“In-store bakeries need to understand the consumer and continue to innovate to provide value that isn’t always tied to price,” Jonna Parker, director of account services at the Perishables Group, Chicago, told attendees at the first annual All Things Baking trade show in Schaumburg, Ill.
As fluctuating commodity prices continue to impact every corner of the baking industry, in-store bakery directors are grappling with raising prices amid growing media pressure and fear of consumer backlash. Parker addressed how consumer price sensitivity is affecting the in-store bakery. The scanner data, which was collected by Perishables Group, represents more than 63 percent of nation supermarket ACV share.
“The recession had a drastic effect on how people shop for food,” she said. With national unemployment hovering around 9 percent, the share of income spent on food trending downward to its current level of 6.4 percent and the number of obese adults on the rise, people aren’t necessarily eating less, but they are certainly shopping differently, she noted.
“In 2008, it was all about deep discount prices. But
circular ads from the last few years show that it’s not always about flashy sales. People still shop based on price, but there is more focus on everyday low prices.”
Price continues to be a top concern, but consumers are thinking about more than what they’re spending–as the sharp increase in supermarket sales from fresh food (including bakery) in recent years indicates. While bakery contributes 8 percent to store sales, Parker stressed that consumers are making more frequent trips to the bakery than ever before, as data from the Perishables Group reveal.
“Operators were surprised to learn that 92 percent of households bought from the in-store bakery last year–and not just once. They made 12 trips on average throughout the year,” she said, adding that customers aren’t just there to pick up birthday cakes and crusty Italian loaves, though cake and bread together make up nearly half of total bakery sales. “A lot of products make up the rest of those sales, especially donuts, sweetgoods and specialty desserts. Consumers are not buying the same thing on each trip.”
What’s driving bakery purchases?
Upticks in retail price typically correspond with a reduction in overall sales, though that hasn’t been the case in the in-store bakery, which has seen sales improve even though prices are up 2 to 3 percent. Parker attributed this to the fact that consumers’ purchasing decisions are affected by many factors, including health, convenience and indulgence.
For example, innovative products that convey indulgence, luxury or fit a certain niche tend to be less price-sensitive because consumers perceive a greater inherent value.
Indulgent products typically are seen as a “treat,” so consumers rarely remember the price, Parker said. “We see this exemplified really well by the cupcake, which is a strong trend in the in-store bakery.”
A comparison between decorated cakes and cupcakes in the in-store bakery found that product sales for decorated cakes are down 2.4 percent versus the previous 52 weeks, while cupcakes are up 15.7 percent, “even though the price went up almost 3 percent,” Parker said. Moreover, purchase frequency of cakes has fallen 0.7 percent while cupcakes are up 4.8 percent. Cakes also are feeling the pain of consumer dollars moving away from traditional occasion purchases and more toward indulgent, portion-controlled alternatives.
Products like 12-count cupcakes have experienced 19 percent dollar sales growth, even though their average retail price and discounted price have increased. Quarter-sheet decorated cakes, on the other hand, saw a 3 percent dollar sales decrease amid higher retail and discounted prices.
Gourmet and specialty products also are less price sensitive, as consumers still want to treat themselves at home. “During the recession, people didn’t eat out as much, but in-store purchases of gourmet items like lobster increased,” Parker said. “This phenomenon is helping more expensive bakery products like artisan bread. Though the price is up for those products, volume is increasing.”
The same goes for niche products like ethnic or healthy items. Despite price increases for bolillo rolls and ethnic flatbreads like naan and lefse, unit and dollar sales are increasing. “Though these products appeal to a limited group, they appeal strongly to that group,” Parker said. “Plus, taste palates are expanding among Americans.”
Products feeling the price crunch
According to Parker, the people who visit the bakery most are those who buy breakfast products. Interestingly, the category that engenders the most consumer loyalty also is the most price sensitive. From donuts to cinnamon rolls to muffins, Parker noted that price increases have coincided with reductions in unit and dollar sales.
Price also matters on products with center-store substitutes, like everyday cookies and hamburger buns. “Consumers look at these products and say, ‘What am I really getting for the money?’” she said. “‘I can get Chips Ahoy in the cookie aisle for pennies instead.’”
Other products are losing out to competing fresh products within the in-store bakery itself, leading to reduced sales and greater price sensitivity. “Mini everything is dong well, except the mini brownie, which essentially invented the mini dessert trend 10 years ago,” Parker said. She cited the lack of innovation in the category as the culprit, noting that add-ons like fudge topping or cream cheese filling could help differentiate the product.
Overall, price sensitivity is largely dependent on how price ties into a product’s overall value, Parker noted. “It’s all about price elasticity. Some products are inelastic and you could bring prices up–even 8 cents–without seeing much sensitivity, especially if there’s value beyond the price,” she said. “The problem is, there is so much pressure (not to raise prices) from the media. Hopefully, that will die down in the next six months.”