Fast food and quick casual foodservice bakeries are gaining in new markets by paying attention and being creative.
The competition for customers is as tough as it has ever been. Consumers naturally behave differently during a recession, as people are forced to prioritize their expenditures to receive the most out of every penny. Modern Baking's Top 50 Foodservice Bakeries, representing the largest chains in terms of units, are navigating this turbulent market by looking closely at their evolving customer base.
“People are having to make tough choices on where they spend their shrinking disposable income,” says Kevin Schuk, vice president of Breadsmith, a Milwaukee-based bakery chain. “We have certain core customers that know about us and will continue to patronize our stores, but it's our challenge to find new customers and convince them to make the extra stop.”
A recession produces a “trading down” effect. When given the choice, consumers tend to opt for goods and services that might be a rung or two below their normal station on the price ladder. While this is bad news for those on the top of the ladder, the middle rungs end up exposed to new customers who, despite the economy, are used to paying more for quality.
“We're getting a lot of customers that may be trading down from a white tablecloth experience,” says Tom Gumpel, director of research and development at St. Louis-based Panera Bread Co. “We are enjoying a lot of extra new folks coming to the concept because of that.”
Bakery cafes in the quick casual mould tend to enjoy a clientele that isn't price driven, which helps them retain customers they already have. Panera Bread Co. comfortably increased prices by up to 6.5 percent this year to mitigate volatile ingredients prices, but still posted increased profit margins and revenues.
The rise of quick casual
The economy has consumers of every stripe trading down, and restaurants are experiencing the same. But foodservice bakeries, particularly those in the quick casual niche, aren't as severely affected. In fact, the Top 50 foodservice bakery list shows continued growth for the category that includes Au Bon Pain, Corner Bakery and Panera Bread Co.
These companies are growing thanks to a combination of customer retention and the infusion of new customers. The quick casual niche is riding several trends that consumers continue to demand even in a tough economy—namely healthfulness, perceptions of comfort or wholesomeness, and upscale appearances and product lines.
Also, the price gap between quick casual and fast food restaurants is shrinking, and value certainly plays into consumer decisions. Tight margins have forced fast food restaurants to raise prices at a greater clip than quick casual restaurants, so the sticker shock now is less of a factor at quick casual foodservice bakeries. The first significant price bump on the ladder from fast food to high end restaurants now appears between quick casual and the sit-down casual restaurants where tips are factors in prices.
“The fast casual niche seems to be where everyone wants to be,” says Ed Frechette, senior vice president of marketing for Au Bon Pain, a national bakery café chain based in Boston. “We are seeing fast food restaurants trying to offer higher end products and casual dining restaurants trying to mimic the fast casual format with curb-side pickup options. The only disadvantage is that we are seeing different formats trying to crowd into our space.”
Sit-down foodservice bakeries aren't faring as well, but they may have a horde of hope in the form of a retiring baby boom generation giving up their time crunched, convenience-based food habits. Still, quick casual foodservice bakeries tend to be able to draw equally from this crowd, and when price is a factor, draw better.
Disclosure legislation brewing
New York City is once again on the front lines in legislating healthful eating habits. The city's Board of Health unanimously pushed through a revised version of disclosure rules requiring all restaurant chains of 15 national locations or more to label menu items with calorie counts.
New York is the poster child for labeling mandates, but it's not the only place that requires them. In Seattle, restaurant chains with 10 locations nationally and more than $1 million in total sales, which covers every chain the Top 50 list, are obliged to label calories, trans fat, saturated fat, carbohydrate and sodium contents on menus or menu boards. Philadelphia, Chicago, San Francisco and Westchester County, N.Y. are contemplating similar legislation. Differences in the specific requirements of regulations in disparate locations pose a problem for large, national chains.
“It forces us to make at least two of everything,” Frechette says of Au Bon Pain's signage and menu boards. The company uses the cleanest possible menu board wherever it is allowed. “Graphically, the boards with nutrition labeling present customers with an information overload, and the products get lost in the clutter.”
He expects the federal government to put a uniform health disclosure law on the books in the coming year. This will dictate where nutrition labels go. In the mean time, Au Bon Pain and other chains are providing locations with computer kiosks that contain extended nutritional information about all products.
Dr. Thomas Frieden, New York's commissioner of health, released a statement saying the disclosure would “help consumers in making healthier choices about what to eat and drink.” Frechette says despite having the labeled boards in New York City locations since April, he hasn't noticed any appreciable difference in customer choices or product popularity.
“The menu labeling hasn't acted as a deterrent, we haven't seen any changes in people's behavior,” he says.
Recession proof donuts?
Donuts, perhaps chief among comfort foods, have proven to be resilient in difficult economic times.
“A lot of quick service restaurants are experiencing downturns in sales given the economy, but donuts seem recession proof,” says Anthony Bonelli, C.E.O. of LaMar's Donuts, headquartered in Lincoln, Neb. “Our numbers are up, the last figures I saw said 11 percent.”
He thinks donuts afford customers an escape from their economic woes. While people may be sacrificing new cars, vacations and other big-ticket items, they aren't going to deny themselves the comparatively small expense of coffee and a donut.
Dunkin' Donuts International, Canton, Mass., continues with an aggressive national growth strategy which includes expanding in existing markets and moving into new markets. St. Louis was the most recent expansion area. More than 100 new locations are projected for St. Louis and the surrounding counties alone.
The embattled Krispy Kreme Doughnuts Inc., Wintson Salem, N.C., though, continues to fluctuate in numbers of store locations. The company added 124 new locations in the past year, rebounding from an 81-store reduction the previous year, but that number is largely a reflection of growth overseas. Financial woes and decreasing sales continue to be a problem locally, and after posting a third quarter loss, the company expects to close a “significant” number of its American stores.
Tinkering with portions
Armed with an understanding of several current consumer trends, foodservice bakery chains are taking aim at certain consumer segments, tailoring product lines to lure them.
The miniature dessert trend is still picking up momentum. A recent survey of 1,600 foodservice professionals in the American Culinary Federation pegged the phenomenon as one of the top three menu trends for 2009. Miniature desserts' great strength is their simultaneous appeal to both senses of healthfulness and decadence.
Desserts aren't the only bakery products now subject to downsizing in bakery chains. Portion control is a cornerstone of healthful diets, and Au Bon Pain is making it easy for customers to practice restraint with its new Portions Menu. Items on the Portions Menu include a chickpea and tomato salad, humus and cucumber, a green bean and almond salad and mozzarella and tomato.
“The idea with the portions menu is that everything is 200 calories or less,” Frechette says. “People love them, they share them like tapas. They are popular little snacks that people like because they are uniform in calorie count.”
Consumers are scaling back on going out to eat, hurting the restaurant industry overall. But that doesn't mean those consumers can't be reached.
“People are tending to eat at home more,” Gumpel says. “But it isn't hurting our transaction rate. People just buy things that they can take home with them.”
Gumpel sees an increase in sales at Panera for loaves of bread, coffee cakes and other items that can be enjoyed by entire families at home instead of individuals on the run.
Breadsmith, which focuses almost solely on bread, is acting on the trend.
“We are trying to get dinner recipes that call for our products into the hands of all of our customers,” Schuk says. “That way, we can incorporate ourselves into our customers' home meals. We do a monthly calendar to let customers know what breads will be featured when, and every calendar has a recipe on the back.”
Different times, different customers
More chains among the Top 50 see opportunity in non-traditional dayparts. Breakfast was the main target for major foodservice bakery chains this year, with numerous breakfast sandwich innovations designed to offer upscale breakfast products on the go. One of the unforeseen benefits of the expansion into new dayparts has been the addition of a new type of customer.
Quick casual chain consumer markets had, in the past, skewed heavily to females. The breakfast sandwich lured a male contingent that wasn't present before.
“Part of it is that the women have dragged the men in their life into these restaurants, and they liked it. Part of it was the addition of a hearty breakfast,” Gumpel says. “Now, we see tool belt-wearing men stopping by for a sandwich in the morning. It's making us rethink the menu.”
The success of breakfast among quick casual chains has them continuing to pour resources into the daypart.
“We are seeing more transactions during breakfast, so we are working on more innovations in breakfast sandwiches and innovations in coffee,” Frechette says. Au Bon Pain is experimenting with egg wraps to add dimensions to its existing breakfast.
Panera will be looking to tap into the forgotten afternoon daypart in the coming year. A menu featuring cookies and brownies will aim to draw those seeking an afternoon pick-me-up.
The economic downturn created a shift in consumer behavior, and the average customer has changed for foodservice bakery chains. While staying in tune with loyal holdovers from a boom-time clientele, the Top 50 foodservice bakery chains are discovering and addressing a new consumer.
|Current rank||Prev rank||Chain||Headquarters||Business||Total U.S. units 2008||Total U.S. units 2007||Planned additions||Sales in millions|
|1||1||Dunkin' Donuts||Canton, MA||donut shops||6,600||6,100||500||4,550|
|2||2||Tim Hortons*||Dublin, OH||full-line bakeries||3,221||3,047||210||4,120|
|3||4||Panera Bread||Richmond Heights, MO||bakery cafes||1,168||1,027||100||2,200|
|4||5||Auntie Anne's||Gap, PA||pretzel, cookie bakeries||920||920||80||252|
|5||6||Daylight Donuts||Tulsa, OK||donut shops||828||820||15||280|
|6||12||Cinnabon||Atlanta, GA||cinnamon roll bakeries||690||450||80||220|
|7||7||Einstein-Noah Bagel||Lakewood, CO||bagel bakeries||612||598||12||403|
|8||8||Bob Evans Restaurants||Columbus, OH||restaurants||579||590||2||1,025|
|9||3||Mrs. Fields Famous Brands||Salt Lake City, UT||cookie, pretzel bakeries||538||1,259||0||101|
|10||10||Perkins Family Restaurants||Memphis, TN||restaurants||485||480||5||842|
|11||9||Golden Corral||Raleigh, NC||restaurants||481||480||5||1,525|
|12||14||Krispy Kreme Doughnut||Winston-Salem, NC||donut shops||423||299||3||770|
|14||17||Ryan's Family Steak House||Greer, SC||restaurants||296||251||1||725|
|15||11||Big Boy Restaurant & Bakery||Warren, MI||restaurants||291||455||13||580|
|16||15||Village Inn||Denver, CO||restaurants||263||262||8||365|
|17||16||Bruegger's Bagel Bakery||Burlington, VT||bagel bakeries||256||254||41||178|
|18||18||Cookie Bouquet/Cookies by Design||Plano, TX||cookie bakeries||250||250||10||60|
|19||21||T.J. Cinnamon's (Arby's Restaurant Group)||Atlanta, GA||cinnamon roll bakeries||243||233||0||NA|
|20||22||Yum Yum Donut Shops/Winchell's Donuts||City of Industry, CA||donut shops||228||228||3||68|
|21||20||Au Bon Pain||Boston, MA||bakery cafes||226||233||13||239|
|22||19||Great Harvest Bread||Dillon, MT||bread bakeries||220||234||7||NA|
|23||23||Wetzel's Pretzels||Pasadena, CA||pretzel, cookie bakeries||190||190||25||60|
|24||29||The Cheesecake Factory||Calabasas Hills, CA||restaurants||157||134||15||1,470|
|25||25||Honey Dew Assoc.||Plainville, MA||donut shops||155||155||0||55|
|26||24||Atlanta Bread Co.||Smyrna, GA||bakery cafes||145||156||6||90|
|27||26||Bakers Square||Denver, CO||restaurants||143||143||0||200|
|28||27||Marie Callendar||Aliso Viejo, CA||restaurants||138||138||2||330|
|29||31||Cosi||Deerfield, IL||bakery cafes||135||118||60||140|
|30||30||My Favorite Muffin/Big Apple Bagel||Deerfield, IL||muffin/bagel bakeries||134||133||5||4|
|31||28||Coco's Bakery Restaurant||Carlsbad, CA||restaurants||109||135||0||150|
|32||33||Corner Bakery||Dallas, TX||bakery cafes||103||97||14||223|
|33||32||Southern Maid Donuts||Garland, TX||donut shops||95||112||NA||NA|
|34||34||Paradise Donuts||Catoosa, OK||donut shops||93||89||6||5|
|36||37||La Madeleine Bakery, Café & Bistro||Dallas, TX||bakery cafes||65||65||0||130|
|36||38||Great American Bagel||Westmont, IL||bagel bakeries||65||52||6||35|
|38||36||Frullati Café & Bakery||Scottsdale, AZ||bakery cafes||64||81||0||70|
|39||39||Wall Street Deli||Lake Success, NY||bakery cafes||44||44||1||16|
|40||40||Paradise Bakery & Café||Scottsdale, AZ||bakery cafes||42||42||0||35|
|41||41||Bear Rock Café||Cary, NC||bakery cafes||38||39||2||50|
|42||43||Lee's Sandwiches||San Jose, CA||bakery cafes||37||34||10||NA|
|43||42||Breadsmith||Whitefish Bay, WI||bread bakeries||35||35||0||22|
|44||44||The Kolache Factory||Houston, TX||bakery cafes||33||33||5||36|
|45||45||LaMar's Donuts||Centenniel, CO||donut shops||30||31||3||13|
|45||46||André-Boudin Bakeries||San Francisco, CA||bakery cafes||30||26||NA||40|
|47||NR||Spicy Pickle||Denver, CO||bakery cafes||25||1||65||7|
|48||47||Finagle A Bagle||Auburndale, MA||bagel bakeries||20||20||0||20|
|49||NR||Grand Traverse Pie Co.||Traverse City, MI||bakery cafes||16||8||2||17|
|50||48||Champagne French Bakery Café||San Marcos, CA||bakery cafes||15||16||0||9|
|* Total includes Canadian locations. Source: Modern Baking and industry estimates based on company-reported data.|