The call of the USA: why Europe’s bakers are going American

“There’s a lot of interest from European bakeries in going to North America,” said Garyth Stone, an MD in investment bank Houlihan Lokey’s consumer group. “It’s a good opportunity to expand because a great ability to grow in premium, European-quality par-baked and bake off.”

Stone speaks following the publication of his business’s bakery market review that dove into the rampant opportunities for European bakeries in the States​. Market conditions across the pond were ripe with potential as the sector burst with optimism, the report said, while Stone told FoodNavigator the opportunity for Europe’s bakers in the States was still in its infancy.

European bakery’s opportunity lies within the frozen market where bakers in the states couldn’t compete on quality and could therefore take market share. “Manufacturers have done a fantastic job of doing par-baked products that consumers can’t tell apart from scratch products,” said Stone.

European bakeries have perfected frozen, par-baked. Source: GettyLogistically, it made more sense as it was often difficult and expensive to send product from Europe and cross-continent in North America, “so there’s been a lot of M&A with businesses buying in new countries and companies see North America as an area they can grow with reason and legitimacy”, he continued.

European bakery businesses had a “right to win” in the market because of the quality of product they made, a result of years honing machinery and techniques to create frozen bake off products that tasted like their fresh counterparts, a skill North America had yet to perfect.

Europe’s ‘right to win’ Stateside“The USA had ​a head start in frozen, but quality in certain categories in bake off tends to be limited whereas in Europe manufacturers have perfected the technology,” said Stone. “Whether it’s butter croissants, danish pastries, artisan bread, ancient grains, etc… they have very high-quality products and few businesses in North America that can make them to the same standard”

When buying facilities, European bakery businesses sought ones of a medium size, worth tens or low hundreds of millions of dollars – not billions – and ideally where little additional investment was needed. However, Stone reiterated Europe’s quality baked goods were a result of long-perfected tech, so there could be need for investment in a facility’s production, “but they [European bakers] don’t want to have to double their investment by doing more than necessary”.

“They prefer to start off on the east coast, which is closer physically [to Europe] and easier to communicate with. California is a great market with higher spenders and more wholefoods on the coast than in the middle,” said Stone.

While Europeans have the upper hand on classic bakes, Americans did excel in other areas, such as within sweet baked goods for casual dining. “No one in US foodservice makes desserts from scratch. It’s largely thaw and serve,” he said.

How the US does dessert better than EuropeAmerican foodservice does ‘pile-it-on’ indulgent desserts with a higher margin. Source: Getty“Dessert Holdings is an example of this where they create indulgent and elaborate desserts. In the UK, you might have a slice of brownie with some ice cream, but in the US they wouldn’t go for that,” Stone explained.

“They prefer elaborate desserts – consumers there love them. Americans want indulgence and something extravagant and the producers make a good margin on those types of desserts.”

Such a concept didn’t exist in Europe to the same degree, although could be an opportunity for the sector to increase revenues, predicted Stone. “The closest we have is Mademoiselle Desserts, but it’s still predominantly a retail business and nothing like as indulgent or complicated as it is in US, and therefore lower margins.”

Other areas to monopolise included brand partnerships, such as Baker & Baker’s tie-up with Mondelez, which manufactures branded products for the US-owned chocolate maker under license in Europe. “They’re making more exciting products by using licenses and you can educate the consumer to pay a higher price for more high-quality and indulgent products that way.”