In-stores adjust to changing attitudes

In a tough business environment, investing in the future is difficult and may even seem impossible at times. Implementing new strategies often takes a back seat to keeping up with day-to-day business, but planning for the future becomes even more critical under this pressure situation. Many supermarket chains among Modern Baking's Top 50 largest in-store bakery operators understand this and are tailoring stores for growing niches, such as Hispanic, natural/organic and urban markets. Most chains also are using new technology to track bakery sales and understand their customers better.

Nationally, in-store bakery departments are holding their own in this economy and are even benefitting from more shoppers looking to supermarkets for help preparing meals at home. Cost-conscious grocery store habits consumers developed during the recession this year are destined to have a long-term impact on national shopping behavior, according to research results from a survey released in August by Precima, a Toronto-based retail analytics firm.

The survey asked consumers to identify shopping practices they would continue or drop if the economy improves. Eighty-two percent of U.S. consumers said they intend to continue cooking at home instead of eating out, 80 percent plan to keep using coupons as much as possible, and 78 percent will continue to make fewer trips to the store.

In-store bakery operators are reporting similar customer shopping patterns in the perimeter departments, including more foot traffic and increased price sensitivity.

“It seems like people are moving into the grocery store away from restaurants,” says John Rose, bakery category manager, Brookshire Grocery Co., Tyler, Texas. “They're looking for grab-'n'-go meals, the deli is seeing a lift, and our bakeries are seeing increased foot traffic.”

He says the sales increase in bakery is not enormous, but the in-stores are selling more items for everyday home consumption. Several categories — breads and rolls, cakes and cookies — are getting a boost from that trend. While consumers may have less money to spend, they are still just as time crunched, and in-store bakeries provide the convenience of fresh-baked products located where they are already shopping for gorceries.

Ken Downey, director of sales and merchandising, King's Super Markets agrees that more customers may be shopping supermarkets, but they are also focusing more on price. The Parsippany, N.Y.-based supermarket chain introduced a three-for-$10 line of desserts and a $9.99 line of layer cakes in its 25 in-store bakeries early this year, which proved extremely successful, he says.

“People are definitely eating more at home, but they're trading down. Instead of a $20 fresh fruit tart, they might bring home a $5 pie,” Downey says. By offering smaller portion sizes and single-serve desserts, in-store bakeries can provide customers good quality products at lower price points. The smaller items often have higher profit margins for in-store bakeries as well, a welcome bonus in any economy.

Merger activity slow

Mergers and acquisitions were few this year among the Top 50, but several key deals occurred among small and mid-sized chains. Houchens Industries, Bowling Green, Ky., acquired Buehler Foods, Jasper, Ind. Buehler's Buy Low stores will continue to operate under that name, and the additional in-store bakeries puts Houchens at number 37 among the Top 50, with 92 bakeries. The company operates in-store bakeries under several banners, including Houchens Market, IGA and Piggly Wiggly.

The Grocers Supply Co. boosted its presence among Hispanic consumers in the Texas market by agreeing to purchase the Carnival Food Stores brand and 37 stores from Minyard Food Stores, Coppell, Texas. Grocers Supply owns Fiesta Mart, a supermarket chain of 50 stores serving Latino communities in the Houston, Dallas-Fort Worth and Austin markets.

“The upcoming acquisition is a validation of our concept and the success of the Carnival brand,” said Minyard President and C.E.O. Micheal Byars in a company statement. “It proves what we've said all along about the growing power and influence of Hispanics in North Texas. Grocers Supply's acquisition almost four years ago of Fiesta and, now, of our Carnival brand shows they understand the changing demographics of Texas and the attractiveness of this segment.”

Minyard invested heavily in its Carnival supermarkets with an extensive redesign, which highlighted its perimeter departments. Open production and service is the focal point of the departments, including panaderia, pasteleria (pastries), tortillaria (tortilla), salichicheria (deli), cocina (kitchen), carniceria (meat), pescaderia (fish) and fruteria (fruit bar).

“Though other operators might consider bakery tertiary, we learned that the panaderia is a critical element for the Hispanic consumer. That's why we've put such a strong focus on baking and made our bakeries service bakeries,” Poal Heilmann, Minyard senior vice president-marketing, told Modern Baking editors in January last year during a store visit.

Whole Foods Market's acquisition of Wild Oats has been finalized, making Whole Foods the undisputed king of the natural foods niche. Here too, in-store bakeries have been key components of Whole Foods' fresh image and ability to target consumers seeking bakery products made with more natural ingredients. Whole Foods now ranks 14th among the largest in-store bakery chains.

Organic/natural products have a way to go before becoming staples in traditional supermarket in-store bakery product lines. But, 38 percent of in-store bakery operators posted sales gains in the natural/organic category this year, according to Modern Baking's 2008 Supermarket Bakery Survey. This percentage is up significantly from the survey two years ago when only 19 percent of in-store operators reported sales gains in the category. Among bakery products that address special dietary needs, the organic/natural category was second only to whole wheat/whole grain products in sales gains this year.

The Top 50 operators continue to invest in new stores, remodels and innovative store formats. Publix, Lakeland, Fla., which has become adept at rolling out specialized stores for targeted markets, such as its Hispanic-focused Publix Sabor stores, is finding more success with its Publix GreenWise concept. This fall in Hyde Park, Fla., Publix opened its third GreenWise store, the first to be built from the ground up. Additional locations are planned for former Albertson's locations in Tallahassee and Winter Park, Fla. The stores feature in-store bakeries that offer a product line of more than 350 items made with natural or organic ingredients.

Testing smaller stores

Some among the Top 50 are testing smaller format stores that either cater to urban shoppers or provide the simple convenience of a downsized product line. Safeway opened a smaller format in Long Beach, Calif. in May, but recently reported that performance has been “good, but not great,” said Steve Burd, Safeway chairman, president and C.E.O. in an investors conference. The company plans to open two more small-format stores next year, “but unless the results go from good to great, and we feel we can open 30 to 50 of these per year, it won't make a difference for these stores to be more than an experiment,” Burd added.

Schnuck Markets announced plans to open a 20,800-sq.-ft. market in downtown St. Louis by early next year, and Albertson's recently opened a 16,000-sq.-ft. Jewel-Osco store in Chicago called, “Urban Fresh, by Jewel.”

The “fresh focus” trend is proving to have legs for many traditional supermarkets that are designing new stores with more emphasis on the perimeter perishables departments over center store grocery. Safeway continues to invest heavily in its Dominick's “Lifestyle” stores, which focus more on fresh baked goods, prepared meals, produce and organic foods. The company planned to have 50 of the 82 Chicago-area Dominick's stores revamped with the lifestyle format by the end of this year.

Piggly Wiggly Carolina Co., Albertson's and The Great Atlantic & Pacific Tea Co. are among the Top 50 chains that remodeled or opened new “fresh” formats this year. This fresh trend is good for in-store bakeries when top executives begin to realize how much a company's bakeries can differentiate the chain and enhance its fresh image.

Improved category management technology is one factor that is helping some supermarket chains among the Top 50 support their in-store bakery programs. Traditionally a bear for in-stores to implement because bakery products are constantly changing and do not carry the same UPC codes as the rest of grocery, most in-store bakeries using category management systems did not get the valid results needed to make truly educated product line decisions.

The kinks are not worked out everywhere. Nearly 65 percent of in-store bakery operators already use or have plans to use category management in their bakeries. But, the remainder either have no plans for category management (16 percent) or do not know (21 percent), according to Modern Baking's 2008 Supermarket Bakery Survey. Technology has improved, allowing all departments in the supermarket to be under the same system, rather than separate piecemeal systems.

Technology is the future

Brookshire Grocer Co. began integrating its category management software in September last year, and category manager Rose now has detailed bakery sales and comparison data in minutes. He uses the data to determine which store locations may work better for a particular product, which products may need more marketing and merchandising support or which products need to be dropped all together.

“The days of ‘guessing by golly’ are gone,” adds Rose. “Instinct will only get you so far. Even if a product is selling, are you making money on it?”

Cleary, new technology will continue to be a part of in-store bakeries' future, including category management, enhanced online shopping services and text-message coupons. The Top 50 largest supermarket bakery operators are leading the baking industry in integrating some of these systems. New technology works best when it provides management the information to make decisions to further differentiate their brands and provide services that truly target their customer niches.

Hispanic and natural food niches gain among Top 50 in-stores
Ranked by number of in-store bakeries

Rank	Chain	Headquarters	Total Bakeries	Total U.S. Stores	New bakeries in 2008	Primary production methods
1	Wal-Mart Supercenters*	Bentonville, AR	2,567	2,567	262	Bake-off
2	Kroger Co.	Cincinnati, OH	2,452	3,269	284	Thaw-sell/bake off
3	Safeway Inc.	Pleasanton, CA	1,651	1,732	81	Bake-off
4	Supervalu w/Albertson's stores	Eden Prairie, MN	1,337	2,475	0	Bake-off
5	Food Lion	Salisbury, NC	1,203	1,220	0	Bake-off/thaw-sell
6	Publix Super Markets	Lakeland, FL	920	920	20	Bake-off
7	Sam's Club	Bentonville, AR	587	587	0	Bake-off
8	Winn-Dixie Stores	Jacksonville, FL	522	522	0	Bake-off/mix
9	Costco Wholesale	Issaquah, WA	520	520	40	Bake-off
10	Great Atlantic & Pacific Tea	Montvale, NJ	397	447	0	Mix/scratch
11	Stop & Shop Supermarkets	Quincy, MA	377	390	7	Bake-off/mix
12	Whole Foods Market**	Austin, TX	263	263	73	Bake-off
13	H-E-B Grocery	San Antonio, TX	250	312	0	Bake-off
14	Bi-Lo/Bruno's	Mauldin, SC	225	225	0	Bake-off
15	Giant Eagle	Pittsburgh, PA	222	222	2	Bake-off/mix
16	SuperTarget	Minneapolis, MN	210	210	19	Bake-off
17	Hy-Vee Food Stores	West Des Moines, IA	198	198	0	Bake-off/mix
18	Save Mart Supermarkets	Modesto, CA	196	203	72	Bake-off
19	Ingles Markets	Black Mountain, NC	194	196	0	Mix/bake off
20	Meijer	Grand Rapids, MI	181	181	0	Bake-off
21	BJ's Wholesale Club	Natick, MA	175	175	5	Bake-off/thaw-sell
22	Giant Food	Landover, MD	167	186	5	Bake-off
23	Harris Teeter	Matthews, NC	164	164	7	Bake-off
23	Hannaford Bros.	Scarborough, ME	164	164	7	Bake-off
24	Weis Markets	Sunbury, PA	155	156	0	Bake-off/mix
25	Bashas'	Chandler, AZ	154	162	13	Bake-off
26	Roundy's	Pewauki, WI	153	153	0	Bake-off/mix
27	Brookshire Grocery Co.	Tyler, TX	148	152	3	Bake-off/thaw-sell
28	Giant Food Stores	Carlisle, PA	145	145	3	Mix/bake off
29	Raley's	Sacramento, CA	132	132	0	Thaw-sell/bake off
30	Golub Corp./Price Chopper	Schenectady, NY	111	116	5	Bake-off
31	Penn Traffic	Syracuse, NY	106	110	0	Bake-off
32	Sweetbay Supermarkets	Tampa, FL	103	103	0	Bake-off
33	Schnuck Markets	St. Louis, MO	102	102	1	Bake-off
34	Houchens Industries	Bowling Green, KY	92	140	22	Thaw-sell/bake-off
35	Marsh Supermarkets	Indianapolis, IN	87	103	0	Bake-off
36	Fresh Brands	Sheboygan, WI	86	95	0	Bake-Off
37	Spartan Stores	Byron Center, MI	84	84	15	Bake-off
38	Stater Bros.	Colton, CA	81	165	3	Bake-off
39	The Fresh Market	Greensboro, NC	78	78	18	Bake-off
40	K-VA-T Food Stores	Abingdon, VA	75	95	0	Bake-off
41	Top's Markets	Williamsville, NY	71	71	0	Bake-off
41	Wegman Food Markets	Rochester, NY	71	71	0	Bake-off/mix
42	Piggly Wiggly Carolina	Charleston, SC	64	115	4	Bake-off/mix
43	Lowe's Food Stores	Winston Salem, MA	62	81	0	Bake-off
43	Fiesta Mart	Houston, TX	62	87	28	Thaw-sell/bake off
44	Nash Finch	Minneapolis, MN	58	58	0	Mix/bake off
44	Big Y Foods	Springfield, MA	58	58	2	Bake-off/mix
45	Kmart Supercenters	Hoffman Estates, IL	54	54	0	Bake-off
45	King Kullen Grocery Co.	Bethpage, NY	54	54	0	Bake-off
46	Southern Family Markets	Birmingham, AL	42	52	0	Bake-off
47	DeMoulas/Market Basket	Tewksbury, MA	33	58	0	Bake-off
48	United Supermarkets	Lubbock, TX	32	46	0	Bake-off
49	Fresh Encounter Inc.	Findley, OH	30	32	0	Bake-off
50	Ukrop's Super Markets	Richmond, VA	29	30	0	Bake-off
TOTAL			17,755
* Includes Wal-Mart Neighborhood Market ** Includes Wild Oats Markets Source: Modern Baking estimate and actual data

Expect frugal grocery shopping habits to continue

(Percentage of U.S. consumers who will continue shopping habit if the economy improves)

80% intend to continue cooking at home instead of eating out

80% plan to keep using coupons

78% will continue to make fewer trips to the store to save on gas

Source: Precima and ICOM Information & Communications research study