Forest Hills Foods' in-store bakery has withstood the economic downturn to post 10 percent weekly year-over-year sales gains. The Grand Rapids, Mich. in-store bakery had a touch of good fortune in the demise of some local competitors, but growing sales in this environment, particularly in depressed western Michigan, is no small task. By meticulously keeping track of individual product sales, watching shrink (stales) and leveraging its natural advantages, Forest Hills Foods' bakery is thriving.
According to Jason Bajema, bakery manager, management's presence is a key part of the battle. He is in the bakery all day, talking with the merchandisers, keeping lines of communication open, and keeping staff in the loop as to what needs to be done throughout the day. He spends more time on the floor than in back, and meets with employees to discus results of inventory tracking software.
“We keep a close eye on everything we make and sell. We have daily production sheets, and we scan our shrink every night,” Bajema says. “We see what our top five sellers are every night, and know what didn't sell. We meet about that weekly; I talk to the bakers and production guys to figure out where we should increase and decrease production to maximize sales and profit.”
The bakery also monitors prices of not only its products, but that of its local competitors. Bajema knows that the low price megastores have in-store bakeries as well, but they aren't the competition, and Forest Hills doesn't try to match prices with them. The store is located in an area with a sizable population of upper-middle and upper class shoppers. Customers are more likely to be looking for a higher quality product and can afford it.
The recent commodities pricing volatility was a problem for many bakers, but with 50 percent scratch production, Forest Hills Foods' bakery managers were able to marshal the situation to the bakery's advantage.
“Last year it was rough, a lot of commodities prices rose, but because we're doing it from scratch, we're making more money on the products than we would have if we were using mixes. We raised prices some to keep up with flour, but kept them very comparable to what they were before,” Bajema says. “It definitely made us open our eyes, as our shoppers didn't even seem to know that bakery product prices were going up elsewhere.” He attributes the sales gains to the fact that the bakery “held strong and didn't raise prices as much as competitors were forced to.” And even as some retail prices dirfted up into competitors' range, Forest Hills had an advantage in the better margin from scratch production.
As a single, independant supermarket, Forest Hills has benefitted from regional chains coming into their area and swallowing up other local, independant competiton. While other operators were backing away from hot baking on premise, Bajema consulted Jeff VandeBerge, president and owner, and determined on-site baking was a point of differentiation that would attract customers. But they had to find the right mix of on-premise baking and outsourced items in order to maintain both profitability and uniqueness.
For example, when the cookie baker requested to work part-time, they struggled with whether to continue their on-site cookie program or source cookies elsewhere.
After examining cookie sales and production costs, Bajema and VandenBerge found that though cookies weren't a major profit driver, but they were making money and contributing to overhead. The cookies stayed, and Bajema says they are an example of why Forest Hills in-store bakery sales have increased.
“Higher retails have contributed to increased sales,” Bajema says. “But mostly it's because customers try a product, find that it's good and return to buy two or more products.”
Making smaller quantities of fresher products benefits the bakery. Being 50 percent scratch gives Forest Hills the flexibility to change the product line depending on what shrink and sales figures indicate. The bakery offers roughly 250 of the 400 available items at any given time. This boosts sales and decreases stales. Even specialty wholesale bakeries supplying products to the in-store bakery are often responsible for their own stales. Knowing what customers want at any given moment takes daily checks and lots of report reading, but it gives Forest Hills an edge in profitability.
Richard Ecklof, owner of Ecklof's Bakery, Jamestown, N.Y., and longtime Retail Bakers of America (RBA) member and contributor, has moderated sessions on pricing for profit, suggestive selling and customer service. If anyone were to forsake sophisticated price-setting software in favor of years of experience and intuition, Ecklof would be capable of making it work. But he opted to go high-tech.
He computerized his bookkeeping, payroll, accounts payable, costing and formula systems to ensure and maintain his profit margins.
“As commodity prices rose last year, we knew what was coming and passed the cost on to the customers,” he says. “I maintain a net profit percentage. Basically, I use a gross profit percentage when I'm pricing, and that reflects in our supply costs, and as supply costs go up, we increase our prices to reflect increases in what we are spending on ingredients and supplies.”
The volume is down at Ecklof bakery due a host of increasing costs that are eating into customers' expendable income. Energy costs, fuel costs and tax increases — even a cigarette tax-hike — reflect on the business. Baked products are discretionary, and in a tough economy they might represent a corner to be cut.
“But our dollar sales have been maintained because we're charging higher prices, and we've maintained our percentage of profit,” Ecklof says. “Right now we're doing pretty good. I haven't increased prices since the end of last year. Since then, flour has come down some, shortening was going down and is now creeping up again, but it has been stable for a few months.”
Constant vigilance is needed to maintain profits. He pays all of the bills and does all the ordering himself, so he knows first when there are substantial increases or differences. This allows him to quickly react to changes.
“If I see those, I run my pricing program again. When supply costs change, I just plug the new numbers into my program, and it will re-price to maintain a desired margin,” he says. “That allows me to be nimble, make adjustments on the fly, and that's what you've had to do.”
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