ALEXANDRIA, VA — To truly understand how pandemic trends have impacted commercial baking, it’s important to reflect on how they started.
During the American Bakers Association (ABA)’s NextGen Leadership Forum, held April 26-28, JP Frossard, VP, consumer foods analyst for Rabobank, mapped out how consumer trends have evolved since 2019, how they’ve impacted the baking industry — and what to consider as we move through the post-pandemic stage.
“Unprecedented” became the new it-word, and even the best analysts had a hard time predicting what would happen next.
“Consumer trends were all over the place during the pandemic,” Frossard said. “In many ways, we got it very wrong.”
A look at a textbook from any business school could spur a prediction of recession, and analysts forecasted that consumers would spend less. They’d also likely rely on bargains through things like discounts and private label. But the reality looked quite different.
For starters, unemployment rates had a double-digit increase, but total disposable discretionary income only dropped by 1%. People adjusting to the work-from-home lifestyle during isolation still had income … and nowhere to spend it except on home projects, namely in the kitchen.
“People became picky about the ingredients they cooked and baked with,” Frossard said. “Things were flying off the shelves, especially with recognized brands. Never underestimate the power of a bored consumer with discretionary income.”
He described the COVID period as V-shaped, with a sharp economic recovery contributing to the labor shortage.
“Today, we are back to similar [pre-pandemic] strategies of adding value and providing what the consumer wants,” he said. “But we have to adjust to the human element of the value proposition. Because nothing is like it used to be.”
One thing hasn’t changed: the need for differentiation. To Frossard, that’s achieved through adding value. That means incentivizing consumers to buy more, pay more or purchase something different. While the need for differentiation never waivered, consumer motivation has greatly evolved over the past three years.
For many brands, differentiation has historically meant top-line growth by more — but less complex — products in the portfolio.
“We were focused more increasing brands for adding value,” Frossard said. “We weren’t talking about complexity.”
But all that changed in 2020 when home-bound consumers created more grey areas between indulgence and health-and-wellness, creating a boom for CPG companies, with the most efficient operations winning the day.
“Never underestimate the power of a bored consumer with discretionary income.” —JP Frossard | VP, consumer foods analyst | Rabobank
By 2021, the relationship between COVID cases and cautious behavior was inverse.
“Consumers were over it,” Frossard said. “Many were vaccinated and reactivating a lot of their habits. It was a ‘summer of freedom.’”
But “back in business” does not mean “business as usual.” And that brings some big implications for the baking industry.
For example, those blurred lines between treats and healthy eating gave way to a movement for incorporating occasional indulgences into a healthy lifestyle. Consumers have proudly transformed how they view snacks and baked goods as part of their diets, and producers are creating foods that fit those mindsets around eating.
“People understand that they can have a responsible relationship with sweet goods or, really, any type of baked goods,” Frossard said.
Looking forward, he said that marrying health and indulgence is one major key to success.
“You can be an indulgent company and also in the nutritional category,” Frossard suggested. “That’s where you need to explore for innovation.”
How consumers are purchasing has evolved as well. Rabobank partnered with Earnest Research to track credit card spending as well as foot traffic, and the data reveals how purchasing habits morphed from brick-and-mortar to online.
Today, the purchasing landscape looks more like an omnichannel hybrid. While e-commerce experienced explosive growth since 2020, around Q4 2021, consumers started shopping in-person again (around the same time that COVID cases began surging).
“That return to the store was huge, especially for the in-store bakery, where the shopping experience is completely different,” Frossard said.
High-end natural outlets experienced a loss in foot traffic but also gained some of the biggest average basket rings, signaling fewer trips with more items.
“At the same time, discounters have been gaining ground throughout the pandemic,” he noted. “That’s important to understanding where the consumer is going now, not only because of inflation but because these chains are expanding and opening more stores.”
While online might currently be flat, the use is still elevated, and that means e-commerce is here to stay in addition to the in-person trips.
“Although it’s slightly lower today, there’s still a healthy frequency,” Frossard explained.
Although digital shopping is surging, he also noted that only one in three purchases has a baked good included. This indicates big opportunities for baking companies to promote their products online.
“Consumers are eating these products,” he said. “They’re just not buying them online for some reason, and we need to understand why.”
The most important thing to consider is that terms like “online” and “e-commerce” don’t mean just one thing. There are many different channels, and countless ways that consumers can mix-and-match them. That includes 15-minute delivery — a tactic that works well for warm cookies — and buying fresh bread from the in-store bakery, all while adding a CPG snack with overnight shipping to their Amazon cart.
Consumers may be focused on the same things they were three years ago, but not in the same way. Differentiation is a trickier proposition for baking companies, and more does not necessarily mean better. Then, differentiation was meant to build a bigger portfolio with less complexity. Now, complexity is the status quo, whether it’s what consumers are eating or how they’re getting it.
“We have a new environment,” Frossard said. “Consumers want the same things, but they have a different way to get there than before.”
