Rising cocoa prices, increased staff costs, labour shortages and declining consumer confidence are among the challenges highlighted by bakery leaders speaking to British Baker.
But it’s not all doom and gloom as many point to advancements in technology, successful NPD strategies, and continuing demand for sweet treats during tough times as positives for the year ahead.
Hear from leaders at bakery trade associations and major suppliers as they outline what they think will remain top of mind for bakers of all sizes in 2025:
Lesley Cameron, chief executive, Scottish Bakers
Cameron believes there are many opportunities to get shoppers to spend more but this requires careful management of ranges to allow bakeries to meet customer needs. What’s more, technology is helping streamline processes to reduce labour requirements at a time when shortages are rife.
“From sourdough to the continued popularity of plant-based pastries, the bakery sector has been anything but stagnant over the past few years. In 2025, the industry stands at a crossroads, shaped by economic realities, shifting consumer tastes, and sustainability concerns.
To thrive in 2025, bakeries should focus on ‘range rationalisation’. Scottish Bakers members should be carefully analysing sales data and consumer feedback to determine which products are winners or losers. Trimming underperforming lines or seasonal products that fail to drive sales can help reduce waste, streamline production, and improve brand identity. In addition, this approach frees up resources to innovate and grow.
A notable shift in the bakery sector has been the gradual adoption of technology. More bakeries now have online ordering systems, use digital payment options, and even employ automated processes to streamline production. In 2025, social media will continue to play a key role in influencing consumer decisions, a defined social media strategy that resonates with the next generation of consumers should be part of the marketing mix.
At the production level, the introduction of technology and machinery will help bakeries be less reliant on labour and will support consistency and efficiencies in large-scale operations.
The post-pandemic era, combined with growing concerns about obesity and dietary sensitivities, has fuelled demand for low-sugar, high-fibre, and gluten-free baked goods. While these product lines can be more costly to develop, they open doors to new customer segments, from health-conscious parents seeking nutritious treats to fitness enthusiasts wanting high-protein alternatives.”
“Many bakeries will struggle to assign funds for crucial investments or even have to close their doors”
Cameron is observant of the challenges facing the industry, particularly those related to the increasing cost of ingredients, energy, and staff.
“Beyond raw materials and energy, a less visible but equally significant burden on bakery businesses is the rising cost of employment. Increased Employer National Insurance (NI) contributions and other employment-related expenses will sharply inflate overheads. This challenge will be particularly acute for smaller businesses, where staffing costs already claim a substantial proportion of turnover.
Faced with these increased payroll obligations, many bakeries will struggle to assign funds for crucial investments or even have to close their doors. Upgrades to technology, such as automated production lines will be postponed, limiting both innovation and long-term competitiveness. Likewise, marketing budgets, expansion plans, and skills development programs will be cut or delayed.
Beyond product and operational concerns, the bakery sector still faces a critical labour challenge. As many long-established bakers head toward retirement, succession planning becomes essential. Without a robust strategy to pass on knowledge and leadership, smaller bakeries risk losing not just their founders but also the traditional techniques and local relationships that define them.
Concurrently, the skills landscape is evolving. Younger generations may be drawn to modern culinary trends or high-tech food startups, making it challenging for traditional bakeries to attract fresh talent. Training initiatives, apprenticeships, and partnerships with colleges can help address potential skill gaps. Investing in employee development, teaching both time-honoured baking methods and fault-finding capabilities, blended with the latest technology ensures the industry retains its heritage while staying competitive. By actively nurturing the next generation of bakers and leaders, the sector can safeguard its legacy and secure its future.”
James Dedman, general manager UK & Ireland, CSM Ingredients
Acknowledging that challenges remain, Dedman is optimistic about 2025 as consumers will continue to seek out baked goods suitable for all occasions.
“Consumers will increasingly seek high-quality, innovative and unique bakery products in the next 12 months as the industry drives forward technical solutions to bring back confidence with customers. This presents a great opportunity for the baking industry to review ranges and NPD, spread their knowledge and embrace experimentation with twists on existing products, and capitalise on new incoming, flavour trends. Usage of gluten free and protein enrichment products will continue to increase in products such as bread, pizza and quiche which can lead to reductions on animal protein usage.
This year is still going to be a challenging market place especially when it comes to raw ingredients. Despite this and rising costs and budget constraints, embracing new ideas and products can help bakeries work smarter.
There are also opportunities to extend specific product seasonal sales. We have seen this during October for Halloween and Easter can now be extended to ‘spring’ and run for longer. Businesses should focus on maximising activity during these key occasions and extending these occasions to month-long events to help drive sales and economies of scale. Additionally, bakeries should leverage partnerships with suppliers to access new product development opportunities and industry insight. Another focus will be harnessing bread range. The UK is and always will be a nation of bread lovers and with 2.7 million tonnes consumed annually. However, patisserie products are catching up so bakers have scope to innovate and attract younger audiences as the sector matures.”
Sarah Boddy, managing director, St Pierre Groupe
There is much to be optimistic about, says Boddy who stepped into the role at St Pierre in late 2023, pointing to flavour innovation and premiumisation as examples.
“Bakery is a category in growth, and with growth comes opportunity. Fuelled by evolving consumer preferences, innovative product trends and a rising demand for ‘bakery occasions’, which is driving the category forward both in terms of value and volume, there is plenty to be optimistic about this year.
We know that flavour innovation and fusion bakery products are set to gain popularity. With increased demand for experiential dining, consumers are drawn to creative combinations that blend traditional bakery staples with globally inspired flavours. This innovation not only keeps the industry dynamic but also provides opportunities for brands to differentiate themselves in a competitive market.
“The UK baking industry has time and again proven its agility and resilience in difficult trading conditions”
Premiumisation is still trending and is high on the agenda for St Pierre and our customers. The wider bread and bakery sector… continues to benefit from consumers choosing premium options, as they look for ways to treat themselves well, at home and on the move.
Indulgence is a trend aligned with premiumisation and plays a significant role in consumer choices. People are more aware than ever of how their food consumption affects health and wellbeing. According to Mintel’s 2025 Global Food and Drink Trends report, consumers are striking a balance between health-conscious decisions and their desire for indulgence, increasingly recognising the mood-boosting and mental health benefits of treating themselves to the products they love.”
Boddy highlights the ultra-processed foods debate as something that will remain atop the agenda in 2025, but notes ways the industry can mitigate the challenges associated with this.
“The increased discussion of ultra-processed foods in the media and amongst consumers is giving rise to some avoidance of ‘industrial’ ingredients and processed products. However, many consumers are unclear about what this really means (IGD 2025), and there is conflict between these negative perceptions and the positive dietary benefits of bread and bakery, such as fibre, vitamins and protein, which are known drivers of choice.
It would be remiss of me not to mention the impact of UK political and economic uncertainty on inflation and consumer confidence and Trump’s second presidency is also likely to target tariffs on UK businesses, which could well impact on bakery and other manufacturers.
The UK baking industry can mitigate the challenges regarding concerns over ultra-processed foods by communicating the positive benefits of added ingredients and the premium credentials of our products to consumers, to justify their spend.
The UK baking industry has time and again proven its agility and resilience in difficult trading conditions. We have come through Brexit, a pandemic, and the uncertainty over continued commodity supply during conflict in Ukraine and yet the industry has continued to keep quality products on shelves throughout. We have every confidence that we will go on doing so and build the market further in 2025 and beyond.”
Matthew Acheson, CEO, Baker & Baker
Acheson, who stepped into the CEO role at Baker & Baker last month, warns of stubborn inflationary pressures and waning consumer confidence but believes there is a clear opportunity for bakery businesses with the right proposition.
“Optimising and executing core lines exceptionally well, given the macroeconomic environment and potential cost pressures, is a clear opportunity for bakery manufacturers. This will ensure products remain relevant and in demand, even in the face of declining consumer confidence.
It’s important for manufacturers to identify pockets of opportunity to lead within their own categories. We also see sustainability as an avenue for bakery businesses to offer differentiation.
Many of the large retailers invested in their in-store bakery offerings last year, and are seeking closer collaboration with key suppliers, which we believe presents a significant opportunity.
“Attention should be paid to good service, sensible investing and truly understanding the market and categories you are operating in”
There remain stubborn inflationary pressures in the market, most notably with butter and cocoa. For cocoa in particular, we are likely to see the impact of higher cocoa prices persist throughout the year, due to a number of factors including poor harvests yet continued strong demand for the crop.
Consumer confidence has also taken a hit, reaching its lowest point for over a year in January. This could impact discretionary spending, and the choices that consumers make within the bakery category.
The government’s autumn budget added further operating costs to manufacturers and retailers alike, which may also have an impact on investment decisions. Some retailers have already taken tough decisions within their own labour force, with job losses announced early in January.
The strengthening of partnerships between manufacturers and retailers, and leveraging these long-term relationships, is critical. Attention should be paid to good service, sensible investing and truly understanding the market and categories you are operating in.
Chocolate will remain a core bakery staple, so it’s important to consider how rising cocoa prices may impact your customers and consumers in 2025, and how to offer great tasting bakery products at an affordable price point.”
Karen Dear, CEO, Craft Bakers Association
The increase in National Minimum Wage and other business overheads is presenting an increasing burden for bakeries, notes Dear, who calls for government intervention to help businesses survive.
“The craft bakery sector faces significant challenges in 2025, particularly due to rising costs, regulatory changes, and shifting market conditions. Many businesses are struggling with increased labour costs, overhead expenses, and declining profitability.
The top challenges that bakeries are working to mitigate, the opportunities they are looking to tap into, and the investments they are considering to remain competitive are as follows:
Rising labour costs
- The increase in the National Minimum Wage (NMW) and National Insurance (NI) contributions is a major financial burden
- Many bakeries report being unable to absorb the cost increases, leading to reduced staffing, shorter operating hours, and price hikes
- The high minimum wage discourages businesses from hiring inexperienced workers, impacting youth employment in the sector.
Increased overheads and business rates
- Energy costs, rent, and business rates continue to rise, straining bakery operations
- Some businesses do not qualify for any business rates relief, adding to financial pressures
- Several members have reported an inability to expand or reinvest in their businesses due to these growing expenses.
Market competitiveness and price sensitivity
- Small bakeries struggle to compete with larger retailers and cheaper imported baked goods
- Price increases are necessary to offset costs but may lead to reduced sales and customer resistance
- Declining consumer confidence and cautious spending habits are negatively affecting revenue.
Workforce and recruitment challenges
- Many businesses are scaling back hiring plans and considering automation to replace human labour
- Some members are contemplating selling or closing their businesses due to financial strain
- The cost of employing staff has become prohibitive, leading to fewer training opportunities for apprentices and new entrants to the sector.
Business sustainability and viability
- Business owners are questioning the long-term sustainability of their operations given the rising costs
- Some businesses have halted investments in expansion, new product development, and marketing
- The overall economic outlook remains uncertain, with some members fearing they have priced themselves out of the market.”
Dear highlights investment in automation, product range review, and cost management as ways to combat the challenges above and drive business growth.
Investment in automation
- Several businesses are exploring automation to reduce dependency on human labour
- Investing in new equipment to improve efficiency and lower production costs is a key consideration.
Energy efficiency improvements
- Some bakeries are investing in energy-efficient equipment to reduce long-term operating costs
- Switching energy suppliers and renegotiating contracts to mitigate cost increases.
Pricing strategy adjustments
- 70% of businesses plan to pass increased costs onto customers
- Some members are implementing gradual price increases to manage customer retention.
Exploring alternative revenue streams
- Expanding into wholesale supply, direct-to-consumer sales, or subscription-based models.
- Seeking partnerships with local businesses and restaurants to secure consistent demand.”
Dear notes that some bakeries are considering rebranding and digital marketing to attract new customers while others still see potential for growth with new locations. Additionally, many recognise the long-term value of skilled bakers and are investing in the training of their workforce.
“The craft bakery sector is facing immense financial pressure in 2025. Rising costs, market competition, and regulatory burdens pose significant threats to the viability of small bakery businesses. However, with targeted investments in automation, energy efficiency, and strategic cost management, some businesses are finding ways to adapt. Urgent government intervention is needed to provide relief on business rates, employment costs, and energy expenses to ensure the survival and success of independent bakeries in the UK.”
Tim Clarkson, managing director, Dawn Foods UK and Ireland
Baked goods are still in demand, notes Clarkson, but rising cocoa prices will likely see suppliers seek ways to reduce its use in their products.
“The bakery sector is resilient, and we are lucky that consumers often turn to sweet treats when times appear tough.
During 2024, our industry did appear to bounce back in terms of R&D following the post-Covid ‘re-set’, with plenty of new product innovations coming to fruition. While this a trend that we believe will continue strongly in 2025, consumer confidence does remain cautious. But as we are all still prepared to spend on baked goods, it is important for bakers to ensure that their product range is varied and of high quality. Consumers will spend but will wish to ensure that their budget works as well as it can for them.
Raw material availability into 2025 is again showing some improvement, but availability can still be a challenge on some key materials due to global issues with supply chain. Cocoa will be one of the biggest red flags for 2025. Price increases are showing no signs of recovery; it’s a very volatile market that will continue into 2026. The renewed spike in the cost of cocoa will, of course, have an impact on the sweet bakery category. As a result, Dawn is seeing customers exploring ways to cut back or reduce costs relating to products that feature a large amount of cocoa or chocolate with the use of compounds, flavours, coatings, icings and sugar-based decorations to maintain the wow factor and indulgence that chocolate brings.
“Do not be afraid to command a fair price for the skill put into your products”
At an operational level, the introduction of new National Insurance contributions clearly will impact many bakery businesses. This can be eased by bakers reviewing their operation and ensuring that they are maximising every opportunity for sales. Do not be afraid to command a fair price for the skill put into your products, use associations such as the Craft Bakers Association, Scottish Bakers and others as a source of industry advice and support; they offer a wealth of expertise and are on hand to help.
We always advise our customers to regularly review their ranges to see how they can add extra value to drive sales, add new lines including monthly ‘hero’ products. This is even more important in the current uncertain economic climate.”
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