Since Modern Baking last conducted its supermarket bakery survey in 2010, not much has changed. For every step the economy takes forward, it seems to take a half step back. By 2010, the recession had officially ended, though the recovery was slow in coming. Two years later, we’re still waiting for the recovery, though optimism seems to be on the rise. Fifty percent of operators expect sales per customer to increase in 2012, as opposed to only 33 percent in 2010. But this is down from 65 percent 10 years ago.
“Our comps are positive but really low,” says Jesse Dodson, bakery merchandiser, New Seasons Market, Portland, Ore. “We hit a plateau about a year and a half ago and we’re trying to break through it.”
Bill Mihu, vice president-bakery, Schnuck Markets, St. Louis, is seeing something similar. “We’re seeing that the item count is flat, but the price per item is up slightly.”
However, some in-store bakery officials are reporting positive growth, both in customer counts and sales. The average sale per customer crept up to $3.61 in 2012, up from $3.50 in 2010 but still below the 2008 high of $3.96, according to the Modern Baking survey.
“Our customer counts and sales are up in all of our bakeries,” says Bob Thatcher, bakery director, Highland Park Market, Farmington, Conn. “Things are definitely turning around for the better right now. It has to do with customer confidence; they’re feeling better about the economy.”
Buehler Food Markets, Wooster, Ohio, also is seeing an increase in the average sale per customer, according to Roland Krueger, bakery merchandiser for the chain. “We’ve taken more of a value approach, and we’ve gotten into more promotions. We had been more an EDLP, but now it’s more high/low and meaningful promotions.”
Customer counts and sales aren’t the entire picture for the in-store bakery market. This year, Modern Baking partnered with Nielsen Perishables Group (N-PG) to help complete the analysis. N-PG data is gathered from the traditional supermarket channel and does not include Walmart, club stores, small independent chains and alternative format companies, such as Trader Joe’s and Whole Foods. The data represents 63 percent of all commodity volume (ACV) and 13,000 stores. It is not projected to total U.S. 100 percent ACV.
Bread vs. cake
What are in-store bakery customers actually buying? Breads/rolls and cakes are still the primary drivers in the in-store bakery. Artisan-type breads/rolls accounted for the largest category share at 10 percent of average bakery sales, according to the Modern Baking survey, with crusty/hearth breads/rolls bringing in another 7.6 percent and sandwich breads/rolls accounting for almost 9 percent. According to N-PG data, nearly 60 percent of households have purchased bread from the in-store bakery in the past year with rolls in more than 51 percent of homes. Bread has the highest household penetration of any category in the bakery.
Custom-decorated cakes account for 9.1 percent of in-store bakery sales, according to Modern Baking data, and the entire cake category brings in $3,033 per in-store per week with almost 55 percent of U.S. households purchasing cake, according to N-PG. Cakes, with an average retail price of $6.82, are by far the largest category by dollar sales in the bakery. The second-largest category, bread, averages $1,979 per store per week with an average retail price of $2.37.
However, when looking at percent volume change year-over-year, cakes come out the true winner with a gain of 2.1 percent, while breads saw a decline of 3.7 percent, according to N-PG. Bread is accounting for a lower percentage of bakery sales as well. According to the Modern Baking survey, artisan-type bread is up slightly at 10 percent in 2012 compared to 9.7 percent in 2010; however both crusty/hearth breads/rolls and sandwich bread/rolls saw a decline. Crusty breads only accounted for 7.6 percent of bakery sales in 2012 compared to 9.1 percent in 2010. Sandwich bread/rolls dropped to 8.9 percent of sales in 2012 from 11.8 percent in 2010.
“You have your staple items that are still selling. Breads overall are slightly down, but we still sell a good amount of the staple breads like Italian bread and hard rolls,” says Bob Valentine, deli/bakery merchandiser, Sweetbay Supermarkets, Tampa, Fla.
Gluten-free on the rise
“A lot of people have suddenly come down with celiac disease,” Dodson says, only half joking. “We’re seeing a lot of demand for gluten-free, like hundreds and hundreds of customers.” More than 73 percent of operators offer gluten-free products, up from only 38 percent in 2010, according to Modern Baking data. However, only 60 percent of operators reported sales gains.
When looking at the volume percent change year-over-year from N-PG, gluten-free products are up more than 190 percent, by far the largest growth category in the health or better-for-you category. The next largest gain was 100-calorie items with a 32.5 percent increase.
“Sales are definitely up for gluten-free,” Dodson adds. “But not up enough to compensate for what we would have expected for regular bread. If we were expecting 5 percent more bread sales, we’re not getting the equivalent in gluten-free products.” New Seasons uses local retail/specialty wholesale bakeries to supply the gluten-free products it sells in its in-store bakeries.
Almost more than any “health” category, bakers are split on gluten-free. Highland Park Markets tries to meet all customer requests for gluten-free, but some refuse to play at all.
“We’ve stayed away from gluten-free. It’s 1 percent of the business and I just think we’d make a mistake to get involved in that,” Mihu says. “Bakery is an indulgence category and that should be what drives us. Gluten-free is something I’ve just said we’re not going to play in. I think the industry has done a terrible disservice to itself by chasing and producing products that can make nutritional claims but don’t taste good. That’s really what’s put the industry in somewhat of a stagnant growth period.”
Buehlers Food Market has tried several gluten-free programs. It partnered with a wholesale bakery twice, but gained no sales traction, Krueger says. Then, the bakery department tried again with a local gluten-free bakery that did onsite product demos and sampling. “The people who tasted it said it was good, but when they saw what the price was, they walked away,” he adds. “The majority of the people looking at gluten-free weren’t celiac sufferers. I think a lot of those consumers are still going to health food stores.”
Dealing with costs
In 2008, bakery operators grappled with skyrocketing ingredients costs and high fuel prices, and by 2010 they were reeling from the recession. This year, fuel costs began to creep up again; however, they have started to go down in recent weeks. But ingredients costs are once again on the rise.
More than 90 percent of operators reported that suppliers had raised prices in 2012, up from only 60 percent in 2010. However, the situation is not quite as bad as 2008, when 100 percent of operators reported suppliers had raised prices, according to Modern Baking Supermarket Research. In many ways, 2008 broke many operators’ resistance to passing along costs; 100 percent raised retail prices that year. Still, only 73 percent of operators upped retail prices in 2012–that’s better than the 30 percent in 2010. The average increase this year was 6.4 percent. For comparison, operators raised prices more than 10 percent in 2008.
Many operators are re-examining their own operations to help keep costs in line so they don’t have to pass along the increases to customers. Buehler Food Markets is looking to other suppliers even though it has maintained long relationships with its current suppliers, and is taking a close look at shipping costs to see if suppliers are charging on percentage of sale or by weight. “A lot of these things can make a marked difference as far as the final cost of the ingredient or product,” Krueger says.
New Seasons Market is helping to control costs by consolidating purchasing with other departments. For example, the bakery and deli departments were buying olives separately. However, when they combined their purchasing power, they were able to get a lower price and keep the same level of quality olives.
Buehler also is taking a more targeted approach to the products it raises prices on. “In the past, where we might have raised prices across the board, now we’re targeting the volume leaders where you can make an impact,” Krueger says.
Highland Park Market also looks at individual products. “I try not to go up on everything, but I definitely have gone up on some of the products. We’re trying to do it slowly, not all at once,” Thatcher says.
Many operators expect the remainder of the year and next to go along much the same as the beginning of this year.
“I think sales will improve for the rest of the year and into next year but not at the rate we saw a few years ago. Sales will get better but not as much as we hoped,” Dodson says.
Mihu sees the situation similarly. “I don’t see the economy changing. I look for it to continue on the path it’s on now. I think we’ll continue to fight for sales,” he says.