Setting retail prices for baked goods

[CanadianBakin']

CanadianBakin:  Are you leaving your equipment there when you are not there?  Will you have a locked area to put things away?  Will you be keeping anything there?  If so, you need to think about the possiblity of them being borrowed or broken and how to handle that.  As well as what would happen if something breaks while you are using it....

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All great questions to which I have no answers as of yet. I'm not officially starting until September and the details are not in writing yet. Thanks for giving me things to think about ahead of time.

[frannyfran]

This is an old topic -- I hope it's okay to revive it. Also, this is my first post on eGullet, so please forgive any posting etiquette faux pas!

I am opening a retail location after selling my pastries at farmers markets for the past year.

I'm going from renting a shared kitchen space for around $10/hour, to paying for 1000 square feet of retail/kitchen space. I'm also going from no employees, to multiple.

Here's my concern. I am going to continue selling at the farmers markets, once the shop is open. The thing is, I think my prices need to be higher in the shop than they are at the farmers markets.

I'm currently selling a chocolate caramel tart for $4 at the markets, and don't charge sales tax. I do this mainly for ease -- everything is priced on the dollar. But -- I have to charge sales tax at the shop, and I have to take into account the fact that I'm paying an employee to plate the chocolate caramel, and then to wash the dish, etc. Not to mention my much higher overhead. It's not quite the simple farmers market transaction any more.

I'm worried that if I charge, say $4.25 for a chocolate caramel tart at the shop, my regulars from the farmers market will be annoyed that they can get it cheaper at the market. I'm worried that if I just increase prices across the board...well, that won't go over too well.

Any advice?

Thanks so much!

[ScoopKW]

if done properly, you set yourself up as a high-end exclusive boutique business where you can sell 10 cakes at $100 instead of 20 cakes at $50.

Didn't Martha Stewart pull this one with pies?

[pastrygirl]

I'm currently selling a chocolate caramel tart for $4 at the markets, and don't charge sales tax. I do this mainly for ease -- everything is priced on the dollar. But -- I have to charge sales tax at the shop, and I have to take into account the fact that I'm paying an employee to plate the chocolate caramel, and then to wash the dish, etc. Not to mention my much higher overhead. It's not quite the simple farmers market transaction any more.

I'm worried that if I charge, say $4.25 for a chocolate caramel tart at the shop, my regulars from the farmers market will be annoyed that they can get it cheaper at the market. I'm worried that if I just increase prices across the board...well, that won't go over too well.

I hope you're saying that the sales tax is included in the price at the farmers market, not that you are not charging the tax at all. If you are selling taxable goods and not collecting the tax, you're going to have bigger worries than pricing! Unless there are different rules for sales tax at the market?

If at the market, the item is handed to me on a napkin and at the store it is on a plate with a fork, a slightly higher price seems reasonable. You can also add perceived value and not much cost by plating a tart with a squiggle of caramel sauce and a bit of whipped cream - now you can charge $5.50! Or offer the option of whipped cream for say 50 cents extra and hope enough people go for it. I think everybody knows that prices do sometimes go up, and if you're talking about a 25 cent increase on a $4 item I would not be outraged. You probably wouldn't want to raise prices by more than 10% across the board.

Will the shop have other items with a higher profit margin that you don't have at the market? Like coffee? Beverages are higher profit, and you can offer a decent selection of drip coffee, nice teas, and fresh juices without needing an experienced barista and espresso set-up. You need to make a little money on the pastry and a lot of money on the beverages.

[frannyfran]

Yes, don't worry! I'm paying my taxes every month. The sales tax is included in the price.

As for the drinks, we're partnering with a local coffee shop -- they make the money on the coffee, we make the money on the pastry.

Thanks for your thoughts!

[pastrygirl]

If they make the money on the coffee, I hope they are paying a good chunk of the rent!

[LindaK]

Frannyfran, welcome to eGullet!

I can only comment from a consumer's perspective. A moderate price increase when one includes service, that seems obvious and justifiable, I've never thought to question it and I imagine that most customers would understand. Take-out might be a different matter. Depends on the overlap between your farmers market clientele and those in the shop. I've run into similar price differences and, unless they're significant, have always assumed that when in the shop, I was paying for real estate.

[frannyfran]

Frannyfran, welcome to eGullet!

I can only comment from a consumer's perspective. A moderate price increase when one includes service, that seems obvious and justifiable, I've never thought to question it and I imagine that most customers would understand. Take-out might be a different matter. Depends on the overlap between your farmers market clientele and those in the shop. I've run into similar price differences and, unless they're significant, have always assumed that when in the shop, I was paying for real estate.

Thanks so much Linda. That is helpful. Take-out is a real conundrum, since I wouldn't want to have two different sets of prices. I'll continue to ponder it.

[Kajikit]

As a customer, it's only fair to expect to pay more to sit down in a coffee shop and eat a nicely-plated dessert than it is to pick it up from a farmer's market stall in a cardboard box. There are all sorts of extra costs for you to make it happen.

[ElaineK]

My perspective here is that of a customer with a decent dose of MBA/small-business background.

Go back to your market research and look at it as unemotionally as you can manage. If your market research doesn't answer your questions - you didn't do enough market research and should do more before you commit to space and employees.

What are comparable prices at storefronts? How much customer overlap do you anticipate between the farmer's market and the storefront? What are the two target markets, and how do they differ? What is your expected change in purchase distribution? How many additional staffing hours will be needed over minimum staffing? What does the customer and sale distribution look like over the course of a day? How much can the additional staffing be split between the bakery staff and the coffee staff? How many (average) items do you need to sell to cover your nut? How many items can you sell between covering your nut and needing more staff?

Is letting the coffee shop have all the drink orders going to be giving away your highest profit items for minimal return?

In my market, the overlap between farmer's market and storefront is pretty low, but word-of-mouth is high. It would only take one yelp review saying "Great baked goods, but they're cheaper at the Saturday market" to drive a lot of store-front business to the market. On the other hand "Great baked goods at the market, but the store-front has a lot more variety" drives business the other way.

If you always had the chocolate caramel tart at the storefront, but it showed up every six weeks at the market (or by special order) then having it become 4.25 is less of an issue because it's become a special item. You can also sell the tarts in the store at $4.25 each, or any four tarts for $16 (which makes it more likely to be a to-go item).

Ideally, you want to leverage your market reputation into store-front business and that means making the store more appealing than the market. More variety, more convenience, better ambiance, more service - whatever your customers respond to. Having the same item, on a plate instead of in a box, for a higher cost sounds like a non-starter unless your storefront has other advantages.

[frannyfran]

Ideally, you want to leverage your market reputation into store-front business and that means making the store more appealing than the market. More variety, more convenience, better ambiance, more service - whatever your customers respond to.

This part particularly is very helpful, Elaine. The entire response really helped me rethink these issues. I appreciate it!