Are you contemplating starting a bakery business and want to know the pros and cons? If YES, here are 10 advantages and disadvantages of opening a bakery.
According to industry reports, the annual revenue for the retail bakery industry is over $3 billion, and in the small commercial bakery industry it is around $7.5 billion. This clearly tells that the bakery business is a very profitable one especially when you can consistently provide your customers with quality products, and engineer innovative strategies to reach them.
Bakeries are known to make a certain amount of profit per item sold. In many bakeries, the revenue from beverages, including coffee, tea, juice, and other specialty drinks, is even greater than the profit from baked goods themselves.
A typical bakery in the united states brings in anywhere from ,000 to ,000 in annual profit from the sale of baked goods. Ones that sell beverages, including coffee or juice, are able to bring in considerably more revenue, as it is easier to mark up these products. For example, a glass of juice that only costs $0.40 is commonly sold for around $2.00.
Individual baked goods generally range from $2.00 to $5.00, depending on the cost of ingredients and also the demographic where the shop is located. In general the cost of labour and ingredients should be around 30 – 50 percent of the final sale cost. This means a treat that costs $1.50 to make could sell for anywhere from $3.00 to $4.50.
5 Advantages of Opening a Bakery
In the United States, bakeries are well loved because they spell warm, fresh bread and other baked goods; something that stirs hunger pangs. To further explain why you should consider this business, below are top benefits of opening a bakery.
You Can Start Small and Save on Capital Costs
Unlike other businesses, a bakery doesn’t necessarily take up much space. All you require is a good space for production that is enough to prepare and bake your products. An ample space where you can display your products will suffice.
You only to ensure that the place is squeaky clean to avoid contamination. If you are starting from home, then you can also save on capital costs. Just a little construction of shelves, counter, cabinets, etc., and your bakery business starts. You do not need to worry about monthly rental fees, but, of course, you have to comply with the licensing requirements.
A loyal Customer Base
Once people try your baked goods and they enjoy them, then you will be establishing a brand loyalty automatically. Any time that a customer is close to your bakery and smells what you’re baking, he or she will be ringing through your door. Over time, as more customers give your bakery a try, you will be able to establish a base of local customers that will frequent your business when they have a need for your goods.
Product Specialization and Creativity
Indeed, the market for baked goods can be quite huge. However, you can choose to focus on a particular product line such as cookies as your primary product. You can invent different cookie recipes and come up with different package displays to entice more customers to patronize your shop.
You can challenge yourself by creating new recipes and inventing new products to improve sales and customer satisfaction. You can express your ideas by experimenting on different ingredients and incorporating different styles in decorating your products.
A Sustainable Market
A bakery is one business that is hard to resist because bread, cake, and pastries are everyone’s comfort food. People of all ages and races eat bread. It has also long been considered recession proof, especially since people have to eat and a large number of persons enjoy and are willing to pay for fresh products.
Baked items are comfort foods that can be prepared very nutritious and tasty. You will likely be able to attract customers and establish repeat business in your local area so that you can sustain your venture.
Potential for Growth
Another advantage of opening a bakery is that you can also decide on how to expand your business. Sometimes there is the opportunity to move into a larger area or to add on to your present facility.
Even if you do not enlarge the physical size of your bakery, you often can increase the number of different products you offer and the amounts you bake in a session. Although thorough monitoring of sales and considering the prices of ingredients are pertinent in determining if or when to expand.
5 Disadvantages of Opening a Bakery
Agreeably, the bakery industry is a multi – billion dollar market, but it is not without its weak areas. Bakery products are perishable so there is a risk that you will have a lot of wastage if your products do not sell, and staffing may present an ongoing problem. Below are few disadvantages of opening and running a bakery.
- Intense Competition
The bakery industry is large and diverse. There are large bakeries that mass – produce the most popular baked goods, including many small snacks. There are also small bakeries that focus on artisan baked goods, including breads and many other kinds of pastry.
However, a viable strategy you can use to grow your own bakery business is to make artisan baked goods that people won’t easily find elsewhere and having a menu that caters to special diets. Note that with the health consciousness spreading around the country, bakeries that make bread for a gluten – free diet are in demand.
- Multiple Levels of Regulations and Compliance
Once you plan to sell food products in the United States, you are expected to excel the regular health and safety inspections at your business. You will need to have the standard business license. You may also be required to collect sales taxes or meet other specific licensing needs in your community.
Also specific certifications regarding your skills as a baker may even be required to start this business. Although not every business faces such scrutiny, be aware of this before you begin the process of starting your business plan.
- Small Profit Margin
When you consider the labour and utility costs of baking your preferred goods, there is a probability that your profit margins on some products could be under 5 percent. In this industry, a standard calculation for pricing is to set prices at 4x of what the cost per product happens to be.
If it costs you $1.50 to make a loaf of bread, that means you’d be charging $6 per loaf and that just isn’t in the budget of many households today. Moreover, price fluctuations happen to any business that is seasonal.
As it turns out, this is exactly the nature of many of the raw materials that are used by a bakery. They tend to experience price fluctuations from one season to the next and also from one year to the next, with some of these price fluctuations being quite extreme.
These price fluctuations can have serious consequences for the bottom line of a bakery business, as profit margins become slim, and sometimes the bakeries are forced to pass some of those costs on to the consumer, to avoid going out of business.
However, a common way to avoid the risk of price fluctuation in your bakery business is to negotiate contracts so that you buy all of your raw materials in bulk and at fixed wholesale prices.
- High Price of Ingredients
Just the prices of butter or olive oil tell the whole story at this point. In this business, you will have to buy these ingredients before any baked goods are sold, which means you need cash-on-hand every day.
There is also no guarantee that you will sell all of your baked goods every day, which means you could be out a lot of inventory without revenue and still need cash to pay for more. Baked goods are perishable inventory so if you don’t sell the bread today, it has to be marked down tomorrow.
However, it still costs the same to bake. Knowing exactly what your baked goods cost to produce gives you a better idea of what price to charge for them. If finance is not your strong point, hire an accountant to set up your accounting system and show you how to use it.
- Unfriendly Working Hours
In this business, if you want to serve fresh baked goods for the morning commute that begins at 6:30am, then you have to start baking by 2:30am. This means you will get less sleep and stay awake when most people must be resting. You can’t always mix your dough the night before for certain products, so there is no getting around this fact.
The various advantages and disadvantages of starting a bakery show that it can be a difficult to achieve success. Your best bet is to research and analyze if your community could benefit from having a bakery. It is their support that will keep you in business.
If there is not a high demand, then the risks may be too great. Howbeit, if baking is your passion, a bakery business is a good outlet. Armed with commitment, dedication, and hard work, there is no doubt that your business will be a success.