Making a terrific product is no guarantee of success in any bakery. And, the business of wholesale bakery products is no different. The reality of wholesaling is that it is a numbers game. For retailers looking to expand through wholesaling, you have to know how much it is going to cost your business to make and sell more products. Whether you grow into wholesaling or set out with wholesale as your sole business, to be profitable a few critical issues need to be considered.
Peter Franklin of Peterbread Consulting Inc. has been in the bakery business for about fifteen years and a bakery business consultant for the past seven. He has seen a large number of retailers get involved in wholesaling as the result of an "ego scratch." Bakers often think, "They really like my bread, so I'll deliver it to them, and more people will like my bread," he says.
"It's better to do no business than it is to do bad business. And most bakers probably don't have the margins to play around with losing money," Franklin says.
For that reason, bakers need to address the costs of wholesaling, such as packaging, distribution (the largest expense), distribution labor (including the time to hire delivery staff), sales labor and invoicing labor (because you are now billing customers instead of them paying as they go). And, most importantly, quantify the time and labor involved in maintenance of the account.
Knowing costs allows you to set a profitable price for your products.
Bakers who do not take time to figure out their costs often set wholesale prices between 15 percent to 25 percent off the retail price. While very common, this practice is risky because you will not know until much later if the price you set will cover your costs.
"If you're going to be selling only 20 baguettes, and you're going to be losing money, then as much as it pains you to do so, saying no means you're going to be saving yourself money," Franklin points out.
However, making a rational business decision can include finding a creative solution to a problem and an alternative to saying no, he adds. For example, some bakeries work out arrangements with distant customers to have the customers pick up the product, saving the bakery from charging a prohibitive delivery fee. Or, he suggests, if you know the costs, you can decide whether you want to take on a distant customer and use that operating loss as an incentive to add more clients along the route. The key is knowing your costs.
Finding a market
For bakers who enter the industry strictly as wholesale bakeries, the key is to find a market niche you can fill. Bert Cohen and Scott Mandell, co-founders of Enjoy Life Natural Brands, Chicago, came to wholesale baking from investment banking. Their business was the result of a business plan they wrote for an MBA class. So, they had done their market homework. Enjoy Life sells baked products for people with dietary restrictions, food allergies and food intolerances.
Since the company began in 2002, it has grown to between $2 to $4 million in revenue. The company offers about 20 SKUs, including bagels, snack bars, cookies, chocolate chips, bread, granola cereal and a cereal line.
"We won't launch a product unless we're convinced that there's a market need for it. For us, it isn't, 'Well, we have equipment to do donuts or bread crumbs. Let's find a market for it.' It's all based upon finding a void and the feedback we're getting from our consumers. I don't think it is anything you haven't heard before," Cohen admits, "but that's what we've relied on so far."
After you find your market opportunity, Cohen says the next step is to surround yourself with good people who know the market and what they are doing. And, pay attention to your customers to figure out what they are looking for.
For example, Enjoy Life's director of marketing, Cindy Kaplan has food sensitivities, and therefore understands the market. Cohen considers her a big part of their success. "You've got to have a good product that meets a definable need, and she can, obviously, put herself in our consumers' shoes very easily because she's on this diet. She knows what they're looking for. She knows how to market to these folks."
For Charles Negaro, owner of Atticus Bakery LLC (dba Chabaso Bakery) in New Haven, Conn., his wholesale bakery grew out of a need to supply his cafés. He started with several bookstore cafés that made their own food, but quickly realized he needed a bigger facility to produce the baked products. He also believed there was market potential for really good artisan bread. So he "leveraged" his decision to start wholesaling by using his cafés as his first customers. He began in a 5,000-sq.-ft bakery and has since moved to a 30,000-sq.-ft. facility, producing fifteen to twenty different products.
Negaro says it was luck that he hit a niche at exactly the right time and in exactly the right place. In the mid-1990's, Negaro decided to call on a grocery chain headquartered in his area. The executives he met with liked the bread, but gave him the corporate runaround. It took him another six months of calling before he finally got another appointment. He walked in with another tray of artisan breads, and was welcomed heartily with the news that they were looking for that kind of product.
That led to a direct store delivery relationship in two stores, then five, then fifteen. Now, Chabaso delivers eight different types of par-baked products to the chain's 350 units in New England, New Jersey and New York. Negaro reports the two companies have since partnered on various projects. He also delivers bread to another, smaller specialty grocery chain with locations in Connecticut, New York and New Jersey.
If you offer your products branded, Negaro recommends paying close attention to the retailers' handling process to ensure that the product you deliver is the product the consumer buys. To that end, he recently put two full-time people into the field to "put a face on the product" and provide any assistance retailers might need for consistency of execution.
Kenny Munic and his sister, Staci Munic Mintz, co-own the Chicago-based bakery wholesaler, Little Miss Muffin. Munic who notes, that Enjoy Life Natural Brands' Bert Cohen used to be his banker, says the key to success for Little Miss Muffin has been knowing what works, sticking with it and being able to communicate.
"It's all about finding out what works for you. I'm willing to try anything once. And I'm willing to hang in there to see if it works. But at the same time, if it's not working, you have to be willing to pull the plug. You've got to communicate to the customer right up front about how you can work together to make it work."