LAUREL, Md. -- In-store bakeries could use some team spirit.
That's how Peter Houstle, executive vice president of the Retailer's Bakery Association here, sees it. In an interview with SN, he said that by operating as if they're independent entities, in-store bakeries often sabotage profitability for the total store.
The problem, he said, is when in-store bakeries try to be all things to all people, chasing sales volume to feed the top line for their departments, but with a blind eye to the risk of cannibalizing sales from other aisles, such as frozens or commercial baked goods.
"Aren't supermarket in-store bakeries supposed to be helping make the supermarket itself profitable? That's the big question," he said. "If you're of the mind-set that the in-store bakery is its own business within the supermarket, as opposed to being a part of a whole, then you're a competitor with your fellow workers in the store," Houstle said.
"On the other hand, if you look at the role of the in-store bakery as helping to make the supermarket itself profitable, then you're a team member and your approach is much different."
The point Houstle's making is that supermarkets need to manage bakery as a category that extends beyond the in-store operation. Indeed, he will be emphasizing that point in depth, during a workshop session at the upcoming RBA Marketplace '98 convention and exhibition, which is set for March 21 to 23 in Anaheim, Calif.
Houstle said he will participate, along with a retailer, a wholesaler and a manufacturer, in a seminar that focuses on "storewide category management for the bakery." It is just one of a series of seminars of particular interest to supermarket executives, he said.
"The session on category management looks at where in the store the customer can buy bakery foods and then to what extent currently there is coordination of buying, merchandising, et cetera, of these products [within the supermarket company]," he noted. Other topics on the agenda are artisan breads and specialty cakes, both featuring supermarket in-store bakery directors as speakers, he added. Artisan breads and specialty cakes are the types of products that Houstle said can complement bakery foods offered in the commercial bakery aisle and in the frozen foods department, without robbing sales from either.
Explaining the evolution of his own preoccupation with the need for total bakery category management, Houstle said the RBA last year restructured its board of directors to include more supermarket representatives. While the trade group serves both the supermarket in-store and independent retail segments of the industry, more input from supermarkets has "refined" his understanding and awareness of the issues faced by them.
Houstle said his views on category profitability were also affected by a study the RBA commissioned two years ago that explored consumer activity related to retail pricing of bakery products.
He pointed out that customers, when they walk into the store, don't say, "I want to go to the in-store bakery for this and I'll go to the commercial aisle for that and the frozen aisle for that." They're more likely to write down on their shopping list, "bread, doughnuts, rolls," and then go wherever they're available in the store, he said.
SN's discussion with Houstle also touched on other issues that will bear on the future of the in-store bakery, and on the RBA's future as well. Highlights from the discussion follow.
SN: Please elaborate on the in-store bakery's role in the supermarket as you see it now.
PETER HOUSTLE: One of the first things I heard when I came into this industry 14 years ago was that only one in four customers shop the in-store bakery, and everybody acted like that was bad, that it should be more. But the more I've thought about it, I've begun to ask why one in four is bad?
When we did our consumer-activity and pricing study, I came away from that thinking that it just doesn't make sense for the in-store bakery to try to function as an independent unit, even as an independently profitable unit. It needs to function as a component of the entire store.
This isn't particular to the bakery department; it applies to all departments, but when you hear in-store bakery people talking, you know they think of themselves as a separate entity. They pit themselves against the commercial aisle rather than [thinking like] team members.
There's nothing easy about addressing this. But I think the in-store bakery is going to be much more cost-effective if it takes the team approach as opposed to the 'separate entity' approach.
SN: Has the in-store bakery taken sales away from bakery products elsewhere in the store?
HOUSTLE: Yes. We've seen a shift [in sales] away from the other bakery categories -- commercial, frozen and bakery needs -- into the in-store bakery.
And where do you think was the better net margin? Are supermarkets themselves, in fact, making less of a profit because of that shift?
In the other departments, you pull the product out of a box and put it on the shelf. If I could have made a net profit of 10% on a frozen bagel and only 5% on an in-store-made bagel and I'm cannibalizing my frozen-bagel sales, then the store is losing.
I don't know how many people out there are even looking at this. If you're the in-store bakery director, you're probably not.
But recently, I have talked to a couple of retailers who are trying to find a way to take all bakery foods in the store and put them all under one person, or one department.
It's going to require a lot of coordination. I know it raises a lot of difficult questions just from a training perspective, because the ways you buy for the commercial aisle and for the in-store bakery are very different.
SN: You said the results of the RBA's consumer-activity price study turned your head. What results in particular?
HOUSTLE: You look at your consumers and there are some people who don't care what they pay. And then there are some who care a lot about what they spend. The latter are the people for whom the in-store bakery doesn't make sense. If in-store bakeries try to sell those people, they can't.
The in-store bakery is a manufacturing operation, a very small one, with no economies of scale. So it just cannot be effective in delivering price-driven products to the consumer. That's why you have wholesale bakers with production lines that are 100 yards long. When you're making zillions of something, that's when you get economy of scale.
SN: Are you saying in-store bakeries shouldn't try to attract more volume?
HOUSTLE: If I say I want one in two shoppers to come to the in-store bakery, then I'm picking up the price-sensitive consumers; and they're the ones who'll say 'I want that pumpkin pie for a buck twenty-nine.'
You can't make money on that. You need a person walking in there who'll say, 'I'll pay $10 or $15 for the gourmet pumpkin pie.' That's the person you want in the in-store bakery.
It's net profit that counts, not volume. If you get one customer in eight into the in-store bakery it might be great, as long as you're making a bucketload of money off that one in eight.
SN: What has to be done to make these things happen?
HOUSTLE: One of our views is that you first need to know your customers at store level much better. You need to know who is in your area. You're looking either at who lives within 5 miles of the store, or at who drives by on their way to or from work.
National studies can help you find out who will pay the price. It's not always the high-income brackets. Young, upwardly mobile singles with no children or no mortgage are relatively price-insensitive.
Then, we need to do more traffic studies at the stores.
There are databases out there that tell you who lives in your area. Then compare them against the profiles revealed by national studies. That's the way you could try to structure the bakery category in the store itself.
SN: Do you think all categories of bakery products should be merchandised close to each other, like some chains that have their commercial products right across the aisle from the in-store bakery?
HOUSTLE: They don't need to be physically together. You're going after a different person. In-store is where you take care of people who are relatively price-insensitive. Commercial is for the price-sensitive. In frozens, you have a wide quality and price spectrum.
We're looking at what studies we should do. What kind of profile is there? How are people reacting to bundling of products? That information has indirect implications for how bakery products are sold.
SN: What new trends do you see emerging, or are there new issues to be dealt with?
HOUSTLE: It's not new, but I am seeing more of parbaked and thaw-and-sell items and that reflects very clearly the difficulty everybody's having getting skilled help. There are also organizational pressures to keep labor costs as low as possible.
The issues have not changed substantively. Obviously, profitability is still a key issue for the in-store bakery and labor is also a key issue.
SN: What's the future for the in-store bakery?
HOUSTLE: Some in-stores will be eliminated altogether and that might be good. It really depends on who shops the stores. And you'll see some that companies are putting more money into as they learn more about their customers. It'll be part of looking at the whole store and seeing which department can deliver the right product at the right price.
It's going to depend on how well the supermarket company can get its hands around what the in-store bakery's contribution is to a particular store.
SN: Are there changes in your show format this year?
HOUSTLE: We've expanded the in-store track [of seminars] to two full days. That reflects changes in our board structure. The board members are very involved in the program [at the show].
SN: There are several sessions on deli and catering on your program. Does that indicate a turnaround from taking the focus off deli and keeping it on bakery a couple of years ago?
HOUSTLE: The sessions you're referring to are focused on the independents, not in-stores. We're showing them how they can expand their product lines to make more money.
SN: What about attendance? What's your projection?
HOUSTLE: About the same as last year. Ten thousand. I'm trying to get exhibitors to understand it's not the numbers but the buying dollars walking the floor. We're going to have three to four thousand retail companies represented that represent a lot of money.
Supermarket Seminars
ANAHEIM, Calif. -- The Retailer's Bakery Association, Laurel, Md., has expanded the program of seminars tailored to supermarket executives at its Marketplace '98 convention and exhibition to be held here March 21 and 23.
Two full mornings will be devoted to the supermarket track, according to Peter Houstle, the RBA's executive vice president.
"That reflects changes we've made to better represent our members and respond to their particular interests," Houstle said.
Supermarket executives who will lead the sessions include Tonni Olafsson, vice president of bakeries at Randalls Food Markets, Houston; Pete Hejy, director of bakery for Bristol Farms, El Segundo, Calif.; Ed DeYoung, bakery director at D&W Food Centers, Grand Rapids, Mich.; Richard Marnhout, manager of bread baking at Draegers Supermarket, Menlo Park, Calif.; and Dennis Incontro, director of bakery/deli for B&R Stores, Lincoln, Neb.
A double session set for Sunday morning will explore storewide category management for the bakery and will feature perspectives from supermarket, manufacturing and wholesale segments of the industry. Speakers include Incontro; Diane Austin, Rich Products Corp., Buffalo, N.Y.; and Bob Beckerman, Supervalu, Minneapolis. Houstle will also participate in that session.
The panel discussion will examine the merits of establishing a portfolio of bakery products that balances customer demand and profit margins by placing management of in-store, central-plant and commercial bakery products under one director.
Another session, led by Bob Kulpinski, president of Concept2 Bakers, Minneapolis, will focus on artisan breads and their profitability. The session will include a look at the common pitfalls in artisan bread baking and how to avoid them, program planners said.
In a session on specialty cakes, the focus will be on adding value to boost profits. Unusual and successful specialty cake programs that are currently making money for their operators will be discussed in that session. The session will look at various ways to use "standout" specialty cakes to call attention to the in-store bakery.
Specialty cakes and other value-added products command a higher retail and a higher margin, Houstle pointed out, and are therefore a good complement to more price-sensitive items offered elsewhere in the store.
