How to Open a Successful Retail Bakery Business?

Setting up a successful bakery requires a lot more than hard work and your grandmother’s secret recipes. You’ve got to have experience in running a business, and need to plan your new startup very carefully before opening up.

If you intend to open a regular bakery and sell to walk-in customers, the first thing you should note is that you’re going to be in the retail business.

As such, a lot of your research and planning should be done accordingly. There are many issues to consider that can literally make or break your new business, and you may be surprised to learn that most of them are not related to baking.

1. The Right Mindset

Having the right attitude is the single most important thing needed to confront, tackle and overcome the challenges when starting a new small business.

From not being disillusioned by a ‘open up and they will come’ attitude, to doing countless hours of pre-planning and learning about the industry, a right frame of mind is vital in getting you off in a suitable direction.

Owning a bakery may be your life-long dream but it won’t be a walk in the park. You’ll have to put in lots of hard work and deal with plenty of unforeseen events that will test your limits.

Unless you’ve worked in a bakery before, you’ll probably not have dealt with over 80% of the issues that will crop up, so have an open mind and be willing to address any hiccups in a positive way.

And even if you have experience as an employee in a bakery, chances are, you won’t have come across the majority of business related matters so you’ll have to tackle them for the first time when you run your own shop.

2. Detailed Market Research

The best bakeries usually offer something that people want and need in the community. The core focus may revolve around certain specialties that the owner is passionate about, but in order to succeed, you have to give the market what it wants.

In other words, don’t try pushing highly priced gourmet cupcakes that are targeted at yuppie moms in a low to middle income neighborhood that can’t afford it.

Once you’ve confirmed the area where you intend to set up your bakery, start by making a list of every single bakery in the vicinity and make it a point to visit all of them.

Be prepared to invest time and money in purchasing their goods, testing their recipes, observing their customers, and noting as many positive and negative elements about their businesses.

You should write an in-depth review of the leading ones if possible. This may seem a bit extreme but it will force you to do your homework thoroughly and enable you to chart out the master plan for your own business. These are going to be your competitors, so you should know as much as you can about them.

List down all the things they are doing right. Identify areas where they’re weak. Figure out what you can do that’s better. Take note of what you think customers like about their stores.

By doing this research properly, you should be able to see where the opportunities lie for your upcoming bakery. Ideally, you want to complement the other bakers in town and not try to put them out of business.

There are areas where you will directly compete for their customers, but you should try to differentiate your offering wherever possible. You don’t have to go head on and make enemies, or copy someone else’s ideas outright.

3. Available Opportunity

Get creative with your business ideas, and think out of the box. Try to carve your own niche and be unique.

Let’s take sandwiches as an example. Are you only selling bread, or do you offer sandwiches too? If so, do you only have a limited range of premade ones, or will you go the distance in providing made-to-order choices. How many choices of breads will you offer? How about unique quality fillings?

There are various ways for a retail bakery to broaden its reach with complementary businesses. Clearly, having a sandwich bar is one. And so is a café where customers can dine in as well.

Both of these add-ons will allow you to widen your reach, increase your revenue, and enhance your shop’s overall appeal, so give them some thought in your planning phase.

Let’s consider another area – cakes. What’s your plan? What are the other bakeries doing? Are you going to compete on price, quality or some other angle?

Are you going to have a wide selection on offer? Will they all be made fresh everyday? Do you offer custom made birthday cakes? Do you sell them by the slice? What if customers only want half or quarter of a cake?

Just by answering some of these basic questions, you can already see that there are lots of things to think about. And every decision you make will affect the amount of work that needs to be done, the costs in the business, and the resulting customer experience.

In trying to figure out what you should do exactly, always consider what the other bakeries are doing. If one of them is already dominating the market in high quality birthday cakes and specialty cakes for special occasions, it may not be wise to try competing against their long-established reputation and strong client base.

Try to offer something that’s not currently available. If none of your potential competitors are offering quality homemade pies, then add that to your list, even if you didn’t initially think of having them on your menu.

Remember, don’t limit your bakery’s offerings to what you had in mind originally, or what you know how to bake. You’re about to start a business, and the first step is to work out what the market wants. After that, you can figure out how to give it to them.

4. Quality Business Plan

Most new bakery owners are intimidated by having to do a business plan. But they shouldn’t.

It’s not hard, and it shouldn’t be a chore. It’s simply documenting your dream business down on paper, so that you can review it, amend it, improve it, and refer to it when things don’t go as expected.

There are so many ad-hoc decisions to be made when opening a bakery that it is easy to forget certain things if it is not written down properly.

For example, a lot of people often start by imagining their bakery will only sell baked goods for take-out. But once the idea develops, they add on a small café for dine-ins to help boost the daily takings. This inevitably increases the setup costs, and the size of the premises required. And as a café, perhaps more items need to be added to the menu.

Before long, what began as a boutique bakery to sell a few cakes and cookies has mushroomed into a mid-sized café. And all this is before the business has even begun.

By having a detailed business plan, every single decision should be meticulously justified and quantified. Is that state of the art espresso machine really necessary? Do you really need to have an extensive drinks menu? Should you try to appeal to the Starbucks crowd? Is it necessary to offer free wifi?

There are plenty of resources on the Internet to help you put together a basic business plan outline. In fact, you can even choose a template that has specifically been designed for bakeries and cafes already. Just fill in the blanks and you’ll be halfway there already.

Don’t worry too much about the formatting, structure, intimidating words, financial formulas, and anything else that you’re not familiar with. Just focus on the details of your business and try to have an answer for anything. Don’t leave any stone unturned. Think about everything, and how you intend to deal with every tiny issue.

In general, the financial part of the business plan should make it clear how much you need to invest to start the business.

This should cover everything from capital expenditures to buy equipment and furniture, all the way to the amount of working capital required to pay for operational expenses in the months while you’re setting up the bakery and don’t have any revenue yet.

Once you’re open for business, the financial projections in your business plan should cover how much revenue you hope to make, and how much you need to spend on purchasing all the ingredients and everything else necessary to produce the items for sale.

And once you calculate your gross profit by subtracting all these direct costs from your sales revenue, you will need to deduct all the fixed operational expenses (ie overheads) such as rental and payroll, in order to come up with how much you’ve made or lost each month.

That’s all there is to the financials of a business plan. The other part is mostly concerned with marketing and how you intend to generate the revenue that has been projected.

5. Great Marketing Strategy

An effective marketing plan is essential in helping any new bakery to succeed.

It helps you decide what products to make, how to position them in the market, how to price them properly and how to get customers coming back for more after trying them out.

Work out a good promotions strategy and use freebies to introduce customers to products they haven’t tried before. The goods in a bakery are perishable, so it’s often better to spoil your regulars with extras instead of throwing out stuff that won’t keep till tomorrow.

Some bakeries hold half price sales towards the end of the day to clear out the day’s produce so that everything is made fresh the other day. You may want to consider a similar approach if it’s suitable.

Having free tasters is another way to entice customers to buy something that they may not normally consider.

Especially when you’re new and just making a name for your business, be liberal with your freebies and promotional giveaways. As a bakery, that’s probably the best way to spend your marketing dollar anyway.

Have little treats ready to give to kids. It may be one-off mini packs of cookies or some new item you’re promoting. Once you keep the kids happy, and hungry for whatever you’re baking, you’re sure to get their parents coming back again and again.

Your bakery’s marketing plan should always be evolving. Be bold in testing everything. Keep what works and continually improve on the rest.

It’s unlikely for you to get it perfectly right the first time so don’t bother. You can’t predict what customers are like until you open up and actually interact with them.

Above all, always listen to your customers and try to get feedback and suggestions from them. Ask them what they like, whether there’s anything you can improve, and if there’s anything else they would like but that you don’t currently offer. You’ll be amazed at what you can learn just by asking.

There are plenty of marketing and promotions activities you can try. Depending on what you want to achieve, you can vary the timing, attractiveness and appeal of the promos.

6. Well-Managed Operations

Managing a bakery business is hard, especially if you’ve never done it before. That’s why so many bakeries end up going bust.

As the owner, you really have to know every single thing that is going on, and be able to do it yourself if necessary. Do not leave anything to assumption, or hope that any problems will sort themselves out. They won’t.

If there are holes to be plugged or inefficiencies to address, do it straight away and deal with it yourself. You should always be on the lookout for areas in the operations that can be improved.

You need to be on top of every part of the bakery – this includes the actual baking, recipe control, inventory purchasing, accounts payables, storage, cleaning, equipment maintenance, security, garbage disposal, cash management, customer service, marketing, staff safety, taxes, and absolutely everything.

Yes, it will be completely overwhelming at the start. It will all be new to you, and you will have countless other things to do, but you need to have a solid working knowledge on how your business works.

In order to manage the operations well, you need to know what needs to be done. Only then can you figure out how to do it properly. Once you’re able to do it yourself, you can delegate to other team members.

Successful bakeries, cafes and restaurants always have an active owner who is intricately involved in most of the important parts of the business.

There’s just no substitute for a stakeholder when it comes to caring about every dollar spent in a business, or every dollar foregone due to lost sales.

It’s your money involved, and you’re paying for all your team members to be working in the bakery, so you need to know what everyone is doing and how they’re doing it.

7. Outstanding Customer Service

To give your bakery the best chance for success, you should make sure that the customer experience you provide to anyone walking through your doors is nothing short of outstanding.

Yes, everyone knows that good customer service is necessary. Everyone starts their business will the same goal of treating customers really well. So what’s the big deal?

The truth is, when things are going smoothly, it’s easy to be courteous and serve with a smile. But the true test comes when you’ve got a very difficult customer who is causing a ruckus, or when you’re short of staff and it is extremely busy, or when a multitude of things has all gone wrong on a bad day. That’s when the same level of customer service brilliance still needs to hold up.

One of the greatest challenges is to instil this customer oriented culture to your team members, especially the part time ones who may not be with you long term, and hence may not feel the same passion for your customers. How will you get them to remember your regulars’ first names?

Bakeries are a locally focused business and unless you’re opening in a big city, return customers will generate a large part of your sales. This is why you need to have a well-oiled system in place to make them feel welcomed and appreciated.

Carve a Unique Niche and Business Segment for your Bakery

There are countless decisions to be made when opening a bakery, and some of the most important ones revolve around your menu items.

  • How many types of fresh bread are you offering?
  • Will cakes or breads be your main focus?
  • Or is it better to showcase your cupcake making skills?
  • Are you going to include cookies and biscuits in the lineup?
  • What about your delicious pies and other savory items?
  • Will you be offering cakes by the slice or only in whole?

You may have started out thinking you’ll just stick to what you know best, but as the ideas for the bakery develops, you will inevitably find this list expanding, as the extra effort to offer another one of these items doesn’t appear to be much. At first anyway.

Think Carefully and Clearly

Every single decision matters, and will have a direct impact on your costs, time, display space needed, inventory management, and so on.

Ideally, you want to offer customers a wide selection of breads, but the more you decide to do, the bigger the challenge. And with a broad range, how many units of each do you bake every day? The numbers can add up very quickly.

And with all this quantity made, what if they don’t sell out? Will you have to discard them at the end of the day? If so, that’s just like throwing money into the bin, which is not very good business.

In the same way, the spread of cakes you decide to offer will make a significant impact on your operations and bottom line as well. They cost more to make and require more effort. They’re likely to be a great revenue generator, but your costs to bake them, refrigerate them and sell them will be a lot higher too.

Everything is Related

The key to starting a successful bakery lies in the strategic decisions made before opening up. And the items on your menu is absolutely critical, as it will directly impact the size of your premises, the kitchen equipment required, the display and storage space needed, the number of staff and various other elements within the business.

It is tempting to offer as much as you can, and plenty of new bakeries make this mistake. But it is better to pick your battles and focus on selected items that your bakery becomes known for.

If this is your first bakery, it is not advisable to do it on a large scale and offer an extensive menu ranging from specialty breads and intricate cakes to gourmet pies, premium cookies and more.

Don’t opt for the throw it all on the wall too what sticks approach. Sit back and devise a more purposeful plan that leverages on a well thought out analysis of what you can do, what the market needs and where there might be a fit.

Some people have spent hundreds of thousands of dollars to open elaborate bakeries that subsequently fail, while others can be hugely successful just by baking a few items from home and selling it in a kiosk, so don’t think you need to have a fancy set up for the business to work.

By all means, have big dreams, but start small and do everything you can to know your market and customers. Test your assumptions and always get feedback. Don’t bet the barn on something that you think will work until you can validate your ideas.

Always try things out first before putting your whole foot in. Once you’ve got both feet stuck in, it’s very hard to pull out, so tread very carefully in the initial planning phases.

Are you Thinking of Starting a Bakery Business?

The story is often very similar. Over the years, you’ve frequently been praised for the baked delights that come out of your home oven.

Friends and family hound you for your secret recipes, and shower you with flattering comments that are sweeter than your macaroons. Everyone says you should turn your passion into a successful business.

You never took it seriously before, but recently, you’re thinking about it. Do you really have what it takes? Should you do it? Can you do it? What’s involved?

Bakeries are Businesses

The first thing to bear in mind is that in opening a bakery, you are also starting a new business. This may seem obvious, but unfortunately, a lot of people overlook this simple connection and enter the industry ill prepared for the challenges that lay ahead.

You may have outstanding baking skills, but what do you know about running a small business? And more specifically, what you do you know about setting up and managing a bakery business?

The answer is most probably not much, or in some cases, not enough. In which case, it is important for you to find out as much as you can on how to run a business, and to learn about how to make a living as a baker.

For most people, this may be boring, tedious and quite intimidating, especially if you are new to operating a business, but it is very necessary and there’s no avoiding it.

To own a profitable bakery, not only do your products need to be outstanding, but you need to be able to manage the business efficiently too. In fact, some would argue that the business management aspects are even more important than the quality of the items baked.

Aspiring bakery entrepreneurs often have a common misconception that all you need to do is to be able to bake exceptionally well. If this were true, hundreds of bakeries would not have gone out of business in the past.

Are Your Baking Skills Sufficient?

There’s quite a bit of difference between baking limited quantities leisurely at home and producing larger volumes under pressure in a business.

In all likelihood, you’re probably very competent baking in your kitchen to churn out the delightful tasty treats you’ve been making for years. But have you tried increasing the volume by 10 times or more, constantly testing new recipes, and doing it every single day?

In other words, do you have the experience to bake on a larger scale for commercial purposes? Because this is what you need to do once you open up.

And to achieve this, you will need to hire other people. Do you have experience delegating to and managing a team of bakers and kitchen helpers?

For most of you, the answer is probably no. You’ve been used to doing it all yourself at home, and have very little exposure into how a real bakery business operates.

But don’t worry, as a lot of successful bakery owners started out in the same way. All you have to do is to acquire the knowledge and gain as much experience as you can before starting up.

If you can, try to get a job working in a bakery, as that will give you first hand experience of what it’s like. You’ll be able to learn how things are done, observe the challenges involved, and generally pick up some tricks of the trade.

Apart from getting real-life working experience yourself, you can hire experienced bakers to be part of your team and tap on their knowledge and know-how.

If you don’t know how everything is done at the outset, don’t worry. Ultimately, every bakery has their own way of doing certain things and you will refine your systems and processes along the way together with your team.

Get the Right Premises and Plan your Bakery’s Lease Carefully

One of the reasons why new bakery owners need to confirm their business plans thoroughly is because of the property lease they need to sign to secure the premises where the business will be operated.

Depending on the bakery’s focus and particular niche, the size, location and various other factors regarding the lease may be affected.

Find the Ideal Spot

Get a place that’s too small without planning for any future expansion and you may end up limiting your potential growth. Sign a lease for a property that’s too large and costly, and the business may have excessive rental overheads.

If the bakery is located in an area that doesn’t get much foot traffic, it may be hard to attract walk-in customers. If it’s on a busy road with lots of pedestrians, you need to make sure the rental is affordable.

The perfect location will make a huge difference to the success of a bakery. A top spot can almost guarantee a steady flow of customers instantly.

Be Prepared to Wait

Unless you’re extremely lucky, it won’t be easy to find a suitable commercial space for your bakery quickly. The hunt for your ideal place could take months. Don’t rush. There may be a temptation to go with the best option that’s on offer, but it’s better to hold off until the right place becomes available.

Be prepared for lots of disappointments. If the location is right, the shape of the unit may be unsuitable. If the interior is good, the external environment may be dismal. When everything is right, the price will be way out of your budget. Ultimately, you will need to compromise.

Lease Planning

Once you go ahead and sign the lease, be prepared to stay for some time. You will be investing a lot of cash to renovate the place, furnish it and possibly even design custom furniture and install kitchen equipment that can’t be easily moved.

Make sure that you have the option to renew the lease for a second term at a rate that is pre-agreed now, or where the rate increase is capped. Avoid being caught off-guard by a huge rental increase by the landlord once your initial lease runs out.

Although you can move to another location, the cost of moving may be prohibitively large, so it’s always better to plan for the long term if possible. Bakeries are a retail business where customers need to know where to find you. After building your reputation in a certain place for years, the last thing you want is to move somewhere else.

If you Really have to Move

Of course, there are times when you can’t avoid having to move. Either the location is just unsuitable, or you’ve outgrown the size of the place. In such cases, plan for the move way in advance.

Let your customers know months ahead. Don’t wait till the last few weeks as some people who do not come into your shop all the time may not be aware of what’s going on. If you don’t inform them of the upcoming move, they may think you’ve shut down when they come back to find that your bakery isn’t there any more.

By giving yourself lots of lead-time, you’re able to look for and compare different quotations from moving companies. You may need to get specialists in to help dismantle certain furniture or kitchen equipment. This may be costly, so do your homework to find a good supplier to do the job.

Request for What you’re Entitled to

So, in summary, don’t take your lease planning lightly. It is one of the most important decisions for your new bakery. Give it the attention it deserves and try to get it right the first time.

Stand firm to negotiate a good deal with the landlord, or make the realtor earn their fees by getting you attractive terms. Don’t be a pushover.

Where appropriate, get the building owner to do any repairs for you before you move in. Check on the electricals thoroughly and other infrastructure such as the plumbing. You don’t want any of these basic things to go wrong once you start your business.

Buy Used Bakery Equipment to Lower your Startup Costs

One area where you can save money when setting up a new bakery is by buying used kitchen and baking equipment.

While it is nice to have everything brand new just like the business, if you’re working on a tight budget and need to find somewhere to lower the capital needed to start up, you could definitely get by with some pre-owned stuff.

Mix of New & Used

It doesn’t have to be absolutely every single item. Just zoom in on the costly big ticket ones (such as the ovens) where it may be worth saving a few hundred or a couple of thousand dollars here and there.

For example, it may not make much of a difference to your staff and customers if your main oven has been used before. As long as the one you’re buying has been well maintained, and may have been properly refurbished, it should be as good as new.

Contingency Plan

The only thing you should beware of is what to do if it breaks down, especially if the warranty period is over already. Who can do the repairs, is it quick to get replacement parts, how long will it take to fix and what will you do in the meantime while it’s down?

Obviously, a totally new oven can break down as well, and you could end up in the same fix, so do your contingency planning thoroughly either way.

It’s not necessary to try and save on the smaller items such as the utensils and other bits and pieces in the kitchen. Just focus on the equipment and furniture that may cost quite a bit.

Weigh Up the Pros & Cons

And when you’re making your purchase, use your common sense to pick the ones that offer the best value. In some cases, the savings may not be much and it may make more sense to buy new and have peace of mind with the warranty.

But sometimes, there will be fantastic deals when you can buy items that have hardly ever been used for a fraction of the price. It all depends on your luck and resourcefulness in hunting for the best deals.

You definitely need to shop around and do your homework when buying used bakery equipment. Above all, you should know what items you need and stick to them.

All too often, inexperienced bakery owners try to save money by shopping in a used equipment store but end up overspending by purchasing all sorts of things they don’t need.

Getting the Right Oven for your New Bakery

A baker’s oven is one of the most expensive and important pieces of equipment. Their prices vary quite a bit, depending on the type you need, and whether you’re sourcing for a new or second hand one.

If you’re not sure what to go for, here’s a brief introduction to the different choices that are available and how much they cost.

  1. Revolving Tray Oven – to produce fairly large quantities, a new Revolving Tray Oven could cost $20,000 or more. As the name implies, there are trays that rotate in the oven, allowing you to place multiple sheet pans or product on the shelves. These ovens can be used to bake all sorts of products and are commonly used for breads and bagels.
  2. Rotating Rack Oven – alternatively, a Rotating Rack Oven allows you to roll a complete rack of product into it, where one rack can hold up to 20 standard sheet pans. This is a good solution for large productions too, and can cost $15,000 to $20,000 new.
  3. Convection Oven – for small to medium sized bakeries, a small convection oven may be sufficient. Not only are they much cheaper at $4,000 to $5,000 for a new unit, they also take up less space. And if you need added flexibility, you can consider getting a Double Convection oven that will let you bake at two different temperatures at the same time.
  4. Deck Oven – depending on what type of products you intend to specialize in, you may find the need for a Deck Oven, which has an opening for you to slide sheet pans onto the deck easily. The price for a new unit is about the same as a convection oven and they are available in Gas, Electric and even wood fired.
  5. Estimated Used Prices – the prices of used ovens for a bakery depends on their age, condition and availability. On the whole, their prices range between 40-60% of the price of a new one. So, if a new Convection Oven costs $4,250 a used one may set you back anything from $2,000 to $2,500. And if a new single electric rotating rack oven costs $17,000 then you should be able to get a second hand one for about $9,000.

Before buying an oven for your new bakery, you really must know what you intend to bake, and how much quantity you expect to do.

A large oven will not only cost you more to purchase but they will also increase your utility bills, so plan wisely and make sure you actually have a need for it. Furthermore, it will take up space in your kitchen, and could be more cumbersome to move.

If you’re unsure of what to do, consider starting out with a small convection oven and then invest in a second one if the need arises. By having two smaller ones instead of a single large one, at least you will also have a backup should one of them go down.

How Much Does Bakery Equipment Cost for a Small Bakery?

The cost of purchasing all the required kitchen equipment for a small bakery will depend on what you intend to bake and the quantities involved.

Some products like donuts may need additional equipment such as donut fryers and depositors, but on the whole, the equipment found in all bakeries is quite similar.

To give you an idea of what you may need and how much they may cost, here is a list of the essential items in a bakery’s kitchen.

  1. Ovens ($9,000) – A $9-10k budget allows you to get a used rotating rack oven or a revolving tray oven. Alternatively, you can get 2 new convection ovens. What you end up buying really depends on your specific needs and how you intend to set up your operations.
  2. Proof Boxes ($2,800) – for a small setup, you can get a brand new Mobile Proof Box for under $3k. This will hold about 20 standard sheet pans at one time, and can easily be moved out of the way when it is not in use.
  3. Dough Sheeters ($4,000) – a standard unit will cost about $8,000 for a new one, and you should be able to get a used one for $4k or less. Definitely worth the investment if you’re making products that require dough to be rolled out. Over the long run, it will save you time and labor expenses.
  4. Planetary Mixer ($3,500) – a new 30-40 quart Planetary Mixer should be enough for a small bakery. They cost $2-4k so a $3,500 budget should be more than enough.
  5. Spiral Mixer ($6,000) – for heavier doughs, a Spiral Mixer may be needed. They cost about $9-10k for a new one, and you can normally pick up a good second hand unit for $5-6k.
  6. Tables ($1,600) – you may need a maple top, stainless steel worktables, or both. Invest in sturdy and good quality tables as this is where most of your work will be done. If available, you may be able to get used ones for under $1k.
  7. Sinks ($600) – just buy second hand if there are nice ones. Otherwise, get them new. Just make sure you get the required 3 compartment sinks.
  8. Display Cases ($12,000) – budget to get 2 units, one dry and one refrigerated one (assuming you need it). For $12k you can probably get them both new.
  9. Small Wares ($1,000) – from pans to utensils and any other items needed, these should not cost you more than a thousand bucks in total for a small bakery.
  10. Refrigeration ($2,500) – you’ll definitely need a cooler but you may need a freezer as well. You can get them new or used depending on your needs and budget.

The list of equipment above totals up to $43,000 and it includes a mix of new and used items. This figure could be significantly less if most of the equipment is purchased second hand, or it could be a bit more if you decide to buy everything new.

Overall, be prepared to spend at least $35,000 to $50,000 in order to set up the kitchen for a small to medium sized bakery.