I’ve been working as a banker in the Food & Agribusiness sector in the U.S. and internationally for many years, but I still found the 2019 American Bakers Association (ABA) Convention to be an eye-opening event. First and foremost, judging by the attendance and presentations I witnessed during the convention, ABA seems very well organized and quite representative of the Bakery sector.

Two presentations in particular stood out to me. The first concerned the way the industry is diverging into two groups: large retailers that account for more than half the industry’s sales, and smaller bakeries where indulgent items are dominant.

The second was an extraordinary talk given by noted researcher Jason Dorsey about how Millennials and Generation Z are changing society’s tastes for baked goods. It’s definitely not the same world that I grew up in, and I could see some significant evolution since my teenage years in Bordeaux, France, and later when I was a young finance professional in my early 20s.

Power of Bakery 2019

The first session delivered the results of a new survey called Power of Bakery 2019. It focused on how consumer trends translate into the financial and economic realities in the bakery and baking sector.

In general, with about $60 billion in annual U.S. sales of bread and baked goods, according to the survey the state of the bakery industry is strong. That’s good news. Sales of baked goods climbed 1.5 percent last year with in-store bakery sales increasing even more.

But spending patterns are changing and driving the industry into two diverging directions. Large grocery stores continue to capture the bulk of revenue with about $36 billion in sales driven by staples like breads. More notable is the $13.8 billion going to stand-alone bakeries—where indulgence products like desserts, snacks, and cookies are the main purchases.

By itself, that’s not a big shift from the industry’s historical split. There is a long-standing tradition of stand-alone shops working to create a strong brand identity associated with quality and price, while large grocery chains compete more on selection and price. And of course, in-home baking continues to be the third, somewhat invisible, competitor.

Still, the growing strength of artisan and specialty bakeries is a departure from past U.S. spending patterns. Until recently, large retailers heavily dominated the market.

And while shoppers are increasingly aware of health and wellness claims, the majority still pay no, or just a little, attention to these factors when opting for indulgent items. (By the way, donuts were found to be the most appealing impulse purchase and chocolate the impulse flavor of choice, something I can very well understand.)

As I listened, I couldn’t help but realize for the first time just how similar this industry was to my experience in my own banking institution. At Bank of the West, we have many large, upmarket customers, but we also take time to serve smaller businesses in our branches and units serving small- and medium-size enterprises. This interplay between the two ends of the marketplace makes each of our businesses interesting and dynamic.

Gen Z and Millennials

A second study, Attracting Gen Z and Millennial Customers, was also released at the conference. Presented by Jason Dorsey, an immensely brilliant and fun speaker, the survey he showed us revealed buying habits that are becoming more prevalent in the industry as these younger generations shop more for themselves, usually in grocery stores.

As the proud father of three Millennials, I found the study was not just interesting, but it spoke to me on a personal level.

In particular, the way Millennials and Gen Z think about how they consume bread, pastries, and other baked products caught my attention. Simply put, they want fresh products, natural products, and whole grains. As I mentioned, that was not the way we Baby Boomers grew up.

In my region of southwest France we indulged ourselves with chocolatines (chocolate croissants) or fresh baguette bread for breakfast (or the mid-morning snack). On the weekend, we would enjoy the famous Bordeaux cannelés or a portion of Basque cake at the end of the Sunday family lunch. Everything was natural, but on the very indulgent side of natural.

In fact, the ABA study showed that nearly three-quarters of Gen Z and Millennials had purchased bread in the past week. Nearly two-thirds had bought a sweet baked good, and more than half said they would buy more baked items if they came in smaller portions.

The Millennials and Gen Z also care a lot about where the products are made. Roughly half said they would be convinced to try a company’s offering if they knew the ingredients were responsibly sourced. And as a banker, I can see the industry adapting to that trend with new products or “good-for-you” brands being promoted in the bakery companies’ product portfolios.

But there was one concerning trend. Many of the respondents said they had purchased fewer baked goods in the past year, and that food waste was partly to blame. Nearly 75 percent of consumers said they were bothered by throwing away leftover bread, leading to a hesitancy to buy more on their next shopping trip.

Although I’m far from being part of Gen Z, as an empty-nester I would agree with that. One of my favorite stores in Chicago sells individual portions of French bread or Italian ciabatta loaves that can be kept frozen and warmed up in the oven before serving. To avoid waste, I started to buy those regularly—in addition to the French baguettes that I buy from time to time in artisan bakeries.

All of this is important for the industry. Decisions need to be made by every producer about size, sourcing, and type of product. Bakers also might want to consider whether they pursue the smaller subcategory of organic/non-GMO/whole-grain products and its higher price/margin, or whether to focus on the more traditional preferences of us older Boomers.

I suspect society’s tastes, for baked goods or anything else, will never stop changing. The important thing is to keep track of these trends and respond in ways that mean sales, growth, and success for the business. And on the consumers’ side, the bottom line is always to find the right balance between “good-for-you” habits and controlled indulgence, which Millennials and Gen Z seem to have well in mind.