. This report lays out, at European level and for the 14 main European countries: • The evolving situation in Europe: the impact of COVID-19 crisis at each level of the bakery chain: • Consumer purchasing behaviour: from fresh to packaged bakery products, from indulgence to staple products, coming back to home-baking • Shopping habit changes and consequences for the different channels • Foodservice downturn impact on bakery products consumption • Switch in supply method strategies for fresh bakery products • And the consequences of all these changes for the fresh and bake-off bakery markets, at each level of the bakery chain • Implications for the future: given a recovery process and the possible scenarios for the evolution of the pandemic, what will the consequences be for fresh, packaged and bake-off bakery products’ consumption, distribution and production.

Overall, there has been a -8% drop in European bakery consumption in 2020. Packaged products have experienced over 5% growth in 2020 compared to 2019, while the consumption of fresh products has decreased by -13%. • Packaged ambient products are therefore the big winners of the pandemic, especially packaged bread, which has seen double digit growth during the first lockdown. Protective packaging has given consumers great reassurance. In many countries, packaged bakery products have also been favoured by supermarkets, as fresh bakery counter staff have often been assigned to other departments and many in-store laboratories have closed, at least temporarily. • Packaged to bake at home products have also benefited from the renewed interest to home-baking. • Bread has been less affected than sweet or savoury products. Gira estimates that in 2021 consumption will not come back yet to 2019 level, even if consumption may increase; and future 2025 trends are linked with the recovery of the foodservice sector.

According to the last Gira 2019 study on European fresh and bake-off bakery markets, towards 2023 the foodservice sectors were expected to be the winners in fresh bakery distribution, especially commercial foodservice and bakery chains. But those channels have suffered the most from lockdown, with a drop down to -38% in fresh bakery product distribution for commercial foodservice, in 2020. The social foodservice sector (-27%) and bakery chains (-18%) were also largely affected in 2020.

Retail stores also saw their sales of fresh bakery products falling over 2020, but less dramatically than foodservice sectors: modern retailers were favoured as consumer preferred one-stop shopping and small retail stores have benefited from consumers’ preference of neighbourhood outlets.

At European level there has been a drop of -7% in fresh bakery retail sales in 2020, and down to -28% for the foodservice sectors. During 2021, under the base case scenario the foodservice sector is expected to gradually recover back to 2019 levels thanks to progressive reopening's. The situation is expected to be almost close to normal by 4Q2021 and should recover in 2022.

The COVID-19 crisis will have however longer-term impact in fresh bakery product distribution: • The development of click & collect, on-line shopping and home deliveries will continue in the near future, including for fresh bakery products, which until then had been little concerned by digitalisation. • The potential permanent closure of many restaurants, the continuation of remote working and the recovery of travels will affect the recovery of the foodservice sectors.

Fresh bakery product supply strategies have been reconsidered

The COVID-19 crisis has also had an impact on fresh bakery product supply strategies. During lockdown, the use of bake-off increased to the detriment of scratch baking on the premises, which faced problems of labour shortages and new sanitary constraints. Fresh bakery products deliveries (for resale) have decreased during lockdown, due to the difficulties of ensuring daily deliveries. However, in some countries new opportunities have emerged for industrial fresh products. At a European level, Gira’s calculations for 2020 indicate a 15% decrease in artisanal fresh bakery product production (artisan bakers, modern retailers’ in-store bakeries and restaurants), whereas industrial production (packaged, fresh and bake-off products) has only seen a 5% reduction.

According to Gira interviews, on the one hand, many channels are determined to resume with their initial pre-crisis supply methods with the “new normal” situation. On the other hand, channels who started using bake-off during the crisis are likely to continue to use those types of products, at least for part of their supplies.

While retailers and caterers have expressed their gratitude towards suppliers who have managed to maintain deliveries during lockdown despite difficult conditions, some additional requirements could however remain: increased demand for more regional supplies, greater transparency and monitoring of the supply chain, more packaging for fresh products to avoid contamination. Bake-off manufacturers will now have to take these requirements into account.

European bake-off manufacturers were not spared by the pandemic. Bake-off is the most promising sector (growing by more than + 3% per year before the pandemic) in a steady European bakery market, but it has also seen a drop in volumes in 2020. Companies most affected were those manufacturers specializing in foodservice channels or in sweet or savoury products.

In the future, the winning manufacturers will be those capable of decreasing their level of exposure to a specific channel (e.g. foodservice), their degree of product specialisation, and who will have the ability to switch from one technology to another (fresh vs. packaged, or different bake-off technologies).