Retail Bakery Review: Grocers Have High Hopes Despite Tough Times
In the grocery store, the bakery has a unique position in that the majority of its sales are from impulse purchases, but one that’s fairly easy to justify, as they’re small treats. Progressive Grocer’s 2018 Retail Bakery Review takes a look at the state of the department nationwide.
Last year, sales were flying high, with nearly 70 percent of respondents reporting a sales increase from the previous year. This year, the numbers are a bit more grounded, with 55 percent reporting a sales increase of an average 6.8 percent (compared with an 11.1 percent increase last year). About one-third (30.2 percent) noted that sales had stayed the same, up from the 21.7 percent last year who indicated the same. For the nearly 10 percent who said sales decreased this year, the sales decline was 5.5 percent on average.
Profits also are reportedly down. Only 44.7 percent indicated an increase in profits from last year, while in the 2017 survey, 52.2 percent saw profits rise. This can be attributed to several factors, one of which is the slight increase of shrink: This year, shrink as a percentage of sales hit 8.3 percent, up from 5.9 percent last year.
The percent of sales the department contributes to overall store sales also dropped a bit. The number had hovered at slightly above 7 percent for the past three years, but has now dipped down to 6.4 percent. However, optimism about future sales is higher than last year, with 65 percent indicating that they expect sales to increase for 2018 when compared with 2017; last year, it was only 60.9 percent. The percentage of the expected sales increase for 2018 also is higher than it was last year, with respondents expecting sales to rise 8.3 percent this year, while the expected growth last year was only 7.8 percent.
Labor Intensive
Bakery sales are having an impact on labor as well. Kimberly Holleman, category buyer for Houston-based Fiesta Mart, who notes that sales have been flat for her department, adds that the reliance on part-time labor is increasing.
“I see that a lot in the industry itself, really,” Holleman says. “Nobody wants to continue to put the labor into it. It’s still a labor crunch. We want to do more with less.”
PG’s survey seems to indicate that the category overall has seen a decrease in the number of staff in the bakery department; both full-time and part-time numbers declined from 2017. This year, the department had an average of four employees for both full- and part-time positions, a decline from averages of 4.3 full-time and 5.1 part-time last year. As a result of the department’s lower sales, labor as percent of sales increased to 25.8 percent, from 24.4 percent last year, another potential reason that profitability was down this year.
This reliance on part-time staff often precludes what skilled labor is available for the department, Holleman notes. This is driving her to shift her production: “We’re going more to thaw-and-sell products due to labor,” she observes. However, labor costs rank fifth as a top concern for respondents, although labor as a percent of sales is slowly creeping up, as previously noted.
For Ken Downey, director of bakery merchandising for The Fresh Market, in Greensboro, N.C., the shift also has been toward non-labor-intensive production methods, although he notes that the move was more for product consistency across the company’s 176 stores.
“I’m on a quest to eliminate all frozen dough and go either par-baked or fully baked or freezer-to-oven, and take the variable of proofing away,” he says, providing the example of croissants: “We were buying frozen-dough croissants where you had to proof them and bake them, and if you went into five of my stores, you would see five different croissants every single day. We just switched ... to a pre-proof frozen all-butter croissant, and now our croissants look beautiful every day in every store.”
In the survey, bake-off was the most popular production method, with 35.3 percent using those type of products, while 26.7 percent used thaw-and-sell and 19.8 percent used par-baked. Scratch baking remains relatively high, at 28.4 percent.
Holleman points out that some of the movement away from scratch baking could be due to labeling regulations.
“You have the nutritional labeling, and the importance of all that being so accurate nowadays — I think that has a lot to do with it as well,” she says.
All Hail Cookies
As for popular products, cookies seem to be reigning supreme. The product was noted by the most respondents (45.5 percent) as the top-selling bakery item, rising up from the third spot on the top-selling list last year. Cookies also ranked first on the most profitable list, with 20.9 percent citing them as the most profitable bakery item. When these two lists align, it means good things and may explain why the optimism for next year’s sales and profits is high.
“Cookies are just crazy for us,” Downey affirms. “I’m trending 10 percent over last year [in sales].” He is launching a new Italian cookie line soon and expects sales to grow even more. The cookie category also is his lowest in shrink.
As cookies tend to have a longer shelf life than other popular products like doughnuts or bread (tied for second place in the most popular bakery items), this also will contribute to the profitability factor.
Another highly profitable item, cakes, coming in second on the most profitable list, fell in popularity this year from the top of the list in 2017 to third in best-selling products. It was at the top of both profitability and best-selling lists last year. However, this year, PG distinguished between custom-decorated cakes and everyday cakes/tortes, which may be part of the reason for the drop in the ratings.
Top Concerns
When it comes to issues facing the bakery department, the No. 1 concern is customer satisfaction. While nearly half (45 percent) of consumers indicated that they shopped the in-store bakery at least once a week in PG’s June Consumer Insights survey, keeping them coming back is vital. Product quality tied for third in the top five concerns for the bakery department, which tends to go hand in hand with customer satisfaction.
“I’m upgrading quality in every category,” Downey asserts. “Our customers, our demographic, are very, very smart customers. So if you give a customer who’s educated a better product, they certainly do not mind paying 50 cents more for it.”