Foodservice bakeries hold their ground

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Fast casual restaurants, particularly the bakery café model, had lightning in a bottle in terms of consumer preferences during the economic recession. Though the restaurant business suffered during the last year, foodservice bakeries and bakery cafés enjoyed comparatively steady business by borrowing the best qualities of quick service restaurants (QSRs) and finer dining establishments. With the economy tanking, consumers sought better value and wanted to stretch their dollar further without compromising on quality or healthfulness. The bakery café model was uniquely positioned to offer quality products, universally perceived as wholesome and healthful compared to the burgers at the typical QSR, at competitive price points. Moreover, they were able to offer convenience that casual restaurants couldn't.

But now, the secret is out. Both QSRs and casual restaurants are acutely aware of what makes fast casual restaurants succeed, and they are both pursuing the bakery cafés' market share. Foodservice bakeries and bakery cafés are going back to the basics, focusing on their core competencies, and in light of increasing competition, making sure they are the best at what they do. Large foodservice bakeries and bakery cafés are digging in their heels to ensure they are firmly entrenched as the place to go for quality, healthfulness, wholesomeness and convenience.

Big chains stick with what they know

For Burlington, Vt.-based Bruegger's Bagels, the idea is to remind customers that what they want — healthful, quality products made from quality ingredients the right way — is something it has been doing since hanging its first shingle.

“We think we have the bagel high ground, and it's our job to maintain it. We introduce new and seasonal bagel varieties to stay interesting and relevant, but at the same time, we want to be the ones who make the quintessential bagel shop bagels,” says Philip Smith, Brueggers' corporate executive chef. “Really, now it's all about simple ingredients, and clean, uncluttered food like the simple perfect bagel. We're excited to share with the consumer that what they are after; we have been doing since our inception.”

In an increasingly complex world, Smith wants Bruegger's food to be familiar, reassuring, safe and taste like what it says it is. “We don't do a lot of value adding,” he says. “And because we don't, we seem to have our finger on the zeitgeist.”

Panera Bread Co., Richmond Heights, Mo., is taking a similar approach in 2010. Plans don't include forays into new territory. Rather, the company plans to strengthen existing products and follow the momentum toward being all natural.

“I look at the trends and realize — I don't have a whole lot of use for trends,” says Tom Gumpel, Panera's director of research and development. “I like to put them in their context as necessary swings in preference as consumers move towards more mature, balanced choices in eating. We can't get caught up in trends.”

Panera's goals in 2010 center around “fixing what's broken” and better positioning existing products to succeed. Fixing the things that are broken means looking at ingredients, texture and portion size — generally tinkering with good products to make them great. The orange scone, for example, is iconic to the brand, but Gumpel aims to improve upon it by making it all natural without losing the flavor.

He also hopes to reposition existing products to better align with customer needs. Consumer research data indicated three major real-life uses for bread, thus spawning Panera's “real bread for real life” approach.

Everyday bread is white pan bread. It typically is used in applications where the bread serves as a vehicle to consume something else, like in toast or sandwiches. “Grab a loaf” bread is bread made to complement a meal, such as a baguette purchased to go along with a pasta dinner. Finally, there is the gift-quality bread. Gumpel envisions gift-quality bread replacing a bottle of wine as an offering for a get together or a seasonal present.

“Each one of those presents a challenge,” Gumpel says. “For instance, people buy everyday bread in supermarkets. We need to position our everyday bread to suggest to customers, ‘You are in Panera three times a week for lunch, why not get your everyday bread here?’”

Smaller chains stay agile

For smaller foodservice bakery chains still building their identities, increased variety and expansion into new areas is crucial. With fewer than 100 locations, these small chains are nimble and able to react quickly. Denver-based Spicy Pickle is adding new sandwiches and new bread to the menu in 2010 to address consumer demand for variety. The company also is making a play at the dinner crowd and the breakfast daypart. It recently unveiled a dinner menu featuring larger pizzas and pastas paired with bread items. Breakfast will consist of coffee accomaniments, such as scones and pastries.

“We're hearing it from our customers and our franchisees alike. ‘Alright, we like your basic product, now let's see what else you can come up with,’” says Kevin Morrison, Spicy Pickle's co-founder and chief culinary officer. “Our bread is the starting point, and it's a versatile cornerstone that gives us the flexibility to expand into new dayparts. Our main focus is adding variety without adding labor. By diversifying, we're increasing our revenue period from one daypart to three.”

More peripheral programs are in the works at Spicy Pickle, too. Morrison is starting a retail bread program to help bolster weekend sales and has invested research and development time into improving catering, including adding a breakfast catering element. Because Spicy Pickle is a newer franchise, it has more latitude to reinvent itself than do the larger, more established chains.

Another small, but growing, bakery café chain recently reinvented itself. House of Bread, San Louis Obispo, Calif., debuted a new prototype with a much smaller 1,050-sq.-ft. footprint, half the size of previous locations. The smaller size introduced unforeseen efficiencies, and sales have increased by 15 percent in the few months the prototype has been operational.

“Rents are huge. Market rates have come down a little, but rental rates are still high. You have to look at your sales per square foot to see if there is a major inefficiency that you might be missing,” says Sheila McCann, owner of House of Bread. “My last bakery had a 500-sq.-ft. office. Now, I just have a desk and filing cabinet, which also helps to be closer to my customers and hear what kinds of questions they are asking. More than anything, they are looking for good products that are still good values.”

Value still king

Customers have always sought good values, but recent economic factors have magnified its importance in foodservice bakeries.

“There is always going to be a role for value; people always want a good deal. I think in the short term, value is the number one thing on a customer's mind, but how do people define value?” asks Ed Frechette, senior vice president of marketing at Boston-based Au Bon Pain. “The out of pocket cost doesn't necessarily define value. People will spend more money if they perceive an item to be a better deal.”

Au Bon Pain rolled out demi sandwiches, which are larger than half sandwiches, but not as large as the full size sandwich, in order to target value seeking customers. The sandwich bread is a demi baguette, affording the impression of a complete sandwich, but at $3.99, the price is lower than the magic “$5 foot-long” number.

“The main thing this year was value, and perceived value,” Morrison adds. “That doesn't mean low price, it means justifiable price. We are taking a fine dining approach to the sandwich market, and people are willing to pay the premium because they think the product justifies the price.”

Frechette agrees, and notices that the value proposition rests more heavily on price as it relates to quality than price as it relates to quantity. Though common sense dictates that the larger the volume purchased, the better the deal, small or modified size items are a hot ticket at Au Bon Pain.

“An item that's doing particularly well is what we call a Tulip, a cross between a muffin and a cake wrapped in paper that looks like a flower,” he says. The chain charges a premium, even though it's smaller. People want indulgence, but they want to stay healthy. Perceptions of health and quality are more important factors in a value proposition than is sheer volume.

Forecasting 2010

“Historically, the restaurant industry neither leads the economy into or out of periods of economic downturns,” says Bonnie Riggs, restaurant industry analyst with the consumer research firm NPD Group, Port Washington, N.Y. “This recession is generally believed to be more severe than those in recent history, and this time the industry not only realized traffic losses, but customer spending was declining. This is the first time since NPD began tracking that the industry realized a fall off in dollars spent at restaurants.”

High unemployment, low consumer confidence, tightened credit and grocery store price wars are taking their toll on the restaurant industry, but there are some signs of a light at the end of the tunnel.

A recent NPD foodservice survey concluded that consumers believe the economy is beginning to improve, or at least isn't getting any worse. Based on these results, the company predicts that the industry will remain weak in the first half of 2010, with the rate of visits slowing early in the year only to turn slightly positive by the end of the year. Still the status quo isn't a growth friendly environment, as evidenced by the low number of planned additions among the Top 50.

Knowing that unit growth might not be in the cards until later in the year, foodservice bakery operators are focusing on higher end items in order to drive up ticket sales.

“I see the necessity for larger gross margin items, as 75 cent cookies aren't going to get you where you need to be,” says House of Bread's McCann. “You have to get that ticket price up, bundling items is one way to do it.”

Despite the tepid predictions, the fast-casual niche that most foodservice bakeries and bakery cafés occupy is still a “sweet spot.” Consumers want quality, healthful food while they are on the go, and the model is in a unique position to offer it. But the promise of an improved economy will reveal a shift in consumer demands.

“The first things you'll see coming back will be natural foods and sustainability. Altruistic consumer behaviors are first to go in a tough economy, but they'll be back as the consumers get more confident,” Frechette says.

That will not happen overnight, though. “It's going to take awhile before [consumers] feel comfortable spending again,” Riggs says. Until they do, diligent foodservice bakeries will be need to defend their turf on the restaurant spectrum by fostering and focusing what made them successful to begin with.

Top 50 largest foodservice bakery operations

Ranked by number of foodservice bakeries

					Total U.S. Units
Current rank	Prev rank	Chain	Headquarters	business	2009	2008	Planned additions	Sales (millions)
1	1	Dunkin' Donuts	Canton, MA	donut shops	8,835	6,600	40	4,800
2	2	Tim Hortons*	Dublin, OH	full-line bakeries	3,437	3,221	80	5,280
3	3	Panera Bread	Richmond Heights, MO	bakery cafes	1,325	1,168	85	2,649
4	4	Auntie Anne's	Gap, PA	pretzel, cookie bakeries	950	920	60	309
5	5	Daylight Donuts	Tulsa, OK	donut shops	828	828	0	280
6	6	Cinnabon	Atlanta, GA	cinnamon roll bakeries	700	690	60	23
7	7	Einstein-Noah Bagel	Lakewood, CO	bagel bakeries	649	612	42	420
8	8	Bob Evans Restaurants	Columbus, OH	restaurants	570	579	2	1,034
9	12	Krispy Kreme Doughnut	Winston-Salem, NC	donut shops	509	423	0	784
10	11	Golden Corral	Raleigh, NC	restaurants	485	481	0	1,518
11	10	Perkins Family Restaurants	Memphis, TN	restaurants	481	485	0	535
12	13	Schlotzsky's	Austin, TX	restaurants	420	400	30	260
13	15	Big Boy Restaurant & Bakery	Warren, MI	restaurants	291	291	10	580
14	17	Bruegger's Bagel Bakery	Burlington, VT	bagel bakeries	283	256	41	199
15	9	Mrs. Fields Famous Brands	Salt Lake City, UT	cookie, pretzel bakeries	268	538	0	41
16	14	Ryan's Family Steak House	Greer, SC	restaurants	243	296	0	725
17	20	Yum Yum Donut Shops/Winchell's Donuts	City of Industry, CA	donut shops	228	228	3	70
18	16	Village Inn	Denver, CO	restaurants	226	263	0	215
19	21	Au Bon Pain	Boston, MA	bakery cafes	226	226	10	300
20	22	Great Harvest Bread	Dillon, MT	bread bakeries	225	220	7	NA
21	23	Wetzel's Pretzels	Pasadena, CA	pretzel, cookie bakeries	205	190	30	64
22	18	Cookie Bouquet/Cookies by Design	Plano, TX	cookie bakeries	200	250	0	48
23	24	The Cheesecake Factory	Calabasas Hills, CA	restaurants	161	157	15	1,528
24	25	Honey Dew Assoc.	Plainville, MA	donut shops	155	155	0	56
25	26	Atlanta Bread Co.	Smyrna, GA	bakery cafes	148	145	3	92
26	29	Cosi	Deerfield, IL	bakery cafes	141	135	60	140
27	28	Marie Callendar	Aliso Viejo, CA	restaurants	133	138	0	300
28	30	My Favorite Muffin/Big Apple Bagel	Deerfield, IL	muffin/bagel bakeries	113	134	0	50
29	31	Coco's Bakery Restaurant	Carlsbad, CA	restaurants	110	109	0	150
30	32	Corner Bakery	Dallas, TX	bakery cafes	108	103	0	240
31	34	Paradise Donuts	Catoosa, OK	donut shops	93	93	0	278
32	33	Southern Maid Donuts	Garland, TX	donut shops	90	95	0	NA
33	35	Grandy's	Lewisville, TX	restaurants	81	81	0	105
34	37	Great American Bagel	Westmont, IL	bagel bakeries	80	65	6	43
35	40	Paradise Bakery & Café	Scottsdale, AZ	bakery cafes	72	42	0	60
36	36	La Madeleine Bakery, Café & Bistro	Dallas, TX	bakery cafes	65	65	0	13
37	27	Bakers Square	Denver, CO	restaurants	55	143	0	135
38	36	Frullati Café & Bakery	Scottsdale, AZ	bakery cafes	53	64	0	70
39	NR	Spicy Pickle	Denver, CO	restaurants	42	34	10	15
40	42	Lee's Sandwiches	San Jose, CA	bakery cafes	37	37	10	NA
41	43	Breadsmith	Whitefish Bay, WI	bread bakeries	34	35	0	2
42	44	The Kolache Factory	Houston, TX	bakery cafes	33	33	5	37
43	45	LaMar's Donuts	Centenniel, CO	donut shops	29	30	0	19
44	41	Bear Rock Café	Cary, NC	bakery cafes	24	38	2	52
45	46	André-Boudin Bakeries	San Francisco, CA	bakery cafes	23	30	NA	40
46	39	Wall Street Deli	Lake Success, NY	bakery cafes	22	44	1	9
47	47	Finagle A Bagle	Auburndale, MA	bagel bakeries	20	20	0	20
48	48	Champagne French Bakery Café	San Marcos, CA	bakery cafes	15	15	0	9
49	NR	House of Bread	San Louis Obispo, CA	bakery cafes	7	6	2	NA
50	50	Vie de France Yamazaki	Vienna, VA	bakery cafes	6	7	0	44
		* Total includes locations in Canada			Source: Modern Baking estimate and actual data