SWEET SPOT 2005

Roseanne Harper

Consumers can't get enough doughnuts. Having weathered the low-carb storm, the doughnut category seems to be stronger than ever for many supermarket bakeries.

New varieties of doughnuts, enhanced with attractive icings, sprinkles and glazes, are mostly merchandised from the ubiquitous, doored, self-serve case. Signs at the case and blurbs in ads call attention to their freshness. Meanwhile, retailers are planning to install more and better frying systems.

Not so long ago, consumers were in love with Krispy Kreme doughnuts, and that may have helped the entire category, according to one Midwest retailer.

"Doughnuts are a real growth category for us while bagels and muffins are flat and rolls are slightly negative," the retailer told SN. "The whole landscape of doughnuts changed with Krispy Kreme's rapid expansion. Two of our major competitors still have Krispy Kreme, but we don't. We're retarding, proofing and frying our own at store level. It's the freshness aspect. We emphasize, in whatever way we can, that our doughnuts are fresh daily. Some of Krispy Kreme's have got to be on the road for 18 hours."

For some retailers, the well-publicized struggles of the Krispy Kreme company have been a good thing. Even if they carried the branded product, retailers have since revved up their own doughnut production or started production anew with good results. At any rate, all eyes are on the doughnut.

"We had an outside vendor until recently in addition to frying our own, but since December we're just doing our own. In two-thirds of our stores, we fry doughnuts, and in the others we bake off. We'd like to be frying in them all. When a remodel comes up, we'll definitely put the equipment in. It's an expensive project to put in a frying system. You have to cut a hole in the roof to install proper ventilation and make all the other modifications required [in addition to the expense of the system itself]," said Paul Rorer, director of deli-bakery-cheese at Clemens Markets, a Kulpsville, Pa.-based chain of 20 stores.

"But it'll be worth it because the category has stayed strong, even through the carb issue. People do want to splurge once in a while. We've just added a new chocolate cake doughnut. It's a different color to add to the case. It creates a different look. In fact, we've upscaled as much as we could. We fry a very big doughnut, three ounces. Most others you see are 2 1/2 ounces or less," Rorer said.

Last year, even in the midst of low-carb mania, doughnut sales at Reisbeck's Markets, St. Clairsville, Ohio, rose 6% vs. sales in 2003.

"And this year, doughnut sales stayed strong during paczki season. That's not normal. They usually dip during the time we're selling paczki," said John Chickery, bakery director, at the 13-unit independent.

Riesbeck's is a standout producer and seller of paczki (pronounced "poonch-key"). The huge doughnut-like treats originated in Poland, and are usually sold only in the week leading up to Lent. Chickery, however, chose to sell the super-rich pastries each weekend leading up to Easter and, as a result, paczki sales topped out at nearly $250,000 this season.

Still seemingly awed that his doughnut sales stayed up during the paczki hoopla, Chickery explained that fresh and hot are the key words when it comes to doughnut sales.

"We fry them fresh several times during the day. Half of them are packed right away in six-count, windowed boxes and the other half are merchandised from the self-service cases. We have frying systems in seven of the nine stores that have bakeries, and just three months ago, we upgraded two of those systems, doubling their capacity," Chickery said.

Since doughnuts actually make up more than 25% of Riesbeck's total bakery sales, they get a lot of respect. Company officials don't quake at the thought of replacing or adding expensive frying systems.

"We have a Belshaw Century 200 automated doughnut frying system that we've had for 40 years. It may be on its last legs. So I priced a replacement two years ago, and it was $140,000. But when this one goes, we'll definitely replace it, and we'll put a frying system in at our newest store, which we'll open early in 2006," Chickery said.

It's not only worth it, but practically a necessity, he added. "People around here are used to buying fresh baked goods, including freshly fried doughnuts. They were getting them at Giant Eagle and Big Bear, but they aren't in our market anymore."

Riesbeck's is filling the gap. Doughnuts occupy 8 linear feet, in doored cases that run anywhere from 12 to 16 feet, depending on the store.

"Some customers like to pick and choose a variety, whether it's doughnuts or bagels or rolls," Chickery said, explaining why Riesbeck's plexiglass-doored self-service cases have not been reduced in size even though more table and basket displays are being used as well. All Riesbeck's stores that have bakeries had service counters at one time, but only one does now -- it happens to be the chain's highest-traffic store. All others have switched to self-service.

"It's more convenient for the customer, but also we feel it keeps things moving faster, and because of that, we ultimately sell more product in a shorter amount of time."

At Big Y Supermarkets, the vitality of doughnuts is evidenced by the amount of space devoted to the fried pastries in the self-service cases. Doughnuts and muffins take up half the space with the other half devoted to bagels and rolls.

"While the carb thing hit bagels last year, it didn't bother doughnuts or muffins. I think people just like their sweets and they don't give them up easily. Bagels are getting better now, but the carb craze hit them last year," said Steve Bordonaro, bakery sales manager, at 51-unit Big Y, based in Springfield, Mass.

In fact, bagels, bread and rolls took a much harder hit in the midst of carb-consciousness than either doughnuts or muffins.

"Bagels around here are on a downward spiral. I know one of our manufacturers has just discontinued three flavors and three bagel shops in town are gone now. For us, bagels wouldn't even make up a half percent of our bakery sales," Riesbeck's Chickery said.

At Clemens Markets, Rorer said if it hadn't been for some stand-alone bagel stores going out of business, his bagel sales might be down instead of staying the course. Other retailers had little to say about bagels, but shared their ideas about how to sell muffins.

Most who talked to SN said they don't sell muffins singly from the doored, wall cases anymore because they've found muffin sales are better when they're packaged and displayed on a table or a cart or in a bushel basket.

"More than 90% of our muffins, we sell in four-pack containers. The damage factor is one issue," said one retailer.

Kevin Easler, vice president, sales/marketing, at 10-unit Sprouts, Phoenix, said all baked goods at Sprouts are put into packages, mostly from a standpoint of freshness and shrink. "Our muffins for instance are individually wrapped or in clamshells," he said.

Other retailers echoed Easler. 'We don't sell as many singly as we did years ago, and the ones we do are in single bags. Right now, we're looking at carts. There, we would display trays of 12," said Rorer at Clemens Markets.

Bordonaro from Big Y said he's merchandising muffins in four-packs on tables and some carts. "We have increased the variety and we'll add some healthier ones," he said.

Muffins are not taking off like rockets but they're a steady and viable category that needs to be jazzed up to curry sales, retailers agreed.

"There has to be some visual impact," Chickery said. "We make our own muffins and we dress them up. We streusel them, ice them, add candies on top, and we rotate in interesting flavors once in a while, like orange honey cream. The next leg of all that is to get a [merchandising] cart. We'll definitely sell more that way. A cart is the key. Muffins die in one of those wall cases."