HEAT OF SPECIALTY BAKE SHOPS MAKES IN-STORE BAKERIES RISE

MIKE STERNMAN

Supermarket in-store bakeries are facing their own kinds of category-killers lately, but rather than getting burned from the heat of extra competition, they are learning how to use the challenge to their advantage.

Freestanding retail bake shops that specialize in trendy and strong-selling segments such as bread, bagels and doughnuts are proliferating fast. Indeed, some industry observers say that in sheer numbers alone, the specialty retail segment of fresh-baked goods could soon overtake in-store supermarket bakeries nationally.

However, many in-store executives are not letting these operators steal their business, said retailers and other industry sources. Rather than being viewed as a threat, the new specialty competition is making for a better horse race, they said.

Supermarket sources said the rivalry keeps them on their toes. It gives a sharper edge to their merchandising, which is getting done more and more often in improved, state-of-the-art facilities.

And, whether it is intended or not, the opposition is doing valuable spade work for in-store bakeries by raising awareness levels of specialty products or crucial categories, supermarket bakers told SN.

"At first, nobody really thought [bagel and bread chains] were going to be that much competition. Guess what? They did a great job," said Barb Harner, bakery director at Steele's Markets, a four-unit chain in Fort Collins, Colo.

"We have needed to include value-added products to combat them," Harner said. "We used to buy frozen bagels, and did seven dozen a day. Now that we have invested in our own equipment, we do a dozen kinds of bagels from scratch daily, about 600 dozen a week.

"Same thing with breads. We offer fresh sourdough baguettes from scratch, delivered to our stores hot in the afternoon. We are introducing a six-variety line of dense, healthy organic bread that should be able to go up against some of this competition. We'll get over $3 a loaf for it."

Homeland Stores, Oklahoma City, is launching a European-style bread program of its own, according to Patrick Quinn, deli-bakery director for the 75-unit chain.

"Restaurants here are featuring more bread than they used to," he said, commenting on the non-supermarket competition. "Perkin's has a shop in front of their restaurants for muffins and pies and such, and the independent bakeries that offer meals along with natural fermented breads are doing well."

Homeland and the nearby competition are both being led to the bread business by changing demographics, with people and companies moving into the Oklahoma City market from places where they grew used to having access to a wider variety of breads.

Homeland is opening new stores, and has 18 remodels on its plate as well, Quinn said. One of them is a rebuilt unit that at 80,000 square feet will be the jewel in Homeland's crown.

The store's food-service layout contains a bakery presentation that's four times normal size, and goes heavily into the kind of "theater" that recalls specialty retail attractions, such as a workstation cake decorator performing behind a self-service cake case. Bread ovens are fronted with roll-around racks piled with freshly baked breads; and behind a self-serve fixture holding 18 bagel varieties is the boiler and bagel oven area open for customer viewing, a harbinger of a move from parbaked bagels to fresh products.

Tying into the bagel-production area is an adjacent bagel-sandwich shop/coffee bar. Self-service doughnut cases also tie in.

Suppliers told SN they are noticing a greater assertiveness on the part of some in-store operators.

"A lot of our customers, Dominick's in Chicago for instance, are launching what we call bread-by-the-pound, which is a traditional European large-loaf program," said Dora Zelinsky, Country Home Bakery, Shelton, Conn.

The phenomenon that could be helping to spur that assertiveness is a ballooning population of typically small shops with a narrow focus on important categories, categories that are also important to supermarkets.

"We definitely feel there will be more retail bakeries than supermarket bakeries in the next year or two, because of specialty growth," predicted Mary Jane Valby, marketing director at Lucks Corp., a Seattle-based cake-decorations supplier.

Valby said that while the level of approximately 28,000 in-store bakeries in the United States hasn't appeared to have budged appreciably recently, the latest count of 25,000 units of retail bakeries she had seen represents substantial upward movement.

The bread store is the hot specialty right now, agreed a cross-section of the bakery trade. It is so hot that bread is starting to show up in some bagel shops, themselves part of a 6,000-plus store segment that grew fast and is now enduring a shakeout.

Supplier Valby said she thought bakery expansion in supermarkets has been prompted by a higher pace of overall store remodeling activity, but that it is probably not a perpetual trend. "For a while, our company saw a lot of retrofits where stores were upgraded that didn't have bakeries," she said. "In-store has reached an upper limit."

Another source, however -- Ed Weller, a bakery consultant in Los Angeles -- was quick to point out that store or department numbers don't alone measure success.

"The lack of net additions [in the in-store bakery ranks] doesn't mean decreases in business. Many of the bakeries in those retrofitted or enlarged stores were doing $8,000 a week, and are now doing $16,000," he said.

In attacking the "killer" categories themselves, some grocery retailers said they favor partnering arrangements through which they can treat local specialty bakeries like commercial bread vendors, rather than like rivals.

Kowalski's Market in St. Paul, Minn., for example, leases out space in its stores to outside operators such as Big City Bagels, Peoples Baking Co., A Toast to Bread and Nasty Sourdough.

"We think of this as renting shelving in a special 4-foot wall section," explained Richard Kellerman, bakery director for the three Kowalski's and a franchised Cub that the retailer operates.

"I know we can't make a boiled bagel every day in our central bakery, or bake a good baguette like these guys do. And I don't have a formula for a sourdough as good as Nasty's. That said, the 10% to 15% of our sales these [partners] contribute hasn't changed in over a year, which has more to do with our bakery tripling in size during that time."