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.