Bakery Cafés find a sweet spot

Consumer choice in the foodservice bakery market can be seen as a grid of competing values: health versus flavor, quality versus cost and atmosphere versus convenience. In any given socio-economic environment, sweet spots on the grid represent perceived value to a population and are exceptionally suited to do well given certain conditions.

Economic conditions have changed. People have less money in their wallets than they did a year ago and are spending less overall. The sweet spot on the grid has shifted, and the bakery café model sits in the center of it as consumers value both quality and lower prices.

“The over-arching trend right now, with the economy we sit in, is toward less expensive foods in general,” says Vladimir Alfa, C.E.O. at Paul, a century-old European chain that entered the U.S. market in Miami four years ago. “The fast food restaurants have been doing very well, in fact. But since opening in the U.S. market, we have found that there are lots of people still looking for an inexpensive, quality meal; people who are unwilling to go the fast food route.”

Other values have remained constant, though. “We have evergreen trends of health and convenience that bear mention because they continue to remain strong motivators, year after year,” says Tom Piper, vice president of marketing for Bruegger's Bagels, Burlington, Vt. “Those are two factors that have evolved into a balance; people aren't going to give up on taste and convenience for health, but for the most part, they aren't going to sacrifice their health, either. They are looking for solutions that combine the two in harmony, and we are well positioned for that as a bakery café.”

The fast casual bakery cafe format sits at a crossroads of values. Bakery cafes cost more than quick service restaurants, but also are less expensive than casual sit down restaurants whose waitstaff's require tips. The bakery cafe format all but matches quick service in terms of convenience, and far outstrips them in atmosphere and ambiance. And the bakery café offers an impression of healthfulness and freshness with which few quick service restaurants can compete. Those qualities combine to make it perfectly suited for modern American consumers concerned about prices, but unwilling to give up on health and convenience.

Price has new weight

The bakery café category suffered along with other bakery segments under the recent commodity crisis. Some customers were balking at the price increases necessary to cover production and delivery of baked products, bakers report.

“Interestingly enough, I think the commodity price issue is actually a relief in 2009,” says Tom Gumpel, director of research and development at St. Louis-based Panera Bread Co. “The commodities crisis made companies say ‘where are we?’ We're kind of over that, and hopefully we won't have to see that again too soon.”

Bakery cafés that stayed true to their brand found themselves with a pricing advantage after grain and gasoline prices hit a crescendo and began to settle. The paper-thin margins that once gave quick service restaurants a strong advantage in price point also forced them to violently ratchet up prices when commodities were at their highest.

Bakery cafés, which generally carry larger built-in margins than the huge quick service chains, were able to absorb the volatile ingredient costs with fewer price increases. The result was a closing of the gap between price points in the quick service sector and the bakery café. For the value-minded consumer, this tipped scales to bakery cafés' advantage.

“The obvious movement in foodservice is the complete panic search for value,” Piper says. “But price points aside, I think we also have an advantage from a conceptual standpoint-there's a psychological component to being a neighborhood bakery.”

Despite the panic, he says people's lives haven't been completely thrown upside down by the market downturn. Most merely have had to look more closely at value and make wise choices with perhaps more limited means. The bakery café, associated with fresh ingredients, wholesome bread and recognizable foods, has an advantage over the quick service format in terms of value perception.

Value to whom?

According to Gumpel and Piper, the primary market for the American bakery café has long been women, aged 26 to 50. The gender gap is due to the bakery café's wholesome, more healthful image, as women tend to be more health conscious than men. Also, the bracket is strongly composed of mothers, where health is a major dietary choice motivator.

But the category is growing into other demographic groups, the most important of which being convenience-minded professionals and commuters. Coffee and lunch programs have been crucial to growth in these catagories.

Panera, Corner Bakery and others have carefully cultivated their brands as lunch destinations, placing soups and sandwiches at the core of their business model. Through catering programs, bakery cafés have expanded their reach to the working professionals with strict lunch hours and corporate meetings.

“Bakery cafes have four walls, but catering allows you to reach outside of those four walls and start feeding businesses, not just individuals,” Gumpel says. “The bakery café is in great shape with catering, in part because the person who makes the decisions about corporate catering is likely to be within our primary demographic of 26 to 50-year old-women.”

Catering also provides a unique marketing opportunity. The physical elements that come with a catering package-boxes, wrappers, plates, stickers-all provide a chance to get a logo and a brand in front of potentially new customers.

“The economy had our foot traffic down, but catering sales are completely independent of foot traffic,” he says. “It increases transactions without having to add anything to the four walls a bakery café already has.”

Breakfast, lunch and the commuter

Bruegger's had traditionally done well with the morning commuters, thanks to a strong coffee program and classic bagel breakfast options. The company worked to gain a significant foothold in the lunch daypart by marketing its bagel sandwiches, but realized bagels' limitation as a lunch vehicle.

“We've always offered sandwiches on bagels and served several other bagel platforms, but for the first time we are introducing bread,” Piper says. The company now offers two varieties of sandwich breads-honey wheat and hearty white. The frozen loaves are thawed, proofed and baked in the rack ovens that Brueggers' cafés already have on site.

Philip Smith, Bruegger's director of new products and services, designed a bread somewhere between artisan and homemade; the bread has the flavor and mouthfeel of sandwich breads, but also has the irregular crumb aand open holes of a homemade loaf.

In order to seize a portion of the lunch market, replete with time-crunched professionals, most bakery cafes are designed to compete with quick service restaurants on the convenience factor. Paul has a lot of experience in marrying quality and convenience. Having established its brands throughout Europe and, more recently Tokyo, Paul has targeted the commuter as a primary customer. Paul has done well in airports, train terminals and other rush areas. Alfa sees eventual possibilities for a similar plan in the U.S. market. Even in its current shopping mall locations, he sees that people are concerned about time.

“People who are used to eating well, maybe at nice sit down restaurants, aren't able to take the long lunches they may have once taken. People are feeling more pressure from their jobs, and having to work harder just to keep their jobs, so lunch is less frequently seen as leisure time,” Alfa say. “We fill that niche. We've found that during lunch, people are making a lot more take out orders, calling ahead, or even both.”

Know your customer

Alfa also has observed differences within his current reach of five shopping mall locations throughout the Miami area. He has found, predictably, that the consumer decisions coincide with the type of mall they are at, so he has trained his staff to maximize profits.

“In the larger, traditional malls, we have seen less foot traffic, but we've maintained and even improved the average ticket. In the outlet malls, foot traffic has been very good, but the per ticket sales have dropped off,” Alfa says. “The people who come into the outlet malls are extremely budget conscious and are unlikely to purchase add-ons or impulse buys.” This is a common occurrence in bakery cafes: the impulse buys are the first to go in a down economy because fewer people have money to burn. In order to counteract this, Alfa has increased staff training in upselling. He has found that a knowledgeable, helpful person at the point of sale is the most valuable tool to convince people to buy that extra pastry item or juice drink.

“We've also bundled items together to help customers think of value,” Alfa says. “You have to be careful to ensure the bundled items are at a low price point, though. If you go much higher than four dollars, people won't be willing to buy.”

Panera Bread also has taken to bundling, turning to combo deals to drive add-on, bulk and impulse purchases. The company is experimenting with an option called “You pick four,” an expansion of its “You pick two” option. These combo meals allow consumers to select two from an assortment of sandwiches, daily soups and salads, and add a beverage and a baked product for a nominal price increase.

Dinner bell

Another growth area for bakery cafes has been the dinner market. The trading down that is characteristic of a down economy generally occurs on big ticket items: cars, vacations and higher-end restaurants. This can be a boon to bakery cafes, as people who are used to high-end restaurants, but are forced to eat on a budget, are not likely to frequent quick service restaurants. The bakery cafes' established perception as healthful and upscale in comparison to McDonald's or Burger King mean they are likely the benefactors of white tablecloth restaurants' losses. People with higher-end tastes, but without their former buying power, are likely to gravitate toward the bakery café model.

“We have done a lot of work on our diner menu, developing a group of Au Gratin dishes with ham, beef, prosciutto, onions and potatoes; traditional northern French dishes,” Alfa says. “People are looking for a hot meal, more elaborate dishes, hot and grilled.”

Bruegger's, too, added a pannini press to make its new bread line even more versatile and to cater to people looking for a hot meal on a budget. Panera added an oven-baked macaroni and cheese dish and steel-cut oatmeal, both appealing to people seeking hot, hearty and homemade-tasting dishes.

Sweet spot

Ed Frechette, senior vice president of marketing for Boston-based Au Bon Pain, summed up the current position of the bakery cafe format by illustrating that immitation is the sincerest form of flattery.

“You see quick service trying to go upscale and casual dining restaurants offering the convenience of curb-side pickup,” he says. “This niche seems to be where everybody wants to be.”