Mergers and acquisitions this is the future of Europe’s frozen bakery industry, as predicted by Rabobank Food and Agri Research in its latest market report.

It believes a number of major challenges facing the industry will lead to companies combining forces in order to build scale. According to Rabobank, some of the key challenges are that large retailers are becoming more and more powerful, innovation is needed in a number of areas, and that companies need to improve their operating performance.

Marc Kennis, analyst, said that these challenges are best met by bakeries increasing the scale of their operations. "However, organic growth will not be enough to meet the challenges and so companies will need to join forces with rivals," he explained.

Building scale through acquisitions would help frozen bakery companies to regain some of the lost bargaining power from the major multiples, and enable them to pass on the higher raw material costs they have faced in recent years, said Rabobank. It would enable them to improve their efficiency through capital investments, lowering costs per unit, and to react to trends more quickly, while investing more in research and development, it said.

For companies that are unable to grow through acquisitions, Rabobank recommended other strategies, including cost leadership, focus on a particular niche, or nurturing relationships with a select few clients.

The report said the UK was seeing one of highest growth rates in frozen bakery, at around +5.6%, (including chilled goods), in a market now worth 13bn (£10.4bn). The biggest markets are France, Germany and Spain.

The report also estimated that savoury pastry snacks will see growth of 6.6% in volume by 2014, while frozen bread and patisserie look set to rise by around 4.2% and 4.8% in volume, respectively. Meanwhile, frozen Viennoiserie is predicted to grow by 3.1%.