In-store bakery sales are suffering, with category value down by more than £25m in the past year. How can the supermarkets tempt shoppers back in?

Britain’s grocery industry is no stranger to upheaval – in the past few weeks alone has come news of the Competition and Markets Authority (CMA) quashing the proposed Asda/Sainsbury’s merger, while Allied Bakeries announced the loss of the Tesco own-label bread contract. And this is against the backdrop of continued margin pressure and the uncertainty of Brexit.

Further adding to the woes of the retailers and their suppliers, overall in-store bakery sales suffered a £26.3m decline last year. Value sales have fallen across all categories except ambient bread, and even that is in volume decline [Kantar 52 w/e 30 December 2018].

While the in-store bakery (ISB) market is still worth an impressive £1.2bn, this year’s decline represents the continuation of a worrying trend as sales fell £36.5m in the year before [Kantar 52 w/e 28 January 2018].

So why are UK consumers moving away from ISBs? Are they shunning baked goods altogether or simply purchasing them elsewhere? And what can the supermarkets do about it?

The Real Bread Campaign has long bemoaned the state of supermarket bakeries, accusing them of selling ‘sourfaux’ loaves filled with additives and running so-called loaf tanning salons. Its message has been spread far and wide, thanks to national media coverage.

“When a supermarket tries to tell the story of its people and its loaves, can it ever do so in a way that people believe and engage with in quite the same way as that of a favourite local indie bakery?” questions Chris Young, coordinator of the Real Bread Campaign.

Certainly, many consumers are seeking an artisanal experience, particularly as interest in food traceability increases.

“Consumers are far more aware of food production and know that much of the baking in-store has not been done from scratch,” says Jacqui Passmore, marketing manager UK and Ireland, Dawn Foods. “There seems to be a shift, with consumers buying every-day baking items at the supermarket in-store bakery and trading up to their local baker for sweet treats and celebration products.”

This might go some way to explaining why ISB cakes and pastries accounted for the third-largest category loss of £7.2m, with chilled cakes, such as tarts, pies and cheesecakes, losing £8.7m.

CSM Bakery Solutions believes NPD could be one way to alleviate in-store bakery’s woes.

“Innovation is key to driving sales within the category. Whether it’s trending flavours or different formats, such as miniatures or sharing portions, offering consumers something unusual will generate excitement and sales,” says Anja Voigt, category leader fried, cookies and brownies, CSM Bakery Solutions.

“Indulgent treats are hugely popular and collaborative licensed products with a recognisable brand name are helping to revive the bakery fixture.”

Doughnuts are one example, with the likes of Morrisons stocking branded Oreo and Cadbury Caramel treats as part of its ISB range. Asda, meanwhile, is taking on the doughnut specialists with a range of new Extra Special Doughnuts in Salted Caramel, Chocolate Indulgence and White Choc & Raspberry variants, all loaded with toppings.

Lidl’s bakery focus has been firmly on NPD this past year, with the retailer introducing a bi-monthly promotion that trialled 21 new products across the year.

“A year ago, we embarked on an ambitious promotional campaign with a view to increasing our overall bakery offering,” explains Richard Inglis, head of buying at Lidl. “The objective of this promotion was to trial which specific bakery products resonated with our customers. Over the year, we trialled a total of 21 products and, ultimately, increased our bakery selection by 9%.”

By far the biggest triumph was Pastel de Natas with more than 2,000 sold every hour and more than 90,000 Instagram posts relating to it.

Lidl’s strategy is paying off. Kantar figures for the first 12 weeks of 2019 noted a sales increase of 5.8% at the discounter, which was partially attributed to a strong performance in bakery.

Meanwhile, Rich Products marketing director John Want questions whether the grocery channel is keeping up with sweet bakery innovation in other channels. “In Costa, Starbucks, café chains and all those out-of-home grab-and-go locations there is continual innovation and premiumisation that the consumer has been very happy with,” he says. “Grocery retail has maybe not moved with quite so much pace, so it is still a very traditional bakery offer.”

This is particularly true in the convenience channel where space for ISB goods is at a premium as they are competing more fiercely with NPD from plant bread manufacturers, says Hannah Morter, marketing manager, customer insight & category management at
Country Choice.

“Despite the increases seen in sales of artisan breads the volumes can’t justify using them as a replacement for traditional loaves and rolls at this point,” she says. “That said, where space is less restrictive traditionally shaped organic and ancient grain varieties have been proven to sell well.”

The customers who choose these kinds of loaves are willing to pay more. Although the number of packs of ambient bread fell 4.3%, prices have risen 7.1% over the past year [Kantar].

What’s clear, is that while innovation can provide a welcome boost, suppliers continue to advise that retailers place the bestsellers – whether it be a pain au chocolate or baguettes – front and centre.

The supermarkets, it seems, have got their work cut out for them.

Could stores take scratch baking out of the ISB mix?

Scratch baking seemed under threat of being scratched out at Tesco earlier this year, when national media reported the retailer was planning to switch from using fresh dough in its in-store bakeries (ISBs) to frozen.

The move was mooted as part of wider shake-up of its fresh food operations which would see nearly 9,000 jobs affected. The retailer was quick to hit back, saying the media speculation about scratch baking was incorrect and there would be “no significant changes” to bakery operations this year.

But this isn’t the first time a retailer has looked at removing scratch baking from its operations.

“These continuing and regular attempts to restrict scratch baking within ISBs risks making the mistakes of the past in under-estimating the importance of good scratch bread quality for shoppers,” says Stan Cauvain, director and co-founder of consultancy BakeTran.

Morrisons was swift to announce, just days after the media rumours about Tesco and scratch baking, that it was to invest in more than 500 butchery, bakery and fishmonger apprentices as it looked to preserve “traditional craft skills” that might otherwise be lost.

And, while ditching scratch baking for par-baked products offers advantages, it also comes with challenges, notes bakery consultant Brian Clark. Scrapping scratch baking reduces refit and renewal costs, as well as labour costs, he explains. 

“Retailers would also gain the floor space needed for scratch bakeries, thereby increasing the selling space, particularly for higher-value goods,” he says.

However, switching would require investment by suppliers. 

“Who has the production capacity to manufacture the volume needed for this switch and who is prepared to invest at the present time?” Clark adds. “Not many out there have the freezer capacity to replace immediately.”

What’s more, frozen dough comes with its own challenges.

“A major issue is that frozen dough has to be defrosted to deliver good bread quality,” explains Cauvain, noting that dough is a poor conductor of heat. As such, it takes time and reduces the immediacy of bread supply.

“While the change from fresh to frozen dough (or frozen part-baked) may reduce the need for fresh bakery production skills, it will not remove the need for good process control over the bake-off operation,” adds Cauvain. 

“This aspect has been the downfall of similar attempts to ditch scratch bakery production in ISBs in the past.”

Free-from in an ISB setting

Contamination is a key concern when it comes to gluten-free products, especially in an in-store bakery (ISB) setting, but with free-from bakery sales growing more than 20% (see p47), it is a market retailers are keen to serve.

And it’s one where bake-off products really come into their own as they can arrive in oven-ready packaging to avoid cross-contamination with other goods.

Sainsbury’s claimed to be the first UK supermarket to do this in 2017, when it launched a range of gluten-free fresh bread including a seeded farmhouse loaf and white baton.

Morrisons followed suit in 2018, rolling out a six-strong range of gluten-free bread to a myriad of its in-store bakeries. A year later, around half of the range remains in a number of stores.

“It is encouraging to learn that major retailers are continuing to develop and expand their range of gluten-free products,” says Coeliac UK head of food policy Emily Hampton. “To be able to purchase freshly cooked gluten-free bread from ISBs is a challenge in view of the need to segregate production and control cross-contamination risk from ingredients through to final product.”

Consumer concerns around cross contamination still surface via social media but, as Hampton notes, “labelling food as gluten-free is a food safety issue covered by law”, allowing consumers to rest easy.