Opening and operating a retail bakery

[sugarseattle]

We started our wholesale dessert business 3 years ago and knew eventually we'd want to expand to a retail location. We have been looking for a location for almost 1 year and nothing has really fit. We've spent the past year planning our startup costs, creating cash flow sheets, and overall just thinking a lot of it through. We know you can never be fully ready and at some time you just have to jump on. So...

There's a grocery store for sale in a pretty prime location. The sale price is about 25k higher than the assets that are useable for us. We'd have to sell some of their refrigerators, etc which is work. It's a 2-1/2 year lease with a 4 year option, and the first term is substantially less than the going market rate of leases in that area, representing 1k/mo in savings. However, if you string out that savings over the short course of the lease, then throw in the likelyhood of a substantial rent increase, it's not really a steal, and maybe a little bit over the market rate. But it is a good location; however that's not a guarantee that we will make substantially more in that location vs. another.

The question is, do we do it or wait? Even though baking is my passion and I've waited so long for the perfect space to come along, I'm trying to look at this purely from a business standpoint.

[JeanneCake]

there have to be other factors in your decision. Is your prospective retail location going to cut into your wholesale accounts (are you selling to restaurants? gourmet stores? other retailers?)? In its former life as a supermarket (if I read that right), parking is easy, the location is accessible from major thoroughfares in town and it has been known as a food location previously. So those are helpful plusses (compared to being out of the way and limited parking. People don't want to carry boxes of pastries or heavy cakes any great distance.) Have you been operating as retail to the public from your current location (if so, why bother moving?)

Does this location give you the opportunity to offer eat in meals? Are you at all interested in that or is your hope that it is take out only? Would you need to add that or if you had to, could you? Can you hire to handle that load? Do you want to offer breads and savoury baked goods in addition to your sweet line (just like Gayle's did in Capitola, CA)?

All food for thought.... you'll either decide to do it and be happy with the decision or if something comes up and it doesn't happen, it doesn't mean the end of your business.

[sugarseattle]

The location takes advantage of foot traffic and is in a part of Seattle known for difficulty in parking. But I think because it's "city" people expect that and plan accordingly. (we'll probably do some sort of curb-side pickup)

We could probably use a few more months to plan this out (despite all the planning we've done), but the location is available now and we don't know when the next really good location will come up.

We really feel the location would serve our needs well, but like anything, there's always a certain amount of risk. It's sort of like do we "waste" a little money on the risk, or do we take the other risk of waiting. The first risk takes balls and might fail miserably, the second risk will mean living in anxiety wondering "when" we can begin.

If background info would be helpful, feel free to peruse our site, http://www.sugardelights.com

[naes]

I am currently in the Culinary Management program at the Institute of Culinary Education. So, I do not have any real-world experience to offer yet, but I can give you some things we've been told in class.

* Never sign a lease for less than 10 years. There is too much risk that you won't be able to recoup your capital investment before your lease is renegotiated and you can't afford the rent.

* The number one reason restaurants/bakeries/etc fail is under-capitalization. Don't plan on making any money for at least the first 1-3 years. If you break even, you're doing well. Make sure you have enough working capital to sustain the business (see Coco La Ti Da for reference).

* Do your market research before getting into a lease. Competitive analysis, traffic analysis, market surveys, etc. You need to make sure that your targeted customers exist and will be able to find you and will be willing to buy what you're selling.

* You need to have a planned Prime Cost that is less than 65% of sales. Prime cost is your food cost percentage plus your loaded labor (labor plus benefits). 65% prime cost and you can maybe break even (if you manage to keep your other costs down). Your goal should be a 55% prime cost in the end.

* Don't pay more than 8% occupancy costs (rent, fees, property tax, etc).

There are plenty more little Rules of Thumb that I've picked up from class, but that's just a quick list that I can come up with right now and that are pertinent to your questions. If you'd like to talk some more about this, PM me and I'd be happy to share some more thoughts.

By the way, where are you looking? My wife and I moved from Ballard this past Fall so I could attend culinary school and work in NYC (I'm also in the pastry arts program at ICE). Our eventual goal is to move back to Seattle and open up our own place.

Best of luck!

Sean

[WHT]

I am currently in the Culinary Management program at the Institute of Culinary Education.  So, I do not have any real-world experience to offer yet, but I can give you some things we've been told in class.

* The number one reason restaurants/bakeries/etc fail is under-capitalization.  Don't plan on making any money for at least the first 1-3 years.  If you break even, you're doing well.  Make sure you have enough working capital to sustain the business (see Coco La Ti Da for reference).

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The other few Items I would like to add to this.

Don't overextend yourself and try to make up for it over time.

Make sure that the cost of labor and other factors are included when you cost out product.

Try not to buy twice on yopur equipment. By thisI mean don't get the (smaller, cheaper or whatever.) with the thoughts of replacing it with what you realy want.

[sugarseattle]

Hey, I'm bumping this because the clock's ticking and I really need to present an offer to the seller. We can only screen our calls for so long!

[tsquare]

Are you looking at the old Alki Market location? Parking is a bear in the summer and foot traffic is low most of the year. Another well established bakery down the block (whether you like it or not.) Not on any crossroads.

I'd want a really good deal for that site - it is beautiful, but I heard the store failed cause the average purchase was extremely low. Maybe that works better for a bakery - lots of small purchases - while a grocery store needs volume to make the low margins work.

I'd look at the Cascade/South Lake Union area - no competiton (except Whole Foods) and a expanding market base.

[ChristopherMichael]

You shouldn't be asking anyone but yourself. Nobody knows your business better than you do and no one will be able to answer the question about if you should do it or not. In my years as an owner and running businesses for my folks when I was younger to now, I have learned that never ask someone for their advice, because it just doesn't matter in the long run. Either you do it or you don't and that question can only be answered by yourself.

By the way, from experience, I would never sign a 10+ year lease. If the business fails, which no one ever thinks will happen to them, you will be responsible for the entire contract, which they will come and try to get from you. This I know from experience. So if you do sign some long to term lease, make sure you have a very, very good lawyer that can get you out of it (unlikely) or be prepared to file for bankruptcy or to pay up. I know people will try to disagree with me, but I've been in the situation, so I know from experience and trust me, it's not fun. So a 2 1/2 year contract with a 4 year option after that, is a pretty safe option. Just remember to give yourself outs if need be, because you don't want to ruin the rest of your if you don't make it. Sorry if I seem a little negative, but I'm just telling you from the real world aspect of the risk you will be taking. But even though I have been experienced a failed business once before, there's still nothing else better than working for yourself.

[sugarseattle]

Thank you everybody for your advice. We have actually decided not to pursue this opportunity. The numbers weren't adding up for the lease term, and we just felt there was too big of a risk. We feel that we only get one shot to do this (if we fail, we would be in big trouble financially), and we'd rather wait until we feel very comfortable with every aspect of the risk before we make the big jump.

We've decided to pursue another opportunity at an industrial park, where we'd be taking over a catering kitchen for much less money and a much cheaper and more flexible lease. We can re-build our wholesale (we've been closed for 2-1/2 months while my husband recovers from cancer treatment), we can focus on the farmer's markets again, we can have cooking classes, and when we want to open a retail shop, we won't have to worry about setting up a huge production kitchen to handle our wholesale and retail. I'm excited to be baking again...that's what it's really about.

[naes]

By the way, from experience, I would never sign a 10+ year lease. If the business fails, which no one ever thinks will happen to them, you will be responsible for the entire contract, which they will come and try to get from you. This I know from experience.

I should have stated rule number one, top priority - never sign a personal guarantee. That's what your LLC is for. If your business folds, the corporations folds, and the lease folds with it. That's why it's called a Limited Liability Corporation.

[alanamoana]

Thank you everybody for your advice. We have actually decided not to pursue this opportunity. The numbers weren't adding up for the lease term, and we just felt there was too big of a risk. We feel that we only get one shot to do this (if we fail, we would be in big trouble financially), and we'd rather wait until we feel very comfortable with every aspect of the risk before we make the big jump.

We've decided to pursue another opportunity at an industrial park, where we'd be taking over a catering kitchen for much less money and a much cheaper and more flexible lease. We can re-build our wholesale (we've been closed for 2-1/2 months while my husband recovers from cancer treatment), we can focus on the farmer's markets again, we can have cooking classes, and when we want to open a retail shop, we won't have to worry about setting up a huge production kitchen to handle our wholesale and retail. I'm excited to be baking again...that's what it's really about.

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sugarseattle, this sounds like a really great alternative. you then will have time to make some money and find a location which really suits your needs better.

good luck with your business!

[eyensweets]

my dreams growing up has been the restaurant business but now my passion has changed to baking.. i am in no way whatsoever an accomplished baker besides the accolades i get when i make stuff for people.. decorating..?? i try.. but what i am good at is numbers.. until now.. 😃

i am quitting my job (i have enough to survive doing absolutely nothing for a couple of years..) and will be researching and hopefully working in bakery to open my own.. it may be this year or a couple years down the road.. i figure being unhitched and under thirty would be the best time to try and the slowly dropping rent prices being a factor as well..

now luckily i have a rather large family who can help me with their ideas i can absorb and expand upon.. but unfortunately i have a rather large family who all suddenly became experts on how to run a successful bakery..

so i am turning to people who may really know.. any tips, ideas, knowledge, pros and cons of anything would be a great help.. and i have read the thread about mel's bakery several times..

i dont have a specified business plan as of yet besides a general one because i know talking and learning from and with others will change my plans.. no point in cornering myself from the beginning..

the plans i do have as of right now are

- taking some basic culinary classes at a jc

- visiting a bakery owned by a fellow (soon to be former) employees friend at a location over an hour away..

- looking for a part time job in a food related business.. washing dishes and mopping floors is fine by me..

- visiting random bakeries in faraway cities to find out how they tick.. is someone doing anything different than what the local bakeries are doing..??

- talking to real estate agents on available locations be it a struggling existing business, a vacant spot, or owners just wanting out..

what else should i do.. or what should i not do.. what questions should i ask or not ask the bakery i am going to visit.. whats the best way to solicit business information from others..

large or small to start..?? start from scratch or buy existing business..?? what is the electric bill about roughly..?? how many ovens do i need..?? how large a fridge..?? freezer..?? number of employees..?? workmens comp..?? how can get a list of suppliers..?? what should the sales per employee ratio be..??

as you see i have many many questions and may seem i am in way over my head (which i may be..) but i will have my questions answered (hopefully not the hard way..) and any that you give me will be greatly appreciated..

i figure if i am going to do this right i am going to make it as right as possible from the start..

i may be dumb but i do realize it is not my baking talents but my business acumen that will be the difference of whether i succeed, fail or fall in anywhere between..

[Lisa Shock]

The amount of equipment will be determined by the type of bakery and volume you'll be producing. Other things are determined by your local health code, and your county office can help you with a lot of it. (In my county, plans have to be submitted for approval in advance of any renovation or installations. I'd think about that later, after you take some classes and see if you really enjoy the work. (plus, the health code changes every year)

Workman's comp laws vary by state, most have laws regulating what types of coverage you are required to purchase. An insurance agent can help you with that.

A good school will offer a purchasing class that will help answer some of your questions -and give you skills like calculating cost cards.

A being a baker can be one of the most physically demanding food industry jobs. Most commodities come in 50-pound containers, a few come in 100-pound containers.

The hours are different from the rest of the world, you roll in at 10 or 11 PM and leave at 10 AM the next morning. -Then grab sleep whenever you can.

Most of the work is repetitious and, considered by some to be dull because items for sale need to be uniform in weight and appearance. Filling 10,000 cream puffs one morning isn't everyone's cup of tea.

There are a lot of variables that can't be answered until you know exactly what type of bakery you'll be running. Things can be different if you're making a little bread but mostly selling sandwiches and a full meal menu vs. just doing wedding cakes.

I'd work in a place for a while and take classes, and save your money and plan along the way. Some areas are really tough for bakeries, high rent & local residents who love the crap at the cheap supermarket bakeries, and it may take a lot of knowledge and marketing to make a go of it. You need to know more about the industry & your area before risking thousands of dollars.

For example: I know of a shopping center in my area that would be great for a classic bakery with individual goodies and maybe a soda fountain with ice creams and ices. But, I did the math and discovered that I'd have to sell 2,000+ pastries a day just to meet food costs and pay rent & utilities. And, there's no way that this location would ever draw that many people. Since rents are so high here, most bakeries are wedding driven and located in industrial parks. A cute place to pick up a few cream puffs can't pay the rent.

Hope this helps!

[Edward J]

Yes, PLEASE work for other bakeries. You will gain the experience and knowledge needed to purchase equipment, ingredients, and dealing with staff matters.

Start looking at financial insitutions. When the time comes they will require a business plan and working experience from you, and probably some form of security. In some cases it's better to get financing from the bank---they are very easy to second guess--they only want their money back plus interest. Relatives, on the other hand...

Most important thing to consider is the source of income--the customer...

What are they looking for in a bakery?

What are they willing to pay?

What type of advertising and/or promotion will you do for the first few years?

A good bakery does not survive by walk-in customers alone.

How can you develop wholesale accounts?

Do you have a product list, price list, and invoicing system?

What does your local municipality require for a bakery? (Ventilation, grease trap, etc)

What does your local health inspector require from a bakery?

If you have a "dining room" what does your municiplality require for: parking, washrooms, wheelchair accesability?

Have you got a lawyer? You need him/her to read through the lease carefully.

[eyensweets]

any comment good or bad helps..

the type of bakery as of now that i am thinking of is the basic.. cakes, cookies etc.. i do know the first thing i have to look for is a good cake decorator.. if given the time i am sure i can do fine but as of now my time is limited in experimenting.. as my hours are not only long but literally mentally draining as i stare at numbers all day and becomes worse when i am closing the monthly financial statements..

location wise i am looking for someplace away from contractual obligations of current tenants that prevent a coffee shop.. ie starbucks.. that way i can also include coffee into my offerings.. and i am literally focused in one area right now where a bakery/cafe had closed down unbeknownst to me until recently.. that area is void of a bakery currently.. plus asking prices for rent has dropped from 4 per sqft to 2 and less in various areas..

as for schooling has anyone heard of San Francisco Baking Institute..?? Good.. bad..??

i just applied to a local cupcake bakery that my girls (office workers) admonish their friends from purchasing their products.. oh the irony..

[eyensweets]

Yes, PLEASE work for other bakeries. You will gain the experience and knowledge needed to purchase equipment, ingredients, and dealing with staff matters.

Start looking at financial insitutions. When the time comes they will require a business plan and working experience from you, and probably some form of security. In some cases it's better to get financing from the bank---they are very easy to second guess--they only want their money back plus interest. Relatives, on the other hand...

Most important thing to consider is the source of income--the customer...

What are they looking for in a bakery?

What are they willing to pay?

What type of advertising and/or promotion will you do for the first few years?

A good bakery does not survive by walk-in customers alone.

How can you develop wholesale accounts?

Do you have a product list, price list, and invoicing system?

What does your local municipality require for a bakery? (Ventilation, grease trap, etc)

What does your local health inspector require from a bakery?

If you have a "dining room" what does your municiplality require for: parking, washrooms, wheelchair accesability?

Have you got a lawyer? You need him/her to read through the lease carefully.

wholesale.. what is the best way to gather wholesale accounts.. and what kind of accounts is the best to target..?? whats the ideal ratio from wholesale to retail sales in regards to total sales..??

luck is on my side as one of my office girls father is dating someone who works for the county health department.. and she is a fan of my goods..

[Edward J]

wholesale.. what is the best way to gather wholesale accounts.. and what kind of accounts is the best to target..?? whats the ideal ratio from wholesale to retail sales in regards to total sales..??

luck is on my side as one of my office girls father is dating someone who works for the county health department.. and she is a fan of my goods..

Best way? What are your best sales techniques? If you have contacts in the hospitality biz, use them to get your foot in the door, If you don't, start cold calling.

Best to target? The ones that match your current bakery size and labour force.

No ideal ratio. You make money where ever you can.

A word of advice about health inspectors....

Approach them professionaly, in their office, and ask for a brochure or handout of what they want to see in a bakery. Most of this stuff is fairly standard, and makes sense.

Do whatever they demand, handsinks, potsinks, bathrooms within 50 ft, yada yada...

If you comply, they leave you alone, and that's the best way for both parties.

O.K. so you want a coffee shop component.

You MUST have a competant counter person for this. You will only pull our hair out once when you leave $300.00 worth of goods burning in the oven only to sell a $2.00 coffee or $5.00 pastry.

[OliverB]

also do lots of market research. Why did that bakery close? Owners old? Or just not enough business in that area? I'm not into sweets, but even if I were I'd have no idea where there might be a bakery in my town or the next town over. For coffee there's Starbucks which I avoid like the plague and Pete's in my area. Considering what they charge for a cup of hot water with a bit of bean dust, I tend to make my own at a fraction of the cost.

Would you also offer bread etc or only sweet things?

For whole sale, are there companies around that have lunch counters where they might sell your wares? Cater parties.

Do as much research as you can, and - personally I'd - avoid friends and family in your research. They will most likely praise your baked goods, not matter what. Get professionals to help you with your plans. Working in a bakery or better in several is really important. Work for free for a month if need be, just to see how these things work. I could not deal with the night work hours, others do just fine.

It's a touch business with not much of a margin, you're competing against all the mass produced clamshell stuff in the supermarket. Even a Dunkin had to close down in my area a while ago, and that's a brand everybody with a sweet tooth knows.

Maybe try selling at farmer's markets? Betty's Bake Sale in my area did that for years. You'll get a lot of foody customers and good feedback. And it can be fun, I always liked working at markets.

For cost planning, don't forget insurance, which is getting more and more expensive. You need to cover your rear in case somebody breaks a tooth on a nut shell and sues you.

Maybe there's a coop market of some sort in your area, where you could sell your goods? Might be a good idea to just rent a commercial kitchen for a couple days or nights during the week and bake up enough to sell at a market or at a food and wine festival or something like that. Get a feel for customer's reactions, tastes, and demands.

I've thought about a bread bakery in the past, but the cutthroat business, mini margin and crazy work hours quickly wiped that out of my mind.

It's sad, but it's very very hard to run a nice traditional business like a bakery/butcher shop/etc nowadays. Especially if you compete with some of the better supermarkets like Whole Food in addition to Safeway and all those.

Plan very well, and good luck!

[eyensweets]

best sales technique..?? send out an army of young pretty girls.. then again this is for the male dominated auto industry..

Fail #1. Sending your female friends to the auto industry related businesses to swish around in "eat at xxx bakery" shirts is not going to get you more than maybe a coffee or two sold to any guys who show up hoping to find those girls working at the bakery.

haha.. no.. that is how the auto industry get sales.. i work in the auto industry currently and see a stream of pretty girls walking in trying to drum up business for their respective aftermarket businesses that they work for..

but you would be surprised and how often there are coffee runs among sales staff and mechanics..

would it be better to take an existing establishment and slowly change it around (whether or not it is a bakery to start with..) or start from scratch..??

[Edward J]

Wholesale accounts are not easy. Sooner or later you'll find out that your biggest competitor is the the national meat purveyor selling frozen cheesecakes for less than what you can pay for ingredients, or tossing in a free bake-off apple pie for every 109a prime rib sold......

Either you have a very good relationship with the customer, who knows and trusts you and your stuff, or you have something unique AND something that the customer can sell(resell) at a good price---until someone else copies your idea.....

Pretty girls never last long. And never let anyone get near your "little black book"--your customer files.

By far the easiest is to buy an existing business. Inspections, permits, parking, and infrastructure are already there. Some modicum of goodwill is there--although this can be a bad thing as well. That being said you have to ask yourself why the business was sold, there is always a reason.

Two last pieces of advice, and then I must insist that you go out and work as a baker, O.K.?

1) Never, ever, EVER believe the phrase "It's a standard lease".

2) Never, ever buy used refrigeration

[Tri2Cook]

That being said you have to ask yourself why the business was sold, there is always a reason.

And the reason will almost always be "business is great but we're just ready to move on to something new" or "it's taken off way more than we expected and we just can't do it anymore"... neither of which is true in 99.9899% of the cases.

[eyensweets]

Wholesale accounts are not easy. Sooner or later you'll find out that your biggest competitor is the the national meat purveyor selling frozen cheesecakes for less than what you can pay for ingredients, or tossing in a free bake-off apple pie for every 109a prime rib sold......

Either you have a very good relationship with the customer, who knows and trusts you and your stuff, or you have something unique AND something that the customer can sell(resell) at a good price---until someone else copies your idea.....

so grab what you can but dont rely on them to keep you afloat..

By far the easiest is to buy an existing business. Inspections, permits, parking, and infrastructure are already there. Some modicum of goodwill is there--although this can be a bad thing as well. That being said you have to ask yourself why the business was sold, there is always a reason.

would buying a coffee/sandwich place be a better idea than buying a failed bakery..?? and introduce my goods at my whim over purchasing bread/morning pastries from vendors..??

Two last pieces of advice, and then I must insist that you go out and work as a baker, O.K.?

1) Never, ever, EVER believe the phrase "It's a standard lease".

2) Never, ever buy used refrigeration

so even if i buy an existing location replace the refrigeration..?? what about the freezer..?? and can you tell me why the case is so..?? thanks..

[eyensweets]

That being said you have to ask yourself why the business was sold, there is always a reason.

And the reason will almost always be "business is great but we're just ready to move on to something new" or "it's taken off way more than we expected and we just can't do it anymore"... neither of which is true in 99.9899% of the cases.

haha.. dont forget.. "the business could be great with a full time owner.."

but that is my confidence in myself.. i come from an accounting background so i honestly cringe when these small business owners cant produce a detailed financial summary of their business.. business may be great when your grossing 100,000 a month but if the expenses exceed that then the great business is not enough..

at least with a detail expense and income statements i can read things they wont tell me.. like this coffee shop owner who was "only" losing about a 1000 a month.. later mentioned he wasnt paying a full time and a part time family member.. well now its "only" 3500 a month his business is losing in my view..

tell me what you want but i need to see numbers.. dont have them..?? i want bank statements, check stubs, receipts, etc and i'll do it myself if it seems promising to me..

[JeanneCake]

Years ago, an eGulleteer, MelMck, posted about her experiences in setting up a new bakery, Criollo. Do a search for her topic, which I think was "Mel's New Bakery" or something like that.

It's a journey worth going on. The thread was mentioned in an issue of Bon Appetit, I think.

[Lisa Shock]

Watch out for 'deals' on equipment. When it breaks, and, eventually it all breaks, there might not be any local service available to repair it. Check on repair service before buying and installing anything. You don't want to be caught with a walk-in full of hot, rotting food for a week while trying to find a repair person.

As for a sandwich place, those can be as tough or tougher than a bakery. You're suddenly in competition with everyone from Panera to Taco Bell. All of whom make huge quantities of food in centralized commissaries to distribute to individual locations. They buy their food in such large volume that their retail price is often what your wholesale price, as a small business, will be. And, your customers, especially right now, will be comparing your value for money against those same chains. I know that it isn't fair to compare artisan product to machine-churned out food, but, for a lot of customers paying a couple dollars more than Panera charges for a sandwich won't happen very often.