In-store Bakeries Thrive on Signature Products

The bakery department offers retailers many opportunities to differentiate themselves through signature products. Three-quarters of retailers surveyed in Progressive Grocer’s 2015 Retail Bakery Review offer signature products. More than half (56 percent) of retailers indicate that bakery is a destination department, a significant increase from the previous year, when only 27 percent cited bakery as a destination, and one-third called the department an image builder.

“One thing about bakeries is, we are important,” says Christina Jessie, bakery director for Eugene-Ore.-based Market of Choice. “This is the special food [customers] bring to an event, and when people entrust that to you, you have a unique opportunity to be part of their family.”

Market of Choice takes signature products to the next level by creating custom products for shoppers. “We built our whole program around being customer-centric,” Jessie adds. Customers can bring in recipes or request products not in the regular product line, and the bakery will make it for them, even creating a test batch to ensure that the product meets shopper expectations.

Scratching the Surface

The custom program works only because Market of Choice is a scratch bakery with few mixes, which makes it easier for the employees to produce almost any product. “When you start with sugar, flour and butter, that’s the basis of all these good things,” Jessie says. “We’re a really unique bakery; we’re not typical.”

She credits the custom program for helping make the chain’s nine stores destination locations. “We’re definitely a showpiece for the store,” Jessie adds. “When [people] hear you work at Market of Choice, no matter what department you’re in, they say, ‘Oh, I love the bakery there.’”

Most in-store bakeries can’t offer such a customized program, so what should bakery departments be offering? “You can’t be everything to everybody,” cautions Ken Downey, president of KGDSR LLC, a bakery consultancy in Freehold, N.J. “When you own a supermarket, you have the mentality that you want to be able to sell everything; you want to satisfy every customer’s needs. You really can’t do that in a perishable department. You’ve got to figure out what you’re good at, and you have to sell more of what sells.”

Top Products

So what is selling? According to PG’s Retail Bakery Review, breads were the top-selling product for two-thirds of retailers and cakes came in at 55 percent, with cookies and doughnuts coming in third and fourth, at 36 percent and 34 percent, respectively. When it comes to the most profitable items, however, the order shifts slightly. Cakes rank No. 1, followed by breads, cookies and artisan breads.

Successful programs should offer a full product line but limit the number of flavors or varieties available, Downey advises. You don’t need 40 types of bread; a dozen will suffice. Instead of offering a lot of flavors, make sure you have the different sizes of products that customers need. For example, offer whole pies, half pies, quarter pies and pie slices, but only in eight varieties, not 20, Downey says.

Bakeries also need to ensure that they’re always offering the best-selling flavor in each category. Apple is the best-selling pie variety, according to Downey; however, if you’re offering only blueberry and cherry, customers could be bypassing the bakery to buy an apple pie in the grocery aisle. Bakery directors need to keep in mind that 80 percent of sales come from the top 20 percent of products.

“If you’re carrying 700 items and you don’t have the top 140 items out at all times — you have the B and C items out instead of the A items — that’s a problem,” Downey says.

Hot Trends

Keeping up with product trends also is key for in-store bakery success. Gluten-free isn’t going away, Jessie asserts, and Downey concurs. “Gluten-free is really hot right now,” he observes, but adds that its popularity has peaked. PG’s Retail Bakery Review bears out Downey’s perspective: Gluten-free ranked fifth in a listing of the hottest growth categories in the in-store bakery, but that was down from the third spot last year.

The next big thing will be products made with sprouted grains, Downey predicts. Manufacturers started offering such products several years ago, but their popularity is just now starting to climb. “[Sprouted grain] hasn’t hit the pinnacle yet,” he says. “In the next 12 to 24 months, that’s all we’re going to be hearing about.”

Bakery by the Numbers

Offering the latest hot product can draw customers, but determining what makes the in-store bakery department successful isn’t cut and dried. On average, the bakery accounts for about 2 percent of store sales — unchanged from the previous year, according to PG’s Retail Bakery Review. However, the percentage of store sales is predicated on supermarket type.

A low-price leader model will typically hit about the industry average of 2.5 percent, Downey says. An upscale retailer may see 5 percent, while specialty stores that don’t sell as many groceries may go as high as 8.5 percent. “You can’t give a rule of thumb for that,” Downey adds. “There are companies that are running 1.8 percent, but they’re running profitable bakery operations.”

Shrink can be a better determining number, but that number is subject to product category. On average, shrink ran 7.1 percent of sales this year, down slightly from 7.6 percent in 2014, according to PG’s Retail Bakery Review. The acceptable level of shrink depends on the product, however. Bread can run as high as 15 percent and still be profitable, Downey says, while decorated cakes should hit about 7 percent. Cookies, with their long shelf life, should be as low as 2 percent or 3 percent.

The best way to define success is to compare year-over-year numbers, Downey says, as long as you’re comparing apples to apples; if your store count has changed, then you need to account for that in your comparison. He suggests that retailers look at sales, gross profit margin and shrink to determine how successful or profitable the bakery department truly is.

Most importantly, though, you need to listen to customers, according to Jessie. “If you’re really [listening to] what your customers want,” she says, “you’re going to have products out that your customers need.”