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Bakery Bucks Up


After consecutive years of flat sales and stale performance, in-store bakery department performance is on the rise, but there still remains ample room for continued improvement, according to the latest insights revealed in ’s 2009 annual Bakery Operations Review.

Among the key highlights of the annual “state of the in-store bakery” study, 73 percent of bakery officials polled said their in-store bakery sales have increased this year, which is up a full three points vs. last year. And in spite of the fact that the overwhelming majority of retailers posted higher bakery sales during the 12-month measuring period vs. last year’s study, the gap similarly widened as 13 percent of retail bakery survey panelists posted declining category sales, along with the same amount of respondents whose sales remained the same.
And though turning a healthy profit in the bakery department has long required a delicate balancing act – even more so during a profoundly trying economic cycle that found incremental spending reduced to a bare minimum – 56.3 percent of survey executives said that the at-home eating movement was especially good for bakery dollar sales, with another 43.7 percent indicating no change. In terms of the effects of more meals being eaten at homerather than in restaurants, 47 percent reported increases in bakery unit volume, with 41.2 indicating no change and 11.8 reporting decreases. 
Despite the escalating Consumer Price Index (CPI) for cereal and bakery products, which rose by a whopping 10.2 percent in 2008 vs. a 4.4 percent jump for 2007 – and which is expected to land between 2.5 percent and 3.5 percent during 2009 – it would appear that many bakery directors choose to absorb the price increases instead of passing them onto consumers in the form of higher prices.
Looking ahead, 62.5 percent of respondents foresee same-store bakery sales increasing for the balance of the year, with 6.3 percent expecting decreases and 31 percent anticipating static sales, according to the survey, which polled a diverse sample of national perishables/bakery executives to weigh in with statistical estimates for their average bakery department during the 52 weeks ended March 31, 2009. Indeed, in light of nearly two-thirds of retailers predicting increases to be off 10 percentage points (lower than last year and a net 2 percent downward change overall), it appears that most will be cautious in their projections in the coming Months. 
Accounting for nearly two percent of overall supermarket sales vs. other supermarket departments, total bakery sales amassed $10.5 billion, which is roughly 5 percent higher than last year. Yet, given the wide variance of commitment andsupport the category receives among the roughly 70 percent of supermarkets that have in-store bakeries, the category’s average weekly sales per store generates an estimated $7,796, which, on an annualised per-store basis, tallies approximately $405,405 in sales.  
A scan of the key bakery department performance trends finds gross margins of 47 percent, down slightly from last year, likely as a result of absorbing some of the higher CPI hikes and higher labor costs, the latter of which this year rose 1.7 points to 28.9 percent when measured as a percent of sales. There was very little deviation in the number of average employees per store, which this year tabbed 3.4 full-timers and four part-time bakery departmental associates. Between both full- and part-timers, the average supermarket bakery has 5.4 full-time equivalent employees per store, while average sales per employee hour is slightly better this year at $36 vs. last year’s $35.09. 
Shrink remains a perennial bakery departmental foe, having increased slightly to 7.8 percent vs. last year’s 7.3 percent, while year-to-year bakery department profits continue to contract for 37.5 percent of operators, from 48 percent last year. The average bakery SKU count, at 238, was also reduced by an average of seven items from last year’s total, likely as a result of a continuing shift toward more self-service bakery products, which accounted for 76.6 percent of total bakery sales vs. last year’s 75.3 percent ratio.
A peek inside the typical supermarket bake shop finds bake-off products the preferred production method among 38.2 percent of survey panelists, up slightly from last year’s 35 percent tally. Thaw-and-sell items also held steady as the second most popular bakery production method among 23.5 percent of bakery execs, while mixes are on the rise among 10.7 percent of survey respondents. Par-baked goods placed as the next most popular ISB production method among 9.5 percent, followed by scratch-baked goods (8.9 percent), direct-store-delivered (DSD) baked goods (6 percent) and central commissary-produced products (3.1 percent).
While bakery profits are under siege, a look at the category’s fastest- growing lines finds breads (artisan, rustic, etc.), whole grain-based products and cakes the pre-eminent bakery leaders during the past year, while the most bankable best-selling bakery stalwarts relied on to offset the profit shortfall include perpetually top-ranked cakes, breads, rolls cookies, muffins and pies.
As can be expected, a reshuffling of the bakery operations problem index – a hierarchical ranking of the most problematic operational issues facing in-store bakery officials— found labor costs switching places as the foremost category challenge with last year’s top-ranked culprit, product/ingredient costs. Traditionally viewed as the lone “controllable” operational expense, labor has been tagged as either the first- or secondbiggest problem among PG Bakery Operations Review panelists for the duration, paced closely this year by profits, which were not surprisingly deemed to be the second most problematic issue among retail panelists during the past year.
Local/national economic conditions, which moved up to the third rung from 9th place last year, made the biggest gain as a key operation headache this year, followed by product and/or ingredient costs, shrink/ waste, recruiting effective employees, employee training, customer satisfaction, and equipment costs. Other supermarket competition, food safety, attracting shoppers to bakery, product quality levels, sanitation, and non-supermarket competition rounded out the list of top operational hot spots.
When asked to weigh in about product reformulations they’re seeking in response to changing consumer preferences and concerns, nearly 70 percent of bakery officials said they’re looking for single-serve/ smaller-portioned products, while 56.3 percent are on the prowl for more whole grain product formulations. Sugar-free baked goods are also in the crosshairs of 43.8 percent of retail bakery buyers, while gluten- free options were cited by 31.3 percent..
Environmentally friendly packaging options are also being sought by 25 percent of in-store bakery execs, followed by indulgent items they can add to the mix in response for reward-type splurges.
The number of in-store bakery panelists now employing category management is also on the rise among 44 percent of retailer respondents. Yet, for the 56.3 percent of panelists that are still not using it to help guide decision-making, the practice is clearly becoming more popular in the fresh bakery domain.