The demand for the factory bread falls by 5% every year, people are more likely to buy bread newly-baked in retail stores. Active development of the network bakeries stimulated the market growth of frozen bread or part-bakers, last year their sales have increased by 12%.

In 2009 the volume of bread production and bakery items in Russia fell by 3.9% and formed 7.2 million of tones, while retail sales decreased by 2.5% over this period, as is reported by Federal State Statistics Service.

— Incomes of the population are rising and people reduce consumption of bread annually by 3-4% preferring to buy more expensive and nourishing food: meat. Fresh vegetables, fruit, - comments the CEO of inFOLIO Research Group Oleg Klepikov. In the money terms the market is growing, in 2009 it increased by 11% as is noted in the research company Intesco Research Group.

In 2009, the level of income of one category of consumers increased and they began buying more expensive bakery products, whereas another group with low incomes cut the consumption of bread during the crisis trying to save money, - says Anastasia Ptukha, the chairwoman of the Group of Companies Step by Step.

For example, it was noticed that at Cherkizovo complex, since 2007, purchase requirement has begun shifting from pan bread towards a cheaper one baked in the hearth. In 2009, the percentage of white hearth-baked bread (loaf group) increased by 6.6% within the structure of the company’s sales, in other categories there was a decrease in selling. Besides, in 2009, Cherkizovo completely stopped producing small sized goods which referred to the more expensive category of products due to the use of manual labor. Experts note that large bakeries slacken the growth of production because of intensified competition with small bakeries and the departments of freshly baked goods in supermarkets. The main advantage of small bakeries is the freshness of the products offered: customers may buy bread baked right before their eyes.

According to Anastasia Ptukha, many people are ready to overpay 10-20 rubles for a loaf of bread, if it is fresh and tasty, that is why the demand for factory bread in Moscow falls by 5-7% every year. In addition, small bakeries are more mobile and less capital-intensive, the prime cost of goods is lower than that of large enterprises. According to “Bread-baking plant №1” (Rostov-on-Don), over the last 5 years the company has lost 18% of market share due to the appearance of small bakeries, as the price for their products is significantly lower than for those of big manufactures.

— The items of small bakeries and shops may be attributed to the production of the high price segment. In order to compete with them, our company positions the most part of our goods in the middle price segment and in the category “social bread” – said Svetlana Gitina, the deputy of commercial manager on key clients, Moscow bakery and confectionery enterprise Kolomenskoe. In 2009, the company expanded the range into 40 SKU by social positions.

Auchan’s items of detached suppliers take up 45% of total bread sales, the rest is made by its own bakery networks. The shops in hypermarkets produce about 50 types of bread (excluding baked goods), including baguettes, French bred, one-kilo and one and a half kilo bread.

In 2009, Siberian Bread Corporation opened about 120 new bakeries in supermarkets, bringing the total number of sales outlets to 500. Bakery shop is a hybrid between the so-called store’s format “near home” and a specialized boutique. Within the next 3-4 years the company is planning to open more than 1000 similar stores across the country, including the ones on franchising terms.

Profitability of bread production makes up 4-13%, as is noted in inFOLIO Research Group. As a result of 2009, for Cherkizovo it has been 3.05% for rye and wheat group and 5.27% for wheat one. For bakery and confectionery enterprise Cheremushki – 2.4%. Revenue growth and at the same time low dynamics’ level of profitability and output volume indicate that price increase is one of a few opportunities for bakery plants to keep afloat. However, under a new law on trading, bread is to be sold with the extra charges not exceeding 25% of the price of goods selling to the first wholesale buyer. The Government restrains the growth of final prices for bread on shelves but the prices for raw material and other expenses of manufacturers are increasing.

Retail bakes itself

Despite the fact that not more than 8% of all sales of bakery products in the country falls on retail network, namely this channel of sales was the most stable during the crisis.

Within usual marketing channels slump in sales was 15-20%, in the networks there was not observed such a slump, said Alina Nachesnaya, According to her words, the reason is that networks are more actively conduct advertising campaigns and assess customer demand clearly.

Meanwhile, retail networks seek to acquire their own bakeries; strengthening loyalty, fresh-baked bread becomes their unique offer to a customer.

— The smell of newly-baked bread draws attention, stimulates appetite and makes do more unplanned purchases. Therefore, it is advantageous to place bread at a maximum distance from the entrance; heading towards it a customer will go through the entire hall and will make a great number of other purchases – advises Oleg Yuryev, the marketer of the Russian bread manufacturer, IBC company. However, Viktor Voronin, the Managing Director of bread-baking plant Voskhod-Stolitsa on the contrary, recommends to open sections of hot bread near the entrance area of a shop to attract new customers. This location allows increasing the total revenue in a store on an average of 8-12%.

Man does live by part-bake alone. Active implementation of bakeries into retail networks has led to the growth of demand for part-bakes, which are frozen semi-finished products being finally prepared straight at the places of sales. According to the research company CredInform NW, the market of part-bakes is annually growing on an average of 12% and in 2009 it reached 293 thousand tons. For example, IBC increased sales volume by 43% - to 747 tones. According to Viktor Voronin’s words, in 2010, due to the development of customer demand his company’s sales will grow by 23-28%.

— We make it clear for the retailers to know the benefits of frozen bread and offer several different formats of cooperation. The most popular one is the opening of a hot baking store providing him with the equipment. В настоящее время такой вариант выбирает каждый третий клиент. Currently, such a variant is chosen by every third client. Networks that have their production can expand and supplement their range with our items, claiming it as their own – says Yuryev. The experts of IBC evaluate the share of imported part-bakes on the Russian market as 36% - this is basically “national” varieties of bread: French, Italian and Austrian ones.

According to the information of the research company CreditInform NW, among the leaders of this market there are such companies as: Mantinga, Lantmannen Unibake Russia, Delifrance, IBC, Siberian Bread Corporation. Manufacturers believe that, eventually, the networks will completely switch over to part-bake. As Yuryev says, the goods of networks are usually cheaper than those of part-bake manufacturers, but their range is greatly limited – not having all the necessary equipment stores can bake just a little traditional bread, usually it is white one.

— Our experience of communication with the representatives of large networks shows that today many people reject independent development of bakeries in trading networks and order baking from third-party suppliers, as the margin of bread business then becomes at least 2-2.5 times higher; and the space free of baking equipment can be more profitably used for other commodity groups – notices Viktor Voronin.

AVANTAGES OF PART-BAKES

High margin

If usual bread, for example, “Darnitsiy” is a low-profit product as its prices are regulated by the Government, then frozen bakery goods are a more profitable one for the margin of the manufacturers ranges from 20 to 50% - says Natalia Smetanina, the Marketing Manager of Lantmannen Unibake Russia.

Into regions

Ordinary bread’s shelf life is normally 72 hours, a part-bake’s one reaches 9 months; it allows manufacturers appearing in other regions as, for instance, Siberian Bread Corporation that has the production space in Novosibirsk, Moscow and Ufa, and today it conducts talks on buying new plants.

Change of range

The production of a part-bake can flexibly and rapidly react to the changes in customers’ preferences. For example, “Siberian Bread Corporation” rotates up to 20% of range a year.

As a rule, in the course of a year, traditional bread-baking plants introduce only a few items or do not change the assortment at all.

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