Starting a Bakery or Bakeshop Business Guide

Bread is one of mans earliest food. Today it is considered a staple food in most Western countries and is part of the diet of almost all people all over the world. Commercial baking and the other industries supporting it have become big business and constitutes a large slice of the food industry. There are several advantages that a bakery business offers a new entrant. One, he is free to choose his market. Two, it is not difficult to find a good location for a bakeshop. Since bakery products are considered as a daily consumable, any populated area is a good place for a bakeshop. Three, there are hundreds of bread varieties that can be adopted by a bakery to satisfy the taste of his consumers. Fourth, the industry enjoys continuous growth. One of the beauties of a home bakery is that you dont need a heck of a lot of equipment to get you started. Just a stove, a few pans, some ingredients and that special recipe. If you want to get a little fancier, youll find a timer (to keep you from over or under cooking an oven full of goodies on those busy days when youre preoccupied with more than you can remember) well worth its small investment. INDUSTRY NOTES

o o o

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. BEFORE STARTING

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.

o o

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 premade mixes available from millers and bakery suppliers. Other Bakeries growing in popularity, specializing in cookies/muffins/bagels. HUMAN RESOURCES

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. LOCATION 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 bakerys character and the sight and aroma of freshly baked goods can entice people to buy, especially on impulse:

o o o o

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 Advertising aims to inform and create interest. Bakeries should stress convenience, specialties and service. Three methods can be effective:

o o

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. PRICING

o o o

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

o o o o o o o

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.

o o

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.

Starting a Business: Pandesal

Investment Requirements: (All price are in Php based on 2007 market price.)

o o o o o o

Measuring cups/spoons (plastic or stainless steel) 152.50 Spatula 61.00 Stainless bowl #32 (2 pcs) 427.00 Dough cutter 53.50 Plancha 64.75 Cheesecloth 25.50

Subtotal P 784.25 Equipment:

o o o o

Weighing scale (for spices 0-1 kg) 334.00 Dough kneader 83,853.00 Oven (8 planza-thermostat) 45,738.00 Working table 15,246.00

Subtotal P 145,171.00 Raw Materials/Ingredients:

o o o o o o

Bread flour (50 kg) 1,372.00 Water (27.5 kg) Refined sugar (9 kg) 383.75 Vegetable shortening (2.5 kg) 156.50 Salt (0.86 kg) 9.00 Instant yeast (0.38 kg) 133.50

Subtotal P 2,054.75 Procedure One of the methods in bread making is the straight-dough method. The procedures are simple and can be done in your own home. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Preheat oven at 175C (350F) Mix all ingredients. Knead the dough, place in bowl, cover with damp cheesecloth and leave for two hours. Punch dough to remove air. Divide the dough into 16 equal portions (about 550 grams per piece). Form each dough piece with approximate length of 30 inches per piece. Rest dough for 45 minutes. Cut dough into 20 equal portions (about 27.5 grams per piece). Roll in breadcrumbs and arrange on baking trays in cut side up manner. Proof until double in size in warm and moist proofing cabinet (about 32-34C with 85% relative humidity).

11.

Bake for 12-15 minutes or until golden brown.

Product Costing (average produce of pandesal for 50 kg is 3,260 pcs) a. Direct Cost:

o o

Raw materials (50kg flour) 1,372.00 Ingredients used for 50 kg 682.75

Total: P 2,054.75 b. Indirect Cost:

o o o o

Labor cost (350.oo/day) 350.00 Transportation 100.00 Water & electricity 55.00 Contingency (10% of direct cost) 205.47

Total P 710.47 c. Production Cost:

o o o

Total direct cost 2,054.75 Add: Total indirect cost 710.47 Total over the 3,260 pcs yield 2,765.22/3,260.00

Production cost per piece P 0.84 d. Product Pricing:

o o

Production cost per kg 0.84 Add: 10-20% markup of the production cost 0.17

Selling price per piece P0.98 Market price P 1.00 Note:

o o

The higher the volume of production per day (i.e., more than 3,260 pcs.), the lower the production cost, thus increasing the markup to more than 50%. If price per kg is lower compared with the existing market price, increase the markup to 30% or more.