LINK COULD MAKE PROFITS RISE

ROSEANNE HARPER

SAN FRANCISCO -- Supermarkets can operate better in-store bakeries by linking up with an independent retail baker as a business partner.

That's what Peter Houstle, executive vice president of Laurel, Md.-based Retail Bakers of America, suggested during a seminar at the trade group's annual convention here last month.

Such a match-up could produce offspring such as better quality products and an improved image for supermarket bakeries, he said.

The independent retailer, in turn, could enjoy a boost in sales, because the supermarket partner is likely to offer more sophisticated consumer marketing expertise and higher volume store traffic.

Asked in a post-convention interview whether he expects such link-ups to become more prominent in the bakery business, Houstle said, "There is such a trend in other industries. I don't know how supermarket bakeries are going to respond to the need to make a profit. Things will get tighter and the labor situation isn't going to get better. A joint venture could be the answer."

There is a relatively small number of such relationships already out there. RBA has not done any research, however, that would indicate more in-store bakery operators are approaching retail bakers to explore partnering.

"I don't know whether there are more now than there used to be, but it just makes sense to me," he said.

In the seminar, Houstle outlined just why he thinks it makes sense.

"Research shows that the consumer's No. 1 priority, when it comes to buying food, is taste. The second is convenience. The independent bakery, with its manufacturing focus, can satisfy the first; and the supermarket can satisfy the second," Houstle said. "So why not get together to get a bigger piece of the pie?"

The whole idea is for both parties to improve their market or strategic position and to reduce the risks of doing business. For many consumers, there's a stigma associated with supermarket bakeries, Houstle said. Using the name of a respected independent bakery could go a long way toward overcoming that perception of lower quality, he added.

"Supermarkets have had trouble generating quality [in the in-store bakery]," Houstle said.

"Independent bakeries have the manufacturing expertise and the quality product that's generated from that.

"At the same time, they have the challenge of getting access to customers. How many of them have an advertising department or agency? They're dependent on location for foot traffic. Supermarkets can provide them with hundreds of people every single day," he said.

Houstle went on to describe the different types of joint ventures between retail bakers and supermarket operators that have proved successful, using actual case studies.

He described one partnership in which the independent bakery is simply the primary supplier to the supermarket. More than 80% of the in-store bakery's items are sourced from the independent baker, and the independent's name is featured in the in-store bakery's merchandising strategy.

All the products are packaged and most are sold self-service at the supermarket.

In another, more service-oriented supermarket, a joint agreement with a retail baker involves about 100 items, all unpackaged, all service. In this, a leasing venture, the supermarket provides cases, equipment, maintenance, cleaning and utilities, but the independent retailer provides the store staff as well as the products. This is a case in which the retail baker has much more control at store level, but at a price. The independent pays the supermarket 3% of its gross sales as rent.

He described another leasing arrangement in which the supermarket in-store bakery is completely operated by the independent. Some products are baked on-site, others are produced in the bakery's facility. The independent takes care of the equipment, maintenance and labor.

"It's like walking into a full-line, freestanding bakery within a supermarket," Houstle said. The independent pays the supermarket an agreed-upon percentage of gross sales or a base rent, whichever is higher.