If you have a knack for cooking and have been considering the option of opening your own place, there’s no shortage of options to pick from. As long as you know how to maintain an organized kitchen and know how to set your expectations accordingly, it’s worth pursuing this idea. Keep in mind that restaurants of all types tend to be challenging to run and stabilize, so you should be prepared for a tough first few months.
Among the various ideas you can pick from, bakeries have been enjoying a noticeable surge in popularity over the last few years. Are bakeries profitable though? And is running one more difficult compared to other similar types of businesses? Here’s an overview of what you can expect from running your own.
Are Bakeries Really That Profitable?
Bakeries are quite profitable when handled correctly. With more than 6,000 bakeries operating in the country, the average annual turnover is above $400,000. This is an impressive figure for any type of restaurant business, and bakeries have a few unique advantages over others that allow them to be very profitable. It’s better than what you can expect to get from various other types of similar businesses, like an ice cream truck.
Profit margins usually fall in the 5% – 20% range. 20% is a bit of a rarity in this field, and you should aim for 10% – 15% as a more reasonable estimate. If you see your margins dipping below 10%, that’s not a good sign for the profitability of your bakery.
What Are the Main Costs of Running a Bakery?
The costs associated with running a bakery are similar to those of other food establishments. You’ll have to invest in some equipment before you begin, and you’ll need to find a place to rent. Utilities and ingredients will make up the majority of your expenses if you decide to do this alone instead of hiring help.
Finding a place to rent shouldn’t be difficult in most cities. You should aim for something with a little more exposure as bakeries rely on a lot of foot traffic. Expect to pay anywhere between $1,000 and $5,000 per month in rent. While you can also rent a more expensive place, I don’t recommend that for your first bakery. You should give yourself enough time to become familiar with how the business operates before making more significant investments like a larger place.
You’ll be buying a lot of flour and butter above everything else. The rest depends on the types of goods you want to bake. Try to keep your menu limited at first so you can avoid spending too much on ingredients and other supplies. And when you do decide to expand, focus on items that have an overlap with your current selection in terms of ingredients. Don’t stock up on too many different items as you’ll quickly run out of inventory space and you also risk having some of them go bad.
It will cost you around $1,000 – $2,000 per month to keep the lights on. A bakery consumes a lot of electricity and water, so try to find a good deal on both if you can pick from different options in your area. There aren’t any real tricks for optimizing your expenses in this category. You will want to keep those ovens running all the time once business picks up, as it can actually cost more to cycle them off and on.
You should set aside at least $20,000 for your initial equipment. This includes ovens, refrigerators, mixers, and everything else you’re going to be using on a daily basis. Try not to go overboard here as you might end up not using some of those machines as much as you expect. At the same time, it’s a good idea to spend a bit more instead of going with the lowest offers on the market if you want to avoid some common problems with your machines for the first few years.
Don’t forget all the auxiliary equipment either. Have a terminal for card payments, invest in some quality lighting and air conditioning, and generally try to do as much as possible to give your customers a comfortable, welcoming experience. They will remember that and will come back.
You can run things yourself for a while if you’ve got some experience with baking. Otherwise, you will need to hire at least one person to help you out in the kitchen. Bakery employees usually don’t expect a very large salary, so you can expect to spend relatively little on them in the beginning. Try to be at least a little more competitive than other bakeries in your area if you want to retain good employees though. They will be invaluable in the long run.
A bakery is prone to all sorts of accidents, especially if you employ people. While insurance is not mandatory, it’s a good idea to invest in a policy that will keep you covered against fires, electrical issues, flooding, and various other problems that can arise in your daily work. You don’t have to spend too much on insurance to get a good deal that gives you adequate coverage. Research this market in detail before committing to any policy though.
Improving the Profitability of a Bakery
With the basics out of the way, let’s take a look at some more specific strategies for maximizing the profitability of a bakery. You can do a lot to increase your profits, but you should take things slowly and avoid rushing in with too many ideas at the same time. Otherwise, it will be hard to retain a realistic overview of what exactly is and isn’t working.
Optimize Your Ingredient Supplies
Like any other restaurant business, a bakery relies heavily on an optimized system for purchasing ingredients and other supplies. You want to always have the important stuff on stock, but at the same time, you don’t want to hold on to something for too long until it expires. It will be difficult to find the right balance, even more so in the beginning when you have no idea what sells and what doesn’t.
That’s why I encourage you to maintain detailed records of your supplies and track how everything is moving month to month. Having a good POS system will help a lot, but it’s only one part of the formula. You must also invest in a solution that allows you to reliably track your inventory without having to check on it manually every day.
Research New Products
Some of the most successful bakeries I know reached that point with constant experimentation. Bakeries are known for being open to innovation. You can frequently find new ideas for pastries and snacks in your local bakeries. Some of those catch on, others fade away and make way for different ideas.
You don’t need to be a creative genius to come up with some new products that could potentially sell well. Check what’s popular in your area and explore opportunities for blending different styles. The great thing about a bakery is that people don’t expect you to take your products too seriously in the first place, and having a little fun with experimenting is completely within the norm.
Offer Additional Services or Products
Have a place for people to sit down and eat and try to develop a nice, cozy atmosphere in your establishment. Offer some additional products too. Coffee is pretty much a staple of any bakery and people would be surprised if you don’t offer any. Look into selling newspapers, magazines, sodas, and other items that people might be interested in buying while they’re eating their morning snack.
Talk to your customers as well. See what they enjoy about your bakery and what they feel could be improved. You will sometimes get some very valuable insights from these conversations, and you will discover opportunities for improvement that were not that obvious.
Repackage Goods That Didn’t Sell
You will probably not be able to sell everything you’ve prepared on most days. A common tactic to work around that issue that many bakeries utilize is to repackage things from the previous day into goodie bags and sell them at a huge discount. For example, you can pack several small pieces of bread and croissants together and sell them for just $1 – $2. This will be especially popular if you work close to a college campus. Students are always grateful for opportunities to save some money on food.
Sign Up for a Program for Fighting Food Waste
See if a service like Too Good To Go is available in your area and sign up for it. These programs aim to reduce waste by allowing restaurants and other establishments to make use of things they couldn’t sell through the day, typically allowing you to sell them at a discount. One great aspect of these apps is that they relieve you of some of the burden associated with selling products, as they handle payments and other similar issues themselves.
What Are the Main Challenges of Running a Bakery?
Every business has its challenges, and bakeries are no exception. Running a restaurant of any type tends to be a bit risky, as I mentioned above. But don’t let those high failure percentages scare you off. In many of these cases, these issues could be traced to incompetence and lack of preparation.
That said, there are still some obstacles that you’ll need to deal with along the way, and you shouldn’t underestimate them.
Difficult Working Hours
One unpleasant fact about running a bakery is that you’ll be up before most other people every single working day. If you want to open at 8-9 in the morning, you will have to start preparing as early as 3-4 in the night. Once you’ve hired some help, this might not be that much of an issue as you can have them handle the preparation work. But until then, you should get ready for some very early mornings.
Controlling for Allergens and Other Problematic Ingredients
You will have to carefully inspect your menu to ensure you’re informing your customers about any allergens and other potentially problematic ingredients in your products. This will be easy at first when your menu isn’t that extensive, but it will quickly become difficult to control if you start expanding too fast. Being careless about this can quickly lead to significant problems with your business, so you have to stay on top of that point at every moment.
I touched on this above. Running a bakery involves dealing with expiring inventory all the time. You will have to get creative about your solutions to that problem. Sometimes you might be able to whip up an emergency batch of cookies to use some ingredients that were about to go bad soon. In other cases, you’ll just have to throw things out.
That’s why I emphasized the importance of tracking your inventory in as much detail as possible above. If you have a good overview of your purchasing and sales, you will have a pretty reasonable idea of what you should be ordering and will know how to avoid wasting food.
Frequently Asked Questions
Q: What other types of food businesses are lucrative right now?
A: If you want to cook and sell food, the market is quite good at the moment. If you don’t want to be stuck in the same spot every day, you can consider opening your own food truck. This comes with a bit more freedom than running a bakery, and can be quite the successful business if you play your cards right.
Q: Should I aim to create a large chain?
A: One of the most logical ways to expand a thriving bakery business is to open new establishments and turn it into a chain operation. However, you have to approach this with caution. While it can work very well under the right direction, it also carries some inherent risks. If you stretch yourself too thin, you risk seeing everything go under – including your original bakery!