Industry Sector: Bakery

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1 Industry Sector: Bakery Introduction You have decided to run a retail bakery. Now you must decide how you will achieve this. Will you: take over an existing bakery start up a new business from scratch The course of action you choose may affect the costs you incur and how soon you start to receive income from the venture. This Business Guide will help you to complete your cash flow. The topics listed under Income and Expenditure relate to fields in the cash flow section of the Business Plan. Cash sales 'Cash sales' means all income from your main business activity which is received at the time of sale. Although many customers will pay you in cash, remember that cash sales also include: cheques debit and credit card payments (if you decide to accept them) luncheon vouchers To prepare your cash flow, you will need to estimate how much income you will receive from cash sales over the next 12 months (including VAT where appropriate). To do this you will need to work out how much bread and other bakery items you are likely to sell and at what price. There are a number of things to consider when you make your estimates. Type of business who will your customers be. Will you target members of the public or will you also aim to supply shops and other businesses will you have more than one retail outlet, or, perhaps, a mobile shop or market stall will you offer eat-in café sales where will your premises be. A high volume of passing trade is likely to be essential will you use traditional craft baking methods or will you buy in ready-prepared chilled or frozen products will you be independent or a franchisee Your products

2 what range of products will you stock how many of each range will you produce each day will you offer lunch-time snacks and sandwiches will you bake everything yourself or will you buy in some lines how often will you introduce new products how will you monitor which are popular/unpopular lines what will you do with unsold goods at the end of the day are you likely to sell more goods at certain times of the year Pricing what will your pricing policy be (don't forget, you must be able to cover your costs, overheads and drawings) if you have café sales, how much extra will you add on to your shop prices how often will you review your prices how much discount will you offer to your trade customers Staff will you have to employ trained bakers will you be able to find staff willing to work early in the morning what will your policy on staff discounts be Competition Master bakers face very strong competition from supermarkets, which not only offer sliced bread very cheaply, but also bake a range of crusty loaves, continental breads and other items which compete directly with the goods produced by the traditional baker. In recent years the growth of coffee shop chains selling cakes, pastries and sandwiches has also increased competition for bakery outlets. This makes it very hard for the independent to compete so it's essential to make sure that your bakery will offer something special that will attract customers to you rather than to your competitors. To help with your decisions, click on the checkpoints for guidance. Once you have worked out a Cash sales figure add it to the relevant field in your cash flow forecast. Buy an existing business You might decide to buy an existing business rather than start your own bakery from scratch. Buying a going concern can mean that: the premises, plant, machinery and equipment are already in place there are established customers the business can generate income immediately suppliers have been identified and relationships established with them

3 the business has a track record which can help if you are looking for finance staff may already be in place However, look critically at any business that you are interested in to make sure that the price you negotiate with the seller is a fair one. Try to establish why the business is for sale - for example, is the owner keen to retire or is there another personal reason for selling up. Your market research into the sector as a whole and the locality in particular will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. This may not necessarily deter you - many business people are confident that they can turn a failing business around. The important thing is to have established the current position so that the price you pay for the business is not too high. Other matters to consider include: the state of the premises, plant, equipment and so on. Will you have to spend money refurbishing or replacing assets the condition of any stock you are buying. Much of this is likely to be perishable so check it over carefully before agreeing a price existing staff rights how to retain key personnel once you've taken over does the business owe money that you will be responsible for if you are paying for goodwill, to what extent does this depend on the skills and personality of the seller? For example, the previous owner might have built up a personal reputation for certain specialist bakery items that draws customers from miles away Ask your accountant to look critically at the business accounts for the past three years and discuss with him or her the selling price in the light of what the accounts reveal. Make sure you budget for other professional fees such as legal fees and valuation and survey costs. Market research Estimating demand You will need to make an estimate of the number of people who might buy your products every day. Bread, cakes, pastries and other bakery items are available from many different outlets such as: retail bakeries supermarkets convenience stores petrol filling stations sandwich bars coffee shops

4 So it's very important to find out whether there is room for another outlet selling bread and bakery goods in your area. First of all, it would be a good idea to check out the competition. Count how many outlets there are already in your area which sell bakery products and identify the range of goods they sell. If some of these are specialist bakers, note down whether they are independents or part of a chain. To get some idea of the number of people who might use your bakery you could stand outside an existing local baker and make a head count of the number of people who shop there. Notice if some days are busier than others. Why will customers choose your business You need to make sure that enough people will choose your business rather than buying bakery products from your competitors, some of which may be supermarkets offering bread for sale more cheaply than you will be able to make it. Once you have completed your review of the range of products sold by your immediate competitors you will have a better idea of the sort of goods to sell to make your business particularly attractive. For example, you may decide that because local outlets already sell such a wide range of different types of bread it would be better to concentrate on patisserie and celebration cakes. It is important to establish a reputation for certain types of products - you can always add to your ranges once you are known to your customers. Catchment area If you plan to open a retail bakery, passing trade will be very important to you. Take some time to note down the different types of potential customer living and working in the area where your business will be. This will help you to determine the range of bakery and other items you might sell. For example, retired people might want cakes and pastries for afternoon tea while workers and school children might want sandwiches and pasties at lunchtime. Find out what people want It can be a good idea to talk to people in your area about your proposals. Ask as many people as possible: what sort of products they would like you to offer what opening hours would suit them best what their reaction is to the prices you propose to charge - bread in particular can be a very price-sensitive item would they use a café facility what they think of your bakery proposal in general terms Trade sales

5 You might be planning to sell bread and other bakery items to local shops such as small supermarkets or to businesses such as restaurants and cafés, sandwich bars, hotels, nursing homes and so on. If you plan to target trade customers it would be a good idea to: count the number of suitable businesses in your area work out what product ranges you will offer them work out how much discount off the retail price you will offer them decide how frequently you will supply them. Most businesses will want a daily delivery service, so you will need someone to drive the delivery vehicle approach them to see if they would be interested - don't forget if they are already being supplied you will have to give them a good reason to change. This might be a wider product range, lower prices or a better service. Consider offering them some samples to taste Sector trends What has been happening in the bakery sector In recent years there has been: no increase in the amount of bread eaten in the home, but an increase in the amount of bread used in take-away sandwiches a trend towards speciality and continental breads an increase in demand for bakery snacks such as rolls, teacakes, scones and so on supermarket bread price 'wars' so that the average price of a white sliced loaf remained the same for many years. The mid and late 2000s saw customers 'trading up' to premium, more expensive loaves a significant increase in the number of outlets with in-store bakeries a fall in the number of independent master bakers an increase in the costs incurred by bakers (for example, higher wheat prices and the introduction of the Climate Change Levy) fluctuations in demand for bread and bakery products due to dieting 'fads', such as the Atkins and other low carbohydrate diets The supermarkets have been very successful in cornering the lion's share of the bread market by selling wrapped bread made by major plant bakeries at low prices. They have also introduced in-store bakeries producing speciality breads, rolls and pastries. Although the market for these speciality items and for bakery snacks appears quite strong, you will have to decide whether: your business will offer a different enough range of products to enable you to compete against the supermarkets

6 demand will be high enough in your area to support your proposed business. If you plan to locate in a rural area there simply may not be enough customers, unless you are aiming at a seasonal, tourist market your local economy is healthy - if your area has been unlucky enough to suffer from many business failures and factory closures recently your customer base will be looking for the cheapest possible source of bread It may be that you can take advantage of demand for take-away sandwiches and either offer sandwiches yourself, or supply bread, rolls and baguettes to local sandwich bars. Bear in mind that people are looking for cheaper options in the current economic downturn and many bakeries have introduced budget ranges of goods like sandwiches and pastries. Some craft bakeries were forced to close down during the closing years of the 2000s because of the difficult trading environment. Keeping up to date with developments Joining a trade association is an excellent way of keeping up to date with developments in your industry. The National Association of Master Bakers (NAMB) and the Scottish Association of Master Bakers (SAMB) represent craft bakers in Great Britain. Contact the NAMB, 21 Baldock Street, Ware, Herts, SG12 9DH. The Scottish Association is at Atholl House, 4 Torpichen Street, Edinburgh EH3 8JQ and produces an annual Yearbook and a Newsletter for members. The Federation of Bakers represents the interests of plant bakers and has useful information about the baking industry on its website. British Baker is a weekly trade magazine aimed at the whole of the bakery sector. You can subscribe to British Baker on the bakeryinfo website. Trade Shows You will be able to obtain a lot of useful information if you go to a trade show or exhibition for the bakery or catering sector. You will be able to speak to specialist oven manufacturers and find out which type and size of oven would be most suitable for the type of business you have in mind. If you are planning to offer sandwiches it is important to do as much market research as possible on the sandwich bar sector. What to sell You may decide that, despite the supermarkets' increasing dominance in the bread market, you will be able to produce loaves that are different enough to attract lots of customers. Alternatively, your business may be in an area that is sufficiently far enough away from a supermarket that customers will choose to buy their bread from you, particularly at weekends.

7 Three-quarters of all bread sold in the UK is white, with brown and wholemeal bread having a much smaller share of the market. So if you plan to produce traditional loaves it would be a good idea to bake greater quantities of white bread as this is the most popular. Many smaller craft bakers have diversified into producing speciality and continental breads such as rye breads, fruit breads, cheese and seed breads, sour dough, soda and wheatmeal breads, ciabatta, focaccia and so on. One of the challenges facing the bakery industry is to persuade people to eat more bread - these speciality breads are popular for sandwiches and snacks or to accompany a main meal. The added bonus is that they are also more expensive than standard loaves. Think about whether these types of product would be popular with customers in your area. Other bakery goods to consider include what used to be called 'morning goods' such as: teacakes, buns, scones and pikelets crumpets and muffins rolls and baps croissants, bagels and brioches These are popular because they are 'impulse buys' that tempt customers at any time of the day. Also, rolls and baps continue to be popular for making sandwiches or having with burgers. At different times of the year you'll probably produce seasonal items like mince pies and hot cross buns. There might be regional specialities you could offer, like bara brith or ginger parkin. You might decide to concentrate on confectionery items, like individual and family cakes, pastries and tarts. If you have the appropriate skills you could offer a range of bespoke celebration cakes for weddings, anniversaries and so on. Lunch time trade Lots of workers buy something for their lunch rather than making sandwiches at home. You could offer a range of sandwiches, filled rolls, baguettes and baps as well as savoury products such as sausage rolls, pasties, quiches and similar items. If you have enough space you might offer jacket potatoes, hot drinks, soup and cold drinks as well. Trade sales Bread, bakery products and sandwiches are sold by lots of different outlets and it might be worthwhile targetting these outlets as potential trade customers for your business. You could offer them an exciting range of breads and rolls so that, in their turn, they can offer their own customers new products. Don't forget that catering establishments of all sorts and sizes need to buy bread, rolls and other bakery products. Why not put together a sample pack for their buyers to taste? This may lead to regular orders.

8 Customer profile Your market You might have several different types of customer, depending on the nature of your business. For example: members of the public who call in at your bakery or who buy from your mobile shop. Many of these might be local workers local businesses such as restaurants and hotels trade customers such as retail outlets who sell your goods on Estimating the average 'spend' When estimating your income you will need to think about the number of customers who will buy from you and how much they are likely to spend each time they come in. Your market research will have helped you with your estimate of the number of customers you are likely to have. Estimating how much they will spend is more difficult. You may have noticed while you were in other bakeries how much people spend on bread and other products. According to government statistics, during the late 2000s the average household spent 2.40 a week on bread, and a further 2.90 on bakery items like buns and cakes. Bear in mind that 1.50 of the amount spent on bread was spent in the supermarket, as was 2.00 of the amount spent on other bakery items. Trade sales If you are planning to sell to trade customers it would be a good idea to approach some as part of your market research and establish: what items they would want, and how many of them how frequently they would want them whether they are happy with the prices you would charge This will help you to estimate your trade customers' average spend. Cash or cheque Your customers may pay you: in cash - this will be the most likely form of payment if your customers are mainly members of the public, because the 'average spend' will be quite low with a luncheon voucher (if you join the Luncheon Vouchers network) by cheque - account and trade customers often find it convenient to pay by cheque, although many small retailers do pay suppliers in cash

9 by debit or credit card - only if you decide to accept them. This might be worthwhile if you offer high value products such as bespoke celebration cakes Special offers and discounts You might decide to offer bread and other bakery lines at half price at the end of the day to reduce wastage. Don't forget to monitor this carefully - you don't want all your regular, local customers leaving their bread purchases until late in the day so that they never pay the full price! Don't forget also to brief your staff on which, if any, customers are entitled to a discount and how much. Guard against staff offering unauthorised discounts to their friends and relatives. Work out how much discount you will allow to your staff and what, if anything, they can eat on the premises free of charge. Make sure they know your policy on giving away free bakery items - for example to children and toddlers. Advertising your business Whoever your customers will be it is essential that they get to know about you. There are a number of things you could do to promote your business: have a leaflet printed outlining the range of bakery items you will produce and distribute this door-to-door advertise in your local newspaper and any other local publications buy space in a local directory. This might be online set up your own website which includes pictures of your most tempting product ranges. Update the site frequently to display seasonal goods, special offers and so on make a feature of your window display to boost impulse customers place a sign on the payment outside your shop leave publicity materials with a related outlet - for example a bridal wear outlet might display details of a local wedding cake business offer sample tastes of new product lines to your retail customers bake samples for potential trade customers to try make sure all your packaging carries your logo, which should indicate the type of bakery goods you offer Services offered Organising the day Each day you will prepare a baking list for the following morning, setting out which items must be baked and how many. Some items, such as bread, morning goods and savoury products, you will make every day, because customers only want freshly baked products and the demand for these items is fairly consistent throughout the week, although be prepared to bake more loaves on a Saturday. (It

10 may be that demand for bakery goods varies depending on the time of year. For example, you might bake many more rolls and baps during the summer because people cook burgers on their barbecues.) Other items, for example family fruit cakes, will keep well for a few days, so you would only make more when you had sold out. You may make some items only to order, or only on a Friday or Saturday, when demand is heaviest. The early part of the morning is devoted to baking the items on your baking list. You might start with the bread and then get on with other bakery products. You would aim to have most of your goods baked and on the shelves by the time you open your doors at, say, 9 o'clock. You might carry on baking some items during the morning. For example, some bakers aim to have pasties and savoury products ready at lunch time so that customers can buy them while they are still warm. Trade deliveries You will probably aim to deliver to any retail customers shortly after they open so that they can sell fresh bakery goods all day long. If you have restaurant customers which only open in the evening you may agree to deliver to them in the afternoon, when you are less busy. Lunch time trade If you plan to sell sandwiches the mornings will be used to prepare ingredients and make up the sandwiches. Don't forget that if you make them in advance you must comply with food safety legislation regarding the storage of perishable goods. Discounts You will want to keep your wastage to a minimum so you might consider discounting the price of bread and other products with a short shelf life during the last hour or so that you are open. Prepare from scratch or bake-off? If you prepare all your bakery products from scratch, you use your own recipes and you can establish a reputation for your own ranges. The downside is that you and your bakers will have to get up very early in the morning in order to prepare and bake all the goods. You will also need big enough premises in which to: store flour and other ingredients that you buy in bulk undertake all the preparation and baking processes accommodate all the different items of equipment you will need Bake-off products have been prepared by another, specialist firm and are supplied to you either chilled or frozen. You then finish them off in your bakery.

11 The advantages of this method include: much less preparation time, so baking can start later in the morning less wastage of ingredients during preparation smaller premises can be used less preparation equipment is needed good quality product ranges are available However, because more and more retail outlets such as petrol filling station forecourt shops and convenience stores are installing these bake-off systems, there is a danger that your products will not be seen as sufficiently different or unique. You might consider having a mix of products baked from scratch plus some bake-off products and some pre-mixes (such as cake mixes). This might speed up your production but also ensure that customers come through your doors rather than the c-store down the road. Quality standards Whichever bakery methods you choose, remember that customers have grown used to the high standards set by the supermarkets and it is important that your premises are clean, smart and professionally fitted out.