Foodservice bakeries address a new consumer

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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.”

Heading home

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.

Top 50 largest foodservice bakery operations

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
13	13	Schlotzsky's	Austin, TX	restaurants	400	365	50	250
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
35	35	Grandy's	Lewisville, TX	restaurants	81	82	0	110
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.