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Market analysis: German bakers pressured into consolidation

When giants take over: Consolidation on the cards for German bakers

By Kacey Culliney , 14-Mar-2013
Last updated on 14-Mar-2013 at 14:31 GMT

German bakeries under pressure to join forces - an 'interesting time' says consultant
German bakeries under pressure to join forces - an 'interesting time' says consultant

German bakeries are under increasing pressure to consolidate to survive in a saturated and fragmented market where retail and discount bakery is mounting, a business consultant says.

In a report entitled ‘Consolidation Study: Trends and Developments in the German Food Industry’ published in German, business consultancy firm RölfsPartner said the bakery sector is facing the toughest consolidation pressures.

Speaking exclusively to BakeryandSnacks.com, manager for Food and Beverage at RölfsPartner and co-author of the report Mario Mirkovic said consolidation has already been sparked, but it remains in its infancy.

“We think it has pretty much just started but there is dynamic change in the market; we have seen a significant number of mergers and acquisitions and bankruptcies. The German bakery sector is in a situation and they have to act now,” Mirkovic said.

“It is a really interesting time for the sector where we will see who is going to survive and soar,” he said.

Core drivers – retail pressures hit 

It is a really interesting time for the sector where we will see who is going to survive and soar

The report identified core drivers that are forcing German bakeries to consolidate.

“Most retailers have their own production for bakery products therefore it is easy for them to enter the market. The problem for most bakers is that there are no differentiation possibilities to prevent retailers coming in,” the consultant said.

Retailers have started to offer baked in-store breads with pre-bake stations located in retailers across the country, often at the entrance to lure consumers, he said.

The products are much cheaper because they are less labor intensive and discount bakery is continuing to gain popularity, he added.

Stronger as a ‘team’

The RölfsPartner report identified that the majority of the sector is comprised of small and medium bakeries – giving rise to resource vulnerability and weak market coverage. “The smaller you are, the more difficult it is to perform well,” he said.

Mirkovic said Germany’s top five bakeries stand for 20% of the market – “not much at all”.

“We have many, many small and medium-sized bakeries, so there is a lot of scope for middle-sized to large bakeries to gain market share by consolidation,” he said.

The consultant also said that these smaller firms are more vulnerable to market volatility.

“It’s really difficult for small and medium companies to face the challenge of rising of changing prices on the resource side. If they become bigger, through consolidation, it gives them some advantages in the procurement of resources,” he said.

Consolidation makes business sense for many, Mirkovic says

From strength to strength with simplicity

Economic indicators suggest that on the whole, the German bakery sector is not good, but not bad either, Mirkovic said. “It’s okay because in the last couple of years the sector has really invested in production capacity and modernization so it’s definitely more efficient.”

He noted that for the ‘weaker’ firms, consolidation is an attractive option to strengthen business.

The consultant said clear synergies in the bakery sector ensure easy integrations that make business sense.

“If you buy another company you gain a lot in terms of production because the synergies are quite high. It is normally a very comparable business model.”

Battling a saturated market

Germany’s bakery market is saturated, he said, with per capita consumption for 2011 at 84.9kg. “This figure is quite stable; it hasn’t really changed in the last five years.”

Despite this, a majority of German bakeries are not exporting, he said.

“Most of the small and medium companies have a regional focus… but if you want to expand, you have to find other markets or another brand.” The consultant said that consolidation could help bakers achieve this international focus.

The good, the bad, the consolidated…

“From a consumer point of view, consolidation is probably not really what they want. Consumers like small, hand-craft and artisan bakeries. On the other hand; from a consultant’s point of view, this process is a chance for bakeries to become more professional, expand product ranges and enter niche markets,” Mirkovic concluded.

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