Placing Bets in Bakery Category

Center store ruled in 2020, but the perimeter is ready to rebound
Placing Bets in Baking
Retailers can keep consumers purchasing baked goods by offering high-quality products.

As with many areas of food retailing, the bakery category experienced dramatic growth and shifting demand patterns throughout the pandemic. Some of the changes were predictable given the shift to at-home food consumption that lifted sales throughout the store, but others were less obvious and affected the baking category in the center store and on the perimeter in surprising ways.

Most notably, shoppers experimented with new product types and brands and exhibited different food-at-home behaviors. As a result, the category saw dollar sales grow much faster than unit sales, due to a decline in promotional activity, coupled with increased demand for more premium products as shoppers sought to create more upscale in-home meal occasions.

One of the beneficiaries of the trends was the brioche segment. This bread of French origin was a relatively sleepy segment of the overall baked goods category as recently as 2018. At that time, total sales of brioche were about $108 million, according to Paul Baker, founder of Manchester, England-based St. Pierre Groupe, a brand that entered the U.S. market in 2014 and is now the market share leader in the segment. By the end of 2020, the brioche sector had tripled, with sales of nearly $300 million, according to Baker.

That kind of growth attracts a crowd, so other brands, most notably Sara Lee, Bakerly and Nature’s Own, have since introduced brioche brands to capitalize on further expansion of the segment.

“As shoppers were asked to stay at home, new deciding factors came into play,” Baker explains. “Our research found that 43% of consumers considered brioche to be versatile, and more than a third agreed it suited every meal occasion. There was also a desire to explore new flavors and upgrade in order to recreate restaurant quality at home. Forty percent of U.S. shoppers are spending more on their regular food shop than pre-pandemic, and 48% have actively looked to recreate restaurant dishes at home.”

Brands Are Big in Center Store

St. Pierre isn’t the only company to have success with brands in the baking category. Thomasville, Ga.-based Flowers Foods, the company behind Nature’s Own, Dave’s Killer Bread, Wonder, Canyon Bakehouse and Tastykake, saw a 23% increase in branded product sales during its fourth quarter ended Jan. 2, 2021. Branded products accounted for 66% of the company’s total fourth-quarter sales of slightly more than $1 billion, while its store-brand products saw sales decline 3% to represent 13% of total fourth-quarter sales.

This growth was driven by a shift to branded products during the pandemic, new product introductions, improved promotional efficiency and a reduction in product returns, according to the company. Store-brand sales suffered as a result, and Flowers Foods also sought to implement a price increase, which resulted in some lost business.

Meanwhile, according to Grupo Bimbo, parent company of Horsham, Pa.-based Bimbo Bakeries USA, operator of 60 facilities nationwide, its North American sales in the fourth quarter increased 11%, when the Mexico City-based company accounts for the favorable effects of currency translation. Bimbo is best known in the United States for brands such as Sara Lee, Entenmann’s, Thomas, Bays, Arnold, Ball Park, Mrs Baird’s and Boboli.

Bimbo and Flowers Foods, the biggest players in center store, both have concerns about 2021 growth compared with the unprecedented gains of 2020. Demand potentially shifting to food away from home and a perimeter department rebound are seen as sources of center store pressure.

The Bifurcation of Baking

The at-home food preparation trend is what Sally Lyons Wyatt, EVP and practice leader, client insights at Chicago-based IRI, views as consumers getting in touch with their inner chef. With 81% of meals being prepared at home and people cooking for occasions throughout the day, Wyatt notes that “baking saw an incredible increase.”

a display in a store
After overcoming pandemic operational challenges, perimeter bakery sales are poised for a rebound in 2021, especially for retailers committed to the department, such as Detroit-area independent Nino Salvaggio.

Just how incredible was evident in category insights Wyatt shared during a presentation at BakingTECH 2021, an event organized by the Kansas City, Mo.-based American Society of Baking. Bakery items in the center store and perimeter combined grew 60% during the peak COVID-19 stockpiling period she defined as March 8, 2020, through April 26, 2020. However, during the period Wyatt called “the path ahead,” ranging from May 3, 2020, to Nov. 29, 2020, she observed that baked product sales moderated to a still robust 25% growth rate.

“When you think about the fact that there were restrictions on the bakery for portions of the year  you couldn’t do tastings, there were services that weren’t able to be offered, there were some ingredients that couldn’t be found the fact that there was growth is a big testament to the value of the department,” Wyatt said during the presentation.

That value took many forms during the “path-ahead” period Wyatt described. During the May 3 through Nov. 29 time frame, the total bakery category was valued at $22.2 billion, with dollar sales up 3.7% but unit sales down 5.5%, due in large part to a less promotional environment. The biggest driver of the growth was bread and rolls, accounting for $11.4 billion of the total sales of $22.2 billion, according to IRI data, with dollar sales up 9.9% but unit sales down 0.8%. Drilling down further, Wyatt noted that center store bread and rolls sales of $9.7 billion far outpaced perimeter sales of $1.8 billion. The perimeter was hit hard, with dollar sales up a meager 1.2%, but unit sales plunging 25.3%.

“When you look at select bakery categories in the path-forward period, they had more buyers, higher basket size, higher basket rings and more trips, so bakery is a valuable category to be investing in,” Wyatt said. “However, you need to maximize assortments to meet shifting behaviors and shifting types of needs that consumers have, and customize the in-store experience as well as bring the bakery experience online as best you can.”

A key reason for doing this is the real phenomenon of at-home meal fatigue, combined with the pent-up demand among consumers to eat out again and rediscover restaurants that will be unleashed as COVID-19 vaccines become more broadly available.

“Consumers are going to start to get out to more restaurants as restrictions ease and the pandemic eventually subsides, but some consumers may stick with their new habits of cooking,” Wyatt cautioned. “You need to find a way to keep them in the store.”

One way is through elevated quality, which shoppers of all income levels demonstrated a willingness to pay for during all phases of the pandemic. Bakery manufacturers appear confident they will continue to do so in the year ahead.

“With consumers looking to try something new and willing to put their hands in their pockets for quality that transports them to a favorite restaurant or overseas holiday, retailers have a unique opportunity,” says St. Pierre’s Baker. “By highlighting authenticity; cross-selling with breakfast, brunch and snacking-occasion products; and clever merchandising to capitalize on shoppers’ desires to try new experiences in the only way they currently can, retailers can maximize sales and basket spend."

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