Natural disasters can wreak havoc on a bakery's profits, but they can also make it better by forcing the owners to seek out new business. Paul's Pastry Shop found itself in just such a situation after Hurricane Katrina. The bakery was in the midst of constructing a new facility when the hurricane hit. “We had a long time getting built. We had 10 months longer than we expected to get into this building because we couldn't get people here to build it,” says Sherri Paul Thigpen, second-generation owner of the full-line retail bakery in Picayune, Miss. “It very much put a strain on us financially because we didn't plan on having a note on this place and not be open. I think that you have to go out and look for business sometimes.”
The financial set back forced Thigpen and her husband, Robert, to get creative in making up for lost ground. “You really have to start thinking outside the box as far as marketing goes,” she adds. The bakery starting using the state's welcome centers, attaching brochures to the visitor cards the center hands out.
It also began holding customer contests for free t-shirts and products. When customers enter the contests, they supply their e-mail address or fax number, which the bakery then uses for its weekly specials flyers. “We try to make sure that all of the specials are on our higher profit items, so we are still doing okay on them,” Thigpen says. The bakery currently has about 10,000 e-mail addresses from around the country and 500 fax numbers. “We didn't just start collecting numbers and addresses, but we started building on it. It's some of these kinds of things that you have to look for and take advantage of.”
The bakery also is looking for additional revenue in the casinos that are being rebuilt along the Gulf coast. Thigpen hopes to gain some additional wholesale accounts once they open.
With the current economic situation, pricing becomes very important. Thigpen keeps a close eye on ingredient costs as well as energy costs. She is meeting with the electric company to do a feasibility study to make sure the bakery is doing everything possible to save energy. Paul's raised its retail prices last August and then again in March. “We're checking them weekly. It's very difficult to go out and raise all your prices in one day,” Thigpen says. When the bakery raised prices in March, she made an effort to raise them high enough so she wouldn't have to raise them again for a while. “I'm one of those who hates to do it, and it was just that we had to,” she adds.
Right now, she is looking at the most profitable products the bakery makes and how she can extend those product varieties and cut back on some of the lower profit items. “If you look at what you're making a profit on, then make two or three different products from that item, you can still have a selection for customers, but keep your profit margin where it needs to be,” Thigpen says.
She also ensures her product quality justifies the retail price. “We're even surprised at some of the things we're able to put out and sell at a certain price. As long as the quality is there, and your shop has an atmosphere that says quality, I think the customers are willing to come. They understand that it is part of the price.”
“You have to look at every cent,” says Sandy Polletta, who owns Edgewood Bakery in Jacksonville, Fla. with her husband, Gary. “We are a cents business. People look at it like that; they don't look at it like they are going out and buying a TV.”
With the current economy, every cent becomes even more important. Edgewood has raised prices several times recently, and most customers take it in stride, Sandy says. The couple used to look at prices every six months. Then it became every three months, and now the Pollettas check on their pricing monthly, Gary adds. “I'll tell you how bad it's getting; we're going from a printed sign to a magnetic sign because we have to change prices so often. It's a sad thing to have to do, but if you don't stay up on your commodities and your costs, you won't be in business.”
The products customers buy daily are what they really notice the price increases in, and they often will only pay so much for a product like a donut or breakfast pastry. Sandy suggests streamlining those products, and also trying to make up those potential lost profits on the products with a higher margin item, such as decorated or wedding cakes.
Impulse items also tend to be higher profit margin products. “If you have a product that you know is perceived to be more valuable and more exciting, you can actually have a larger profit margin on it, and make up for things like bread that you can't always do a large profit on,” she adds.
The Pollettas also do a production run list and inventory of product every night. The goal is to hit between 2 percent to 5 percent stales, and the lists are beneficial in ensuring that the right amount of the right product is in the showcases at all times. If the bakery runs out of a product at 10 a.m., the lists help determine if the bakery needs to make more or if it is just a breakfast item that is OK not to stock in the afternoon. The lists also help take into account the day of the week and what to expect around holidays. “They are a bit time consuming, but you can train your managers to do them. It's dollars and cents, and that is so important,” Sandy says.
One area that cuts into profits for many bakeries is packaging, Sandy says. “Packaging can eat you alive,” she adds. “Sometimes when you look at a product, and you think, ‘oh, I can just put it in a bag,’ but those bags cost money; boxes cost money and plastic costs a lot of money.” Tailor your products to the packaging you already keep stocked. If you're adding a new item, size it so you don't have to use special packaging.
Diversification also can mean the difference between staying in business and having to close up shop. Keeping up with the trends is key; Edgewood recently added catering and sandwich platters, and it will soon add a breakfast line. “The main thing is not just to sit back and let the business go,” Gary says. “If you're doing today what you did last year, you're out of the picture.”
“It's kind of like Disneyland,” Sandy adds. “You always want to add something to keep customers coming back to see what is new. And, you have to charge enough for your product to make people realize that you're proud of your product; that you stand behind your product. There's an old adage that people don't appreciate things unless they pay for them. We've found that to be true.”
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