Top 50 in-store bakery operators, still contending with the protracted economic recovery, are looking for a better year after having engaged in knockdown, drag-out battles for sales and market share in 2010.

Conventional supermarkets continue to reel from the discounted pricing brought on by non-traditional grocery venues, notably Wal-Mart– the nation’s largest grocer–Target and Costco.

The net result: Many Top 50 operators, particularly the largest chain stores, regularly reported lower quarterly sales and earnings, sold operating units and/or shuttered stores. Merger and acquisition activity ground to a halt, as well.

Notable divestitures included Supervalu, which sold 46 Albertson’s stores in Utah, the five-unit Bigg’s chain in Cincinnati, its Shaw’s Supermarkets locations in Connecticut and 14-store Bristol Farms in Southern California. Great Atlantic & Pacific Tea Co. recently said it would divest 25 stores across its five store banners. Winn-Dixie Stores said it plans to close 30 underperforming locations across its market territories. And, at press time, BJ’s Wholesale Club again was on the market.

Meanwhile, supermarket companies further down the Top 50 list are picking up abandoned locations and opening others in efforts to shore up positions and expand markets. For example, Roundy’s entered the Chicago market with the first of four planned Mariano’s Fresh Markets, Wegmans Food Markets continued its Mid-Atlantic push with a second Maryland store, and Fresh Market opened its 100th store.

Amid the seemingly chaotic state of supermarketing, some of the Top 50’s in-store bakery programs are making the best of the economic slump and combative environment, even reporting sharply higher sales.

Emphasize store brands

To help offset the impact of the recession, Tyler, Texas-based Brookshire Grocery Co.’s bakeries have focused on the company’s store brands program. This has involved adding product lines, such as premium par-baked artisan breads and a line of fully baked everyday cookies, according to John Rose, bakery category manager.

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The bakeries merchandise both categories adjacent to their national brand counterparts at slightly lower retails. “In both cases, our store brand products far outpace the national brands in customer acceptance,” he says. As a result, the company advertises its house brand bread almost exclusively.

At United Supermarkets, Lubbock, Texas, “our first half was phenomenal– 10 percent growth over a year earlier,” says Tammy Kampsula, business director, bakery. Customer counts increased slightly, she adds, with the net effect indicating “guests are putting more in their baskets.”

Kampsula attributes much of the growth to spring events that spark cake sales. But beginning in June, sales slowed to a crawl, up 2.5 percent from a year earlier, mainly a result of higher-than-normal summer temperatures, she says, adding that sales picked up in late September with cooler weather.

To address the recession’s effects, Kampsula and her crew asked themselves how they could reduce SKUs and build bigger displays in an effort to increase sales and reduce shrink, while maintaining retails. The answer included revisiting merchandising products with longer shelf lives and possibly displaying products in different locations. “Good examples are pound cakes and everyday cookies, which, compared with gourmet cookies, can be merchandised in large displays,” she says.

Save Mart Supermarkets’ Jarett Peppard, director of deli/bakery/foodservice, observes that consumers have adjusted their shopping patterns to the economic conditions, including paying more attention to advertised or featured items.

“Through this difficult time, we have strategically invested in product quality to provide greater value to customers,” he says, “that is, good-quality product at a fair price.” The process began during the second and third quarters of 2008 when Save Mart, based in Modesto, Calif., reformulated nearly every bakery category, improving product quality in each, he says.

For example, the in-stores turned to baking cookies after having purchased 90 percent of SKUs fully baked. They now bake 82 percent from premium frozen dough. In addition, Save Mart revised its merchandising to allocate proper space for this key category, Peppard says.

After two years, cookie sales have grown a compounded 52 percent and account for 17 percent of bakery sales, he adds. Another result: “Our bakeries have become destinations for cookies. This tells us that customers far prefer fresh-baked product.”

No decline in sales

No single product category stood out as a strong performer this year for the bakery director of a major Midwest chain, who requested anonymity. “Fortunately, all grew, albeit some slightly, but none dropped in sales,” he says. “We didn’t see a drop in sales growth until March, and sales continued to be soft through August.”

To address the softer sales, each week the operator’s bakeries focused on four or five specific products, which included sampling and demonstrating with no special pricing. “This was to sell them, not just put them out to sell,” the bakery director says. For example, early in the week, the in-stores might sample a puff dough item that retails for less than $2, he explains. Then later in the week, when families tend to eat more at home, they might demonstrate a cake, which has a higher ring.

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