Full Circle

AMY SUNG

The doughnut category has cycled through its share of ups and downs in recent years, reaching new peaks of popularity with the growth of Krispy Kreme, and then stumbling badly as one of many casualties of the low-carb diet craze. More recently, though, doughnuts have found their way back to their roots as a stable, slow-growing earner for in-store bakeries, renewing their appeal as an inexpensive indulgence.

Doughnut sales at in-store bakeries have held steady despite reports of consumers' increasingly healthy eating habits. With consumers ready to indulge in the real thing, retailers could benefit from promoting doughnuts not just for breakfast, but as a snack or dessert, or by offering promotional deals with other products throughout the store, such as coffee from the deli.

“While I am not seeing a significant comeback, doughnuts do seem to be holding their own,” said John Rose, bakery category manager, Brookshire Grocery Co. “Our doughnut business has been relatively static, which, given the volatile economy, has some merit.”

Paul Chapman, bakery director, Bashas', Chandler, Ariz, also said he believes the value factor with doughnuts keeps the category steady.

“We're seeing a steady increase in the popularity of doughnuts,” Chapman told SN. “We make our doughnuts fresh every morning, and as such, doughnuts rank among our most in-demand items. Doughnuts are a great value, so they've always been popular.”

During the 52 weeks ending Nov. 29, 2008, doughnuts represented 7.5% of total in-store bakery sales, averaging $688.47 per store per week, a 0.23% increase from the previous year, according to the Perishables Group, a Chicago-based research consultancy.

And, doughnuts retained their position as the leading breakfast bakery category, holding 34.3% of total dollar contribution, followed by sweet goods at 32.5%, muffins at 20% and bagels at 13.3%, according to the Perishables Group.

Doughnuts also remain the second-most-purchased item in in-store bakeries. According to Mintel International Group's consumer research, presented in its “In-Store Bakeries — U.S.” August 2008 report, doughnuts were purchased by 37% of in-store bakery shoppers, second only to French/Italian bread, which was purchased by 54% of respondents. Whole grain bread came in a close third after doughnuts, at 36%.

“While it seems the doughnut category is in a good position to make a comeback, that's not what we're seeing in the data,” said Steve Lutz, executive vice president of the Perishables Group.

“Doughnut contribution to total bakery has remained relatively flat over the last eight quarters. Within breakfast bakery items specifically — including bagels, doughnuts, muffins and sweet goods — doughnut share lost 1.7 percentage points over the last two years, almost directly to bagels. This consumer switch speaks to both price and health, because bagel share increased despite increasing retail prices at over double the rate of doughnuts. The bagel price point is less than that of fresh fruit for breakfast, and is more convenient to eat on-the-go than fruit. So, although the consumer may still be sacrificing health for price by choosing bagels over berries, buying bagels over doughnuts still reflects a health-conscious decision.”

INHERENTLY INDULGENT

At Bashas’, doughnuts are made fresh every morning, and they continue to be among the bakeries’ most in-demand items.

Yet despite trends that indicate growing health-consciousness among consumers, many retailers say their doughnut sales are holding up fine, and that shoppers seem to set aside concerns about their diets when making a purchase.

“Publix has a steady demand for fresh-baked doughnuts and did not experience a significant dip during the carb craze,” said Maria Brous, spokeswoman for Publix Super Markets, Lakeland, Fla. “The doughnut customer is a steady customer and not necessarily concerned with the nutritional components.”

Publix offers a trans-fat-free glazed doughnut variety to give customers a healthier option, but still, the traditional glazed doughnut remains the most popular among its customers, Brous told SN.

Unlike other dietary fats, trans fats have no healthful benefits associated with consumption, and they increase the risk of coronary heart disease by raising levels of “bad” LDL cholesterol and lowering levels of “good” HDL cholesterol. Consumer awareness of trans fats has escalated in recent years, with the U.S. Food and Drug Administration requiring manufacturers to list trans fat content on the Nutrition Facts panel of foods and some dietary supplements starting Jan. 1, 2008. Many cities have taken steps to reduce trans fat consumption, including New York, which was the first major city to ban trans fats in restaurant food.

As concerns about trans fats began making headlines, many bakeries, shop owners and chefs started to eliminate any and all trans fats from their recipes. With doughnuts specifically, many retailers have tried to at least offer the option of trans-fat-free doughnuts in order to maintain consumer interest.

For example, Brookshire is working with Topco to help source trans-fat-free frying shortening for its in-store bakeries that fry their own doughnuts, Rose told SN.

“We have around 15 stores that continue to fry their own doughnuts,” Rose said, adding that the most popular varieties with Brookshire customers have remained the same: glazed raised and chocolate-iced raised.

“The lion's share of our doughnuts are pre-fried/pre-packed. This format has improved our availability and price offering, given that the labor factor has been shifted to a manufacturer.”

Brookshire also still carries Krispy Kreme doughnuts.

“When Krispy Kreme entered our market area, we positioned them in our bakeries along with our existing doughnut program. Interestingly enough, we enjoyed an expansion in the overall doughnut category,” Rose said.

“In effect, it seemed that there were two different doughnut customers to which we were then catering to. In my view, the doughnut category suddenly was in vogue again — or, said another way, was cool. I think doughnuts have returned to being the bakery staple that they have always been. The craze is over, although it was a good run while it lasted.”

However, regular doughnut consumers may not be as concerned about trans fats as the industry thought they might be. Some experts say shoppers are willing to take doughnuts at face value — as an occasional indulgence.

Bashas' is one company that does not offer any sort of healthy or better-for-you doughnut.

“They want the real thing,” Chapman said, adding that the traditional yeast-raised glazed rings, anything chocolate, and fritters are the most popular at Bashas' in-store bakeries.

“Consumers express some concerns about fats and trans fats, but they still want to indulge and have a great-tasting doughnut.”

Alan Hiebert, education specialist at the International Dairy-Deli-Bakery Association, said that when it comes to better-for-you doughnuts, he thinks some measure of caution is necessary.

“Like many products in the bakery, doughnuts are not something people eat because they are looking to improve their diets,” Hiebert said. “They eat them because they taste good.”

Hiebert suggested that in-store bakeries thinking about making a healthier doughnut available might consider developing a doughnut made with whole wheat flour, rather than attempting to make a low-fat or fat-free option.

“In my opinion, whole wheat doughnuts with full fat content have a better chance of selling than low-fat or fat-free doughnuts, because more people will recognize ‘doughnut’ in the taste,” he said.

GLAZING OPPORTUNITIES

With the doughnut category reestablishing itself as a reliable staple for in-store bakeries, retailers should explore new ways to promote their offerings to recapture the cravings of doughnut lovers at all times of the day.

Doughnuts are not just for breakfast. A recent study from Rich Products, Buffalo, N.Y., found that doughnut purchases happen throughout the day, and recommended that fresh doughnuts be available both in the morning and in the evening.

“We often think of doughnuts as a breakfast item — often an item people pick up on their way to the office,” said Hiebert.

“Unfortunately for supermarkets, the in-store bakery is most convenient for its customers when they are already in the store for something else, which is not usually early in the morning on the way to work. Still, I think supermarkets are doing a good job getting their share of early-morning doughnut shoppers.”

Brous said she sees doughnut shops with a drive-through window continuing to dominate the doughnut industry, because of the early-morning customers and the convenience factor.

“It is a matter of convenience and time,” Brous said. “Typically, doughnut shops open earlier than traditional grocery stores.”

While 32% of doughnut sales are early in the morning, 27% are in mid-morning, 16% are in the afternoon and 25% are made at 5 p.m. or later, Hiebert said, citing data from the Rich Products study.

“Retailers would do well to leverage shoppers' hunger for doughnuts as a snack or as an easy dessert for their families,” Hiebert suggested.

Overall, more consumers are shopping in-store bakeries at the supermarket.

The percentage of supermarket customers buying products from the in-store bakery increased in 2008, to 28.3%, from 27.2% in 2006. The average sale per customer reached $3.96 per visit in 2008, up from $3.21 in 2006 and $3.53 in 2004, according to Modern Baking's “2008 Supermarket Bakery Research: In-Store Bakeries Jump Economic Hurdles.”

Because more consumers are frequenting in-store bakeries, Lutz sees an opportunity to offer breakfast meal deals with doughnuts.

“The fresh space in a grocery store has always been a way for retailers to differentiate themselves and attract consumers to their stores; but offering products that fulfill consumer needs keeps those shoppers coming back,” Lutz pointed out.

“Deli prepared foods have done a great job at providing more unique, cost-effective bundled meal packages, and the breakfast category can provide the same solution by packaging doughnuts or bagels with coffee. With these breakfast packages, retailers can compare their price points to Starbucks or their healthfulness to Dunkin' Donuts and speak on many levels to consumers' interests.”

Brookshire sometimes runs doughnuts in its weekly circular, and this year the company is featuring paczki doughnuts in some of its ads. Paczki, a traditional Polish filled doughnut, are eaten especially on Fat Thursday, the last Thursday before Lent, in Poland. Due to the influence of New Orleans' Mardi Gras, in America the treats are traditionally eaten on Fat Tuesday rather than on Fat Thursday.

“This year for Mardi Gras we introduced paczki doughnuts,” Rose said.

“Thus far they have resonated with customers quite well, so we'll probably bring them back next year as well.”

In fact, the doughnut category increased in dollar sales from January through February of last year and peaked the week ending Feb. 9, 2008, with the beginning of Lent/Mardi Gras/Fat Tuesday, at $796 in average weekly sales per store, according to the Perishables Group. With the exception of the week immediately following Easter, each week from February through June registered above-average dollar sales, indicating that these could be key months for generating doughnut category revenue.

“Overall, anything that plays into convenience for the consumer and has a low price point is attractive,” Lutz said. “It is possible health is being sacrificed for price due to the economy; therefore doughnuts from the grocery store have an opportunity to capitalize on this consumer shift and gain a key sales driver position.”