Top 50 in-stores rethink competitive strategies

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by Heather Brown, editor

The Top 50 largest instore bakery operators find themselves at a crossroads. Amid intense competition from mass merchandisers, convenience stores, drug stores and other non-traditional food retailers, supermarket companies are debating how best to compete: on price or quality. Some are choosing price, such as Giant Eagle's recent announcement to go EDLP in all its 221 stores by cutting prices 7 percent and Albertson's new Super Saver limited-assortment, discount grocery stores. For others among the Top 50, such as Whole Foods Market and Wegman's Foods Market, price is not a primary focus.

Whole Foods Market, once considered a niche organic foods retailer, now has 145 stores and is ranked 23rd among the largest in-store bakery operators. Whole Foods has grown in a seemingly saturated grocery store market by emphasizing its fresh departments over grocery. Wegman's Food Markets and others among the Top 50 take the "neighborhood" approach by focusing on customer service and quality foods tailored for its market. Wegman's, with only 65 units, posted more than $3 billion in sales last year, according to Lebhar-Freidman Business Guides. Those numbers are pretty impressive considering that many chains twice Wegman's size earn about half its annual sales.

For bakery, the Top 50 operators have proven time and again that taking the high road with quality and price is the most direct route to achieving profitable in-store bakeries. The most important consideration for in-store bakery customers is product quality, but bakery's track record for customer satisfaction has been mixed through the years. Customer loyalty as a regular shopper has fallen 16 percent during the last seven years, according to FMI's Consumer Attitudes and the Supermarket report.

In-store operators were a bit more optimistic this year, however, citing some return of regular customers, according to Modern Baking's 2004 Supermarket Bakery Research. Some of that optimism might be attributed to supermarket executives realizing that their perimeter departments, including bakery, can differentiate their companies from the competition and can generate profits. "In general, this year bakery had better success than last year compared to grocery," says Rodger Slater, bakery director, Bashas', Chandler, Ariz.

The Top 50 operators are taking cues from some of the successful supermarkets among their ranks by promoting their "fresh" departments and by returning to their " neighborhood grocer" roots. Some are completely redesigning and rebranding their entire chain, such as Tampa, Fla.-based Kash n' Karry Supermarkets, which are converting to Sweetbay stores. Others, like Kroger Co. and A&P-owned Waldbaum's, are repositioning certain stores with a more upscale fresh market appearance and product selection.

"There is a big trend now, and the buzz word is 'fresh'," Slater says. "The Boomers are getting into it, and the kids of the Boomers are already there."

? Sweetbay
This focus on fresh is the drive behind Kash n' Karry's new identity, Sweetbay. The first Sweetbay Supermarket opened last month, and the chain plans to convert all 103 Kash n' Karry stores to the Sweetbay concept in four years.

Sweetbay promotes its high-quality-foods through its store layout and expanded fresh product lines. The store is set up more like a European market with distinct decor and names for each department, such as Harvest Market for produce and Nature's Place for its organic and natural foods selection. The bakery, or Bake Shop, features a broad array of gourmet cakes, cheesecake slices, donuts, cookies and specialty breads, including its popular Cuban bread.

Bloom, a Food Lion Market
Salisbury, N.C.-based Food Lion opened five pilot stores, called Bloom, designed to provide a " simple, hassle-free shopping experience," according to the company's release. The Bloom stores feature a Tabletop Circle, an area in the front of the store stocked with frequentlypurchased items, such as milk, eggs and beverages, and prepared foods. It is a sort of mini convenience store with a dedicated cash register inside a supermarket.

The Tabletop Circle is positioned conveniently in the front of the stores next to the in-store bakery and deli. The bakeries produce breads from frozen and par-baked doughs and use frozen-finished cake layers for their decorated cakes.

Marsh "lifestyle" stores
Marsh Supermarkets debuted two new "lifestyle" stores this year in Indianapolis and Fort Wayne. The stores feature an unconventional layout that positions products in different rooms around the perimeter of the stores. The in-store bakery, for example, is located in the bakery room, which houses everything bakery, including finished baked products, mixes, ingredients and utensils.

Designed to categorize foods and groceries according to how customers plan their shopping, the stores feature wide "raceways" connecting the rooms. To date, Marsh officials report positive results from the innovative store design and announced plans to open another lifestyle store in Indianapolis and one in the Chicago area this summer.

Bakery creating community
A common theme among most of the new supermarket concepts is their more targeted focus on how consumers want to shop. Whether they seek more convenience or fresher foods departmentalized by day parts, many supermarket shoppers are seeking a better approach than price. And, in-store bakeries can play a major role in how shoppers perceive their supermarkets.

"When people want good, quality products, they are willing to drive some distance," says Steve Bordonaro, in-store bakery sales manager, Big Y Foods, Springfield, Mass. "People want good products and come to our stores specifically to come to our bakeries."

In-store bakeries can rebuild business as well. Supermarket chains across the country continue to deal with labor strikes. The strikes this year in the Southern California supermarkets, which included Albertson's, Safeway's Vons and Kroger-owned Ralphs Grocery Co., lasted five months. Droves of customers opted for alternative grocery retailers in the area, such as Whole Foods, Trader Joe's and Stater Brothers. The chains affected by the strikes are struggling to recover.

One bright light for some of the supermarkets in the aftermath of the lengthy strikes is their in-store bakeries' role in building customer relations. Obviously, bakery performance varies store to store, but Modern Baking spoke with one Albertson's instore bakery associate from the San Diego area who credits her bakery's custom decorated cakes for bringing customers back to her store.

"Coming off this strike, our cake decorating department is rebuilding business for the store by building community," she said.

As the Top 50 largest in-store bakery operators rethink competitive strategies to compete, their in-store bakeries can play a key role, particularly if they choose the quality route. Bakery, by servicing consumers' custom needs and providing freshbaked product, satisfies both the "neighborhood grocer" and "focus on fresh" approach.

Top 50 in-stores Supercenter and natural market growth continues
Rank	Chain	Headquarters	Total bakeries	Total U.S. stores	New bakeries by 12/05	Primary production methods
1	Albertson's Inc.	Boise, ID	2,386	2,500	30	Bake-off
2	Kroger Co.	Cincinnati, OH	2,203	2,538	40	Thaw-sell/bake off
3	Wal-Mart Supercenters*	Bentonville, AR	1,442	1,442	150	Mix/bake off
4	Safeway Inc.	Pleasanton, CA	1,403	1,740	0	Bake-off
5	Food Lion	Salisbury, NC	1,181	1,230	0	Bake-off/thaw-sell
6	Winn-Dixie Stores	Jacksonville, FL	1,009	1,070	5	Bake-off/mix
7	Publix Super Markets	Lakeland, FL	806	806	10	Bake-off
8	Sam's Club	Bentonville, AR	546	532	15	Bake-off
9	Great Atlantic & Pacific Tea	Montvale, NJ	475	667	5	Mix/scratch
10	Supervalu	Eden Prairie, MN	450	1,379	10	Bake-off
11	Stop & Shop Supermarkets	Quincy, MA	340	350	10	Bake-off/mix
12	Costco Wholesale	Issaquah, WA	328	328	30	Bake-off
13	Bi-Lo	Mauldin, SC	292	292	3	Bake-off
14	Giant Eagle	Pittsburgh, PA	221	221	4	Bake-off/mix
15	H.E. Butt Grocery	San Antonio, TX	208	304	5	Bake-off
16	Ingles Markets	Black Mountain, NC	196	201	0	Mix/bake off
17	Hy-Vee Food Stores	Des Moines, IA	173	192	0	Bake-off/mix
18	Giant Food	Landover, MD	170	195	12	Bake-off
19	Meijer	Grand Rapids, MI	158	158	2	Bake-off
20	Top's Markets	Williamsville, NY	156	160	5	Bake-off
21
22	Weis Markets	Sunbury, PA	151	159	0	Bake-off/mix
23	Whole Foods Market	Austin, TX	145	145	15	Bake-off
24	BJ's Wholesale Club	Natick, MA	142	150	5	Fresh DSD dough, fully baked
25	Harris Teeter	Matthews, NC	140	140	5	Bake-off
26	Bashas'	Chandler, AZ	139	139	5	Bake-off
Rank	Chain	Headquarters	Total bakeries	Total U.S. stores	New bakeries by 12/05	Primary production methods
27	SuperTarget	Minneapolis, MN	136	136	20	Bake-off
28	Penn Traffic	Syracuse, NY	135	135	0	Bake-off
28	Bruno's	Birmingham, AL	135	170	0	Bake-off
29	Kash n' Karry/Sweetbay	Tampa, FL	134	137	0	Bake-off
29	Raley's	Sacramento, CA	134	134	2	Thaw-sell/bake off
30	Pathmark Supermarkets	Woodbridge, NJ	130	142	0	Bake-off/mix
31	Hannaford Bros.	Scarborough, ME	122	122	1	Bake-off
32	Giant Food Stores	Carlisle, PA	116	116	9	Mix/bake off
33	Roundy's	Pewauki, WI	111	111	5	Bake-off/mix
34	Nash Finch	Minneapolis, MN	108	108	1	Mix/bake off
35	Price Chopper Supermarkets	Schenectady, NY	106	106	3	Bake-off
36	Wild Oats Markets	Boulder, CO	102	102	15	Bake-off
37	Schnuck Markets	St. Louis, MO	99	99	3	Bake-off
38	Save Mart Supermarkets	Modesto, CA	92	123	6	Bake-off
39	Fleming Cos.	Oklahoma City, OK	86	103	0	Bake-off
40	Marsh Supermarkets	Indianapolis, IN	83	112	3	Bake-off
41	Lowe's Food Stores	Winston Salem, MA	80	106	4	Bake-off
42	Fresh Brands	Sheboygan, WI	75	102	0	Bake-Off
43	Stater Bros.	Colton, CA	71	157	0	Bake-off
44	K-VA-T Food Stores	Abingdon, VA	67	86	1	Bake-off
45	Wegman Food Markets	Rochester, NY	65	65	3	Bake-off/mix
46	Super Kmart Centers	Troy, MI	64	64	0	Bake-off
47	Brookshire Brothers	Lufkin, TX	56	71	0	Bake-off
48	Minyard Food Stores	Coppell, TX	53	69	0	Bake-off
49	Spartan Stores	Byron Center, MI	52	54	0	Bake-off
50	Big Y Foods	Springfield, MA	50	50	1	Bake-off/mix
			17,322	19,818	443	Source: Modern Baking estimates and actual data
*includes 56 Wal-Mart Neighborhood Market units