In-stores weather customer frugality

As 2009 draws to a close, few in-store bakery operators are sad to see it end. Although commodities prices found equilibrium this year, continued high unemployment and consumers' tight purse strings marked 2009 as one of the most difficult in recent memory, especially for in-store bakeries selling indulgent food. “Bakery always had the advantage of being a low-cost treat, but with the economy, even treats are being cut out,” says Joye Crosby, bakery buyer, Superior Super Warehouses, Santa Fe Springs, Calif. “People are only buying what they need and nothing more. I hope that is not a continuing trend.”

According to the Perishables Group's Pricing Consumer Research Project 2009, which surveyed 1,000 consumers on the East and West Coasts, 34 percent of shoppers said they are buying fewer baked products from the in-store bakery. To save money, 35 percent of those surveyed are turning to the center store aisles to purchase bakery items.

Jeffrey Naaman, director of deli/bakery, Meijer, Grand Rapids, Mich., is seeing this statistic played out in his stores. “With the economic downturn, we are seeing more items being purchased when they are on sale.” The Perishables Group survey found 45 percent of shoppers said they only purchased in-store bakery items when they were on sale. Customers have been placing a lot of emphasis on price during the past year, and price is a large factor in their decision making process, Naaman adds. “We don't see a lot of large-dollar purchases.”

Many in-store directors echo this observation. “What I've seen is they want a treat, but not a $9 item,” says Christian Lucas, director of deli/bakery, Houchens Industries, Bowling Green, Ken. “They want the same quality, but at a $5 or less price point.” Houchens, which operates locations under the Hometown IGA banner, is slicing up its 8-in. round dessert cakes and selling them as desserts for two.

At Superior, Crosby is seeing an increase in sales of 10-in. cakes as customers downsize from ½ sheet or ¼ sheet cakes. United Supermarkets, Lubbock, Texas, has experienced a lot of success with 4-in. and 5-in. cakes, especially its Critter cake program, which retails for $5.99. “We're selling almost $1,000 of them a week,” says Tammy Kampsula, bakery director for United. “That's all incremental sales.”

Customers also are looking for small product count sizes. Schnuck Markets, St. Louis, now offers 4-count cupcake packages, downsizing from 6-count. “Customers are looking for something smaller in size,” says Bill Mihu, vice president of bakery operations for Schnucks.

All in-stores are reporting sales growth in individual-sized items. “We've seen some deflation, which is self-imposed with the downsized packaging,” Mihu says. “”But unit sales have held up. Bigger is not better in bakery.”

However, while dessert or indulgent-type product sales may be suffering, United has seen an increase in products that consumers eat every day, such as artisan bread and crusty bread and rolls. Even cookie sales are growing. The increase is due to more consumers eating at home, Kampsula says. “So, it works both ways. Dessert sales are down, but bread sales are up.”

Make the most of sales

The in-store bakery is not alone in dealing with the new frugality of consumers. “The economy has been the biggest factor this year,” Kampsula adds. “Shoppers don't have much discretionary income.”

Almost all major supermarket chains are advertising “new” lower prices to attract more shoppers and boost sales. This summer, for example, Stater Bros., San Bernardino, Calif., lowered prices on the 10,000 products that shoppers buy on a daily basis. For some chains, such as Food Lion, the new pricing strategy is an effort to take on Wal-Mart's prices, often the lowest in the industry.

Schnucks introduced its Neighbors Helping Neighbors program this summer, which was a continuation of its dedicated effort to close the price gap between its products and its competitors, including Wal-Mart. In-store bakery did not play a part in the program because “it's hard to play the game with perishables,” Mihu says. “You have to convince people that you can compete with Wal-Mart on price to some degree, but emphasize you offer better service and quality in perishables.”

To help get the most sales possible, Houchens is displaying bakery products next to cash registers to pick up impulse sales. The chain's in-stores also are introducing signature products, including a line of about 10 chess bar varieties, which sell for $2 to $3. Schnucks has had success with its signature gooey butter cookies, which come in as the number one or two best-selling variety in the category on a weekly basis in the chain's St. Louis stores.

Overall supermarket health is a bit of a mixed bag. Consumers are shopping from lists more than in recent years. Coupon use is up for the first time since 1992, according to the Chicago Tribune, and consumers are willing to shop around. “We have a lot of cherry pickers that will shop by the ad, and they will go to five different stores to get the best price,” Superior's Crosby says.

Kroger, Cincinnati, posted lower than expected third quarter results this month, with an $874.9 million loss, causing its stock to plunge 12 percent. The company also indicated that it didn't expect much improvement until the second half of 2010. This prediction also caused the fall in stock of several of Kroger's competitors, such as Supervalu, Safeway, Wal-Mart, Whole Foods and Costco. The reasons cited for the poor results were deflation, cautious shoppers and a surge in competition with price wars and promotional activity, said Kroger chairman and chief executive, David Dillon in a conference call. Other chains, such as Basha's, Harris Teeter, Winn Dixie, Costco and Ingles reported losses at the end of 2009.

On the flip side, Publix, BJ's Wholesale Club, Ahold, Stater Bros. and Weis Markets reported earnings or profits gains. Officials at BJ's credited improvements in its fresh food presentations and shrink control for the chain's five-year high in store traffic and its earnings boost.

In-store bakery is feeling reverberations of the mixed results of supermarket sales. “In-store sales are based on value and the perception of a good price for the quality of the product,” Naaman says.

For Superior in-stores, the beginning of the year seemed promising, but the fourth quarter has proven to be challenging, Crosby says.

“The economy is still disappointing, but we're starting to see a bit of a bounce back,” says Houchens' Lucas. “We're starting to see people buying more of the expensive items. We've seen sales growth, but not the radical growth of past years.”

To keep shoppers interested in the in-store bakery, United continually tweaks its product line. By adding and subtracting products regularly, the in-store bakery keeps SKUs under control while always having something new for customers, Kampsula says.

Chains downsizing

With the downturn, mergers and acquisitions were limited with many chains closing locations outright or filing for bankruptcy. Basha's went into Chapter 11 bankruptcy this July with plans to emerge in the first quarter of 2010. The chain shuttered a total of 15 stores in 2009. Bruno's, which had 66 units when it filed for bankruptcy in February, was purchased by C&S Wholesale Grocers, which plans to roll 31 of Bruno's locations into its Southern Family Markets division. Bi-Lo and Penn Traffic also filed bankruptcy and are looking for buyers.

Supervalu closed 50 underperforming units throughout the country, and Sweetbay shuttered seven stores, but also opened three new stores. Spartan Stores announced plans in October to shutter the experimental Zucca's location, a concept heavy on perishables and natural and organic offerings. Stop & Shop exited Maine, closing its only location and scrapping plans for a second store. This spring, Whole Foods put 32 stores up for sale, and Albertsons sold 36 of its Utah locations to Associated Food Stores. It is looking to sell an additional four stores in Utah, but plans to continue to operate its three units in the St. George area.

However, not all news was grim. Houchens Industries opened the year with the acquisition of White's Fresh Foods, and it is converting all of its units to the Hometown IGA banner. Sunflower Farmers Markets opened seven new stores in four Southwestern states. Hy-Vee recently opened its first Wisconsin store in Madison, which also is the first LEED (Leadership in Energy and Environmental Design) store for the chain. It now operates stores in eight Midwestern states, and plans to build five new stores, including a second Madison location and relocate five existing stores, according to a Supermarket News report. Eight remodels also are on tap. Food Lion also continued on the energy efficient trend by opening a LEED store in Salisbury, N.C.

Remodels also are planned for several chains, including Albertsons' 25 locations in the Dallas-Ft. Worth area, about 20 percent of its store base. Food Lion also plans to remodel 31 stores in South Carolina to include an expanded bakery presence. Schnucks also remodeled several bakeries, including its Rockford locations and has worked to make its in-store bakeries more flexible to changes in traffic. The remodeled bakeries feature more modular fixtures, such as nesting tables, which allow the bakeries to change their appearance and adjust for customer counts. For example, on Monday, the tables can be nested for less display space and un-nested on Saturday for more display space.

What's ahead in 2010? “We're hopeful about 2010,” Crosby says. “I'd say we're cautiously optimistic.”

Schnucks will continue to look at adjusting product size and product count. “I think sales are going to be tough to come by. Bakery is an affordable indulgence, but people are going to be watching their spending,” Mihu says.

“Right now, we're focusing on delivering quality product, so when people do spend their hard-earned dollars on a product, they are completely satisfied with it,” Lucas adds.

Top 50 in-stores grapple with closures, fewer expansions

Ranked by number of in-store bakeries

Rank	Chain	Headquarters	Total Bakeries	Total U.S. Stores	New bakeries in 2009	Primary production methods
1	Wal-Mart Supercenters*	Bentonville, AR	2,610	2,610	170	Bake-off
2	Safeway Inc.	Pleasanton, CA	1,651	1,732	20	Bake-off
3	Supervalu	Eden Prairie, MN	1,336	2,505	54	Bake-off
4	Kroger Co.	Cincinnati, OH	1,307	2,516	31	Thaw-sell/bake off
5	Food Lion	Salisbury, NC	1,227	1,241	35	Bake-off/thaw-sell
6	Publix Super Markets	Lakeland, FL	940	998	5	Bake-off
7	Sam's Club	Bentonville, AR	599	599	13	Bake-off
8	Costco Wholesale	Issaquah, WA	546	546	25	Bake-off
9	Winn-Dixie Stores	Jacksonville, FL	521	521	0	Bake-off/mix
10	Great Atlantic & Pacific Tea	Montvale, NJ	447	447	0	Mix/scratch
11	Stop & Shop Supermarkets	Quincy, MA	376	376	0	Bake-off/mix
12	Whole Foods Market**	Austin, TX	274	274	19	Bake-off
13	Save Mart Supermarkets	Modesto, CA	245	245	0	Bake-off
14	SuperTarget	Minneapolis, MN	239	239	72	Bake-off
15	Hy-Vee Food Stores	West Des Moines, IA	225	225	9	Bake-off/mix
16	Bi-Lo/Bruno's	Greenville, SC	222	222	0	Bake-off
17	Giant Eagle	Pittsburgh, PA	220	220	12	Bake-off/mix
18	H-E-B Grocery (U.S. locations only)	San Antonio, TX	200	309	0	Bake-off
19	Ingles Markets	Black Mountain, NC	187	198	12	Mix/bake off
20	Meijer	Grand Rapids, MI	185	185	9	Bake-off
21	BJ's Wholesale Club	Natick, MA	178	178	8	Bake-off/thaw-sell
22	Harris Teeter	Matthews, NC	176	176	16	Bake-off
23	Giant Food	Landover, MD	167	182	0	Bake-off
23	Hannaford Bros.	Scarborough, ME	167	167	5	Bake-off
24	Bashas'	Chandler, AZ	154	163	2	Bake-off
24	Weis Markets	Sunbury, PA	154	154	3	Bake-off/mix
25	Roundy's	Milwaukee, WI	153	153	0	Bake-off/mix
26	Brookshire Grocery Co.	Tyler, TX	151	160	3	Bake-off/thaw-sell
27	Giant Food Stores	Carlisle, PA	149	149	4	Mix/bake off
28	Raley's	West Sacramento, CA	116	140	2	Thaw-sell/bake off
29	Golub Corp./Price Chopper	Schenectady, NY	111	115	0	Bake-off
30	Sweetbay Supermarkets	Tampa, FL	109	109	3	Bake-off
31	Schnuck Markets	St. Louis, MO	105	105	2	Bake-off
32	Marsh Supermarkets	Indianapolis, IN	104	104	0	Bake-off
33	Spartan Stores	Byron Center, MI	100	100	2	Bake-off
34	Piggly Wiggly Midwest (Fresh Brands)	Sheboygan, WI	96	96	0	Bake-Off
35	Lowe's Food Stores	Winston Salem, MA	93	109	0	Bake-off
35	Penn Traffic	Syracuse, NY	93	93	0	Bake-off
36	Houchens Industries	Bowling Green, KY	92	351	20	Bake-off/scratch
37	K-VA-T Food Stores	Abingdon, VA	90	101	6	Bake-off
38	The Fresh Market	Greensboro, NC	86	86	10	Bake-off
39	Stater Bros.	San Bernardino, CA	84	165	3	Bake-off
40	Top's Markets	Williamsville, NY	82	82	0	Bake-off
41	Wegman Food Markets	Rochester, NY	73	73	8	Bake-off/mix
42	Nash Finch	Edina, MN	62	62	0	Mix/bake off
43	Piggly Wiggly Carolina	Charleston, SC	60	106	0	Bake-off/mix
44	Big Y Foods	Springfield, MA	58	58	0	Bake-off/mix
45	King Kullen Grocery Co.	Bethpage, NY	49	53	1	Bake-off
45	Kmart Supercenters	Hoffman Estates, IL	49	49	0	Bake-off
46	Southern Family Markets	Birmingham, AL	41	41	0	Bake-off
47	Fiesta Mart	Houston, TX	34	60	0	Thaw-sell/bake off
48	DeMoulas/Market Basket	Tewksbury, MA	33	59	3	Bake-off
49	United Supermarkets	Lubbock, TX	32	48	2	Bake-off
50	Superior Grocers	Santa Fe Springs, CA	31	31	0	Bake-off
50	Ukrop's Super Markets	Richmond, VA	29	29	1	Bake-off
	TOTAL		16,916
	* Excludes Wal-Mart Neighborhood Market ** Includes Wild Oats Markets				Source: Modern Baking estimate and actual data