THE IMPACT OF BREAD SUBSIDIES ON BAKED GOODS DECEMBER 2014 – IAOM MIDDLE EAST & AFRICA

PINAR HOSAFCI – PACKAGED FOOD ANALYST AT EUROMONITOR INTERNATIONAL

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Singapore

Shanghai

Dubai

Vilnius

Cape Town

Santiago

Tokyo

Sydney

Chicago

Bangalore

Sao Paulo

STATE OF THE BREAD MARKET

BREAD SUBSIDIES AND THEIR IMPACT

OPPORTUNITIES AND PROSPECTS

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Bread is the biggest part of the region’s daily diet

STATE OF THE BREAD MARKET

0%

7%

14%

21%

28%

35%

42%

49%

0

5

10

15

20

25

30

35

Middle East and

Africa

Western Europe

Latin America

Eastern Europe

Asia Pacific North America

Australasia

% i

n p

ac

ka

ge

d f

oo

d

Mil

lio

n t

on

ne

s

Retail Consumption of Bread by Region 2014

Bread Retail Volume Bread % Per Capita in Packaged Food

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Some of the world’s biggest bread eaters come from MEA…

STATE OF THE BREAD MARKET

0

20

40

60

80

100

120

140

160

Ret

ail

Co

nsu

mp

tio

n o

f B

rea

d –

Kg

pe

r C

ap

ita

Putting Middle Eastern & African Bread Consumption in Context, 2014

Kg per capita World Middle East and Africa

Saudi Arabia

Egypt

Iran

Algeria

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…However they consume the cheapest bread

STATE OF THE BREAD MARKET

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2009 2010 2011 2012 2013 2014

US

$ p

er

kg

- 2

014

Australasia North America Western Europe

Latin America Asia Pacific Eastern Europe

MEA MEA artisanal MEA packaged

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Artisanal dominates bread sales…

STATE OF THE BREAD MARKET

Artisanal Bread

Packaged Bread

Bread Substitutes

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2009

4 million tonnes

2014

5 million

tonnes

But its consumption is declining…

STATE OF THE BREAD MARKET

2014

27 million tonnes

2009

30 million tonnes

Artisanal Bread Packaged Bread

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Subsidies

Availability of

substitutes

Decline in artisanal

bread

WHY?

STATE OF THE BREAD MARKET

STATE OF THE INDUSTRY

BREAD SUBSIDIES AND THEIR IMPACT

OPPORTUNITIES AND PROSPECTS

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Bread consumption shows significant variation across the region

BREAD SUBSIDIES AND THEIR IMPACT

Kg per capita

60+

30-60

15-30

5-15

0-5

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0%

7%

14%

21%

28%

35%

42%

0

2

4

6

8

10

12

2009 2010 2011 2012 2013 2014

Pa

ck

ag

ed

as a

% s

ha

re

of

tota

l b

re

ad

mil

lio

n t

on

ne

s

Iran: Packaged vs Artisanal Bread

Packaged Bread Artisanal Bread Packaged as a % of Total Bread

Iran : End of government subsidies leads to less bread wastage

BREAD SUBSIDIES AND THEIR IMPACT

US$

0.24

US$

0.50

US$

0.47

2010

2011

2014

US$

0.91 US$

0.77

US$

0.63

2010

2011

2014

ARTISANAL BREAD

PACKAGED BREAD

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Retailer discounts

Promotions

Modern grocery dominance

South Africa: Retailer subsidies define packaged bread growth

BREAD SUBSIDIES AND THEIR IMPACT

50%

54%

58%

62%

66%

70%

0

0.3

0.6

0.9

1.2

1.5

2009 2010 2011 2012 2013 2014

Pa

ck

ag

ed

as

a %

of

tota

l b

re

ad

Mil

lio

n t

on

ne

s

South Africa: Packaged vs Artisanal Bread

Packaged Bread Artisanal Bread

Packaged as a % of Total Bread

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50%

54%

58%

62%

66%

70%

0

0.3

0.6

0.9

1.2

1.5

2009 2010 2011 2012 2013 2014

Pa

ck

ag

ed

as

a %

of

tota

l b

re

ad

Mil

lio

n t

on

ne

s

South Africa: Packaged vs Artisanal Bread

Packaged Bread Artisanal Bread

Packaged as a % of Total Bread

South Africa: Retailer subsidies define packaged bread growth

BREAD SUBSIDIES AND THEIR IMPACT

Rising input costs

Affordable substitutes

Value-added substitutes

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0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

0.0

2.0

4.0

6.0

8.0

10.0

2009 2010 2011 2012 2013 2014

Pa

ck

ag

ed

as a

% o

f to

tal

br

ea

d

Mil

lio

n t

on

ne

s

Egypt: Packaged vs Artisanal Bread

Artisanal Packaged % Share of Packaged in Total Bread

Subsidized flour

New subsidy system

Reduced bread wastage

Egypt: End of cheap bread?

BREAD SUBSIDIES AND THEIR IMPACT

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Reasons for artisanal bread’s decline

BREAD SUBSIDIES AND THEIR IMPACT

Promotions and Discounts

South Africa

Availability of Cheaper or Added-Value Substitutes

South Africa, Iran, Algeria, Nigeria etc.

Market Maturity

Iran, Egypt, Algeria, Saudi Arabia

Reduced Bread Wastage

Iran (potentially Egypt?)

STATE OF THE INDUSTRY

BREAD SUBSIDIES AND THEIR IMPACT

OPPORTUNITIES AND PROSPECTS

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7% volume CAGR 2009-2014 Key markets: South Africa, Nigeria, Kenya Affordability Exoticism

0.1 kg per capita Key markets: UAE, South Africa Lack of time Westernisation

4.6 kg per capita Key markets: Cameroon, Algeria, Morocco Shift to packaged food Affordability

1.2 kg per capita Key markets: Iran, Egypt, UAE Convenience Versatility

Rice Pasta

Noodles Breakfast Cereals

Competing Staples for Bread Vary Across MEA

OPPORTUNITIES AND PROSPECTS

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Packaged pastries have several unique selling points

OPPORTUNITIES AND PROSPECTS

Dynamic growth

Shelf-stable

Satiety

Indulgence

Portion control

On-the-go

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-56%

-48%

-40%

-32%

-24%

-16%

-8%

0%

8%

-2,800

-2,400

-2,000

-1,600

-1,200

-800

-400

0

400

High Fibre Bread

Artisanal Bread

% C

AG

R

‘oo

o t

on

ne

s

High Fibre Bread Growth

Absolute Volume Growth 2009-2014

% CAGR 2009-2014

Higher unit price

Longer shelf life

Modern grocery

High Fibre Bread Promises Added Value

OPPORTUNITIES AND PROSPECTS

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What can bread learn from other convenient packaged foods?

OPPORTUNITIES AND PROSPECTS

Convenience food category Retail Volume CAGR 2009-2014

Drinking yoghurt 7.2%

Instant noodles 6.6%

Sweet and savoury snacks 5.8%

Snack bars 6.1%

Total bread -0.7%

Examples of convenience products Opportunities for bread

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Maturity

End of subsidies

Discounts

Substitutes

Convenience

Versatility

Health and Wellness

Portion control

Incr

ease

in

alt

ern

ati

ves

Declin

e in a

rtisan

al b

read

Key takeaways

OPPORTUNITIES AND PROSPECTS

THANK YOU FOR LISTENING Pinar Hosafci

Food Analyst

Pinar.Hosafci@euromonitor.com