Dive Brief:

• Close to 70% of retailers saw an increase in bakery sales last year, according to Progressive Grocer’s Retail Bakery Review. Grocers say they saw an average 10% increase in net sales.
• Most grocers reported increased profits from their 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.
• Cakes and artisan breads were top sellers, while rolls and muffins saw steep sales declines. The highest-growth offerings, meanwhile, were celebration cakes and seasonal products.

Dive Insight:

Bucking health concerns and honing in on consumers’ desire for fresh-baked indulgence, bakery departments continue to operate as profit centers for many retailers. According to Nielsen, supermarket bakeries sell $11.6 billion worth of cookies, cakes, breads, pies and other treats annually.

Part of the reason for bakery’s continued growth is the wide variety of offerings and services that departments offer. According to Progressive Grocer’s report, 82% of retail bakeries offer signature items that distinguish one retailer from another. Stew Leonards’ customers know they can get a fresh butter croissant every morning, while Dave’s Supermarket shoppers in Fairfield, Ill. swing by for old-fashioned cream cheese donuts. Retail bakeries are also offering custom-made cupcakes, hand-filled donuts, wedding cakes and other creations that are blurring the lines between retail and specialty bakeries.

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 fresh bakery in its small format stores, and will offer store-made bread samples to customers.

But flavorful indulgence doesn’t explain all of retail bakery’s success. Retailers have also phased out fats, hydrogenated oils and other additives from their creations, boosting bakery’s image as a place to find clean, wholesome products. Are artisan breads, scones and cakes “healthy”? Not necessarily, but health and wellness these days encompasses more than just carbs, sugar and fat — it also covers functional benefits, minimal processing, freshness, and more.

There are challenges to bakery’s continued growth. Bakery work is demanding, often requiring employees to show up in the wee hours and stay on their feet for long periods of time. Turnover rates are high, so it’s important retailers adequately recruit, train and retain employees. Also, customers expect bakeries to update their offerings regularly, but chasing down trends can be costly, time consuming and not all that profitable in the end. The best bet for departments is to focus on seasonal items, and always keep established items front and center.