5 recommendations on how to make your bakery even more profitable

6 Minutes

Between boom and bankruptcy, the bakery industry is going through turbulent times. While an annual growth of 3.8 percent has been forecast for the industry, many companies are facing enormous challenges.

Bakery chains, multi-unit bakeries, industrial bakeries, or craft businesses: the competitive environment in the bakery industry is, and will be, difficult. The structural change is obvious. Talking to decision-makers from the industry, they always mention the same challenges:

  1. The changed user behavior due to permanent information and price transparency, and the demand for individualism, regionalism, organic products and sustainability
  2. Growing legal requirements and high retail standards
  3. Cost pressure due to pricing requirements in the industry’s market leaders and increasing raw material costs

My contacts frequently report that they need to fight on other fronts as well. Personnel costs are high, recruiting employees and finding successors takes time and effort. The outcome: takeovers, acquisitions and termination of businesses. Consolidation is progressing, as we have now seen from the numbers in Germany. Several big players dominate the market, while 80 percent of some 11,000 German bakery companies generate a turnover of less than 1 million euros. On the other hand, the figures at the international level are rather positive. With annual sales of over 430,000 million euros, the bakery products industry is one of the world’s most lucrative food segments. This corresponds to a per capita consumption of 17 kg, at an average price of €3.41 per kilo per unit within the entire product range.

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Be that as it may, the more an industry changes, the more important it will be to have your processes under control, to reduce the costs, and to increase profits. Surveys among decision-makers, such as the CSB-Digitization Study, have illustrated that the greatest improvements in efficiency can be obtained through digitization and automation of processes. Here are five recommendations for this:

Better control over your production with digital technologies

I think the production department is the best place to be in the company, although occasionally it may be a little “uncomfortable”. Back when I worked at a bakery, I got to know the conditions, and I do understand that the wish for more technological support is particularly acute here.

The good news is that machines and equipment like fermentation interrupters or laminating lines have significantly facilitated the work in production. In addition, digitization makes many things easier and more efficient. For example, ERP systems enable:

  • reduction of the work effort
  • controlled human resource management
  • assurance of the product quality
  • minimization of physical effort

A particularly useful solution in most bakery companies is connecting the flour silos to the ERP system. This interaction allows a direct, batch-specific transfer of the actual quantities into the software system, which leads to more transparency and control possibilities. Manual components like yeast, salt, seeds, etc., can be allocated to the specific batches by integrating table-top or floor scales. Capturing the manufactured semi-finished products like doughs, unbaked products, etc., directly in production is yet another optimization step. This approach has generated several improvements for the medium-size enterprise Staropolska, a Polish pastry chain. 

One technology which, after taking some time to mature, has now made its way into the bakeries is RFID It is ideally suited for the automatic transfer of data in production. For example, when fixed to the kneading trough, transponders supply valuable information about kneading and resting times directly to the ERP system. In addition to that, transponders can be used for quality assurance and cost control.

Several years ago, Hack AG put this into practice. By integrating RFID in the load carriers, they have enhanced transparency to enable precise product traceability along the entire value chain in a matter of seconds. What's more, the technology allows them to assure product quality and improve customer retention.

Plan carefully and don't make any rash decisions

“Make plans, not bets.” “Develop reliable plans to avoid unwanted consequences.” My contacts at the bakeries repeatedly point out the fundamental importance of planning tools.

As consumers are increasingly sensitized to topics like food waste and climate protection, enterprises have to accomplish a balancing act. On the one hand, they need to keep the disposal and return rates as low as possible. On the other hand, they do not want to miss out sales opportunities. Hitting the sweet spot will only be possible with software-aided planning.

I would always favor integrated planning systems that can do without expensive interfaces. All data is located right where it is needed, reducing data processing times to a minimum. At the functional level, the planning system should ideally present production, sales and procurement planning on a daily, weekly, or monthly basis in a clearly structured matrix and provide suggestions to support the planner.

Production planning in the food industry: total solution or best of the breed?

In numerous projects, we could establish that the effective use of a planning software ensures:

  • Raw material procurement at more favorable prices
  • Optimum utilization of machine capacities
  • Optimization of inventory capacities
  • One hundred percent delivery precision

Our customer Rischarts Backhaus, based in beautiful Munich, has demonstrated what productive planning looks like. Rischarts supplies its 15 subsidiaries up to five times per day. They accomplish this through complex real-time planning and elaborate logistics, made possible only by using an integrated ERP system. Even unplanned sales of pretzels, rolls, bread, pastry, cake, etc., are represented in the plans so timely action can be ensured.

The production orders resulting from the plans can be transferred to the bakery in a digital format or, alternatively, as bakery schedules on paper.

Make good use of your data

Systematic data collection can turn a bakery business into a real top performer - if the information obtained is used strategically. I believe that the best way to rationalize the facts is by using an all-encompassing solution. For two reasons:

  • Data does not need to be painstakingly extracted from and transferred to other systems
  • Storing the data in a single system allows you to generate sophisticated reports. As a result, you can keep an overview of your entire business - in real time

The following example illustrates the dependency between information quality and the software in use. You know the basic calculation of a product but you cannot say for sure whether you have produced it profitably. Purchasing raw materials at higher than usual prices, or assigning two instead of one employee for manufacture has a direct effect on the product cost. An ERP system allows you to evaluate these specific data and helps you make important management decisions. In other words, take your gut feeling, add hard facts from the ERP and get a killer combination that supports you, for example, if you want to eliminate low-profit products from your assortment.

Do not miss the opportunities of online business

Digitization provides the consumers with new shopping possibilities in the form of online shops. Experts expect the purchasing behavior to change permanently due to the corona virus. Online orders will increasingly attract buyers who, to date, preferred brick and mortar stores. This opens up additional sales opportunities for bakery companies if they offer their products in their own web shop.

The required work and expenses need to be kept at a reasonable level. One solution could be an online shop that is connected to the company's ERP. In this case, the effort after the initial installation is virtually zero, because all data like product images, ingredients and stock information are supplied directly by the ERP database. Apart from that, your order entry staff saves time as the entry of the orders is shifted towards the customers. One online shop variant is, for example, “click and collect”. Customers can order their products via the internet and collect them at one of your subsidiaries. REWE is one of the companies using this approach. With an online shop, you can also support your field staff. They can enter the orders in the web shop directly at the customers’. The benefit, there is no need to laboriously re-enter the data at the office. Finally, your subsidiaries would benefit from placing their orders via an online shop.

Here are some current statistics to support this topic:

  • According to “Allgemeine Bäckerzeitung”, 25 percent of the respondents rated online shops as positive in order to generate additional sales or to relieve their staff
  • The CSB Digitization Study 2020 saw an upward trend in investments in the end consumer business, also via the web. The respondents also underlined the importance of digitization in sales, marketing, and CRM. Three out of four respondents confirmed that they have solutions in use or that they are in the planning phase

Optimization at the POS

I would like to conclude with a few words about the new “receipt requirement” in Germany. Since January 2020, a sales slip has to be generated for every sales transaction, provided that an electronic registration system is used. Companies are compelled to generate these receipts - just so they end up immediately in the paper bin. Again, digitization offers a solution to this issue. The sales slip does not necessarily have to be printed. According to the German cash register regulation, a receipt can be issued in paper form or, with the consent of the recipient, electronically in a standardized data format.” This “flexibility” allows the electronic transmission of the receipt to the customer. Practical solutions provide the sales slips via a scannable QR code on the customer's smartphone. In a survey of “Allgemeine Bäckerzeitung”, more than 30 percent of the respondents stated that they use digitization to comply with the receipt requirement.