We feel like a broken record saying that the hospitality industry has been facing its challenges recently. You’re probably bored of hearing it — you know firsthand that it’s tough.
But we’re here to say that it’s not all doom and gloom!
In fact, the bakery sector is one of the few to maintain volume growth in 2024. Plus, an additional 1,000 outlets are expected to open in the UK each year between 2024 and 2027. Coffee shops, bakeries, and sandwich sites are predicted to lead the expansion. 💪
So now the question is:
How can you overcome the challenges bakeries are facing and be part of the industry growth over the next few years?
You’ve come to the right place for answers. In this article, we outline four of the most common challenges bakeries are facing right now — and more importantly, how to overcome them.
1. Increasing prime costs
It’s no secret that costs have been rising over the last few years.
Inflation has caused prices to climb across the board, and bakeries are feeling its impact. Research from the Craft Bakers Association found that 88% of members surveyed found the cost of ingredients to be challenging in 2023, and 68% cited rising energy costs.
And with the increase in the minimum wage this year, bakeries are spending even more on labour costs than ever before.
So how do you minimise costs in a world where everything’s getting more expensive?
Here’s a clue: There’s a reason why 56% of bakeries are looking to invest in new technology.
That‘s right — you guessed it. Technology can help you tackle rising costs. How? By giving you instant access to key performance data. You can see how much you’re spending, where your funds are going, and identify ways to cut costs.
Take a look at Nory as an example. With our AI-powered operating system, you can optimise your scheduling to minimise labour costs.
Nory creates accurate sales forecasts based on your historical data. This means you can predict customer demand and optimise your labour scheduling accordingly.
Think how much you’d waste paying a full team of staff on a quiet shift. We dread to think about how much of a dent that would make to your profits. 😰
With Nory, this won’t be an issue. Our software prevents overstaffing during quieter periods, which minimises your labour costs and makes a significant impact on your margins.
Nory success story 🥳 Find out how Roasting Plant Coffee cuts labour costs by 18% in just two months of using Nory! With our real-time data, they can create optimised schedules to avoid overstaffing, reduce labour costs, and increase profit margins.
Our general managers love Nory for the ordering, the forecasting, and the workforce planning. They all have only good things to say.
Kallie Kocourek, Vice President of the UK Market
2. Shrinking margins
With costs going up, it makes sense that margins are becoming tighter.
You’re spending more money on raw materials, but there’s only so much you can hike your prices before scaring customers away. In fact, 83% of hospitality operators are worried that increasing prices will alienate customers.
So what happens? Your margins get smaller and your profitability takes a hit. But don’t worry — here are some tactics to improve your bakery’s gross profit margins.
Tactics to boost bakery profit margins
- Identify new ways to bring costs down. If your costs are rising, take a step back and look at the bigger picture. Are there ways you can bring costs down to counteract an increase in prices? Perhaps finding a new supplier, or optimising your inventory orders to meet customer demand? Anything you can do to cut costs across the business will help secure your profit margins.
- Promote your most profitable baked goods. Pinpoint your most profitable menu items and promote them to your diners. Post it on social media, highlight it on your menu, or add it as special to draw attention to it. The more you sell your most profitable bakes, the better your margins will be.
- Always know exactly your bill of materials and food costs for each item. Keep a close eye on what you’re paying for certain items. If you miss any price increases, your margins will take a hit before you’ve even had a chance to make any changes.
- Increase prices tactfully. Raising prices can be daunting, but sometimes it’s necessary. If you’re strategic and tactful with your price increases, you’re less likely to scare your customers away. For example, increasing prices gradually and minimising the number of price changes at one time. Read our article about how to increase prices without scaring customers away for more tips!
Hot tip 🔥 Manually keeping on top of all these elements is tricky. Instead, consider using technology to monitor all your profit margins in real-time. With Nory, for example, you can track price changes in real-time, weigh up the profitability of each menu item, and set goals to measure profit margins over time.
Our system will also make suggestions and recommendations to help you cut costs and increase margins. For example, if you’re overordering ingredients, we’ll let you know.
3. Controlling excessive waste
Food waste is generally high across the hospitality industry, with bread being one of the highest food waste categories.
And it makes sense. The complexity and risk of production planning short shelf-life items can be tricky — a 2021 survey from Too Good To Go proves it. The research found that ready-made sandwiches are the most likely item to be wasted by bakeries.
And if you’re running multiple stores from a central bakery? It becomes even harder to reduce waste.
Think about it — for multi-location bakeries, the central bakery uses the most raw materials. This means that your central bakery is typically where you experience the most waste. However, this also means it’s where you can have the most impact in terms of food waste reduction.
If you can see what’s causing waste from your central bakery, you can minimise it. But to do this, you need a clear oversight of how much food is wasted, why it’s being wasted, and how to prevent it.
So what’s the solution? How do you prevent stockouts and excess waste from going to Too Good To Go?
Use a bakery inventory management system. Even though 71% of bakeries don’t have any stock management system in place to reduce food waste (🤯), it’s an ideal solution to this problem.
A platform like Nory, for example, can help you optimise your inventory in line with customer demand.
Our AI functionality analyses your historical sales data and external factors (like local events or the weather) to predict demand. Then, you can optimise your central bakery production planning to ensure you have the ingredients you actually need to serve the customers who walk through your bakery door.
For CPUs, this works on three levels:
- We create hourly forecasts at the store level and give suggestions to your team on the ground (and at the CPU level) on what they should order.
- Central bakeries can then order ingredients more effectively, driving down costs and preventing more food from going into the bin.
- Teams at the central bakery can align their production planning with store demand.
This means that you not only have the right amount of ingredients in each bakery (avoiding stockouts and waste), but you’re also producing the correct amount from the central bakery. Talk about hitting two birds with one stone! 👏
4. Fragmented tech stack
Systems that don’t speak to each other cause a whole mess of problems for bakeries:
- Missed opportunities to cut costs in real-time
- Inability to compare data like-for-like
- Spending way too much time moving between systems
All of these hurdles make it hard for bakeries to make fast and informed decisions that improve the bottom line.
Take a look at Rocksalt as an example. Before consolidating their data with Nory, Stephen Burns (Group Operations Manager at Rocksalt) spent a lot of his time manually managing costs in different systems.
From staff wages to cost of goods, I probably spent about 60-70% of my week managing costs. It was just too much time being sunk into spreadsheets and fixing formulas.
Stephen Burns, Group Operations Manager at Rocksalt
But now? Rocksalt consolidates their data with Nory, getting real-time insights into:
- Labour management
- Sales forecasting
- Supplier costs
- Inventory management
I would’ve previously spent around 50% of my time trying to manage pricing from suppliers. Now, it’s a 10-minute job because I can see the price changes instantly, pick up the phone, and take action.
Stephen Burns, Group Operations Manager at Rocksalt
As a result, they’ve been able to accurately forecast sales within 2.5% accuracy, and reduce labour costs by 6%.
All of this just rings home what we’re trying to say, which is that consolidating your tech stack is a surefire way to improve your bakery business.
And with an AI-powered system like Nory in your corner (which also integrates with POS systems like Lightspeed, Toast and Vita Mojo), you’ll have access to all the data you need to cut costs and grow profit margins.
Elevate your bakery management system with Nory
Yes, there are challenges in the hospitality industry at the moment. For bakeries, it means higher costs, tighter margins, and less revenue. But there are still ways to cut cost
FAQs about the challenges bakeries face
What are the threats to bakery shops?
There are a few different things that threaten the success of a bakery. In the current climate, challenges include rising costs, keeping profit margins healthy, and improving inventory management to reduce food waste. The good news is that all of these challenges can be addressed with the right technology (like Nory 👋).
How to manage inventory in a bakery?
The best way to manage your bakery inventory is to implement an inventory management system. With this technology, you can track inventory in real-time, manage costs, and optimise supply chains to reduce waste.
