Value Drivers for a Bakery
With changes in health trends, the bread production industry has been forced to adapt. Bakeries around the globe have suffered from the effects of the Covid-19 pandemic. Revenue has bounced back somewhat in 2021 with a 2.7% growth. However, there is still room for growth in 2022 and this is the expectation. This will necessitate further changes for bakery owners. It is evident that there is a need for bakeries to increase their value offering to achieve continued growth. Maximizing value requires an understanding of what is valuable within a bakery. The following illustrates some, but not all, of the many key value drivers for a bakery.
Understanding key value drivers for a bakery is vital to your success. It can help you maximize the value prior to selling a bakery. Or if you plan on buying a bakery, it can help you understand growth opportunities. A business valuation will determine the fair market value of a bakery and key value drivers. Peak Business Valuation, business appraiser, is here to help you understand the value of your bakery. Get started by scheduling a free consultation below.
Key Value Drivers for a Bakery
The following are key value drivers for a bakery. Taking the time to understand these will help you maximize the value of your bakery. If you have questions, we are happy to answer them. Schedule a free consultation with Peak Business Valuation, business appraiser.
Attracting customers requires an awareness of the competitive landscape your bakery operates within. When Peak Business Valuation, business appraiser does a valuation for a bakery, we consider the competition. Knowing your competition will help you make better strategic decisions. For example, a pretzel shop within one block of your bakery might make you rethink your product offering. A valuation expert will look at your product mix and the surrounding competition. Customer loyalty is key to increasing the value of a bakery.
Nearly every industry has direct and indirect competitors. Thus, differentiating your brand and products is essential. If your bakery doesn’t differentiate it won’t stand out among competitors. Identifying a niche within your bakery, or a way to be unique will help your business stand out. Some examples of this are unique packaging, creative storefront decorations, an open kitchen concept, etc. There are endless ways to differentiate your bakery. While differentiation, doesn’t directly impact the value of a bakery it will help increase revenue. Revenue will impact the value of your business.
Many bakeries have found new ways to innovate. This innovation can come in the form of streamlining production. It can also come in the form of differentiating, as discussed above. It may also come from making new and exciting bread products. Whatever it is, keep in mind that it is helpful to have some familiarity with the innovation. Customers crave a newness that feels familiar.
Cost of Ingredients
Obtaining the best quality ingredients for the best price makes all the difference. It can greatly impact the final product. The balance between quality and cost is critical. Taste is key to the value being offered to the customer. However, to maintain competitive pricing, margins must be watched carefully. Overspending on high-quality ingredients can also be a detriment to profitability. Other considerations include bulk quantity discounts, shelf-life, turnover rate, etc. Each bakery is unique. Every bakery will have different needs for ingredients. Coming up with a plan to determine your bakery’s needs for ingredients is much more cost-effective than using trial and error to determine that balance. A valuation expert analyzes your financials including looking at operating and profit margins.
Cost of Labor
One of, if not the, biggest expenses for a bakery is wages. Knowing exactly how labor costs affect your bakery’s bottom line will help you make informed decisions. There are ways to help determine how best to allocate the right amount of funds to labor costs.
One of the first steps is determining the number of employees needed to fulfill operational demands. This includes a plan for when to hire another employee after optimal operational capacity has been reached. Another important thing to consider is the right hourly rate/salary for each employee. This will vary depending on experience and other factors. Finally, once these numbers are calculated you can better understand the appropriate hours of operation for the business. For example, it might make sense to be closed on a Tuesday afternoon if foot traffic is lower. Controlling costs is key to maximizing the value of a bakery.
From whisks to ovens, it is important to have a clear understanding of the equipment required to produce bread products. Peak Business Valuation, business appraiser considers the impact these tangible assets have on the value of a company. Not having sufficient baking equipment can hinder optimal operational capacity within the business. This can lead to bottlenecks that leave potential revenue on the table. On the other hand, having too much equipment can have negative effects. Unneeded equipment can be the source of unwarranted costs/expenses. It is worth evaluating the equipment needs of your bakery to understand what your Goldilocks amount of equipment is.
The COVID-19 pandemic caused changes in customer expectations. Customers now expect things like curbside pickup and delivery options for food services. If the purchase and pickup process is too complex it can become a deterrent. Your bakery can benefit from providing convenient ways for your customers to make purchases.
All things have their time and season. It is necessary to plan product offerings for your bakery according to seasonality. This can mean scaling back supply quantities. It can also mean only offering certain products during certain times of the year. For example, it might not make sense for a bakery in Utah to offer hot chocolate in the middle of July. This can help your bakery maintain or improve margins. Seasonal product offerings can also help draw in new and returning customers. Customer loyalty is key to increasing the value of a bakery.
Last, more than ever customers look to their electronic devices for information. Making your bakery accessible through an app, social media, and a website is now fundamental. If your bakery is difficult to find online it will impact revenue. Peak Business Valuation, business appraiser examines marketing and sales strategies when performing business valuations. A strong digital marketing plan is reflected in your bakery’s financial statements. See also, The Value of SEO for ideas on how to increase your online presence.
Having a clear understanding of what influences the value of your bakery will help you improve your business. However, it can sometimes be difficult to understand what drives the value of your business. Key value drivers for a bakery directly impact the value of a bakery. This is where Peak Business Valuation, business appraiser can help. See Valuing a Bakery and Valuation Multiples for a Bakery for more information.
Peak Business Valuation, business appraiser performs business valuations for bakeries across the country. We can help you determine the fair market value of your bakery. A business appraisal will also identify the strengths and weaknesses of your bakery. This will assist you in maximizing the value of your bakery. Schedule a free consultation below to get started.
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