A Smell-Binding Proposition

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A Smell-Binding Proposition

By Bob Phillips - 05/21/2016

Bakery items, whether fresh-baked or prepackaged, have long been a staple at convenience stores. Paired with coffee, they make for a quick, grab-and-go breakfast to eat in the car while driving to work or school, or perhaps a late-afternoon treat on the way home.

Per store, fresh bakery (not prepackaged) accounted for nearly $10,000 in sales in 2014 ($9,690), according to the latest Convenience Store News Foodservice Study. This represented a 6.4-percent increase over 2013 figures. Overall for the total industry, the bakery category grew a healthy 8 percent in the convenience channel in 2014, to $1.45 billion in sales.

Nielsen data also shows the strength of bakery at convenience stores. Bakery growth in the channel (UPC-coded items only) continued to outpace growth in all outlets combined over the 52-week period ended Feb. 20, 2016, as well as over the last four years. Snack cakes and fresh desserts (which account for nearly 90 percent of dollar share in the category) are driving this growth, with desserts up more than 12 percent in dollar share and 8 percent in unit share, cited Sarah Schmansky, director of Nielsen’s Perishables Group.

“As the consumer landscape continues to evolve, the need for quick, on-the-go options are becoming more popular than ever before,” she said. “This is evident as convenient, snack-type items show significant growth over the last four years within the convenience channel: muffins are up 25 percent in volume, while pastries are up nearly 10 percent in volume over this four-year span.”

And even though baked bread sales have fallen off (no volume growth over the same four-year period), soft breadsticks are resonating with consumers — often accompanying soup or salad purchases. “They are up 80 percent in volume over the last four years,” noted Schmansky.

TO BAKE OR NOT TO BAKE?

For some, it may make sense to bake products fresh in-store. For others, the commissary route is more efficient. In order to decide which is right for your operation, there are some important considerations a convenience store operator must make.

“The pros of using a commissary or outside vendors generally include reduced product consistency issues and lower labor and training expenses,” said Chuck Moyer, foodservice category supervisor at York, Pa.-based Rutter’s Farm Stores, operator of more than 60 c-stores. “The pros of in-store production include the ability to better manage production levels, the ability to restock when needed, and the perception of freshness from the aromas.” Margins are generally higher with in-store production as well, he added.

Holly Veale, foodservice product director for convenience distributor McLane Co. Inc., called commissaries “the assembly line of food.” The efficiencies inherent in the process often result in huge savings for the c-store retailer, “and there is also more control over food quality and safety because you have fewer people involved with the production of the products,” she said.

However, she agreed with Moyer that one important thing a store will lose by going the commissary route is the fresh-baked aroma advantage. “I think everyone in the industry will tell you there’s nothing like baking fresh cookies in the store to give you that feeling of ‘fresh’ from a consumer perspective,” said Veale. “Baking a product there gives a store a ‘fresh’ halo.”

Another important factor to consider: improved shelf life. “The majority of fresh bakery products have a one-day shelf life,” Veale pointed out. “You’re able to offer it to the consumer as soon as you bake it off rather than losing precious time in the distribution process.”

Besides the aforementioned labor and training costs, there’s also the in-house production expenses to consider — primarily the purchase or leasing of equipment, as well as the maintenance costs of that equipment.

“It represents a huge financial commitment,” said Bill Skeens, president and CEO of Vernon Hills, Ill-based Prairie City Bakery, a supplier of bulk and individually wrapped baked goods. “Very few retailers have the volume to make this proposition pay off. Even in a large retail bakery, most of the product is frozen, thaw-and-sell items.” Rather than going the commissary route, frozen bakery might be the best option for many retailers. According to Skeens, frozen bakery items are, in many cases, “fresher than fresh product” delivered from a commissary. “That is because the frozen bakery products are baked, flash-frozen and as long as they remain frozen through the distribution system, are less than an hour old when they are thawed at store level,” he noted. “Commissary or ‘fresh’ delivered products are often made 12 to 18 hours before they arrive at the store.”

Lynn Hochberg, director of product development for Wawa Inc., operator of more than 700 convenience stores, believes the decision to bake products on-premise or partner with a commissary depends on what you can execute the best.

“It’s always about determining your best options,” she explained. “Do you need variety? Do you just need to do one thing really well? And does it fit with the rest of your vision?”

WHAT TO CARRY?

Another important consideration is what to include in your bakery mix. After all, there’s cookies, brownies, muffins, doughnuts, pastries, pies, cupcakes, and the list goes on and on.

How does one develop and execute the proper menu strategy?

“A lot of it is a function of sales [combo deals] and holidays,” said Wawa’s Hochberg. “I don’t think we keep our ‘rotationals’ in for more than six weeks. The foundation is based on the items that sell the most, so of course you’re not going to discontinue them. There’s plenty of research and benchmarking available that can help you determine what is right for you. It usually depends on how much space you have, what region you’re in, and what you do well.”

Data supplied by market research firm IRI shows that while the overall bakery category (defined as fresh bread and rolls) in the convenience channel was flat in unit sales and down slightly (−0.3 percent) in dollar sales for the 52-week period ended March 20, 2016, certain segments posted healthy growth. Standouts included: doughnuts (up 12.2 percent in dollars and 8.1 percent in units), muffins (up 20.6 percent in dollars, 15.2 percent in units), and coffee cakes (up 20.6 percent in dollars, 7.5 percent in units). On the other end of the spectrum, bagels and bialys proved to be a drag on the category, down 17.4 percent in dollars and 15.9 percent in units.

In today’s retail environment, many convenience store customers are looking for something beyond basic doughnuts and muffins. Prudent c-store operators are answering their call by offering more options on the upper end of the price-point spectrum.

“While we continue to see demand for basic doughnuts — glazed and chocolate covered, particularly — because of the ‘Starbucks effect,’ we see our retailers looking for more premium bakery goods to pair with their coffee programs,” noted McLane’s Veale.

McLane offers JCX by Java City, a turnkey, premium coffee program that provides c-stores with everything they need from soup to nuts — equipment to point-of-purchase materials. “It increases coffee sales for our retailers and by extension, they look for programs to increase their register rings,” Veale said. “So, premium muffins are a really hot item. So are the premium cake slices that you see at Starbucks — lemon loaf, banana nut bread, things like that.”

Rutter’s Moyer echoes the continued popularity of doughnuts, going so far as to remark: “Doughnuts remain king in most c-stores.” However, he reported that Rutter’s has had great success with fresh cookies and muffins that are baked in-store every day.

At RaceTrac Petroleum Inc., an Atlanta-based chain with more than 600 units throughout the South and Southeast, the goal is to generate excitement in the bakery case. “RaceTrac has focused on promoting high-quality LTOs [limited-time offers], such as specialty doughnut flavors like pumpkin spice during the fall or apple crumb during the winter,” shared Hannah Griffith, RaceTrac’s category manager of bakery. “We also have a strong focus on the in-store execution of presentation and cleanliness to create a welcoming display.”

TO BRAND OR NOT TO BRAND?

Yet another important consideration is whether to brand bakery items with your own private label or co-brand with entities that have established consumer equity, such as Krispy Kreme.

At Wawa, the policy is not to co-brand, but according to Hochberg, there may be value in co-branding, particularly for retailers just dipping their toes into the bakery waters. “I think [co-branding] is a great way to get into the business, if that’s the route you want to take, because that puts the onus on someone who is already an expert,” she said.

McLane’s Veale agrees that the decision to brand or co-brand your bakery products often depends on how far along the store/chain is in the foodservice continuum.

“If an operator is just getting into foodservice and doesn’t have the consumers’ confidence in his or her foodservice abilities and programs, then that operator is better off co-branding — either through a franchisee or a national brand such as Krispy Kreme,” said Veale.

On the other end of the spectrum are the folks who run well-established foodservice programs and have built up a recognized foodservice brand that resonates confidence with area consumers. “Wawa is an excellent example,” continued Veale, tipping her hat to the Pennsylvania-based chain. “It doesn’t matter what Wawa comes out with, the consumer is going to think ‘quality’ and ‘fresh,’ and they’re going to think ‘Wow, I can’t wait to try that.’”

Ultimately, the decision to store brand or co-brand really depends on how much of a commitment a retailer is willing to make to his or her foodservice operation, including bakery.

“The higher the level of commitment to the fresh foodservice business, the greater the likelihood that a retailer will have a successful line of private label branded products,” said Maurice P. Minno, board director of Maverik Inc. and principal of MPM Group, a consultancy. “That includes fresh foodservice private label branded products, fresh bakery products.”

LOCATION, LOCATION, LOCATION

Once you decide what to offer and whether or not the brand the product, a critical factor in maximizing the profitability of the bakery category is making sure it receives as much visibility as possible. An effective communication strategy should include signage in the store window, messaging at the pump and, perhaps most importantly, a well-thought-out and designed floor plan that gives customers easy access to the bakery products.

“It’s definitely an impulse category, so making them highly visible is so important,” explained Hochberg, who recommends positioning bakery products adjacent to highvolume items or close to items that might make for ideal complementary purchases. But, she cautioned, that bakery products need their own autonomous space. “You need to devote time and energy to making sure the case looks good, so it might be a little more expensive,” she said.

Indeed, it may be difficult to merge your fresh bakery with your prepackaged bakery/snack items to create one large bakery area — even if that was a retailer’s intent — because the various cases and displays that are involved might not be compatible with each other.

“As much as we would all like our bakery cases and displays to be a destination area, a large percentage of these purchases are still impulse buys,” acknowledged Rutter’s Moyer. “Thus, you must display these offerings where every customer can encounter them.”

At RaceTrac, the bakery case is typically located in a space that is clearly visible to customers as soon as they walk through the door. “That’s so our guests are able to take advantage of the fresh product as soon as it arrives each day,” Griffith said.

The idea is to make sure the bakery items are placed where there is a large amount of foot traffic. One strategy might be to place them near the coffee bar. “It encourages our guests to pair their daily coffee with a fresh-baked pastry,” continued Griffith.

But placement doesn’t necessarily have to be next to the coffee counter, advised McLane’s Veale. “It should be strategically placed close to the checkout register,” she said. “Since bakery can be an impulse item, this enables suggestive selling by the cashier or clerk.”

And c-store retailers must not forget to keep the product fresh in the evening. Especially if you’re pushing to increase bakery sales in the evening, you don’t want that case to look empty.

“Nobody buys the last salad, nobody buys the last sandwich, and nobody is going to buy the last doughnut at 7 at night because of the perception that it’s not fresh,” said Veale.

“As much as we would all like our bakery cases and displays to be a destination area, a large percentage of these purchases are still impulse buys. Thus, you must display these offerings where every customer can encounter them.”
— Chuck Moyer, Rutter’s Farm Stores