The baked goods industry has had its fair share of ups and downs over the last few years, including geopolitical influences, pandemics, and labor workforce issues.
We delve into five key issues impacting profit margins in the baked goods industry and discuss how addressing these issues might help improve profit margins.
Inaccurate pricing
The most common issue is setting prices based on guesswork or competitors’ charges, rather than understanding costs, including ingredients, labor, overheads, and crucially desired profit margins. Pricing uncertainty can lead to lost revenue or missed opportunities. A high-low pricing strategy, where prices fluctuate, can confuse customers and make them feel cheated, so it is crucial to get the strategy right. Pricing items based on cost and perceived value to the customer, while adapting to market conditions and cost fluctuations, is key.
Inconsistent product quality
Experimenting with new recipes or substituting due to ingredient shortages can result in variations in product quality, potentially leading to customer dissatisfaction and decreased sales. Not having an accurate weighing and measuring process, or using different batches or variants of ingredients, can lead to varying protein content, for example, which can cause problems with the final product itself. Ensuring a consistent and clear operational process can minimize these issues.
Excessive waste
Food waste continues to be a challenge for big and small market players. Overproduction, spoilage due to poor inventory management, or throwing away unsold items can significantly impact profitability. Substantial amounts of edible food being discarded also significantly affect the environment. Improved inventory management, donation programs, repurposing leftovers, and implementing sustainable packaging can all be ways to address this long-time industry issue. Maximizing technology or apps that allow customers to purchase discounted goods at the end of the day (Too Good to Go) is also an effective way to reduce the problem.
Inefficient inventory management
Not having a system to track inventory leads to ingredients being out of stock, which is another pain point for baked goods professionals. Overstocking, poor forecasting, and inadequate storage contribute to foliage and financial losses, all of which are outcomes of poor inventory management. Whether perishable goods, demand fluctuations, or physical space constraints, taking a real-time and long-term view of planning is the best way to mitigate these pressing matters.
High payroll costs
High staff wages often represent a substantial portion of bakery costs. Many factors are at play, including labor shortages, rising minimum wages, and the complexity of production, which can be labor-intensive. This may mean bakeries need to adjust their pricing strategies to maintain profitability while striking the right balance and not hurting customer expectations.
Check out our report on Mastering Bakery Ingredient Volatility
