Icing On The Cake

The profit picture is sweeter than usual for the majority of in-store bakeries, according to PG's annual "state of the bakery department."

Research by Debra Chanil

Analysis by Meg Major

Although comparable in-store bakery sales didn't rise as high during the past 12 months as they did during the year-ago study, the department's profits increased for almost two-thirds of respondents during the most recent measuring period, as revealed in the latest installment of Progressive Grocer's 2010 annual Bakery Operations Review.

Among the foremost highlights of the annual "state of the bakery department" study that was again amassed from the direct input of a cross-section of supermarket bakery executives from around the county, 55 percent of retailers polled said their in-store bakery sales had increased during the 12-month measuring period ended March 31, 2010, vs. last year's all-time-high of 73 percent reporting sales gains. Despite the comparable taper-off in sales, though, only 10 percent of retail bakery officials experienced sales decreases, while the balance — 35.5 percent — reported that bakery sales remained the same.

The upbeat story is much the same when looking ahead to the anticipated outlook for the next three quarters, for which 57.6 percent of respondents foresee same-store bakery sales increases, 6 percent forecasting decreases and 36 percent forecasting status quo bakery sales, according to the study, which asks those with direct responsibility for bakery operations to assign statistical estimates for their average in-store bakery during the year-to-year measuring period.

With an estimated 25,960 in-store service bakeries nationally, total bakery department sales rang up an estimated $11 billion during the study's timeframe, a 4.7 percent gain in the last year. Accounting for an average 2 percent of total-store sales vs. other supermarket departments, the category's average weekly sales-per-store tallies come to an estimated $8,141 in sales, which, on an annualized per-store basis, amounts to approximately $423,343.

From a performance standpoint, gross margins were up to 48 percent, a slight increase from last year. Measuring labor against sales, the estimated costs rose to 29 percent, up slightly compared with last year's study. There was very little deviation in the number of average employees per store, which this year tabbed 3.6 full-timers and 4.0 part-time bakery departmental associates. Between both full- and part-timers, the average supermarket bakery has 5.6 full-time equivalent employees per store, with average sales per employee hour up slightly this year, at $36.34, vs. last year's $36 even. While shrink remains a perennial departmental antagonist, the estimate dipped marginally this year, to 7.6 percent, vs. last year.

Interestingly, although nearly 3 percent more sales were generated from the service bakery case in this year's study, self-service products continued to be the predominant merchandising scheme for 75 percent of the department's inventory, which, on average, was housed in a configuration measuring 1,302 square feet.

The at-home eating movement continues to bode well for in-store bakeries, as affirmed by 55.6 percent of survey executives, with another 33 percent indicating no drastic change in sales, and 11 percent who said sales decreased. As for the effect the at-home eating movement has had in the 12-month period on bakery unit volume, 57 percent — 10 percent more than last year — reported increases in bakery unit volume, with 37 percent indicating no change and 7 percent reporting decreases.

As for preferred production methods, the typical supermarket bake shop finds bake-off products the preferred production method among 34.5 percent of survey panelists, down four points from last year, followed thaw-and-sell items, which again held steady as the second most popular bakery production method, used by an average of 21 percent of bakery execs.

Further, as more signature items are being sought by bakery directors, mixes are coming on stronger, used by 14 percent of survey respondents, vs. last year's 10 percent tally. Most telling of all production method statistics in this year's bakery study, scratch ingredients surpassed par-baked goods (8 percent) for the first time in many years. Direct-store-delivered products placed as the next most popular method among 6.2 percent, followed by central commissary produced products, at 2.3 percent.

A peek inside the average bakery finds cakes, breads, cookies, doughnuts and rolls to be the department's top five fastest-growing items during the past 12 months, paced next by pies, danishes/sweet rolls, muffins, whole grains and Hispanic items.

From a most-profitable-product standpoint, cakes topped the bakery leader board, followed next by doughnuts.

Breads, cookies and rolls were cited next as the most profitable bakery products, paced by muffins and pies. In terms of the items deemed to be most popular (vs. profitable) among consumers, doughnuts took top honors, while breads, cakes, cookies and rolls rounded out the popularity rankings.

Along these lines, the in-store bakery is ideally suited to profit from trends favoring "affordable indulgences," such as bite-sized/smaller-portioned products and sugar-free items. Products that incorporate whole grains and good taste were also being sought out, as were environmentally friendly packaging options, which continued to be a key consideration to maintain product integrity with more sustainable containers.

Wheat- and gluten-free products were also on the rise among more bakery officials, who were seeking products not only for those with medical conditions requiring a lifelong adherence to a gluten-free diet, but also for consumers who believe that a gluten-free diet is more healthful.

Indulgent-positioned products were also cited by 15 percent of study panelists, some of whom are expanding their product lines to non-bakery items to generate additional sales, creating destinations with premium chocolates and high-end candies sold by the pound or piece, or in small packages for impulse purchases.

With the sweet comes the salty, as depicted by the bakery operations problem index — a hierarchical ranking of the most problematic operational issues facing in-store bakery officials. Perhaps reflective of a desire to further hasten the gains made in the bakery department in the past two years, attracting more shoppers was deemed to be the foremost concern among survey participants this year, followed by recruiting effective employees, which climbed in importance this year.

In the third slot, local/national economic conditions continues to be a pressing concern among bakery directors, paced next by profits, shrink/waste, equipment costs and other supermarket competition. The companion chart provides further information about the other problems currently facing bakery department leaders.

Bakery Performance

Problems Facing Bakery Departments

Service Bakery Census

Bakery Production

Seeking Reformulated Products for Consumer Concerns