The profitable management of the fresh bakery category has become a hot topic as retailers attempt to make the most from this high-potential department. The hurdles are many, but the rewards for establishing proper techniques are more, say industry experts.
In-store bakery managers are faced with creating, on a daily basis, a highly perishable product mix that will not only satisfy daily needs, but spark creative impulse buying as well. And while every department must concern itself with customer needs, the ISB operates in what one consultant calls a "sort of third dimension," meaning it is the only area of the store in which virtually every item is somehow altered before making it to the shelves.
"The ISB, to a limited extent, is a manufacturer," said Peter Houstle, executive director of the Retailer's Bakery Association, Laurel, Md. "In any commercial department, the manufacturer provides the finished product, making it safe to assume that the Campbell's Soup you buy in one store will be the same Campbell's Soup you buy in another store. "With the ISB it's more difficult because, while two stores may buy their batter from the same company, they will do two completely different things with it. This makes it harder to determine if the actual ingredients are the selling point or if what was done at store level prompted the sales. The modifications limit the control the retailer and the manufacturer have on the product," he said.
Kurt Burmeister, bakery director for corporate stores for Grand Rapids, Mich.-based Spartan Stores, agreed that category management in the bakery is among the most difficult because it starts with ingredients.
"Everyone's doing their own thing with the product," he said. "It is absolutely more difficult to determine why something does well. Without a doubt."
Chris Ohlinger, chief executive officer of Service Industry Research Systems, a Highland Heights, Ky.-based consulting firm, said that a successful category-management program in the ISB likewise goes beyond the product itself, to issues that have a direct effect on customer perceptions.
"In addition to everything else, you have the freshness and service aspects to control as well," he said. "It's just more of a multidimensional department."
Juggling all these variables to maintain a profitable performance record can be confusing enough, but practicing category management in the ISB is even more vexing if the data being relied upon is incorrect. Burmeister encountered this situation when he took over bakery operations for Spartan's 44 stores.
"When we stepped in at Spartan, we pulled in all the credible data and looked for the higher-moving items to keep, and got rid of the slower ones," he said. "The problem you find a lot of times in the bakery is that you have the data, but it's not always as accurate as you would like it to be."
He mentioned careless, inaccurate scanning as a a definite inhibitor to a department's management success.
"We've really been able to increase scanning awareness at the Spartan stores," he said.
The RBA is making a point of sharing tactics for successful category management by addressing the topic at its convention in Washington. Dennis Sobotka, managing partner at The Partnering Group, East Amherst, N.Y., will address the subject, as he did at last year's convention, and offer strategies for success.
In last year's presentation, Sobotka stressed that category managers must review their individual category for progress and weak points on a regular basis in order to remain successful. To do this, he explained, the retailer, or manager, needs to first define the category -- What is it? What is its structure? Then determine its role -- How important is the category? And how can that importance be leveraged? Assess the category's performance -- How is it doing vs. its potential? And determine future goals and objectives, forming a complete business plan.
Only after such an assessment can a manager truly develop tactics for achieving a department's goals and implementing a plan, he said. The department should be the primary provider of the products it offers, and help define the image of the retailer in the mind of the consumer. To do this, he said, the department must consistently deliver superior value and monitor the changing desires of its customers, as well as their routine needs.
Houstle agreed that a retailer simply cannot thrive without constant attention to customer demand.
"Probably the most important aspect of managing your category is understanding what your customer wants," he said. "You can't be successful if you don't satisfy their needs."
Burmeister said that Spartan's philosophy behind its category-management efforts is to consistently offer new and exciting products to customers.
"To keep the customers coming back you need variety, variety, variety," he said. "Of course, you'll always carry the standards and the best sellers, but that's expected. You need to give them something they might not expect. Keep it fresh, keep it exciting, keep it new. It's the only way to go."
The problem that arises, Burmeister said, is in getting the bakeries to continue putting out that new product, and not reverting back to their daily routine, once a promotion has passed.
"When you roll out a new item you have to stick with it," he said. "You can't have it the week it's advertised and then stop carrying it. I'll run an ad for an item one week and then advertise it again a few weeks later, to make sure my stores continue to carry something new."
According to Sobotka, retailers need to focus on matching their products and goals with the right marketing strategies. If a retailer is looking to increase traffic in his department, he will want to bulk up on items with a heavy consumer draw, items with high household penetration that are a frequent purchase for customers. However, if the retailer is looking to improve the category gross margin by generating more cash, he will need more fast-turning items on the shelves. New products, like seasonal or holiday items, can create excitement in a department and generate a sense of urgency and opportunity for the customer. The key is determining which area you want to focus on and making the right alterations to achieve those goals.
Ohlinger said he believes some of today's top retailers have such strategies.
"The leading-edge retailers are certainly heavily involved in managing their categories and they're doing a pretty good job, too -- almost to the point where they're evolving into a sort of 'category mix management,' optimizing sales throughout the entire store," he said, referring to retailers who are cross-merchandising baked goods throughout multiple departments.
He fears, however, that the increasing mergers within the industry will "end up having the net effect of having everybody look the same.
"Research we have done here has shown that, from the consumer standpoint, the stores are already seeming less personalized," he said. "The consumers are saying the sameness is setting in and that's unfortunate."
Ohlinger cited H.E. Butt Grocery Co., San Antonio, and its Central Market format, as a prime example of how to manage categories.
"It worries me that someday they will be taken over and made to look like so many others," he said. "They really know what they're doing."