- Consumers perceive that small bakeries offer convenience, personal service, and fresher, better quality products. In general, bakery sales increase when consumers’ average incomes increase.
- The industry is highly competitive, making it very difficult to start a new bakery, especially in cities. An entrepreneur might consider buying an existing business or locating in a rural area.
- One of the fastest growing areas in the bakery business is the specialty franchise store, producing everything from donuts to complete product lines. For specific information on franchising, refer to Franchising PH guide.
- A bakery is one of the few businesses where manufacturing and retailing are performed by the same people. You have to be an exceptional baker and business person producing and selling distinctive goods. Get experience in both areas before starting, including areas such as managing and accounting.
- If you buy an existing bakery, carefully evaluate the opportunity. Study the reasons for selling and assess potential profits, sales, expenses, assets and liabilities. Consult with an expert about the condition of the bakery equipment. Ask a lawyer to review any agreement.
- If you start a new bakery, do the same kind of careful assessments and consult with an accountant and a lawyer. Refer to the Service Business Plan book.
- Expect early mornings, long days and hard physical work. Sales fluctuate during the year you will be busiest during special days and holidays.
TYPES OF BAKERIES
Small retail – Usually one-store operations with two or three staff who bake and sell the products on-site. Often specialize in fancy, baked goods. May grow into chain operations with the baking done in a central location.
In-store - Operate out of large retail grocery chains. Growing in popularity. Some in-store bakeries do not make profits – they simply provide service and build traffic. Sometimes independent bakeries can operate in-store as separate businesses; in these cases, profits must be made.
Wholesale plant – Large, mechanized operations which bake in large volumes. Deliver to independent grocery stores, chain stores and superstores.
Medium – Often independently-owned and operated. Can specialize, selling through wholesale or retail outlets.
Hot Bread/Buns – Often part of a franchise or operating alongside. An example is a bakery partnering with a deli, producing sandwich buns/croissants. Usually offer a large variety of bread and buns continually throughout operating hours.
Cake – Specialties in wedding cakes, cheesecakes. Can be very profitable. Location and product quality are critical in determining success.
Donut – Independently-owned or franchises, often operating 24 hours per day. As in hot bread/buns bakeries, many use basic pre-made mixes available from millers and bakery suppliers.
Other – Bakeries growing in popularity, specializing in cookies/muffins/bagels.
The ability to hire and keep excellent employees is essential. Educate yourself in all areas of human resources — how to recruit, interview, screen, motivate, train, evaluate and develop personnel policies (wages and benefits). Promote continuous training and upgrading through related courses and programs.
Choosing a location is critical. Do your research. Consider these factors:
Population – To sustain a bakery, between 1400 and 1800 families should live within your primary target area. Also check area development plans and projected growth rates.
Competition – Comes in many sizes and types, from other independent bakeries to chain stores, superstores and specialty bakeries. Investigate all competitors to see if the local market can support another bakery.
Traffic – Aim for high volumes of pedestrian and vehicle traffic. Locate near other businesses (strip malls) or close to schools and sporting facilities.
DESIGN AND LAYOUT
Your bakery’s character and the sight and aroma of freshly baked goods can entice people to buy, especially on impulse:
- Present the entire assortment of goods in an area that is as large as possible.
- Select furnishings to properly display products under excellent lighting.
- Design an efficient and inviting counter area.
- Consult equipment manufacturers for their guidance and layout suggestions.
Advertising aims to inform and create interest. Bakeries should stress convenience, specialties and service. Three methods can be effective:
- Direct mail, for reaching specific markets such as neighborhood homes.
- Newspapers, especially local community papers.
Promotions: window/in-store displays, signs, banners, ‘tea-room’ sitting area.
- Prices should allow for sufficient gross profit to cover overhead expenses and a net profit. Bakeries usually use a markup method, based on costs. The markup depends on the pricing policy, but should be around 40-60% and cover expenses.
- Set up a cost book listing individual ingredients and their costs.
- Set up a ‘cost of recipes’ book listing the costs for producing specific items.
Because small bakeries cannot buy in large volumes like superstores, do not attempt to offer lower prices. Instead, stress convenience and specialties.
PRODUCTS, PACKAGING AND PROCEDURES
- Monitor the use of all baking supplies and ingredients. Record incidents of spillage, spoilage and leakage during production. The largest ingredient is usually flour. Obtain the lowest possible purchase price for an acceptable grade.
- Train staff to make products according to strict weight specifications: overweight products result in losses. Calculate how much to charge per 25 grams.
- Train staff to conserve packaging and to open one unit at a time as needed. Calculate the costs of each prepackage unit and the packaging itself.
- Permit staff to taste product as a training aid but do not allow constant nibbling.
- Test order-taking. Each month ask someone unknown to staff to place an order.
- Remove all products from shelves after expiry dates. Monitor stock rotation.
- Count your customers each hour to establish traffic patterns. Schedule staff accordingly and make sure they are on time.
- Give each cashier a separate cash drawer and constant cash float. Count the cash the end of each shift.
- Establish procedures for managing all areas of the business. This includes recording monthly inventory and filling out purchase orders/receiving records.
Video: Bakery Business