Panning For More

Though in-store bakery sales are up for the majority of retailers, volatility in commodities prices threatens to flatten the trend.

While the average in-store bakery department posted respectable sales during the past year, lingering concerns about the economy, coupled with skyrocketing commodity prices, continue to make the job of positioning the department as a must-stop visit for greater numbers of shoppers on an everyday basis all the more challenging, according to retailers surveyed for Progressive Grocer's 2011 annual Bakery Operations Review.

Among the key highlights of the annual “state of the in-store bakery” study that's annually amassed from the direct input of a cross-section of supermarket bakery executives from around the county, 68.2 percent of retailers polled said their in-store bakery sales had shown increases during the 12-month measuring period ended March 31, 2011, vs. last year's 54.8 percent, which is good for an impressive 13.4-point gain. Yet despite stronger bakery sales reported by an overwhelming majority of retail panelists, the gap widened further among the 18.2 percent of survey panelists that posted flat category sales in the past year, which dipped 17.3 points alongside 13.6 percent whose bakery sales decreased.

In-store Bakeries Need Broader Base

In-store bakeries may not be meeting the needs of a broad consumer base, according to research from the Perishables Group's “Bakery Department Drivers” report, which integrates point-of-sale supermarket data, consumer demographic profiles, shopper loyalty card data and secondary research to determine the most important factors impacting department performance.

Fresh department sales, including produce, deli, bakery, seafood and meat, comprised a growing percentage of total store sales in recent years; however, the in-store bakery's share of fresh sales was flat at 8 percent last year, despite rising dollar and volume sales.

The report also attributed a portion of the in-store bakery's 1.6 percent dollar growth last year to bakeries carrying more gourmet products with higher price tags. “Gourmet products enhance the image of in-store bakeries and fuel impulse purchases,” says Jonna Parker, director of account services, “but they don't necessarily appeal to everybody on an everyday basis.”

The occasion- or impulse-driven purchase pattern is supported by the fact that the average household purchases from the in-store bakery 12 times per year, and just 12 percent of baskets contain more than one bakery item. These statistics are lower than any other fresh department, except seafood.

“The greatest opportunity for in-store bakeries to grow sales is to adjust strategies so they appeal to a broader base of consumers, and recognize that those core consumers vary by category,” says Parker.

The outlook is decidedly better in terms of same-store bakery sales for the next three fiscal operating quarters, for which time more than two-thirds (76.2 percent) forecast increases. Even more interesting, though, is that for the first time ever, not one retail bakery official responding to this year's in-store bakery survey projected decreased same-store sales for the balance of the year, while nearly a quarter (23.8 percent) projected status quo bakery sales, good for an overall 6.3 percent anticipated gain in category sales.

While stimulating more robust bakery sales has long been the perennial challenge, the margin gap widened considerably for the average supermarket bakery department, which posted a 45.2 percent increase vs. 60 percent in the year-ago study. Profits were down for a full one-third (33.2 percent) of bakery survey participants, 20 percent higher than last year's 13.3 percent, while 21.6 percent said bakery profits remained unchanged vs. last year's 26.7 percent estimate.

Our analysis of this year's Bakery Operations Review survey data unfolds on the following pages, as illustrated by the corresponding charts that feature general synopses of the most influential category trends reported by retail survey panelists for each.

More than two-thirds, or 68.2 percent, of retailer survey panelists said their in-store bakery sales increased during the 12-month measuring period ended March 31, 2011, vs. last year's 54.8 percent, good for a 13.4-point gain. Despite higher bakery sales, attributable to rising food prices and bakeries carrying more gourmet products with higher price tags, the gap widened among the 18.2 percent of survey panelists who posted flat category sales in the past year, which dipped 17.3 points alongside 13.6 percent who reported decreased in-store bakery sales.

While more than two-thirds (76.2 percent) of PG's 2011 Bakery Operations Review participants forecast increased same-store bakery sales for the balance of the year, not one retail bakery official responding to this year's survey projected decreased same-store sales. Meanwhile, however, nearly a quarter (23.8 percent) projected flat bakery sales, which collectively equated to an overall 6.3 percent anticipated gain in same-store category sales.

With an estimated 26,714 in-store bakeries nationally, total bakery department sales rang up an estimated $11.56 billion during the 2010 study's timeframe, indicative of a 5.2 percent gain vs. last year. Accounting for an average 2 percent of total store sales vs. other supermarket departments, the category's average weekly sales-per-store tally equates to an estimated $8,442, which on an annualized per-store basis, amounts to approximately $438,984 weekly.

With a 35.6 percent penetration rate, slightly more in-stare bakeries have turned to category management this year, vs. last year's 33 percent ratio. While point-of-sale syndicated data helped one-third of retail bakery officials get a far better handle on profitability, shrink and customer demand trends with the right products, in proportion with specific space allocation considerations, the vast majority or retailers surveyed in this year's' study continued to manage their bakery departments without it.

When asked about their preferred bakery production methods, PG's 2011 Bakery Operations Review panelists cited bake-off products as their top choice, followed next by thaw-and-sell items, which again held steady as the second most popular bakery production method. Further, as more signature items were being sought by bakery directors, mixes and scratch-baked came on stronger, used by 14 percent and 15.9 percent of survey respondents. Direct-store-delivered products placed as the fourth most popular method, followed by central commissary-produced products, at 5.4 percent, and par-baked, at 7 percent.

Among the key highlights of the bakery performance tabulations, the profit gap widened considerably for the average supermarket bakery department, which posted a 45.2 percent increase vs. 60 percent in the year-ago study. Not surprisingly, bakery profits were down for a full one-third (33.2 percent) of bakery survey participants, 20 percent higher than last year's 13.3 percent, while 21.6 percent of panelists said bakery profits remained unchanged vs. last year's 26.7 percent estimate. Bakery gross margins, meanwhile, declined 1.1 points to 46.8 percent, indicative of the higher commodity prices that by now are likely considerably higher than when our survey was fielded in the first quarter of 2011.

Measuring bakery department labor as a percent of sales, estimated costs of roughly 30 percent were on par with the rate cited in last year's study. The number of average employees per store in this year's survey rose slightly, with four full-time and 3.6 part-time bakery department associates. Between both full- and part-timers, the average supermarket bakery has 5.8 full-time equivalent employees per store.

While shrink remains a perennial departmental antagonist, the estimated sum as a percent of sales dipped marginally this year to 7.4 percent.

The at-home eating movement continued to bode well for 53.3 percent of in-store bakeries, although not quite as strongly as it did in last year's study (55.6 percent). A full third of respondents again indicated no drastic impact one way or the other relating to the at-home eating pattern, which subsided ever so slightly during the last 12-month period, while 13.3 percent reported decreased bakery sales, perhaps reflective of more DIY baked goodies.

Problems Facing Bakery Departments

Local/national economic conditions scored as the top concern among retail bakery directors in terms of the hierarchical ranking of the most problematic operational issues facing in-store bakery officials responding to this year's annual “state of the in-store bakery” survey.

The economy jumped ahead two spots this year, switching places with last year's top-ranked operational nuisance, attracting more shoppers to the bakery, which landed in the second slot. Indeed, it's a job that will be considerably easier to do when commodity prices and discretionary purchase power return to pre-recession rates. It further comes as no surprise that at No. 3, product and/or ingredient costs climbed a whopping six rungs from last year, when it was cited as the 10th most vexing issue.

Recruiting effective employees, cited as the fourth-leading challenge, dipped in rank this year, paced next by labor costs, in fifth place, and profits close behind. The companion chart provides further information about the other problems currently facing supermarket bakery execs.