Over the past several years, the bakery cafe segment has led the fast casual category's growth, contributing an estimated $4.3 billion in total 2008 sales to the segment.
Sales in the bakery/cafe segment, fueled by Panera Bread Co., grew 12.3 percent in 2008, according to Chicago-based consultancy Technomic. Meanwhile, bakery cafe units grew by 7.4 percent during the same period.
Panera Bread has dominated the category with estimated sales of $2.6 billion — about 60 percent of overall fast-casual sales for the year -- and is No. 1 on both the Technomic 2009 Top 100 Fast Casual Restaurants and Top 25 Bakery/Cafe lists.
"Panera Bread is doing well, and that in itself is news, because the industry is doing horribly," said Harry Balzer, vice president of the NPD Group, a Chicago consumer marketing research firm. "The number of meals bought at a restaurant was down 3 percent in 2009. It was a horrible year. But the bakery cafe segment had a 5 percent increase in traffic during that period. What else do you need to know?"
While Panera Bread's success was the exception during 2009, it also speaks to consumers' continued love of the bakery/café.
Einstein Bros. Bagels comes in No. 2 on Technomic's Top 25 bakery/cafes and ninth on the Top 100 list, with $393 million in sales, a 10.6 percent increase. Au Bon Pain ranks No. 3 on the bakery cafe list and No. 14 on the fast-casual list, with $307 million in sales, a 6.8 percent increase.
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Other bakery/cafes on the Top 100 list include Corner Bakery (No. 20, with $234 in sales, up 18 percent), Brueggers Bagel Bakery (No. 23, with $200 million in sales, up 12.4 percent) and Atlanta Bread Co. (No. 32, with $137 million in sales, a 10.9 percent decrease).
Balzer said bakery/cafes have fared well because they give customers updated versions of what they like. "We love a sandwich in this country. And we love new versions."
Consumers consistently rank freshness as their highest priority, he said, and that is something bakery/cafes offer. He noted that bakery/cafes have expanded their catering operations, which have helped sales, and have grown their breakfast dayparts. "I can see the real growth in the last year was in the morning, not lunch or supper."
Home away from home
Another reason why the bakery/cafe niche has exceeded expectations is because of brands' consistent focus on the creation of a "third place," between home and office.
That "third place" mentality is key to Panera Bread, which offers free Wi-Fi, and to Atlanta Bread Co. The 17-year-old brand is about 60 percent through an extensive rebranding campaign, said Atlanta Bread president and CEO Jerry Couvaras. The renovated stores include private seating areas, sofas and fireplaces, TVs, and new products that emphasize its niche as a culturally diverse bakery.
The company will soon roll out new products: a line of baked goods, a chicken salad made with peppadews, a sweet/spicy pepper from South Africa; and a turkey sandwich with French brie and lingonberries, which come from Scandinavia. It also has rebranded its catering operation, which it calls Pronti.
Atlanta Bread Co. actually contracted last year, closing several locations. "We tried to weed out the stores and real estate we didn't want and remodel the ones we do," Couvaras said. The rebranding helped grow same-store sales, he said, and the company plans to open five new units over the next several months.
Segment domination
Panera, which recently announced a 7.4 percent sales increase for the fourth quarter of 2009, will continue to lead the category, said Darren Tristano, executive vice president at Technomic.
The company acquired an interest in Paradise Bakery Cafe, he said, and indicates it still sees significant room for growth. Tristano believes Corner Bakery Cafe, currently fourth on the Top 25 bakery cafe list, can make a bid for No. 2, "which is not a bad place."
Current No. 2 Einstein Bros. Bagels is also poised to grow, according to the company's SEC filings. The company opened 31 stores last year and should exceed that number in 2010, CEO Jeff O'Neill said in the filings, although revenue was flat for the fourth quarter.
While the bakery cafe segment has shown impressive results, Balzer and Tristano both noted that success isn't a given, with over-expansion a particular risk. But the results of the top players have not gone unnoticed.
"Even in the midst of a rocky economic climate, bakery cafe continues (to be) well positioned to leverage growth opportunities," Tristano noted in the Technomic reports. "The consumer tradedown from full-service to limited-service formats that solidified through 2008 and into 2009 allowed fast-casual bakery cafes to truly shine. The appeal of moderately priced, high-quality menu offerings, served up in a contemporary interior ambiance, was more than likely strengthened, along with the consumer perception of value for this concept/menu format over the past year."
