According to Datamonitor, new premium products with added functional and health benefits helped the sector counter some consumers' reduced consumption of bakery foods.
And despite fears, both the US and European markets for bakery and cereals saw encouraging growth in 2004, show figures from the industry analyst, up 3.2 per cent and 2.7 per cent respectively, compared to 2003.
This represented an increase in market value of $1.6 billion in the US and $3.56 billion in Europe. Datamonitor predicts similar growth rates for 2005 and beyond, despite fears that keen interest in low-carb diets in 2003 and 2004 would adversely affect the industry over the long term.
Nick Beevors, consumer market analyst at the group, says that the trend away from bakery products during the low-carb diet fad prompted action from manufacturers that boosted new growth.
For example, UK baker Warburtons introduced Healthy Inside and Summer loaves, while in the US Interstate Bakeries Nine Grain and Stone Ground Whole Wheat with Extra Fiber products are proving popular.
The increasing range of functional and more health-orientated bakery products managed to allay the concerns of diet enthusiasts that the extra bread roll at dinner time would increase their weight.
According to Datamonitor, by providing consumers with premium products that go beyond simply being low-carb and providing more health-focused produce - for example wholemeal and granary breads, bakery manufacturers reaction to health and diet concerns has proved successful.
What's more, health awareness in food has also crossed into the emerging markets of Eastern Europe where both US and European manufacturers of ready to eat cereals are meeting with huge success, switching Eastern Europeans from a breakfast of bread and ham towards cereals.
"The surge in sales of functional, organic and fair-trade bakery and cereal products in 2004 demonstrates the modern Western consumer's concern with health and trade issues and their willingness to act on those concerns," said Beevors.