The more things change, the more they stay the same. While retail bakers have their share of unique challenges in 2011, many situations are similar to earlier years. In 2009, bakers were coming off a year of rollercoaster commodities prices and sticker shock at the gas pump. Sound familiar? In 2005, bakers began reporting on rising “non-essential” costs, such as health care, insurance premiums, utilities and taxes. Again, nothing much has changed in 2011. In 2001, bakers were unusually wary; an economic decline seemed to be looming after the boom years of the 1990s. We had yet to experience the tragedy of 9/11, and the subsequent economic fallout.
But some concerns have changed. After a decade of stagnant economy, labor–a top concern in 2001 following the ’90s growth–registers low on bakers’ list of concerns. In the six years prior to 2001, bakers reported that finding and keeping skilled labor was the greatest impediment to sales and profit growth. This year it ranks third, behind growing concerns about essential and non-essential costs.
Modern Baking has been commissioning biennial surveys of the nation’s full-line retail bakeries since 1993 to see how the industry is faring. With almost 20 years of data, one thing has become clear–retail bakers are survivors…and optimists.
Eternal optimism
“I’m always very optimistic,” says Marc Serrao, owner of Oakmont Bakery, Oakmont, Pa. He feels the current economy is just part of a larger trend, one that has affected bakeries before and the industry survived. “My prediction is that the harder we work, and the harder we try, we’ll keep our business successful,” he adds.
Many others also are seeing the current business environment in a positive light. More than two-thirds of bakers expect their annual sales will increase in 2011 compared to 2010, and half expect sales to increase 6 to 10 percent.
These expectations are based on the fact that half of the bakers surveyed reported more customers in 2011 than they served in 2009, with an average increase of 24 percent. Serrao has seen his customer count increase by about 13 percent.
About one-third of bakers reported no change in customer counts, and only 14 percent claimed fewer customers, with an average decrease of 13 percent. The average number of customers visiting a retail bakery on a given day also is up. On the busiest days, an average of 258 customers are served, up from 225 in 2009. Even slow days have seen an uptick in customers coming through the door–105 in 2011 compared to 86 in 2009.
“We’re plenty busy, plenty steady,” says Phyllis Enloe, owner of Village Bakery Café, Amarillo, Texas. “I think people still want to eat out, and they are looking for that fresh product. They want to get a quality product at an affordable price. It’s not fine dining, yet it’s a good product.”
Bakery has long been touted as recession-proof, something that has been tested in the latest recession and drawn-out recovery. However, as producers of a low-cost indulgence, bakers haven’t taken the economic hit that other industries, such as fine dining restaurants, have witnessed. Consumers are still spending in bakeries. The median sale per customer rose 50 cents in the last two years, to $13.
For William Seppi, general manager, Costeaux French Bakery, Healdsburg, Calif., much of his ticket increases come from his continued focus on the add-on sales. “We do a lot of employee training and a lot of reinforcement of ‘you don’t close the transaction, let the customer close the transaction,’” he says. His staffers are instructed to continue to ask questions. “They realize that selling an extra chocolate chip cookie or Danish adds up significantly at the end of the day. When you have several hundred people coming through, those numbers make a big impact,” Seppi adds.
Spending on luxury
“I know it’s hard for people to spend the money on luxury things, and I think bakery is a luxury,” Serrao says. But, on the other hand, it is a luxury his customers can afford as they eat at home more often. “People seem to be having more dinner parties at home, but they’re buying their desserts from us,” he says. “I think the more people cook at home, the more apt they are to come to the bakery and buy bread and desserts.”
Dessert cakes and breads were in the top 10 product categories garnering the most sales gains during the last two years. Custom decorated and wedding cakes, always a bakery sales staple, also are seeing a resurgence according to the bakers Modern Baking interviewed. Though their numbers were not as strong as other categories in sales gains, they still account for the largest percentage of sales for bakeries.
“One of the key areas where there has been big movement for us has been the wedding cake business,” Seppi says. “In 2009, the wedding cake business was a disaster, last year we had a slight uptick, and this year it’s been going full bore.”
Oakmont has set its wedding cake limit to 25 to 30 cakes a weekend, and most weekends are sold out, Serrao says. The bakery also has placed a lot of emphasis on its sculpted cakes this year, and has promoted them in its advertising and on its website. “In all of our ads, I’ll put a picture of something we can do that’s outrageous,” he says. “Our profitability is maintaining because our cakes are selling so well.”
Cupcakes continue to be popular. While they account for only 5 percent of an average bakery’s sales, 38 percent of bakers surveyed said the category posted the largest sales gains in their bakeries, up from 6 percent of bakers in 2009. When it comes to product line extensions, 16 percent of bakers plan to add cupcake varieties this year.
Cakes topped the expansion list, with one-third of bakers planning new cake varieties. The pastry and pie categories also saw significant increases in new items from 2009. Surprisingly, cookies saw a dip in new varieties since 2009 even while they saw a substantial increase in sales gains during the last two years. Only 12 percent of bakers plan new cookie varieties, compared to 16 percent in 2009, but 43 percent of bakers reported that the cookie category had the greatest sales gains in their bakeries. In 2009, only 34 percent of bakers claimed cookies as the category with the most sales gains.
Village Bakery Café is seeing an increase in cookie sales, but Enloe attributes much of that to the meal deals–a sandwich, drink and cookie–she promotes in the bakery. “It’s a small savings, but it works,” she says. “It keeps them buying more. When they don’t see the special, they might not pick up that cookie.”
While bakers are reporting more sales and more customers, not all is rosy in the retail bakery market. The cost of doing business continues to rise. Nearly all bakers, 99 percent, reported that their suppliers had increased prices this year. However, unlike in 2009, bakers are less likely to pass along the increase to customers. Only 70 percent of bakers raised their retail prices, compared to two years ago when 80 percent of bakers raised their prices (and fewer bakers reported increased costs from suppliers). For those who did raise retails, nearly half attributed it to increased ingredient costs, which account for more than a quarter of bakery expenses. The average retail price increase was 9.5 percent.
Pricing struggle
“It’s a struggle to have to increase your prices,” Enloe says. “We never like to have to raise our prices, especially in light of the economy. It was a tough decision, but at the same time, I haven’t had one complaint since I’ve done it.”
Serrao falls into the more hesitant category and has yet to raise most of his retails. “We haven’t had many retail price increases even though our costs have gone up,” he says. “I’ve tried to keep everything pretty stable this year because of the economy. I think everyone is a little afraid to raise prices. Overall, the bakery is much better at making suppliers compete for the business.” Serrao has seen his costs rise about an average of 7 percent, and he would raise retail prices before he would switch ingredients or change the quality.
The increasing costs aren’t slowing Oakmont’s growth plans. Serrao recently remodeled his bakery, adding an outside patio and installing new showcases. More than 20 percent of bakers also plan to remodel their bakeries. Serrao also recently purchased a dishwasher and plans to add a rack oven, an item which ranks eighth in equipment purchases retail bakers plan to make by the end of the year. He also is adding a proofer and recently purchased a computer decorating system (ranks tenth) as well as a fondant sheeter.
Seppi also recently invested about $100,000 in new equipment for Costeaux French Bakery, which included a new mixer. Mixers top the list of equipment purchases, with 27 percent of bakers planning to invest in a new one this year.
Web presence vital
Today’s retail bakery almost cannot exist without some sort of presence on the Internet or social media websites. Nearly three-quarters of bakeries have their own websites, up from 65 percent in 2009. However, online ordering is taking a backseat to information. Only 27 percent of bakeries’ websites are able to process orders, down from almost one-third in 2009.
Social media, which was barely on the radar two years ago, is playing a large role in many bakeries’ marketing plans. Almost two-thirds of bakeries have a presence on a social media website, and of those nearly all are on Facebook (99 percent). Twitter comes in a distant second, with one-third of bakeries using it.
Some bakers, 20 percent, also are turning to virtual
couponing sites, such as Groupon or LivingSocial, to market their bakeries. Village Bakery Café recently ran a virtual coupon through its local newspaper, offering $10 worth of product for the $5 cost of the coupon. The deal sold out within hours, and the second batch of coupons sold out before the end of the day–the coupon was slated to run through the weekend.
“It worked out OK,” Enloe says. “We still had our ad on the page, it just had sold out across it. But I thought that was OK. It just meant people who saw it didn’t get to it in time.” She purposely set the coupon at $10 knowing that most people would have to spend more than the $10 to get the products they wanted. “It wouldn’t be something I would do again right away,” she says. “But I consider it pretty cheap advertising, and most customers spent more than $10. We definitely saw some new people come in.”
Costeaux also dabbled in virtual couponing earlier this year, but didn’t see great results. Seppi blames it more on the bakery’s execution rather than the process itself. “The coupon thing is worth looking into–we have to revisit the idea,” he says. “But, I’d rather just give stuff away than give a discount. Once customers get a discount, they always want a discount, and they won’t pay full retail.”
Even without discounting, retail bakers are more than holding their own in a sluggish economy. “I am very optimistic about the business, even in light of the jobless rate and slow recovery,” Enloe says. “I would like everybody to be optimistic about it, certainly in the baking industry.”
“I think it’s a happy business. And if somebody gets a little jolt out of coming into the bakery, I love being that spark,” Serrao says.
Seppi agrees. “You’re providing people with something that makes them happy. There’s a reward and satisfaction in that.”
That passion just doesn’t go away, Enloe adds.