Nearly anyone in the supermarket business knows the drill when a Wal-Mart Supercenter opens in town. Applying its buying muscle and sharply honed distribution efficiencies, the mass merchandiser redefines consumers’ expectations of low retail food prices. One result is many a local independent supermarket operator, struggling to compete based on price, finds itself selling its properties.
About eight years ago, officials of Yoke’s Food Stores, an independent operating nine warehouse stores in eastern Washington State, were determined not to see their stores become health clubs or antique malls. “We knew that Wal-Mart would come to our market,” recalls Denny York, senior vice president. “Its strengths are low prices and eliminating the weak link in each market. We were the weak link.”
The company, once known for its strong customer service, extensive SKUs and scratch-mix bakeries, among other strengths, had pursued a low price strategy since 1985. The then-CEO had cut his teeth working at a major chain, which was better positioned to fend off mass merchandisers.
Senior Vice President Denny York and Bakery Merchandiser Elise Shmoorkoff
“By 1997, our ship was sinking,” York continues. “No capital had been invested in the stores, which were in disarray. In the bakeries, most of the equipment had been sold, and they turned to mostly bake-off production. Sales, including bakery’s, fell. The focus was all about price. Our job was to dig ourselves out of a hole.”
After dismissing the CEO, the company decided to change course and “go after a different end of the market, the higher end,” York says. Chuck Yoke, chairman of the board, introduced a new management team, including CFO John Bole. Bole, an attorney and certified public account, had no supermarket experience but had operated a successful art supply company in Seattle. Within nine months, he was named CEO.
Change in company direction Shifting market direction ultimately precipitated changing the company store names to Yoke’s Fresh Markets, with an emphasis on “fresh.”
Yoke’s constructed its first Fresh Market in 2000 just north of Spokane. Through 2002, the company had remodeled five stores, built a store in Spokane, and ventured south with two stores in the Tri Cities (Pasco, and Kennewicky, Wash.) Currently, Yoke’s operates 12 Fresh Markets, each with a bakery.
After returning to scratch/mix baking for a time and then outsourcing most production to a wholesale bakery, Yoke’s early this year chose to tap a combination of production methods. A large volume manufacturer supplies high quality cake layers and rounds. A mid-size wholesale bakery provides frozen baked pastries. A smaller specialty bakery delivers frozen baked pies, prepared from Yoke’s formulas. And, a wholesale bakery supplies several fresh-baked items, mostly bread products.
Yoke’s returned production of scratch-made gourmet cookies to store level. Some bakeries also are producing lunch box, or standard, wire-cut cookies; cinnamon rolls and other items. “Those bakers have the skills necessary, and the products’ sales volume warrants making them,” says Elise Shmoorkoff, bakery merchandiser. “We now have a base line of products that we can produce consistently store to store.”
The company focused on donuts first to set its bakeries apart from the competition, which generally uses thaw-and-sell product. “We offer a better product,” she says. “Cutting our donuts sometimes yields less-than-perfect shapes. But, consumers have learned that irregularities are not bad–they give a handmade appearance–as long as the donuts taste good.”
Signature products key Yoke’s scratch gourmet cookies include chocolate chip, peanut butter, oatmeal raisin, and cowboy (chocolate chips, coconut, oatmeal, and walnuts in a chocolate cookie dough). A package of sixteen 1.5-oz. cookies retails for $3.99. Some of the larger bakeries sell 40 packages a day.
“Bringing cookie production back to our bakeries has helped increase gross margin in that category from 30 to 60 percent,” Shmoorkoff says.
Yoke's cuts yeast-raised donuts by hand to enhance their fresh appeal.
She adds that more highly skilled bakers also have the opportunity to make additional items, an option which increases the bakeries’ capacity to meet local needs and to build profits. “This move came directly from our CEO. It also gives those bakers an incentive to be creative.”
For example, Danish Royale is unique to Yoke’s store in southwest Spokane. Jim Weigel, bakery manager and a scratch baker for 23 years, prepares the dough from a mix, uses butter for roll-in fat and twists the 2-oz. pieces uniquely. Rather than baking the pieces, Weigel fries them. The pieces double in size.
“One day I fried some as an experiment; now, they are one of my bakery’s best-selling products, 25 to 30 packages a day,” he explains. A package of four retails for $3.79.
Decorated cake sales, comprising 10 to 20 percent of bakery sales, are growing, Shmoorkoff says. Decorators are turning much of their attention toward producing upscale bar and 1/4-sheet varieties, decorated free-hand and with kits. Both sizes, without kits, retail for $14.99 each.
Yoke’s partnered with a supplier to create unique designs for its bar cakes. Attractively presented in service cases, these and the 1/4-sheet cakes help encourage customers to place advance orders, she adds.
Attention to customer needs Increasing demand for single-serve desserts has spurred sales of decorated cupcakes, Shmoorkoff says. “Customers are indulging themselves with cupcakes, individual bar cakes, 1/16 sheets and other single-serve products.” Customers include not only older consumers but middle-aged empty nesters, who want to treat themselves but have no need for whole or even half cakes, she adds.
Denny York notes that returning more production to the in-stores enabled them to appeal to customers’ senses–sight with the activity, touch with the warmth, and especially smell with the baking of cookies and bread. Shmoorkoff adds, “We learned that going only one way of production for everything wouldn’t work for us, whether from scratch, bake-off, or out-sourced. We need a combination to get the best results.
“We’ll need to constantly reinvent our production methods. But, we’ll always do this with an eye on serving our customers and providing the best possible quality.”
In addition, Shmoorkoff observes, consumers do not recall price for long, but they will remember product quality and service. “If both are great, customers will return,” she says. Also, price elasticity plays a part when establishing retail prices, Shmoorkoff says, explaining, “If you price a product too cheaply, customers will wonder if something’s wrong with it.”
Progress continues Reflecting on the progress made to date, York believes the bakeries “are on the right track. We’ve added some labor and are baking more items. Scratch bakers who stayed are seeing the benefits of producing fewer products every day but with better quality and consistency.”
Further, he says, before switching to the current program, the bakeries were losing money. “During the last quarter (ended June 30), our bakery division made a profit (as measured by contribution to overhead),” York explains, “driven by increased sales. This is a huge turnaround from where we were.”
Company concerns about Wal-Mart’s presence have diminished. Yoke’s Sandpoint, Idaho, store has competed with a supercenter, located only two blocks away, for four years. And, Wal-Mart continues to add supercenters in Yoke’s territory. Yoke’s officials say it is only a matter of time before Wal-Mart introduces its Neighborhood Market supermarkets.
“All of the studies said Wal-Mart would kill our Sandpoint store,” York says. “Well, we’re killing customers with kindness, service and better products. We’re thrilled that sales have increased.”
Yoke’s recently broke ground for a store to open next spring. The store will feature a new décor that will emphasize the “farm fresh” image the company wants to project. “This store’s presentation will be about as far from a Wal-Mart store as you can get,” York says.
“Our growth potential is great, and bakery’s role will be important. We have high goals for bakery’s percentage of store sales and for its profit contribution.”
Yoke’s ...at a glance Headquarters: Spokane, Wash.
Founded: 1946 by Chuck Yoke
Management: John Bole, CEO; Denny York, senior vice president; Joe Hanson, vice president, operations; Caroline Wyatt, vice president, human resources; Elise Shmoorkoff, bakery merchandiser
Number of stores/bakeries: 12/12
Store/bakery sizes: 56,000 sq. ft./1,200 sq. ft.
Number of bakery employees: two to five per bakery
Product line: Full line of 210 SKUs, including breads/rolls, cakes, donuts, cookies, pies, pastries, sweetgoods
Average weekly sales: $2,300 to $9,000 per bakery
Major equipment: vertical mixer, sheeter/moulder, manual cookie depositor, roll-in proofer, rotary rack oven, computerized decorating machine, bread slicer, roll-in retarder, walk-in refrigerator/freezer, pan/utensil washer
Plans: open the next Fresh Market next spring, seek to open new store each year
Bakery supply distributors: Dawn Food Products, ADM-Centennial Mills