Profit Strategies: Making Products Look and Taste Expensive

The best bakeries in America have a secret in common. Maybe it’s not such a big secret, to those who’ve watched the retail bakery universe evolve dramatically over the past decade, but it’s a key factor that often goes overlooked when evaluating profit strategies that can make or break your business.

So here it is: If your bakery products don’t look — and taste — expensive, then no one is going to be willing to pay more.

“It is our job to be the dreamers,” says Lily Fischer, who opened Cake Life Bake Shop a year ago in Philadelphia with co-owner Nima Etemadi. Both are culinary school graduates; Fischer specializes in cakes, while Etemadi focuses on pastries. “When people ask where do we go for something better,” he adds, “we want to be the answer.”

The two longtime friends started their successful new business with the notion of building at least a 20-year dream. Drawing on American baking traditions and European techniques, as well as Nima’s Persian heritage and Lily’s generations-deep Philadelphia roots, Cake Life offers handcrafted, high-quality cakes and pastries that are at once unique and familiar, comfortable and exciting.

“We never freeze our cakes,” Etemadi says of one important point of differentiation. “So many places freeze and thaw cakes, and you can taste it.”

Flavor and appearance do matter, and even the smell of your freshly baked products when it comes to protecting the image of your brand. All these factors add up to one important conclusion. Image contributes mightily to success.

“I park about 200 yards from the bakery, and in the morning, you can smell the bakery that far in each direction,” says Jory Downer, CMB and award-winning baker at Bennison’s Bakery in Evanston, Illinois. “Early morning, croissants baking in Evanston smell just like they do walking down a side street, at sunrise, deep in a Paris neighborhood.”

Downer remembers a time many years ago when his family-owned bakery didn’t use much cream, butter and vanilla bean. It was mostly margarine, shortening, artificial whipped topping and some butter, but not much. For more than a decade now, they’ve stuck to whipping cream for cakes and using all butter in laminated dough products. And never underestimate the importance of premium ingredients like vanilla bean. “The volume of our business is in direct proportion to the use and discovery of those little tiny vanilla specks,” he says.

Making a visceral connection to your customer base is essential to triggering impulse purchases, a key component of retail bakery sales.

“Our research across hundreds of brands in dozens of categories shows that the most effective way to maximize customer value is to move beyond mere customer satisfaction and connect with customers at an emotional level, tapping into their fundamental motivations and fulfilling their deep, often unspoken emotional needs,” according to Alan Zorfas, co-founder and the chief intelligence officer of Motista, and Daniel Leemon, director of CEB, a best-practice insight and technology company, and an advisor to Motista, writing in a recent article for Harvard Business Review.

Motista says it has scientifically mapped the genome of human emotions and identified those most predictive of purchase behavior across dozens of categories. In one case study within the retail fashion industry, a Motista client targeted high-value emotional customers (those who spent 30-50 percent more than average) and achieved impressive results including 75 percent increase in annual store visits among those “emotionally connected” and 45 percent growth in annual spending.

The gist here is that by identifying your top customers and forming strong emotional bonds with them, you can achieve a higher rate of return on investment than by simply driving customer traffic with margin-squeezing promotional tactics.

Further research supports this fact. According to the International Dairy Deli Bakery Association’s new report, The Superconsumer Opportunity in Dairy, Deli, and Bakery, “superconsumers” are seeking products that improve their lives. For some, it might be food or ingredients that support a heath-and-wellness lifestyle. For others, it might be the intent of creating a more gourmet eating experience by adding premium products to standard meals.

Regardless of the purpose, these individuals are passionate about their food and are willing to pay for it. Representing just 10 percent of shoppers—but driving as much as 25 percent of sales—superconsumers over-index in volume, sales and profits in fresh departments.

Opening new doors

Developing a stellar brand can do wonders for any retail bakery, especially by opening new doors for selling your products to supermarkets and other wholesale accounts.     

Acclaimed retailer La Farm Bakery in Cary, North Carolina, plans to open a new location inside of a new Whole Foods Market store coming to Cary. While La Farm Bakery already sells its breads at Whole Foods in the area, the new facility will offer fresh bread, pastries and the rest of the bakery’s regular menu lineup.

“The quality and taste of their breads and baked goods, as well as the overall mission of La Farm Bakery align with the core values that set Whole Foods Market apart,” says Collen Conrad, culinary and hospitality director for Whole Food’s southern region. “We are thrilled to welcome Master Baker Lionel Vatinet and his team at our newest store.”

The move comes after the bakery announced earlier this summer that it would open a new production facility in Cary, allowing the bakery more production and retail space. Additionally, La Farm plans to expand its original location in late September. La Farm Bakery is one of the most respected bakeries in the country, led by Master Baker Lionel Vatinet, a multiple-time semifinalist for the James Beard Foundation’s Outstanding Baker Award.

For those bakeries that sell to supermarkets, one important aspect of such a strategy hinges on continually protecting the image of your brand.

Guaranteed sales, or buyback, programs involve a retail/wholesale bakery retaining ownership of their product until it is sold at the supermarket. Whatever amount of product the supermarket doesn’t sell at the end of the day goes back to the retail/wholesale baker.

Some might think at first glance that a buyback program works against the retail/wholesale bakery because they are assuming the risk. But that’s not the case for longtime bakers like Josh Allen, owner of Companion in St. Louis.

“From a numbers perspective, it’s hard to argue against (buyback programs),” Allen says. “In the end, there are more pennies leftover for us on guaranteed sales because we can demand higher margins. It’s no different than a quarterback playing for the franchise tag.”

The struggle to remain profitable in any buyback arrangement arises if a supermarket customer wants a broad range of products from multiple suppliers, he says. “Some level of protectionism needs to be part of that conversation,” Allen says. “The store has to be your partner. It’s a relationship business.”

Allen recognizes that reputation matters. “With buybacks, you can be sure that your product is selling only for the amount of time you believe is right for your product. For us, it’s one day,” he says. “For some, it might be two. For the store, if it’s their inventory, it might be longer.”

Another artisan bread baker addressing the buyback topic concurs. “My feeling is that it if a customer buys an old loaf of your bread and the experience isn’t what it should be, it reflects on the baker much more than it reflects on the store. Customers will remember that experience even when they are presented with the opportunity to buy a fresh loaf in the future,” the baker says. “The value of a good store is that they offer you lots of exposure to people who have bread on their shopping list. Other than that, I find that it’s primarily our responsibility to interest people in buying our bread. No one can convince people of the value of a loaf of bread better than the baker who baked it.”

Growing with intention

Allen of Companion, which supplies grocery and foodservice clients as well as operating its own on-site retail bakery, knows his company has to grow if it wants to thrive. Allen’s quest is to grow the business wisely, to bring what he calls “intention” to a process that, at his company, yields 30,000 pounds of fresh, frozen and par-baked product daily.

“I’ve always defined artisan bread as bread made with intention, recognizing that probably as soon as we’ve turned on a mechanical mixer we’ve walked away from ‘artisan’ in the true sense of the word,” Allen says.

Turning out so much volume per day, Companion, which was founded in 1993, can’t shape and mix its doughs by hand or bake them in a wood-fired oven, as some of Allen’s fellow master bakers still do. Some tasks at the company are still done manually, but that’s due more to economics than to a desire to be artisanal, Allen says. If he could, he’d automate more processes and increase his volumes. The business owner in him knows it’s a necessity.

“I’m a huge believer that you either grow or you die,” he says. “We’re certainly interested in growth and would love to growth out of this facility. We have a very competitive group of people that work with us, for us, who are interested in that growth.”

Companion’s growth has extended its geographical reach to Florida, Pennsylvania, Ohio, Montana, Wyoming and other far-flung locales. The West, Southwest and Northeast are the only regions left largely untapped. But despite the company’s production and reach, Allen still considers Companion to be a small-batch operation, with the flexibility and nimbleness larger wholesale bakers don’t have. For instance, Companion typically turns out 300 different fresh-market products alone per day, and it’s nimble enough to do private-label programs for its grocery customers.

“We embrace that nimbleness and try our best to leverage it to be successful. I’ll let you know in a few years whether it’s successful.”

That mentality extends also to Companion’s grocery customer mix. The company’s sweet spot is stores with 5 to 75 units — some too small to bake their own breads in-house, others who “can’t get the attention” of other suppliers, Allen says. Focusing on customers that size allows Companion to cultivate relationships they may not be able to have with bigger clients, Allen says. It’s those relationships, like the ones the company has with St. Louis-based chains Dierbergs, Schnucks and Straub’s, that can help guarantee business success.

“They all really wanted us to succeed in St. Louis and as a result we’ve been successful. This is definitely a relationship business and a trust business.”

It’s not just small and medium sized chains that are a good fit for Companion, which Allen considers to be in the “middle space” between small and big bakers that supply instore grocery. Natural-food and other smaller footprint stores are also a good target market. “For them, it’s all about the fresh perimeter,” Allen says. “We sell more bread in a store like that than we do in a major grocery store. Artisan bread is more a part of the basket mix in that environment.”