Bakery executives share strategies for addressing shoppers’ new mentality. Consumers are closely watching spending as bakeries strive to retain profits.
It is no secret that the current economic condition is one of the worst since the Great Depression. While economists agree the recession is over, the job and housing markets have yet to recover, leaving the populace feeling uncertain about the future. This feeling of uncertainty has led to more frugal shopping patterns for a sustained period of time.
Bakery historically has been recession-resistant, but the sustained consumer frugality is proving taxing. Modern Baking gathered several in-store bakery executives from different geographic areas to share the methods their companies have employed to gain sales and retain profits from increasingly thrifty consumers. The roundtable sponsor was BakeMark, and following are excerpts from the discussion.
Modern Baking: We’ve experienced some tough economic times in the last two years. What changes have you seen in your customers? Has their shopping philosophy changed? Has your philosophy changed?
Roland Krueger: We’ve seen a lot of people looking for comfort foods–donuts, pound cakes and that kind of thing. They still find that bakery is an affordable treat. You can buy donuts and cookies and it’s not going to break the bank.
MB: Are they buying the same size of products, or are they buying smaller quantities?
Krueger: A bit of both. You have empty nesters or people who want smaller serving sizes–one and two pieces. Cake slices do well for us in a two-pack serving. We also recently brought on board larger cookie portions that sell in a 24-count transparent cake dome. We make our own cookies, and we do soft, round, trans fat-free cookies, but the price for two dozen cookies, which is more than a dozen obviously, hasn’t deterred customers. They have perceived them as a value. We actually named them Value Pack Cookies.
Steve Schulte: We definitely saw that the portions have changed. Consumers are still eating bakery foods, but rather than have waste, they buy smaller portions. But it looks like they are coming back and buying them more often. Before, somebody would come in and buy a cake, take it home and toss some. Now, they’re buying the smaller cakes, but they may come back twice a week instead of just one time. We’re still the one affordable department in the store where prices haven’t changed as drastically as we’ve seen in other departments.
David Hay: We looked at a lot of our bread sizes–we were making 20-oz. loaves and other size loaves–and we saw a drastic decrease with customers not wanting to throw out any of a loaf that they spent $4 or $4.50 for. We’re making a smaller size at 12 or 14 ozs., and we’re seeing increased unit sales, but the dollars are the same. It’s more frequent shopping trips, but they’re buying less.
Amy Fouks: One of our big successes is the half pies to get that retail price point down. Our pie business has gone through the roof. We do the same with pudding cakes. Half-sizes have been very successful for us.
Schulte: We sell half pies as well. People still buy the whole pies, but what’s interesting is how many people pick up two half pies. They’re still getting a full pie, but instead of arguing about flavor, they get both. Also, they won’t have any waste.
Krueger: We changed our merchandiser to accommodate half pies, individual pie slices and pie cobbler, which is just a more generous piece of pie. Now customers can address the individual dessert needs of the whole family by picking individual ones. Their overall spending has increased, but they’re not wasting product.
MB: According to Modern Baking’s recent In-store Bakery Survey, customer counts and ticket averages in the bakery seem to be down. Are you experiencing something similar?
Schulte: In the past few months, it’s picked up. November to March it was still slower.
Krueger: We’ve actually seen our average sale per customer go up, and a lot of that might be attributed to us giving our store leaders more information, like average sales per customer, customer counts and sales at comparable stores. Since we only have 13 stores, it’s easy to give everybody information on last week’s sales. We put more information on our Intranet so everybody has access. We’ve been telling the stores to interact with the customers with sampling and suggestive selling to get customers to buy more items. That’s what they’ve been doing that’s brought the average sale per customer up over the last year.
Hay: It’s interesting how allowing some of that information out is the perception from some of my managers is that sales are terrible, but when you start to show some of these slight increases–show the success that they’re achieving–they’re in for the long haul. And although you are comparing yourself to last week, every week it seems it can get a little better. You’re seeing the improvements with the hard work you’re doing, and they buy in.
Krueger: In a supermarket environment, you’re scanning all kinds of information at store level. On a daily basis, you can find out whether you were successful or not and how successful. You can see the results of your efforts right away.
MB: Are you changing how you merchandise and market your products?
Fouks: We have launched Extreme Value items. We take a deep discount on one item in the bakery and the all the Extreme Value items from the store are on the front cover of the newspaper ad. These deeper discounts get people in the door. Even if customers are just looking for our Extreme Value item, at least it gets them in the bakery. And we can sample other items, and we can sell them something else.
Krueger: We started ELPs [everyday low prices] in grocery about three years ago. But recently, we’ve started to do it on a couple of things in the bakery. Three items we’ve done in bakery are six-count cake donuts, six-count glazed donuts, and for the summer we’re going to run hot dog buns at an ELP. We run the items in the ad, and there’s a block right above the item that says ELP. We also did some aggressive promotions at the beginning of the year. We did a 10-cent cookie sale, and we sold about 300,000 cookies among 13 stores. We had limits in the stores; it killed our gross for quite a while, but customers came in four or five days of the week and bought the limit. So if you’re willing to take the hit on something like that, you can do that once in a while, but you can’t do it all the time.
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Hay: We just finished Seven Ways to Save, and every day there was one department that had a down-and-dirty price. Every Sunday was 88-cent muffins, and we doubled our sales on Sundays. The concern was that we were going to see the decrease Tuesday or Wednesday, but what we found was at the end of the week we still netted a 25 to 35 percent lift, so it was a great promotion for us. It got the customers in. Muffins are the No. 2 or No. 3 item in the entire store. The customers were looking for that muffin every week from us, even at the regular $1.29 price, and at 88 cents, they flocked to the store.
MB: Did customers buy other products in addition to the muffins, or were they coming in just for the muffins?
Hay: They were definitely stocking up on muffins, but you know, we did a lot of cross merchandising, like pairing our muffins with Dunkin’ Donuts coffee at the coffee bar. Really, the key to the whole thing was cross merchandising. It is good deal for the customer, but we make our money back.
MB: Have you had to change your labor strategies to help keep costs down and keep the profit margins where they need to be?
Schulte: We had meetings with our team leaders about how we could help make their jobs easier, and they had a few ideas. We were able to change the way we did some of the bakery items, and they were able to stay within their labor budget. Instead of mixing some of the muffin batters at store level, we mixed them at our bakehouse and sent the batters in buckets to the store so they didn’t have to go through the mixing process. All they had to do was add what was needed for blueberry muffins one day and cranberry muffins the next. It saved them time. We did the same thing with buttercream.
Krueger: One of the things we focused on was shrink control. When you don’t have the sales, you take a look at not only what you are throwing out but what you are wasting on labor by making items that you’re not selling, and your opportunity costs–products that you weren’t able to make because you chose to make something else. They used to do a transfer sheet where they would list everything or a dollar amount of products that were thrown out or distressed, send it into the office, and they would get it back a week and a half later. Now we have them enter it into a spreadsheet, and they see it right away. They’re looking at it on a daily basis.
Fouks: Our company’s philosophy in the past has been big, beautiful displays, and that’s what’s expected. In the last year, we’ve implemented a few shrink-control initiatives without compromising the displays and making our customers think that there’s something wrong. There’s a fine line there, but we had a lot of opportunity. And once we had the bakery managers focus a little bit more on those, we were successful in weathering the storm a little bit this past year.
Hay: I have the same problem with displays, that they’re not overflowing and that I have the right amount of product. The displays are 75 percent as big as they used to be. We’re using the economy to support decisions that we probably should have been making all along.
Schulte: Our team leaders found that customers understood if they ran out of something as long as they explained it to the customers. That communication was so great that the customers weren’t upset that they didn’t get it, where in the past customers might have been.
MB: In order to control shrink, what is your merchandising philosophy with fewer products out?
Krueger: Rather than having displays look half filled all the time, I remove a fixture from the floor to reduce capacity and have the sales staff replenish more often. It may very well be that all the product was produced at the same time, but the customer doesn’t know that. You’re interacting with them out on the sales floor replenishing more product, and the displays look fuller at the right times of the day.
Fouks: We use a lot of nesting tables where you can pull them out for full displays and then push them in as the product sells. We also told our stores, like with our bread category, they need to bake more often. It’s not just a once-a-day bake. Let’s bake three times a day, and then you can gauge a bit better about what needs to be filled and what doesn’t need to be filled. Of course, that increases the labor side of it, but the customers have more fresh bread. Taking the hot bread off the courtesy carts keeps the customers, too.
MB: What products are you seeing doing well right now or predicting to do well in the future?
Schulte: Cookies. It’s one of these easy categories because you can feed so many people with the cookies.
Krueger: Cookies. Since August of last year, cookies have been flying off the shelves. And it’s a longer shelf life item.
MB: Is there any variety or size of cookie that is more popular?
Hay: We have the value cookie that we do in the bulk pack and the dozen packs, but we also developed a line of all-butter premium cookies. We sell eight of them for $3.99, and there are six or seven varieties. We offer both, and we’ve found there was no cannibalization.
MB: Any other types of products on the horizon?
Hay: Smaller servings, whether it is petit fours or even the dessert shots, just smaller than traditional sizes, whether it’s from a price point or a dietary concern.
Fouks: Our coffee cake category had kind of died down, and we revitalized that. We’ve made a couple of different tiers, an everyday tier and a gourmet one. That category has taken off for us. It was a category that you thought had died off, but you can revitalize it with some attention and a little more R&D to make it worth what we charge–$9.99.
Krueger: We have a larger cinnamon roll that we sell in the muffin case, and we have special pans to bake them. Then we started using the pans to make sticky buns, giant gourmet pecan rolls and individual pineapple upside down cakes. It didn’t matter the demographics of the store, we priced them competitively and they couldn’t keep them on the shelf.
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MB: Are customers asking about your sustainable practices, such as clean labels on products or green packaging?
Krueger: We’re getting more people asking for not only zero trans fats but also cleaner labeling. People are becoming more and more knowledgeable about hydrogenated fats and ingredients like that.
Schulte: Our customers are pushing us for even cleaner labels, and they question everything that’s in the product. But they’re also looking at packaging. When we show them that the plastic we use is a recycled container and it is recyclable, they like that. We’re reducing or reusing as much as we can. They question a lot of it and they look to make sure we don’t have any No. 5s or No. 6s [plastics that are not accepted by curbside recycling] on the packaging.
Hay: The cleaner label–besides the green package–seems to be the big trend. There’s been so much talk about trans fats and more and more customers are reading labels, whether it’s for health concerns or they’re just more aware of what their intake is, be it trans fats or sodium.
MB: For the products out of a display case with no product labeling, do you already post or do you plan to post the information on your website?
Hay: Our website is ever evolving, but we’re not to that point yet. We’re working on putting all of that online.
Schulte: I don’t think we should be scared to post that stuff. Look at Burger King, Wendy’s or McDonald’s–they have their nutritional information posted and it hasn’t stopped consumers from eating there. If they’re looking for healthy, then is the bakery really the right place? They still want that treat. I guess I’m not too afraid of actually having it out there.