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Drivers of performance: market analysis of European bakery industry

Jeroen Lustig published on August 25, 2021

The European bakery sector is a mature market, which is consolidating. The relationship between growth and margin decline indicates that consumption in Western Europe has almost reached its peak. Hence, the price of raw materials dictates a large part of the market, which puts gross margins under pressure. The total trend of the last 5 years is a decline in margins in every part of the value chain. How does the bakery industry gear up to meet these challenges? Read more about the latest developments and the drivers of growth in our trend report.

A-INSIGHTS has developed a unique company classification system, which captures detailed information on the activities of each company in the Agri Food industry. This allows us to perform multiple cross-section analyses that uncover driving dynamics in the European bakery industry.

Key insights into the European bakery sector

With gross margins under pressure in a saturated market, the challenge for the bakery industry is to realize growth in profitable segments and to restore the dynamic into an upward spiral. Based on our in-depth analysis of publicly available data from 2016-2020, we identified key insights into trends and developments:

Margins under pressure - Polish producers are on the rise 

The European bakery sector is a mature market, characterized by the relationship between limited revenue growth capacity and margin decline. The average EBIT margin of the industry as a whole is 4.3% in 2019 and 3.8% in 2020. Furthermore, the EBIT is decreasing because of the decline in gross margin. 

However, strong growth can be found in Poland, the UK and the Netherlands. With net sales growth in the industry averaging at 4.5% per year in 2016-2019, Polish companies stand out with 12.3% per year, followed at distance by the UK (8.1% per year) and the Dutch (8.0% per year). Emerging local parties and larger international players seem to benefit from the low costs in Poland, establishing factories throughout the country and exporting from there.

A shift towards healthier products - but not so healthy margins

It’s commonly known that the focus of EU consumers is shifting towards healthier alternatives. Growth rates back up the trend towards healthier diets in Europe, profit-wise it’s the other way around: in 2016-2019, Bread outperforms the market average with a 7.4% CAGR, versus 4.1% and 2.6% for Pastry and Cookies & Cake. Bread however has the lowest EBIT margins at 4.3% on average, versus 6.9% and 5.0% for Pastries and Cookies & Cake.

Automation trend most visible at very large companies

Consolidation and automation improve company performance: very large companies have above-average margins and demonstrate a steady growth rate. The net sales growth of the very large players (>€500 million net sales and up) exceeds the growth in staff, benefiting the most from automation. Furthermore, their cash conversion cycle indicates that they can negotiate better payment terms. This raises the question: what are the implications of this trend for the industry as a whole? Does it trigger consolidation?

The challenge for the bakery industry is to realize growth in profitable segments, to restore the dynamic into an upward spiral. How to generate added value, which the producer can claim, in the growing market for industrially produced fresh bread seems to be the prime question.

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Read all about drivers of performance in our trend report: "Drivers of performance: market analysis of European Bakery Industry". In the series Drivers of Performance, our analysts have also analyzed the following markets:

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Jeroen Lustig

Co-founder A-INSIGHTS / / +31 (0)6 39 855 600