The frozen cake and pastry manufacturing industry experienced a variety of flavors over the past five years. Industry revenue grew strongly in 2008 and 2009 as the recession and the dip in disposable incomes spurred customers to opt for inexpensive comfort foods instead of eating out. However, as unemployment fell and disposable incomes rebounded, challenges surfaced. Sales of frozen cakes and pastries began to melt away as consumers loosened up their purse strings, splurging on pricier fruits and freshly baked cakes instead. This trend contributed to an average revenue decline of 0.8% per year to total $5.1 billion in 2013.

IBISWorld industry analyst Agiimaa Kruchkin says, “To counter the difficulties, operators responded to shifting consumer preferences via product innovation, focusing on the use of higher quality, healthier ingredients.” Consequently, in 2013, industry revenue is expected to rebound 4.5%, especially because frozen cakes and pastry products will remain an attractive indulgence to time-poor individuals.

Profit margins also grew during the recession, especially as the price of wheat, a key input, plummeted. However, industry profit suffered once revenue started to decline and commodity prices returned to growth. Complicating the matter, operators were unable to pass on the full increase in input cost through higher prices because consumers remained price-sensitive. With profitability on the decline, some players were forced to exit the industry, allowing major players like Schwan and ConAgra to expand their market share.

“With the economy showing more stability, though, disposable income has increased and quality has become a larger demand factor, giving companies more leverage to raise prices on premium frozen cakes and pastries because consumers are willing to pay more for high-quality products,” says Kruchkin. Therefore, profit is estimated to expand in 2013 and over the next five years, encouraging new players to enter the frozen cake and pastry manufacturing industry and, in turn, keeping market share concentration low.

During the five years to 2018, consumers are expected to benefit from a recovering economy and growing disposable income, which will enable them to indulge in premium-priced organic fruits and fresh cakes. This competition will hurt demand for frozen cakes and pastries and, therefore, dampen revenue growth. At the same time, though, the improving economic conditions will drive demand for premium-priced frozen cake and pastry products as well, which will be a major growth segment. Furthermore, as more Americans return to work and have less time to bake desserts, they will opt for the convenience of frozen cakes and pastries, buoying revenue.

For more information, visit IBISWorld’s Frozen Cake & Pastry Manufacturing in the US industry report page. This industry manufactures an array of frozen bakery products, such as cakes, donuts and pies. Frozen bakery products like bread and cookies are excluded from this industry.