“During this economic downturn, which seems to be ebbing for us, I realized three things were going to happen: number one, the cost of raw materials was going to go up; number two, our volume of sales was going to go down; and number three, I wasn't going to be able to raise my prices,” says Charles Feder, co-owner of Rossmoor Pastries, Signal Hill, Calif. In order to combat these market issues, this specialty wholesaler made some key decisions to stay ahead.
He had recently added 5,000 sq. ft. of storage space to the bakery, which enabled him to buy a truckload of flour at a lower price, and when he saw that the price of sugar was spiking, he did the same thing. “I try to stay ahead of the market by using my capital,” he adds.
Feder is very mindful of raw material costs, even making purchasing its own profit center, and he ensures he gets the best price by continually checking the market. But managing material costs alone was not going to be enough to keep profitability up during the recent recession.
Equipment purchases, such as an automatic sheeter, croissant line, depositor and fondant sheeter, helped keep the cost of operations down. “I brought in some new equipment to try to keep my payroll in line,” he says. “I didn't want to take money away from my people, so I kept my volume high by bringing in a salesman.”
The wholesale side of the business, which accounts for 50 percent of sales with wedding cakes adding 25 percent and retail the remaining 25 percent, had shrunk by 70 percent, Feder notes. By adding a salesperson, the bakery gained enough sales to keep 2009 a little ahead of 2008, and sales continue to rise. “Purchasing carefully and bringing in equipment so the same staff could make more product made all the difference in the world,” he adds.
The bakery also keeps costs in line by using CNG (compressed natural gas) delivery vehicles. Rossmoor Pastries has its own compressor, and its 12 CNG vans use about 70 gallons of natural gas a day. Feder estimates he saves about $2.10 a gallon. Factoring in the three years of use, he has saved almost $300,000. The vans also have access to HOV (high-occupancy vehicle) lanes, and in Southern California traffic, that greatly reduces the time his drivers spend on the road, which also helps keep his payroll down.
Simply cutting costs or watching prices often is not enough. “If you want to cut costs, that's one thing, but if you want to sell more and have a higher volume and get a better price, which reflects in your profitability, then the best approach is to be creative and clever,” Feder says. “If your cost per item can go down because you sell more of it, I'm all for that.”
For example, cupcake bakeries surround Rossmoor Pastries. So, Feder and his staff created wacky cupcake flavors with corresponding crazy names, such as Funky Monkey, Rumblina and Hula Hula, to drive cupcake sales. For the recent Lakers NBA playoff series, the bakery offered a Lakerlicious cupcake, which featured white cake injected with white chocolate mousse colored purple and topped with yellow icing and a Lakers logo.
“What happened that week was we had a couple extra grand in sales because of them, and my cost of operation goes down,” he says. “I would rather think positively without taking my eye off the ball as far as cost is concerned. You make your costs go down if you keep your volume moving up.”
Properly pricing products can be a guessing game for any bakery. When 50 percent of your sales are from decorated cakes and wedding cakes, maintaining profitability is a constant struggle. And when 90 percent of those cakes are custom orders, the challenge becomes even greater. Rick's Bakery, Fayetteville, Ark., faces that struggle daily.
To establish a rhyme and reason to cake pricing, the bakery is implementing weekly meetings between the order takers and the head decorator, co-owner Rick Boone says. The purpose of the meetings is to go over the previous week's orders to keep the pricing of designs consistent with labor costs. “When you have people who have been trained to just take orders, but have never decorated, what they feel is difficult might not be, and vice versa,” he adds.
For other products, Boone uses the bakery's POS system to track inventory and costs. The bakery flags certain items, such as nuts, sugar and shortening — anything that fluctuates in price regularly. Boone watches flagged items more closely than other ingredients, and if it looks like the price will remain high for the long-term, he adjusts the bakery's prices. “If it lasts for only a few weeks and goes back down, then we will absorb those costs because I don't like adjusting my prices every few weeks,” Boone says.
Boone reviews category pricing every quarter, and if ingredient prices have fluctuated greatly over the previous quarter, then he adjusts prices to make up for the loss. He is cognizant of not pricing his products out of the market; however, he has found that certain products sell better if they are priced slightly higher than competitors'.
In another move that seems to go against logic, Boone often raises the price of a product by about 25 percent before he discontinues it, and about 80 percent of the time, sales volume goes up enough to make it worthwhile to keep offering the product. Customers seem to perceive that product is higher quality or just “better” because the bakery is asking more for it, he adds.
To keep labor costs in check, Rick's Bakery is divided into about 10 different departments, and each department is assigned hours based on percentage of sales, which ensures departments are given the correct amount of hours for their peak periods. Each department has its own manager with two to six employees. “I've given the managers the opportunity to make their department grow. I want people to buy in and take ownership. It's seemed to work well for us,” Boone says.
Rick's Bakery also offers a variety of items aside from bakery products. Boone began a deli counter a few years ago, and that business has taken off. About 10 years ago, he began to focus on making the bakery a destination. “We are a bakery, but you have to have a hook to bring people in,” he says. “I may have the best Danish in town, but are people going to drive clear across town to buy the best Danish in town if they can get it at the supermarket when they're shopping?”
They will if they have another reason to go to the bakery, and Boone tries to ensure they have every reason in the world to come. He seems to be succeeding. “This year we are going to have a double-digit increase,” he says.