On the Rise

The past 18 months have been volatile; once commodities and gas prices settled, the economy took a nosedive, and consumers started to closely monitor expenditures. In-store bakers are left to figure out how to generate the most sales in an industry that is impulse-purchase driven. Fortunately, as more consumers eschew restaurants and go to supermarkets more frequently, the in-store bakeries are seeing

The past 18 months have been volatile; once commodities and gas prices settled, the economy took a nosedive, and consumers started to closely monitor expenditures. In-store bakers are left to figure out how to generate the most sales in an industry that is impulse-purchase driven.

Fortunately, as more consumers eschew restaurants and go to supermarkets more frequently, the in-store bakeries are seeing higher customer counts. And, although bakery items are not a necessity, they are an affordable treat. Traditionally, bakery has proved to be recession resistant. Bakery products are often the cornerstone of holidays and celebrations, so the baking industry should be able to weather the economic decline.

Modern Baking, a Chicago-based sister publication of Supermarket News, recently gathered several in-store bakery leaders from different areas of the country to share their predictions for the future of in-store baking and what methods they will employ to ensure the future remains bright.

These retailers included Bill Mihu, vice president, bakery operations, Schnuck Markets, St. Louis; Kevin Kruse, bakery plant manager for Schnucks; John Rose, category manager, fresh foods, Brookshire Grocery, Tyler, Texas; Steve Schulte, bakery coordinator, Whole Foods Market, South region, Atlanta; David Hay, bakery merchandiser/trainer, Roche Bros., Wellesley Hills, Mass.; and Jerry Cedrone, director of deli & seafood for Roche Bros.

Katherine Martin, chief editor of Modern Baking, moderated the conversation.

This retail roundtable was sponsored by BakeMark, and the following are excerpts from the discussion, which was originally published in the August 2009 issue of Modern Baking. Additional news regarding the roundtable can be found at modern-baking.com [3].

MODERN BAKING: Before we address the future, let's take a step back and look at the effects of the volatile economy. What have you seen in your markets in the last 18 months?

JOHN ROSE: In our case, we've been enjoying additional foot traffic. We accredit that to people not going to restaurants and coming instead to the grocery store. Once customers are in the store, all departments tend to benefit, including the bakery. We've also been trying to do some other things — really trying to play up fresh bread coming out of the oven or fresh cookies — just to promote that we've got them. I mean we've got a captive audience.

STEVE SCHULTE: Fewer people are going to restaurants and more are really going back to cooking at home again. The store is enjoying the increased foot traffic. At my bakery, people are changing what they're buying. Sandwich bread sales have gone way up as more people are making sandwiches; those who used to go out to lunch every day of the week are now taking bagged lunches a few times a week.

DAVID HAY: We're seeing the opposite — a downward trend in trips, but the average ring is up. So when they come in, they're buying that higher-quality item, but they're unfortunately just not coming as often.

BILL MIHU: We've had a slight drop in unit count. We've just cycled one year with the economic decline, and sales were good, but it was inflationary, which somewhat hid the drop in unit count. One of the things we're trying to do is try to downsize some packaging, going from six-count to four-count on cupcakes. Part of our responsibility in the bakery is commercial bread, and the last year was probably the most volatile time frame for commercial bread that I've ever seen. We saw companies that had three price increases in a year's time; I've never seen that in my whole career. From a sweetgoods standpoint, I was concerned about a walk-away price. I wasn't so afraid of it in the bread side, but in sweetgoods there's not this great connotation that it's healthy for you. That's a concern, and we've kind of hit the wall a little bit on sweetgoods.

MB: Where are you seeing opportunities now? Is there any product trend that seems to be gaining ground, such as gluten-free or sugar-free?

Rose: Prior to the downturn, we were seeing a few requests for a gluten-free product or other specific dietary/nutritional type products. And we were actively pursuing that. But since this shift in the economy — and people have tightened up their spending a little bit — we're not getting the requests. It doesn't mean that the need isn't out there; it doesn't mean they don't want it. But it seems like it just went quiet.

SCHULTE: For us, our gluten-free is just going through the roof. It's more about customer education because more people are actually being diagnosed with celiac disease. They're reading more about it; they're coming in and looking for it. They're still willing to pay for that product.

As for sugar-free, we're seeing an increase. The last year was double-digit growth for us. And we call it a specialty food category, which includes sugar-free and gluten-free. The quality of those products has become better and there's a larger variety of it available, but the price points have pretty much stayed consistent. The customer expects to pay a little more for them.

MB: What about trans fats?

HAY: We've had one city already ban trans fats. So, we made the decision to just go trans fat-free, and since then, we've had two more cities that are instituting bans next year. But educating the consumer as to why partially hydrogenated shortening is OK is important. It's a little further down on the list, so they don't quite understand it as they read the label. That's what we're struggling with. The consumer is only hearing what they want to hear; they don't fully comprehend what the ban is.

MIHU:: Well, the struggle in New York is that some bakers I know went back to saturated fats because they were forced to. They were very reluctant to do that, but it's all about the consumer not understanding that banning trans fats and going to saturated fats is moving backwards. But that's exactly what happened.

MB: What are the trends in product sizes?

SCHULTE: We're seeing more with portion control. We've noticed a difference between our large 5½-ounce muffins and our 2½-ounce muffins. More customers are buying the 2½-ounce muffin. During this downturn, people are trying to eat healthier, but at the same time, they still want that treat. If they can get that treat but have a smaller portion of it and feel like they didn't go overboard on it and didn't pay a lot for it, then they seem to be happy. We're offering a lot of our sweet items — dessert items — in smaller portions. Obviously, it hurt sales because all of the sudden you took something you were selling for one price and now you're selling it for a lower price. But you know, if more customers are buying, then I look at that as still being a win.

KEVIN KRUSE: We've added demi-loaves, 10-ounce and 12-ounce loaves of bread. The customer is not willing to spend $3 or $4 for a loaf of bread and then have half of it be stale in a day. So, we've gone with the 10-ounce and 12-ounce loaves of bread and we're getting multiple picks there. They're buying two flavors; it's a small loaf of bread and two people can certainly eat that in a day.

MIHU: Customers are still going to buy something, but maybe they just wanted a little less of it. Bakery is not perhaps the healthiest product around, but it sure is good; and they'll feel a little better about having 4 ounces of it instead of 6 or 8 ounces of it. But also to Steve's earlier point, I agree that it's still the same amount of work that sells for less. But you know, you're meeting the customer's need and that's very important, especially long term.

SCHULTE: You just hope you can pick up a few new customers that can help make up that difference.

MIHU:: And, drive some units beyond where you already were.

MB: With customers closely monitoring how they spend their dollars, are you seeing any demands for value packs?

SCHULTE: During graduation season and the holidays, we always offer that. But at least from our standpoint, a lot of people just don't want to take a chance of wasting product. They don't want to waste food.

MIHU: I think it's about value for the quality of the product they get. I don't think it's about wanting more in size. They're willing to pay a fair price, but they want a quality product, and that's the value proposition they're looking for. We're not seeing a demand for folks wanting 20% more of this product, but I think they want to feel like they're getting value for what they're spending. It's not about just wanting more at a cheaper price.

MB: Do you think customer habits are changing for the long term, and if so, how?

ROSE: I don't see them making a big shift. However, I think everyone is waiting to see how the economy goes. Is it going to settle down? I did read that a lot of folks are changing some habits — going out to eat less often and going to the grocery store more. So it might be a little bit of a shift in our favor.

SCHULTE: There's been a change with people starting to cook. My friends are actually talking about enjoying their Friday nights of coming home, cooking together and teaching the children how to cook. That's something that people haven't done for a long time, which is a good thing for us, because the children need to know how to shop for food and cook it themselves.

MIHU: We're about two generations removed from children that know how to cook. There very well may be some long-term change in shopping patterns, and maybe for the better for us. Only time will tell whether that's really going to play out. There could be a mindset of people thinking more about preparing meals at home. They save some money; they have more family time. There could be a shift there.

KRUSE: We've added Schnucks Cooks in some of our stores. The chefs have recipes that they prepare with recipe cards right there, and then we have the products that they're preparing or the ingredients adjoining that display. It's about showing people recipes that are simple; that can be produced in less than 30 minutes. The ingredients are right there and they can sample it. It goes back to this customer that doesn't know how to cook. We're seeing some success with it.

MIHU: Getting bakery involved in Schnucks Cooks is a little harder than what you'd think, because it's not truly an ingredient; it's an add-on or it's a part of the meal. It's how to get bread in there or a dessert item. And it's so new we're kind of feeling our way around that.

JERRY CEDRONE: I think for us, one thing that we lost for a few years was the impulse buying. You know, grabbing that extra sale, cross-merchandising something and getting a sale. I think for us that's one of the biggest off-drops we've seen. Customers come in with specific lists; they buy just what's on the list and that's it. That's what they can afford within their budget. So hopefully as the economy gets better we will see some more of the impulse shopping. But now they're just buying what's on the list; that's what makes it a little bit tough right now.

MB: With bakery reliant on impulse purchases, how do you combat list shopping?

SCHULTE: Demo and a lot of sampling, especially on the weekends when there's higher traffic. We're doing more manned demos vs. passive ones on the counter. If somebody is there to engage that customer, and the product is right there, the customer is getting an opportunity to try it, learn a little bit about the product. Sometimes we have a recipe or tie-in items with it as well.

ROSE: We're using knowledge-based training, or KBT as we call it. The beauty of the program is we decide on a given list of products attached to a given calendar date or week. Then we develop these little cards that describe the attributes of the product, and send them out to all the bakeries throughout the chain. All bakery employees try the product, and really get out there to push it. Everybody is doing the same product at the same time in all of our stores. It's worked pretty well, I think, because it's an organized, concerted effort.

KRUSE: We've done some check lane selling because the greatest one-on-one contact in a lot of cases is at our check lane. We have products or events that we're trying to promote, and the checker may be wearing a button or a ribbon that talks about an event or a product.

MB: What about marketing to the younger generation, your next crop of customers? Are you using social marketing tools, such as Facebook and Twitter?

MIHU: There's no cost to it, but what's the application to us? We're kind of grappling with that because we don't yet understand how to use that tool. The young consumer today doesn't read the newspaper. They will go on the Internet. We're trying to understand that dynamic. But we don't really know if we should participate in Twitter or Facebook.

SCHULTE: We are starting to Twitter. We had a meeting recently, and I noticed during breaks, the younger team members were sitting there texting. But when they have to carry on a conversation, they can't. They would rather sit there and communicate with you by texting you. We have to understand that.

HAY: We've just started social marketing, but what we're trying to get our hands around is how to measure the success of it. We've toyed with the idea of sending out a Twitter for a free package of cookies or something that you're going to be able to stock and measure.

MIHU: Right. And what is the infrastructure you need for social marketing? What do you need internally to make sure that you have a presence on Twitter and how do you monitor it? It's kind of like blogs. You can't control them. So is it better to have a presence on it, at least talk about your position or whatever? But companies like control, and you give up control when you get involved with blogs and Twitter.

Schulte: Each region for Whole Foods is doing something with Twitter. We have a tent at a music festival, and our marketing person started Twittering about it. She's just totally blown away by the amount of followers she has on that already. She told a few people on Facebook and then she started Twittering. We're really excited just to see how many people are going to come to our tent just because they've been tweeted or read on Twitter about the things that we're going to have there.

MIHU: There's no risk there, no cost to it. And if it doesn't work, it's like so what? The traditional communication mode of newspaper may be obsolete. If that's the way you go to market and that's the way you're advertising and that vehicle is gone, then how are you going to communicate to your customer? We're trying to figure out what the right mode is.

SCHULTE: In the past, we found out what the customer wanted by listening to what they said after they walked in the door, but we didn't have as big a vocal group. With Twitter and Facebook, you can ask them to join your fan club and ask what they think of your products. Consumers are more vocal in that format. They probably won't come up and talk to you about it, but they'll comment there.

MB: How is the economy and shoppers' changing buying habits affecting your bakery plans?

MIHU: My concern long term about this industry is that the 25-and-under customer has a different attitude about grocery shopping that what the 45- to 50-year-old does. And they don't see the grocery store as their main shopping experience. So how are we going to position our stores long term to meet the needs of that customer? Talk to a college student and ask them where they shop today. First and foremost, they think about club stores or even Walgreens. They don't look at [supermarkets] as a primary option. That's a real concern. How are we going to address that? Does that mean our store size has to change? Is it a 10,000- or 15,000-square-foot store?

HAY: I'm seeing our competitors in the Boston area really downsize floor space. And shrink is obviously a concern, that there may be too much variety out there, so with the downturn in the economy, everybody went back and looked at category management. We haven't done it yet, but I'm seeing space taken away from our competitor's bakeries.

MIHU: In the grocery department, they face up the shelves; we throw it away. When Mondays are 10% of our business and Saturdays and Sundays are each 24%, we have just as much space on Monday at 10% as we do on Saturday. Not a good thing. I'm a believer that smaller departments are more efficient, they have a fresher perception. If you've got to work more labor, that's OK. Because that means you're interacting with a customer, you're out there more. I really believe that we're going to downsize in the future. I think our typical footprint is going to change to be a bit smaller. Not drastically, but I think we just need to pull some space out of there.

ROSE: We're hanging on to space, but we are looking at just how much variety do we need. How many SKUs of a given product do we need? Does it really make sense to be managing this vs. this when you apply the proverbial 80/20 rule? There's too much choice. We'd be a whole lot happier in some respects without 82 choices when maybe 10 would get it done.

HAY: And make it the best 10.

ROSE: And make it the very best. This is our rock-solid core, 80% of our customers are buying this. It makes a lot of sense. We're looking at that.

SCHULTE: What we're trying to do in our region is do a square footage analysis of each store. In my case, I'm actually analyzing the margin dollars per square foot. What's the minimum that you can do with that space and what's the maximum you can do in that space and still be able to take care of the customers? That's what you really have to start to look at.