KANSAS CITY — Life has become simpler yet more complicated. There’s a new grind and no great escape.
Yes, the time crunch still exists, but it’s changed as increasing family and workplace demands — or searching for a new job — take on a different dimension. At-home consumers aren’t stuck in traffic jams, tied to a train schedule or shuffling their kids to after-school events, but a new routine has been established since the coronavirus (COVID-19) hit North America.
“Given the changes to the economy and workforce, consumers are more stressed now than ever before and turning to food for comfort. Indulgent sweets are providing a momentary escape from reality for many people,” observed Phil DeWester, senior director of category marketing at Dawn Foods, Jackson, Mich. “They want treats that are convenient, affordable and in smaller portions as they look for opportunities to reduce stress and anxiety from always being ‘on.’”
He noticed, for instance, a change in the products that in-store bakeries offer, specifically in the stocking of smaller cakes, especially for smaller gatherings for special occasions. Grocery cakes an eighth of the size of a standard one saw a 12% increase in sales as the gimme a Sweet baked goods find a new home as consumers’ on-the-go lifestyles move at a slower, but not always less hectic, pace. size of celebrations shrank, according to Datassential’s “COVID-19 One Table Operator Report, May 2020.”
Fortunately, a plethora of other little indulgences are also plentiful. However, instead of running to the c-store or waiting at the local supermarket or Starbucks drivethru, many consumers just stroll into their kitchens to stock up on a quick muffin or snack cake.
For sweet goods producers, convenience remains a strong trend that’s evolving in ways that reflect consumer behavior now and, more than likely, in the long run.
“Since closing the economy, snack cakes saw an increase in sales and a spike in e-commerce — due to people being at home more, dining out less, schools being closed and many seeking comfort through favorite foods during uncertain times,” said David Roach, president of the snacking/specialty business unit for Flowers Foods, Thomasville, Ga. “Purchase patterns prove many were shopping for immediate consumption and also for pantry-stocking purposes.”
He added that the producer of Tastykake and Mrs. Freshley’s sweet goods is seeing snack purchases begin to stabilize. Keeping up with the changing demand has kept even the nimblest of bakers busy.
“Thanks to the strength of our direct-store-delivery network, we’ve been able to rapidly adapt to the changes in the marketplace while maintaining supply,” Mr. Roach said.
With some distance now from the initial closing of the businesses, bakers are developing a clearer picture of what the market may look like this fall and beyond.
“We believe we will see many fundamental shifts in consumer behavior that will help sales of packaged sweet baked goods over the next few years,” observed Andy Jacobs, executive vice president and chief operating officer, Hostess Brands, Kansas City, Mo., which relies on a warehouse distribution system to reach large and small retailers.
“These tailwinds include a decline in fresh, unwrapped in-store bakery products as consumers demand more ‘safety assured’ packaged sweet baked goods,” he added. “We also believe we will see a continued and elevated at-home consumption via both more meal occasions moving away from restaurants and more at-home parties.”
A new center stage
One of those fundamental changes may have already occurred inside the supermarket. While the in-store bakery department may regain its prominence down the line, the operation won’t be the same without widespread sampling, grab-and-go and other fresh, bulk items.
“A number of key grocery retailers, and even convenience store retailers, have shut down their fresh donut cases,” Mr. Jacobs pointed out. “The idea of selecting unwrapped donuts to mix and match is definitely out of favor. Th is type of fresh display is now viewed as unsanitary by many consumers and, frankly, unsafe by retailers. Sales of in-store bakery products are down about 5% [in May and June], but some large retailers have seen sale declines of more than 40%. There is a fundamental change taking place as consumers, and retailers, move away from unwrapped fresh products.”
Then there is the parallel upswing of baking at home that is becoming a rewarding routine in many households.The question is: Will it have staying power?
“With the decline or elimination of most in-store and corner retail bakeries in light of the COVID-19 crisis, consumers initially undertook home baking as a diversion to the monotony of stay-in-place orders throughout the country,” noted Michael Mendes, chief executive officer, Just Desserts, San Francisco. “As the economy begins to reopen, and the novelty of home baking wanes, consumers are rediscovering the value, convenience and quality of premium in-store bakery brands like Just Desserts, and we are now seeing that activity at the register.”
Initially, Just Desserts, which produces a wide variety of cakes, bites and other sweet goods, saw sales decline in April as category sales within the in-store bakery channel plummeted. Mr. Mendes said this slide was exacerbated as retailers reduced their inventory pipeline in light of this weakness, which resulted in a more significant drop in demand at the wholesale level.
“We started to see a modest recovery in May, and in June it increased substantially as retailers had reduced inventory to well below pre-COVID levels,” he observed. Moreover, the in-store bakery was further stymied when retailers curtailed promotions and off-shelf displays, especially during the initial lockdown. “Promotion through traditional retailer [advertising] flyers have begun to regain traction in the grocery category, particularly in May and June,” Mr. Mendes added. “The club segment has largely eliminated sampling, which has historically been a key vehicle for the club class of trade.”
Overall, the future for in-store bakeries is brightening. Mr. DeWester has seen more consumers venturing out to find sweets.
“We anticipate this market trend will continue as people enter stores while practicing social distancing,” Mr. DeWester said.
On the rebound
Though total packaged sweet goods sales have grown significantly, Mr. Jacobs shared Nielsen data that delineated several differences in the demand profile. For the 13 weeks ending June 13, total dollar sales of packaged sweet baked goods were up 9.1%. Demand remained high in the grocery arena with points-of-sale purchases up more than 22%. Likewise, dollar store sales increased in the low 20% range.
“These channel trends are a direct result of where the traffic is going and the differences we are seeing with more at-home consumption and less out-of-home,” Mr. Jacobs explained. “With the shift to more at-home snacking and meal occasions, grocery and dollar stores are clearly winning the shopper trips and the dollars.”
With less commuting, he added, c-store sales fell 7%. Overall, the National Association of Convenience Stores reported that more than 25% of c-store sales comes from foodservice — grab-and-go muffins, for instance, that had been put in display cases next to the coffee service station — while packaged goods accounts for around 10% of average revenue.
“Workers are not stopping for their morning coffee, donuts or Danish, and less travel to work also means fewer trips for gas fill-up,” Mr. Jacobs observed. “But, thankfully, we are seeing trends in out-of-home consumption improve as the economy is now opening back up.”
Within the club channel, Mr. Roach has seen a significant detour in purchases from in-club to either direct-to-home or club pick-up, and the sweet baked goods segment overall has seen strong sales increases. Regionally, however, the channel trends vary. Around the New York metropolitan area, Nicolas Sayegh, managing director of the Clifton, NJ-based International Delights, pointed out that sales of single-serve and individually wrapped pastries, muffins and other sweet goods have been a bright spot in local and national c-stores that remained open during the pandemic.
However, that’s not been the case in the foodservice arena where the company caters bulk fresh delivered products to the greater metropolitan area’s corporate parks, offices, hotels and restaurants, which only began reopening in June and July.
“A lot of foodservice is going to remain very limited, especially the business catering of meetings and supplying employee cafeterias and executive dining for a while,” Mr. Sayegh pointed out.
Reflecting the changes in the market, Tim Gill, vice president, frozen foodservice for Alpha Baking Co., described individually wrapped as “on fire right now,” even though bulk packs are conversely showing decline. The Chicago-based company produces a full line of baked goods, including muffins and flavored sweet breads.
“Single-serve is all the rage in reaction to the pandemic,” Mr. Gill said. “We don’t expect to see a measurable resurgence in bulk packs until travel and lodging begin to open. Thankfully, Alpha Baking is well positioned to meet the demand either way. We have been in the individually wrapped business for a long time and have a lot of experience in this arena.”
International Delights also has the packaging capabilities from its c-store business and can now offer all its customers food-safe, packaged sweet goods.
“Foodservice operations want to order a more sanitary product and replace the traditional table service, buffet service or room service in hotels with grab-and-go options that resemble breakfast meal kits with a muffin, yogurt and a piece of fruit,” Mr. Sayegh said. “We think this trend will even survive the present pandemic and go on for the future because a lot of operators and even consumers like the concept of a prepacked, grab-and-go option.”
Back to school?
As COVID-19 cases spiked in other areas of the nation during the summer, Mr. Sayegh still wondered if students would be returning to universities and other schools — and in what capacity.
“We still don’t know how many colleges will remain using online learning or will reopen this September,” he explained. “That’s certainly a big question.”
In local elementary and high school districts, it certainly looks like the brown bag — or more modern forms of the old-fashioned lunchbox — is returning by necessity, noted Jack Anderson, president and CEO, JSB Industries. The Chelsea, Mass.-based company, which also goes by the name of Muffin Town, turns out a bounty of sweet goods, muffins, cakes, cornbread, cookies, bars, bagels and its signature SunWise sunflower butter and jelly sandwiches for retail, foodservice and private label customers.
School districts across the nation, however, account for the most significant portion of Muffin Town’s business. Previously, Mr. Anderson said, the bakery shipped a lion’s share of its items in bulk — 140 products to a case, for instance — but now everything is individually wrapped, and the school meal business, which normally slows in summer, remains brisk.
“Schools are doing an awful lot of summer and drive-by feeding,” Mr. Anderson explained. “When students go back to school in September, however, some cafeterias aren’t going to open at all, probably for another year or two. We’re drifting into classroom feeding. We’re working with a lot of purveyors who are providing the whole meal in schools.”
Without traditional school cafeterias, dieticians and cooks, Muffin Town is creating breakfast and lunch kits with three or four individually wrapped, school nutrition approved products. Right now, the labor-intensive process is still ramping up, but with investments in new equipment, the bakery hopes to streamline the concept and ratchet up production by the beginning of the school year.
Certainly, parents will be looking to make any occasion special — or simply provide a well-deserved break from everything that’s going on at home.
Rolling out a healthy dose of new products
Bakers are bolstering their positions in the better-for-you sweet goods market. Take Just Desserts, which just launched a line of vegan cupcakes. The San Francisco-based company also offers branded baked goods that are free of many major allergens.
“We recently became vegan-certified, further validating our program for the most discerning vegan consumer,” noted Michael Mendes, chief executive officer, Just Desserts. “In addition to being peanut- and tree nut free, we are now eliminating soy from our bakery and have introduced oatmilk as a cream dairy alternative, and that change has already taken place for our vegan line of products.”
Phil DeWester, senior director of category marketing at Dawn Foods, noted that it recently rolled a vegan muffin mix as a part of the Jackson, Mich.-based company’s Balance line of better-for-you muffins.
Overall, globally inspired flavors are influencing new product innovation.
“This is part of an ongoing trend where buyers have increased focus on having unique items,” observed Tim Lotesto, senior director, national retail key accounts for Alpha Baking, Chicago. “This and an increasingly adventurous American palate lead manufacturers to develop flavors that borrow from other cultures and explore off-the-wall flavor combinations. Though there’s no danger of these items replacing more traditional flavors at this point, these can mean nice seasonal business. In the long term, some of these currently ‘out there’ flavors could become new standards.”
Andy Jacobs, executive vice president and chief operating officer, Hostess Brands, Kansas City, Mo., pointed out the company is taking cues from other food and beverage categories, specifically the confection arena in terms of products, packaging and promotions.
“We watch the big confection players in terms of everyday trends and also seasonal ones,” he said. “In addition, we have licensed Hostess into a number of food categories, which provides a unique view of those categories like cereal, ice cream, pudding desserts and coffee pods. All of these licensed products help us keep our pulse on the consumer and the opportunity to leverage consumer learnings from other categories within snack cakes.”