The coming year poses a host of questions and challenges for bakers–the most pressing being how to attract consumer dollars in the current economic climate. By most counts, 2010 will usher in a slow recovery, and bakers will need to address several trends to help generate sales.
What a difference a year makes. At the beginning of 2009, optimism ruled the day. All the talk about the economy seemed to have the same refrain: wait until 2010. Things were going to start looking rosy again around the third quarter of 2009, but no later than fourth quarter 2009, and by 2010, we'd be well on our way to recovery.
But at the onset of 2010, realism rules, and much of the previous optimism has dissipated. While it is true that the recession, as defined by negative growth of the gross domestic product (GDP), did indeed end in the third quarter of last year with a 2.8 percent increase of the GDP, the rebound has been much smaller than anticipated. Economic growth is expected to remain at a modest 3 percent for much of the year. This is an improvement over the previous two years but is not enough to return the economy to its pre-recession level.
The reality is that recovery is going to be slow. “2010 will look a lot like 2009. Consumers are going to remain cautious,” says Ron Cardey, president, Bridor USA, Vineland, N.J.
The unemployment rate seems to have stalled at 10 percent, and a lot of talking heads are tossing around the term “jobless recovery.” Many eliminated jobs simply will not be replaced. According to the Labor Department, the U.S. economy has lost 7.2 million jobs since the recession started in December 2007. The labor market is expected to be slow to recover, a trend that actually began with the smaller downturns of the past two decades.
Part of the slow recovery is due to consumers knee-jerk reaction to the recession. They stopped spending instantly, and businesses followed suit. According to a CNBC report, personal consumption is expected to grow 2.3 percent, lower than the overall economy's 2.7 percent. With a new frugal mindset, consumers are expected to use their money to pay down debt rather than making new purchases, meaning purse strings will remain tight.
Consumers watch spending
The Nielsen Co. reports that almost one-third of consumers say they will use credit less, even when conditions improve, and 19 percent intend to save more money. “I think sales are going to be tough to come by,” says Bill Mihu, vice president of bakery operations, Schnuck Markets, St. Louis. “Bakery is an affordable luxury, but people will be watching their spending.”
One indication that consumers are still closely watching their spending is coupon use. Last year marked the first year that coupon use had increased since 1992. Manufacturer coupon redemption was up 26 percent in the first three quarters of 2009, according to the Nielsen Co. Another sign of consumers' new frugality is the rise of private label sales over national brands. “Consumer buying habits will likely continue to favor private label and more traditional bakery products,” says Robb MacKie, president and C.E.O., American Bakers Association, Washington, D.C.
Bakeries have traditionally weathered recessions well, but the drawn-out recovery will continue to be a drag on the baking industry. “While I believe the worst of the recession is over, the country is not back on the path to sustainable growth. Economic growth this year will be modest at best, and there are warnings of a potential second dip,” MacKie says. “The worrying signs include predictions of substantial increases in commodity prices, expiring tax cuts, uncertain federal policy, an aggressive regulatory policy in Washington and the exploding federal debt. Not until there are several months of respectable jobs growth will the economy trend upward.”
With the economic future uncertain, bakers should not maintain the status quo. “Bakeries will have to be prudent,” says Dan “Klecko” McGleno, C.E.O., St. Agnes Baking, St. Paul, Minn. “I expect those who expand or reduce will do better than those who try to maintain right where they are.”
In view of what bakers can't control—customer spending and ingredient costs—they need to take charge of what they can control—their own operations. “Bakeries should continue to refine their daily operations by evaluating products and eliminating those that are unprofitable,” says William Seppi, general manager, Costeaux French Bakery, Healdsburg, Calif.
MacKie predicts that bakeries will continue to eliminate costs in their production and distribution systems. “This will be particularly important if, as some are predicting, commodity prices trend upward in the second quarter. Retailers are not likely to want to pass along or absorb these costs in the current economic climate.”
In 2010, the economy will be the most influential factor affecting bakery businesses, but bakers will need to watch and adapt to several other trends in the marketplace to retain and attract customers. These trends will affect the baking industry as a whole, from large commercial bakeries to small retail bakeries.
Quality, value still king
Throughout the recent economic upheaval, quality remained the one constant. Bakers should continue to leverage themselves by offering quality baked products at reasonable prices, Seppi says. In the marketplace's current state, price takes center stage. When asked how consumers will define value in bakery products this year, Nick Pyle, president, Independent Bakers Association, Washington, D.C., boiled it down concisely. “One word—price.”
Product price may be the most compelling factor, but consumers also are looking at nutritional value, convenience and product quality for the price to define value, MacKie says. Consumers will continue to worry about total food expenditures, but as unemployment begins to recede they will begin to splurge again, Cardey adds.
Sustainability will remain an issue, and increasingly skeptical consumers want more proof about “green” practices. According to Mintel research, 25 percent of consumers are suspicious when a company claims to be green. “In a bad economy, the majority of consumers won't prioritize the environment if it causes their grocery bill to rise. However, once the recession ends, this will be on top of many people's demand list,” Klecko says.
Building a LEED-certified bakery may be the ultimate goal in sustainability, but smaller steps can accomplish much the same thing in consumers' eyes.
Good stewardship is vital to bakeries, says John Popp, president, Aunt Millie's Bakeries, Fort Wayne, Ind. “Consumers appreciate and will reward businesses that recycle, help keep our air and water clean and conserve our natural resources. That's good business.”
Costeaux French Bakery will implement food scrap recycling next month where table food, food scraps and unusable stales will be composted.
Last fall, the American Bakers Association partnered with the Allied Trades of the Baking Industry to begin working on an industry “Sustainability Scorecard.” The scorecard will put bakers and their suppliers on the same page in how to measure the results of sustainability initiatives, MacKie says.
Health and wellness
Demand for healthful products continues to grow despite the economy, but health can mean a lot of different things in bakery—whole grains, trans fat-free, low sodium, sugar-free, etc., says Tammy Kampsula, bakery director, United Supermarkets, Lubbock, Texas. United's in-store bakeries are developing new products that incorporate chia seeds in their formulations. Chia seeds are gluten-free and high in fiber and omega-3s, some of the current buzzwords in healthful eating.
Products that address diet restrictions due to disease, such as sugar-free for diabetics or gluten-free for those with celiac disease, seem to be gaining the most traction. In Modern Baking's 2009 Retail Bakery Research, full-line operators rated the health concerns most affecting their bakeries. Sugar-free requests topped the list at 15 percent, followed by gluten-free or allergen-free at 12 percent. Whole grain (11 percent), natural/organic (9 percent) and trans fat-free (7 percent) rounded out the top five.
Simple, clean products
If 2009 was about low cost, 2010 is all about less is more. Consumers are looking for products with clean labels that contain the fewest ingredients and no additives, reports USA Today. In a recent Modern Baking roundtable discussion, Klecko emphasized the importance of “clean” products, as his specialty wholesale bakery had lost some customers due to the fact that there were chemical preservatives in the products.
In the Chicago Tribune's list of top nutrition trends for 2010, simplicity as the new sophistication ranked second. The concept of less is more will be manifested in less packaging, shorter ingredient lists and more understandable ingredients, Lynn Dornblaser, Mintel's new products analyst told the newspaper.
Rise of foodservice
Food sales in supermarkets have outperformed non-food department sales, according to Nielsen Co., as consumers have begun cooking more meals at home. While consumers will likely continue to eat at home more than in the past, MacKie senses a slight shift back to foodservice. “I believe that we will see modest growth in foodservice as consumers become slightly fatigued with meals at home. The overall category is likely to show modest growth in sales volume.”
Changing perceptions also will affect where consumers spend their food dollars. The definition of fast food has expanded beyond the hamburger and chicken chains to include the fast casual segment, such as bakery cafés, which serve food quickly but emphasize product flavor and quality. Menus are moving away from cost-savings that were so important last year and are instead incorporating high-quality ingredients, according to Mintel. “In 2010, we expect menus to go back to the basic roots of good food and drink,” says Maria Caranfia, registered dietician and senior analyst for Mintel Menu Insights.
Emergence of social networking
The proliferation of smartphones and other advances in technology have made it easier for consumers to stay tuned in and in touch. They are looking to make connections and are turning to social networking sites to do it. And, they are using these sites as more than a place to find “friends.” Consumers are looking for real information from and real interaction with companies.
“It isn't enough to put up a Facebook page; you have to attach it to specific targets,” Klecko says. “You have to have a well thought-out campaign.”
One of the biggest benefits to bakers is the ability to engage in “real” time with customers. “Because of our ‘now’ society, having the ability to respond virtually immediately with information can make the difference in booking a sale,” Seppi says. “Additionally, timely responding to online comments on sites, such as Yelp! or Chow Hound and other consumer review sites, has become increasingly important.”
The sites also provide a platform for bakers to engage consumers in a dialogue on making baked products part of a healthful and balanced lifestyle, MacKie says. “Frankly, much of the misinformation surrounding grains and healthy lifestyles has been spread via the Internet. The social networking venues provide not only the bakers, but the rest of the food industry, a platform to dispel those myths and provide accurate, scientifically based information directly to consumers.”
Health care reform, immigration, food safety, trans fat bans, calorie count transparency—the list of regulations from federal, state and local governments that affect the baking industry seem almost endless.
Some policies, such as food safety and health care reform, will likely be finalized this year, MacKie says. Legislation to overhaul the nation's food safety system has passed the House of Representatives and is now being considered in the Senate.
Nutrition and obesity policy will be given top priority in 2010, MacKie adds. (First Lady Michelle Obama has already announced that confronting childhood obesity will be her focus this year.) National nutrition guidelines are being reviewed, and substantial issues, such as added sugar, high fructose corn syrup, sodium and the balance of whole and enriched grains, are under discussion.
The forecast for 2010: cloudy. Until people are back to work, consumer spending will remain well below pre-recession levels. Offering a quality product at a reasonable price will help bakers weather the uncertain climate.