-By Meg Major

After several consecutive years of flat sales and stale performance, in-store bakery department performance is on the rise, but there still remains ample room for continued improvement, according to the latest insights revealed in Progressive Grocer’s 2009 annual Bakery Operations Review.

Among the key highlights of the annual “state-of-the-in-store bakery” study, 73 percent of supermarket bakery officials polled said their in-store bakery sales have increased this year, which is up a full three points vs. last year. And though the overwhelming majority of retailers posted higher bakery sales during the 12-month measuring period vs. last year’s study, the gap similarly widened for 13 percent of retail bakery survey panelists whose category sales declined, along with the same amount of respondents whose sales remained the same.

And though turning a healthy profit in the bakery department has long required a delicate balancing act – all the more so during a profoundly trying economic cycle that found incremental spending reduced to a bare minimum -- 56.3 percent of survey executives said that the at-home eating movement was especially good for bakery dollar sales, with another 43.7 percent indicating no change. In terms of the effects of more meals being eaten at home vs. in restaurants, 47 percent reported increases in bakery unit volume, with 41.2 indicating no change and 11.8 reporting decreases.

Shrink remains a perennial bakery departmental foe, having increased slightly to 7.8 percent vs. last year’s 7.3 percent. Consistent with the aforementioned data, comparable bakery department profits during the 12-month period year were hard hit for 43.8 percent of survey participants vs. 32 percent last year, while a smaller number -- 37.5 percent vs. last year’s 48 percent -- said their comp profits were stronger, with 18.8 percent reporting static bakery revenues.

While bakery profits are under siege, a look at the category’s fastest-growing lines finds breads (artisan, rustic, etc.), whole grain-based products and cakes the pre-eminent bakery leaders during the past year, while the most bankable best-selling bakery stalwarts relied on to offset the profit shortfall include perpetually top-ranked cakes, breads, rolls cookies, muffins and pies.

As can be expected, a reshuffling of the bakery operations problem index -- a hierarchical ranking of the most problematic operational issues facing in-store bakery officials -- found labor costs switching places as the foremost category challenge with last year’s top-ranked culprit, product/ingredient costs. Traditionally viewed as the lone “controllable” operational expense, labor has been tagged as either the first or second foremost problem among our Bakery Operations Review panelists for the duration, paced closely this year by profits, which were not surprisingly deemed to be the second-leading problematic issue among retail panelists during the past year.

Local/national economic conditions, which moved up to the third rung from 9th place last year, made the biggest gain as a key operation headache this year, followed by product and/or ingredient costs; shrink/waste; recruiting effective employees; employee training; customer satisfaction and equipment costs. Other supermarket competition, food safety, attracting shoppers to bakery, product quality levels, sanitation and non-supermarket competition rounded out the list of top operational hot spots.

When asked to weigh in on product reformulations they’re seeking in response to changing consumer preferences and concerns, nearly 70 percent of bakery officials said they’re going with single-serve/smaller-portioned products, while 56.3 percent are on the prowl for more whole grain product formulations. Sugar-free baked goods are also in the crosshairs of 43.8 percent of retail bakery buyers, while gluten-free options were cited by 31.3 percent.

Environmentally friendly packaging options are also being sought by 25 percent of in-store bakery execs, followed by indulgent items they can add to the mix in response for reward-type splurges.

The number of in-store bakery panelists now employing category management is also on the rise among 44 percent of retailer respondents. Yet for the 56.3 percent of panelists who are still not using it to help guide decision-making, the practice is clearly becoming more popular in the fresh bakery domain.

Parting thought: Profits remain elusive, but the in-store bakery has been a major benefactor of the eat-at-home mealtime trend that’s pumped up both departmental dollars and volume. To keep the wheels spinning, aggressive bakery suppliers can gain an edge by heeding the direct constructive feedback offered up from this year’s Bakery Operations Review panelists, as revealed below:

“Better communication with warehouse/ordering.”

“More demo and sample incentives.”

“Spending at least some time at each store to communicate new ideas and new products.”

“Continue to offer new ideas to create smaller portion sizes for existing products.”

“New packaging, such as a 16-ounce ‘show-bowl’ offered to us in nine new, high-volume SKUs in 2008, which created a large percent of sales.”

“Drop surcharges.”

“Maintain a continued focus on health-and-wellness product lines.”

“Work to keep product costs consistent with cost increases of other categories.”

“Racks, signage, better packaging.”

“Better nutrition information.”

“Reduce out-of-stocks and provide better product descriptions for ads/promotions.”

To purchase the full 2009 Bakery Operations Review click here.