Dive Brief:
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In-store bakeries are increasingly making and serving up better-for-you baked goods for consumers who demand fresh products with cleaner labels and healthier ingredients, according to New Hope Network.
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Kowalski's Markets in Minnesota have done well with their fiber-rich cookies, while the Pittsburgh-based Giant Eagle chain and Bashas' — with stores in Arizona and New Mexico — draw customers with an array of whole-grain breads and other baked treats, the network noted.
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In-store bakeries also offer smaller sizes. Half loaves, packages of two buns and four-packs of cookies to keep the all-natural products from spoiling since they don't contain preservatives. That also means smaller portions and less waste — which many of today's consumers prefer.
Dive Insight:
Most grocers reported increased profits from bakery operations in 2016, with larger chains more likely to see an uptick than smaller ones. Two-thirds of retailers with 11 or more stores said their department profits increased, while 43% of those with fewer stores reported a profit rise. Top sellers were cakes and artisan breads, while rolls and muffins fell. Highest-growth items were celebration cakes and seasonal products.
In-store bakeries are expected to keep growing through the end of this decade, according to the International Dairy-Deli-Bakery Association. Their sales are projected at about $18.4 billion by 2020, a 45% increase from 2010, the trade group estimates.
According to Progressive Grocer's 2016 Retail Bakery Review annual survey, nearly 48% expected bakery sales to increase in the next year. In addition, nearly two-thirds of those bakery executives surveyed for the 2016 "state of the in-store bakery" study called their bakery section an important "image builder" — which was about twice the number saying that the previous year, Progressive Grocer reported. Even shoppers who don't frequent the in-store bakery still like to know it's there, the site added.
Aldi began testing in-house bakeries in January 2017 and recently opened a remodeled store in Illinois with an in-house bakery positioned at the front of the store. Customers lined up for the self-service selection of rolls, pretzels, donuts and more, according to the company. The renovation is part of Aldi’s expansion that will add 2,500 stores and renovate 1,300 by 2022.
The addition of a in-store bakery comes at a fortuitous time. According to Nielsen, supermarket bakeries sell $11.6 billion worth of cookies, cakes, breads, pies and other treats annually.
All those sweet smells and eye-catching goodies have made the bakery department a destination in many stores and a key part of retailers’ fresh-focused strategy. In making the transition from Europe to the U.S., Lidl made sure to carve out room for a fresh bakery in its small-format stores and will offer store-made bread samples to customers.
Retailers know that having an in-house bakery is a big draw for shoppers and can give their business that all-important competitive edge and keep consumers from migrating to standalone bakeries, coffee shops, or other options offering fresh baked goods. And while artisan breads and healthier snack items are popular at any time, breakfast presents another opportunity for grocery stores to peel customers away from convenience stores or quick-serve cafes and restaurants.
Nielsen Fresh found that breakfast bakery dollars — including bagel, muffins, donuts, cinnamon rolls and coffee cake — rose 2.8% in 2016. In that year, there were 478 million visits to grocery stores for breakfast meals and morning snacks and 1.6 billion c-store visits, according to the NPD Group. In addition, consumer demand for grocery "experiences" and premium offerings are shaping the in-store bakery and pushing grocers to transform what was once a quick stop into a space where shoppers can sit and sip their morning coffee.
These trends have combined to present a perfect opportunity for retailers to position themselves as the go-to bakery destination for consumers looking for high quality, clean labels, relatively low cost and a fresh-baked product.