Raising prices common

Mix prices’ impact on retails was less, he continues, adding about $1 to the cost of a sheet cake, and the bakery adjusted cake prices accordingly in March. “Cake retails now are about 10 percent more than a year ago,” McArthur says. “This is a lot less than if we were making cakes from scratch, paying $18 a bag for flour, compared with $9 a year ago.”

Panera Bread rolled out a 3 percent increase in retails in company-owned stores to help mitigate higher flour costs and increased the price of fresh dough sold to franchisees by 13 percent. At this writing, the company planned to increase the price of bagels to further defray higher wheat costs.

Schnuck Markets applied a series of price increases in January. “We thought they were sufficient, but another round of cost increases forced us to raise retails in March just to maintain margins,” Mihu says.

“Barring catastrophic market changes, most of our retails should hold for the remainder of the year.”

When determining retail increases, Shurman accounted for more than higher ingredient costs. “I checked my budgeted expenses for the year and applied each major increase–mostly flour and distribution–proportionately to each product category,” she explains. “I also accounted for increased wages because my employees have to fill up their tanks, too.” The bakery increased retails 8 percent to 10 percent to absorb the increased operating costs.

“In spite of the higher ingredient expenses, my cost of labor is more than ingredients,” Shurman says. “For example, though ingredient costs for cake aren’t as great as for lower-margin items, I still needed to account for an increase in labor.”

She and other operators also have identified opportunities to trim costs by improving production efficiency. Before costs began to climb, she was evaluating category sales and looking for ways to reduce labor. She chose to alter sweet roll production.

Sweet roll volume had declined to 1 percent of sales, yet the bakery still produced eight varieties. Bakers now prepare three flavors.
“We cut back muffin varieties from eight or 12 to five or six,” Shurman says. “And, we prepare more batter for the freezer and pull it as needed. Those changes haven’t affected either muffin or sweet roll sales.”

Recently she identified low-volume products, such as one cookie with macadamia nuts, for deletion to trim ingredient inventory. “Should we make that cookie if it’s the only product that contains macadamia nuts? We need more work in this area,” Shurman says.

Shurman also urges bakers to identify opportunities to improve efficiencies in non-baking areas. For example, each year she asks insurance carriers for bids for workers compensation and liability coverage. “We will save $5,000 this year because the insurance market is a bit soft and more competitive,” she explains. “So, it’s important to examine the entire list of budgeted expenses.”