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These specialty breads are more readily available from frozen dough manufacturers that have improved quality during the years. In addition, the bread category is the primary category where in-stores are partnering with regional bakeries for high-quality branded bread products. Kings Super Markets, for example, gets bread delivered daily from New York City bakeries.

While some operators are turning to regional bakeries for local favorites, others are bringing more production in-store by finishing frozen doughs and batters at store level or using mixes and bases. Mix production in the bakery actually reduces ingredient costs by 5 percent compared to frozen doughs when calculating costs as a percentage of sales, according to the survey. While labor as a percentage of sales is a bit higher with mix production (29% versus 26% with frozen production), some in-stores are seeing the light in using the labor they have for more than box cutting and shelf stocking.

“We need to self manufacture some of these products and use the labor we have,” says Sean Snoznik, bakery merchandising manager, Giant Eagle Market District, Pittsburgh.

Quality first

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Ultimately, quality sells in bakery, and more than half of operators say they set their prices to reflect product quality regardless of competitors' prices. About a third of operators see supercenters as their most significant competition. But, that percentage is down by three points compared to 2006 as corporate management of most supermarkets realize competing with mass merchandisers on price is a losing battle, particularly in fresh departments like bakery.

As consumer reaction to recent price hikes indicates, pricing in the bakery should be determined by profitability and the reality that the consumer price threshold is somewhat elastic if the product's quality is there. In-store bakeries have the advantage of a captive audience looking to make fewer shopping trips, so in-stores should promote their best attributes.

“Bakery is the most impulse driven department in the store,” Buehler's Krueger says. “People don't come in with a list that says, ‘I need two cream sticks, a Danish…’ It is up to us to take advantage of what we have with the aroma of fresh baking, how it tastes and the way it looks. We need to let customers know during their entire shopping trip that we are baking in the bakery.”