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If you have a love of baked goods and have always enjoyed preparing them, then opening a bakery might be the perfect business for you. Owning a bakery is hard work, but it can also be rewarding to see your foods bring joy to others. Before opening a bakery, though, it’s important to understand everything that will go into this type of business.
Bakeries offer freshly baked goods directly to consumers, or they may sell these goods to retailers. Some bakeries include a cafe design, allowing consumers to sit and enjoy the goods right in the stores. Others may adapt a catering model, selling their goods to people who are hosting events.
Bakeries can specialize in many different areas. A business might specialize in offering tasty yet healthy baked goods, while others might focus on elaborately decorated cakes, or even in offering wedding cakes, exclusively.
From 2015 to 2019, the bakery industry underwent significant growth. According to IBIS World, during that five-year period, the number of businesses grew to 11,533 and industry employment increased to 180,291. The industry experienced 2.9 percent annual growth, and in 2019 the bakery industry brought in $11 billion in revenue.
The growth of the bakery industry is partially the result of the increase in per capita disposable income during that time, leaving consumers with more money to spend on luxuries like baked goods. The bakery cafe industry also combines the convenience of fast food with the quality of the food you would expect from a restaurant, making it a desirable option for consumers.
Numerous trends are shaping the bakery industry, and understanding these trends can help an owner to position their bakery for success. According to Harvest Food Solutions, one of the major bakery industry trends is an increasing demand for healthier food options. In addition to moving away from high-fructose corn syrup and artificial dyes, consumers are looking for foods that blend both taste and health. Many bakery owners are meeting this demand by using grains, fruits, cocoa, and natural sweeteners to create tasty foods that are still health-conscious.
Closely linked to the demand for healthy food is a demand for fresh foods that are baked using fresh ingredients. Consumers are paying more attention to when products were baked and how fresh they are when they’re put up for sale.
Bakery owners also need to be aware of the focus on taste, texture, and appearance of baked goods. A bakery owner needs to make sure that the foods they’re presenting match their audience’s demand for flavors, whether those are traditional or more creative, adventurous tastes.
Who is the target market for a bakery?
Bakeries will have different target markets depending on their business models. A bakery that includes a cafe might market to consumers with a love of fresh-baked breakfast foods and snacks. A bakery that offers strictly breads will have a different audience, marketing to consumers who value quality, fresh food and who are willing to surpass the grocery store and make a special trip for fresh-baked bread.
Bakeries may also develop other target markets. Some may offer catering services and specialize in cakes and foods for weddings and parties. Others may focus strictly on cakes, creating highly detailed and beautifully decorated cakes at premium prices. All of these factors will affect a bakery’s target market.
Skills, experience, and education useful in running a bakery
While you won’t need a business degree to start a bakery, certain skills and experiences are useful and can increase the chances of your business being a success.
Baking experience. Experience working in a bakery is highly valuable in starting a new business. A knowledge of baking and decorating practices will help ensure that a business starts off by offering a quality, consistent product.
Attention to detail. Attention to detail might be one of the most important elements in running a bakery, since detail is everywhere in this setting. From creating aesthetically pleasing displays to ensuring that every product represents the bakery well, a natural eye for detail goes a long way in this industry.
Food service experience. Baking is only one part of the equation in running a bakery, and if a bakery offers eat-in options and seating, then some food service experience is helpful in taking orders, preparing drinks, and serving customers.
Customer service skills. Great customer service skills can help a bakery owner to establish an excellent reputation for their business. The ability to listen to and address customer concerns in an understanding way is important.
Management experience. Many bakeries require at least a few employees. Experience in hiring, training, and managing staff can help an owner to navigate this process.
Networking skills. Networking talents can be helpful in this industry, especially for businesses that offer catering options. Establishing and maintaining relationships with local event venue owners can lead to increased referrals and future business.
Marketing skills. The more marketing that a business owner can do on their own, the more they can save over hiring a professional marketer, which can be important in the early stages of the business. In particular, some basic photography skills and knowledge of social media marketing techniques can help to get a business off the ground.
Starting a bakery can require a significant financial investment, but there are also ways to start your business on a tighter budget. Beginning the bakery out of your home kitchen can help you to save on expenses, and you can start a home-based bakery for about $5,000. Expect to spend closer to $40,000 or $50,000 to start a larger-scale bakery with storefront space.
Common startup costs for a bakery include:
- Inventory (The ingredients used to make baked goods)
- Equipment, including baking supplies, mixers, and ovens
- Display equipment
- Furniture (for a sit-down bakery)
- Delivery truck
A bakery needs working capital to cover operating expenses like the purchase of baking supplies. If too much working capital gets tied up in supplies and expenses, and if the bakery doesn’t sell enough goods to replenish that working capital, it will be difficult to keep the business running.
Bakeries need several types of insurance to be fully covered:
- General liability insurance protects the business if customers are injured while on the business’ property. This insurance can cover costs like legal fees.
- Commercial property insurance protects the bakery against the financial loss of inventory and property after an event, like a fire.
- Commercial auto insurance covers the expenses, like legal fees and medical bills, that can result if a company-owned vehicle is ever in an accident.
- Workman’s comp insurance helps to cover expenses like medical bills or lost wages if an employee is ever injured while on the job.
Insurance policy cost can vary depending on factors like the bakery’s location, the value of its equipment and the building, as well as the number of employees on staff. To get an accurate idea of what insurance will cost, request quotes from multiple insurance providers. Then, compare the quotes, paying attention to factors like coverage limits and exclusions, premiums, and deductibles.
Common operational expenses
In addition to these startup costs, be sure to budget for the following common bakery operational expenses.
While it may be possible to start a small-scale bakery out of the home, eventually a larger kitchen and possibly a storefront for sales will be necessary. It’s ideal to find a rental property that’s already equipped with a commercial kitchen, which can save on renovation costs. Rental costs will depend on the size of the building and its location. For a bakery with a storefront or a cafe-style business with seating, rental property in a high-traffic retail area can bring in walk-in traffic, but will come at a more expensive rental cost.
Depending on a bakery’s size, it may be necessary to hire one or more additional employees. According to PayScale, average hourly salaries for common bakery staff positions are as follows:
- Baker: $12
- Cake decorator: $12
- Pasty chef: $13
- Cashier: $9
- Barista: $11
Employee salaries aren’t the only expense that comes with hiring staff. A bakery’s budget also needs to include expenses like workman’s comp insurance, paid time off, and health insurance contributions.
Marketing is essential to a bakery’s success, important in the early startup days of the business. Common bakery marketing activities include maintaining active social media pages, establishing a website, participating in local print advertising, and even incorporating online advertising methods into the plan. Exact expenses will vary according to the type of marketing being performed.
Business Licenses & Permits
A bakery will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the bakery is located.
Every state has specific requirements and regulations when starting a business. Select your state below to find the guide to starting a business in your state.
How much can you potentially make owning a bakery?
According to BizFluent, the annual income for a bakery general manager, who is often the owner of the business, ranges from $25,000 to $52,000 per year. Many factors can affect this income, including the number of years the bakery has been in business, the size and location of the bakery, its specializations, and even how efficiently the bakery is run. For instance, a manager who has an excellent idea of how much product the bakery will sell each day can customize production to meet demand more precisely. This minimizes inventory waste and helps to maximize profit.
Things to consider before starting a bakery
Expect to face some unique challenges when starting a bakery. The first will be to find out about food preparation regulations in your town. Some towns may allow you to prepare baked goods in a home kitchen with certification, while others will require a commercial facility.
It’s also important to carefully consider how to price baked goods. The price needs to be competitive among other local businesses, but it also needs to be profitable for the bakery. Sourcing bulk-purchased ingredients at a discount will allow a bakery to balance these factors, but finding a quality, reliable source can be a challenge, especially when just starting up. Budget time for plenty of phone calls to potential suppliers during this part of the process.
Allied Trades of America
American Bakers Association
American Culinary Federation
American Pie Council
Bread Bakers Guild of America
Cookie & Snack Bakers Association
Independent Bakers Association
Retail Bakers of America