KANSAS CITY, MO — While demand for baked goods has remained healthy during supply chain challenges exacerbated by the pandemic, many commercial bakeries are struggling to keep up. The playing field is still changing, and even as the market starts to stabilize, things are nowhere near “normal” again. It’s still critical to understand the reciprocal nature between shifts in manufacturing operations and end-user behavior.
One of the main pain points of this brave new world? Price changes.
As consumers maintain demand while bakers forge through their challenges, price elasticity comes into question.
“Are food manufacturers being forced to, in order to maintain their volume, reduce their price?” said Robert Berg, founding member of Iridescent Data. “Or do they have to sufficiently increase prices to capture the same revenue profit?”
Clearly this isn’t an impact of one ingredient or factor in the process; bakers are struggling with every aspect of their manufacturing, and it’s going to take significant research to understand the elasticity of baked goods as a result of this end-to-end disruption.
“It’s my expectation that bakers are probably finding different ways to cut costs in different areas,” Berg suggested. “They’re probably looking at lower-cost options in areas like packaging. The just-in-time manufacturers are ordering more and keeping higher inventories throughout the supply chain, which is also impacting the situation.”
When IRI polled consumers about how they planned to respond to increased prices, a third said they don’t really plan to do anything, and about 40% said they’ll look for sales and deals. But, according to Parker, almost no one said they planned to abandon the purchase — or the brand — altogether.
“Part of it is people just knowing and expecting [increased prices],” said Jonna Parker, team lead for IRI Fresh. “People are concerned, but I think bakeries should price fairly and think about how consumers are trading out within categories like breakfast or bread. They also need to consider that interplay of different products or sizes and variety, because that’s more likely where the consumer response will be rather than fully leaving baked goods in general.”
“I think bakeries should price fairly and think about how consumers are trading out within categories like breakfast or bread. They also need to consider that interplay of different products or sizes and variety, because that’s more likely where the consumer response will be rather than fully leaving baked goods in general.” —Jonna Parker | team lead | IRI Fresh
It’s not just price, though. Scarcity is a challenge that baking companies had to immediately address during the hoarding crisis at the onset of the pandemic. While consumers have not again reached that panic level with baked goods, there’s still a decent amount of stocking up occurring.
According to IRI proprietary supply data, the overall fast-moving consumer goods market is performing quite well with retailers and manufacturers able to sufficiently adapt to the disruption. Bakery, however, while showing average performance on IRI’S COVID-19 Dashboard, does appear to be slightly lower than total CPG and total edibles on the Supply Index. The in-stock percentage is trending downward slightly in recent weeks as well.
Those numbers aren’t cause for alarm, considering that shortages — when they do happen — are nowhere near what they were two years ago.
“For the most part, when consumers look for what they want, around 60 percent are finding it,” Parker said. “And within any category, less than 10 percent of people are saying, ‘I went to the store, and I didn’t see what I wanted’ … it isn’t as top of mind for consumers today.”
Over the past 18 to 24 months, consumers have also learned new shopping habits to accommodate when their favorite products aren’t available. When it comes to essential items, Parker noted, about a third of shoppers will visit another store if the item they need is out of stock, and a third will buy a different variety.
“Then there’s another strategy that, I think, is becoming more commonplace, and that is people will go back on another trip,” Parker observed. “That definitely didn’t happen early in the pandemic, but it’s happening more now. There is some changing of stores, but there’s also more variety seeking or just delaying the purchase.”
Despite these disruptions, commercial bakeries can become empowered through the data on consumer behavior. It’s the first step to making sure a brand’s products remain front and center for consumers, even if that’s on a second or third trip to the grocery store.
This story has been adapted from the February | Q1 2022 issue of Commercial Baking. Read the full story in the digital edition.
