Houchens IGA’s skilled decorators, including Dona Ebert, helped improve the bakeries’ custom cake program.

Nesting tables provide Houchens versatile merchandising options.

Stephen Reed, director, retail operations, (left) and Christian Lucas, director, deli/bakery and foodservice, lead Houchens’ restructuring efforts to the IGA brand.

(from left) Sharon French, deli/bakery manager; Amanda Chaffin, assistant deli/bakrey director; and Lucas merchandise a Valentine’s display that included in-store-made fudge.

Sometimes an in-store bakery-deli operator needs to address the basics to accomplish the job. That’s exactly what Houchens Industries, based in Bowling Green, Ky., is doing.

The company’s Houchens Market-bannered supermarkets have been fixtures in south central Kentucky since the 1960s. Located mostly in rural towns and small metropolitan communities, the stores for many years faced little or no competition. Their bakery-delis, lacking a definitive company-wide program, were inconsistent in product quality and customer service.

During the last ten years, expectations of consumers in Houchens’ marketing territory began to change. Television and the Internet introduced consumers to new products, and competition, particularly from Kroger and Wal-Mart, sounded a wake up call within the company’s corporate suite.

To "re-image" its supermarkets, the company began rebranding stores three years ago, switching banners from Houchens to IGA (International Grocers Alliance) to draw on IGA’s perceived drawing power in Kentucky and Tennessee. Remodeled units have gone further with the name, Hometown IGA, to enhance each store’s appeal to local consumers.

Throughout the chain, bakery-delis have upgraded their lines with improved product quality and broader selections to meet local needs. New training procedures are igniting crews, resulting in improved customer service, increased sales and more efficient operations. The financials reflect the changes: Bakery/delis in remodeled Hometown IGAs experience as much as a 100 percent surge in sales, which settle to a 65 to 70 percent increase, officials say.

Directing the stores’ conversions is Stephen Reed, director of retail operations, a second-generation independent supermarket operator who joined Houchens four years ago. In 2004, he recruited Christian Lucas, a veteran white tablecloth restaurateur and former director of an upscale supermarket foodservice operation, to revamp the company’s bakery/delis and foodservice operations.

"Most conventional grocery retailers in rural and small metro markets headed for the hills after they saw big box retailers and mass merchandisers move into grocery," Reed observes. "Servicing these markets, especially the under-served rural markets, is our fort?."

He says foodservice, including bakery and deli, is Houchens’ weapon to battle Wal-Mart and Kroger and "makes our stores destinations for our customers and helps keep them from traveling 15 or 20 miles to shop a big box store or mass merchandiser."

Supermarkets are one of several enterprises within 85year-old Houchens Industries, which is the nation’s largest employee-owned company. Founded as a grocery operation, Houchens "understands it is a conventional grocery retailer," Reed says. "However, our senior management recognizes that in today’s retailer landscape, doing what we’ve always done will not yield the results that we’ve always achieved."

Houchens challenged Reed and his team to bring its three retail divisions, Houchens Markets, IGA supermarkets and convenience stores under one umbrella, restructure the operations and re-brand them as IGA. Also included is a new format, Crossroads Market, a hybrid of a conventional supermarket and JR Foods convenience stores with gasoline pumps. Further, senior management asked Reed and his team to develop a new foodservice strategy, "one that couldn’t be found in Wisconsin, New Mexico or California and merely replicated," he explains.

"We’re in a world of two-income households that shop more frequently for less volume on a day-to-day basis," Reed continues. "The goal is to create a business model that caters to the true lifestyle and demographics of our customers."

Needed consistency
The first task for the bakery operation was to establish storeto-store consistency in product quality, Lucas says. For an immediate fix, he chose thaw-and-sell product for several categories, "which stabilized our environment," he notes. Primary thaw-and-sell categories include cake layers, muffins, Danish, brownies, donuts, croissants and some pies and cookies. The bakery/delis shoot for a 40 to 45 percent gross profit from thaw-and-sell items.

Reed explains that improvements in quality and selection of value-added bakery products have helped the stores fill local customers’ needs quickly. "We can go to market by effectively using the many high quality products we now have available in frozen raw, par-baked, fully baked and retail-ready form," he says. "We can mix and match items to meet our customers’ needs within our business model."

Lucas adds that the stores cannot rely solely on thaw-andsell products. "Our challenge was to select the stores to execute hot baking and in-store prepared products and replace thaw-and-sell products." Crews use frozen dough to produce white and variety breads and rolls, and most pies and cookies. The products yield 55 to 60 percent gross profits, Lucas says.

Stores without bakery/delis, including convenience stores and Crossroads Markets, use thaw-and-sell bakery items. In those smaller arenas, thaw-and-sell offers consistency and quality and can return a 35 percent gross, he adds.

"We try to do the best we can with the products and services we offer," he says. "This means providing the freshest, most wholesome product at a good value–a product that the customer will be proud to serve at home. In turn, the customer will return to buy more and tell their friends."

Lucas says that he ultimately plans to install a central production facility for many bakery and deli products. "We’re still in the first stage of our development; that is, wrapping our arms around the business, analyzing it and creating and implementing programs for successful bakery/delis," he says. "This eventually will include identifying enough signature items that will justify installing a central commissary." He adds the facility also will provide capacity to replace thaw-and-sell items with fresh-baked product.

Offering niche items that big box stores and mass merchandisers do not carry will go a long way toward competing with them, Lucas observes. He cites branded sourdough bread, banana nut bread, pumpkin cheese roll and Italian-style creme cake made by a local Mennonite bakery; converted bakery/delis introduced the line in January and offer it exclusively in Houchens’ territory.

Lucas notes the importance of keeping track of product trends. "Will some things happening on the West Coast immediately catch on in Kentucky? No. But, they will, and we must remain vigilant," he says.

For example, though consumer interest in whole grain bakery foods has not caught on throughout Houchens’ territory, some bakery/delis last year introduced whole grain bread products to get ahead of the curve, he says.

Varieties include muesli, whole wheat, flaxseed and sunflower. To help generate interest in the line, the staff at one Hometown IGA bakery/deli cuts the center from a whole wheat boule and fills it with spinach-artichoke dip. "We ask customers to pull off a piece of bread and dip it," remarks Kaye Cottrell, bakery/deli manager. "Interest is growing steadily."

Product trends and consumer preferences can go down to store-to-store differences, according to Christiane Harman, bakery/deli field merchandiser. "Rural customers tend to prefer sweets, while people in towns and cities are more interested in health-oriented items," she says. "But, we see more city people moving to the rural areas for that lifestyle. That’s why you have to know your customers in each market."

Still, Lucas and his staff believe certain categories appeal to nearly all stores’ customer bases. For example, though Houchens bakery/delis had lacked a defined cake strategy, an aggressive push during the last two years points to strong sales potential companywide.

"I challenged our merchandisers and bakery/deli managers to go into their communities to promote the program and their revamped bakery/delis," Lucas explains. "We handed out cakes, telling the folks, ‘Let us be your destination for cakes.’ The general opinion in the communities was that we didn’t sell cakes.

"The few decorators we have are great; I want to take cakes to a level where all stores are ‘A-level’ stores. That will require putting in the right people, a lot of training and, of course, some time to achieve."

Promote party planning
Lucas called upon employees to promote a new catering and party planning program introduced last year in all converted stores. Bakery items include two sizes of continental breakfast trays and three sizes of assorted bread trays. Also available are decorated cakes; pies; cheesecakes; and brownies, cupcakes and cookies by the dozen.

District managers, store managers and bakery/deli managers introduced local church, civic, school and business leaders to the program with brochures and complimentary deli and bakery trays.

Stores promoted the program with static cling banners in their windows, within fourth-quarter holiday advertising, and on buttons worn by department associates ("Ask us how we can get your party started"). Lucas says the program is highly profitable, largely because all products carry good margins, and no stales remain.

Increased contact with customers is one result of bakery/deli manager and associate training programs initiated during the last two years, Lucas says. "We hang our hats on our customer service and a commitment to the training necessary to provide the products and service that we want our customers to expect."

Each quarter, bakery/deli managers meet at a different store in their regions for discussions and hands-on activities. "It’s a great opportunity for the host bakery/deli manager, as MC of the meeting, to discuss what works well and what doesn’t," Lucas says. "The manager also may identify products that may not have strong growth potential but reach out to a segment of local customers to keep them happy."

Twice a year, the company conducts meetings at headquarters for bakery/deli managers, district managers, store managers and assistant store managers. The meetings are tied into a major event, such as a fourth-quarter merchandising plan.

Lucas also taps specialized training developed by bakery vendors. He and Amanda Chaffin, assistant director of deli/ bakery and foodservice, and their field merchandisers meet quarterly with major vendors to discuss product promotions.

The plans include creating incentive contests to encourage bakery/deli managers to boost year-to-date sales. Managers who post the largest percentage gains earn awards, such as an all-expense-paid trip to a resort in the Smokey Mountains National Park or a $500 gasoline purchase card. One winner posted an 18 percent sales growth in fresh-baked cookies.

These contests not only have generated enthusiasm among the bakery/deli managers but also have elevated the departments’ presence in their communities by providing products that should be offered daily, he adds.

Lucas currently is developing a week-long training program in which a top bakery/deli in each district will be a training center. Associates from other stores in the district will be sent for basic training in baking bread, decorating cakes and other tasks. Plans call for beginning the program this fall.

Manager training
Training also will focus on ensuring that managers run bakery and deli operations equally well. Besides regular training sessions, Lucas will ask suppliers to assist. "For example, when we see a bakery opportunity in a store but the department is not bakery minded, our supplier will spend up to two weeks in hands-on training," he says.

When key bakery people want to expand their cake business, Houchens sends them for training at one of its major supplier’s offices. They learn to improve production efficiency as well as how to improve their decorating and merchandising skills. The return is well worth the expense, Lucas says.

"Our ultimate goal is to have a designated person manage each bakery function," he continues. "The first step is to get each bakery/deli operating on a stabilized, level playing field and to build its sales. This includes providing the training, equipment, products and re-branding of the stores.

"This is a big investment. But initial results point to future success. After each conversion to Hometown IGA, bakery/deli sales increase by nearly 100 percent during the first two months, and then settle to a 65 to 70 percent gain. Bakery/deli distribution (as a percentage of total store sales) often more than doubles."

Houchens plans to have five Crossroads IGA stores operating by the end of this year and to build or convert more than 100 locations during the next few years.

After re-branding its retail operations with the IGA name, Houchens will be operating Hometown IGA supermarkets, IGA Express convenience stores and Crossroads IGA Markets. In each format, bakery foods will play a role, from thaw-and-sell items in convenience stores and supermarkets without bakery/ delis to fresh-baked breads and cookies in supermarket bakery/delis and Crossroads Market Subway locations.

The whole package will be geared directly to local customers’ particular needs, Lucas says. "We want to do the basics well: to fill customer needs with quality product and great service and keep customers from driving 20 miles to Kroger or Wal-Mart in a larger city."

Hometown Iga Houchens at a glance Headquarters: Bowling Green, Ky. Founded: 1917; first Houchens supermarket opened in 1960; business became employee-owned in 1988 Web site: www.houchensindustries.com Management: Stephen Reed, director, retail operations; Christian Lucas, director, deli/bakery and foodservices; Amanda Chaffin, assistant director, deli/bakery; Janet Bowles, Christiane Harman and Kenneth Young, deli/bakery merchandisers Primary competitors: Wal-Mart Supercenters and Neighborhood Markets, Kroger, Food Lion, Super Target, E. W. James & Sons, K-VA-T Food Stores Market served: South central Kentucky south to near Nashville, Tenn. Number of supermarkets/bakeries: 47/21 Supermarket/bakery size: 15,000-35,000 sq. ft./1,000-2,500 sq. ft. Product line: Full line of 200 to 250 SKUs, including white, specialty and variety breads/rolls; pastries; sweetgoods; decorated cakes; donuts; pies; puff/Danish pastries; cookies; cheesecake; muffins Production methods: Mostly thaw and sell with bake-off and par-baked breads, pies, cookies and limited cake mix use Major equipment: Vertical mixers, proofer, deck oven, donut glazing table, over-wrap packaging unit, walk-in refrigerator/freezer Bakery plans: Solidify current bakery program to increase sales/profits, add more training programs, specify hot baking potential per store, introduce Subway baking program, identify potential signature products for possible central baking facility Bakery supply distributors: Lapari Foods

Hometown Iga Houchens a sampling of prices Glazed, yeast-raised donut.......................... $0.50 Blueberry muffin, 6 ozs. ..............................$1.19 Cinnamon rolls, 4-count, 26 ozs..................$3.99 Strawberry cheese Danish............................$1.19 Chocolate ?clairs, 4-count.............................$2.99 Croissants, 10-count, 8 ozs. .........................$3.49 Raspberry Danish coffeecake, 14 ozs. ........$2.99 Pecan pie, 20 ozs. .........................................$8.99 Lemon meringue pie, 28 ozs. ......................$3.99 Plain angel food cake, 14 ozs. .....................$2.99 German chocolate cake, 8 ins. ....................$9.99 Lemon creme cake, 42 ozs. ..........................$5.99 Decorated carrot cake, 30 ozs. ....................$7.99 Decorated cupcake........................................$0.69 6-count.......................................................$3.59 Decorated cake, 7 ins. ..................................$8.99 1/8 sheet....................................................$7.99 1/4 sheet .................................................$13.99 1/2 sheet .................................................$19.99 Whole wheat bread, 20 ozs. ......................... $1.99 Flax seed bread, 18 ozs. ............................... $1.99 Muesli bread, 20 ozs. ................................... $2.49 Sourdough bread, 18 ozs. ............................ $2.49 French bread, 18 ozs. .................................. $1.79