Sourcing ingredients & costing Chapter 9

One of your greatest manageable cost relationships is where you purchase your supplies: - Review categories of supply channels - How to purchase as well as possible - Mistakes people make - Specific suppliers - Costs, bowl costs, expected yield - Profits, pricing method to use

Manufacturers & distributors some companies are both Manufacturers & distributors some companies are both. They carry brands (distributor), and they also carry their own house brand (MANUfacturer). A FEW THINGS about distributors Some National Manufacturers/Distributors The greater percentage of your total purchase dollars that are spent, the more resources they will apply to your account. Your sales rep is key to sourcing your supplies, they also control pricing. - BakeMark- owned by Dutch company CSM, sells in over 100 countries. Full line distribution - Dawn Food Products- family owned and operated, in over 100 countries, full line distribution - Puratos- in 53 countries, manufactures in the US, most distribution moves through warehouses other than its own

Local distributors/pastry vendors EuroMid Swiss Chalet Costco Callebaut Valhrona Sysco Labatt Johnson Brother’s Ben E Keith Amazon!

Questions & Answers QUESTIONS ANSWERS I heard that you need 4-5 suppliers so I can check prices and get the best price always? I pay my supplier at he end of my terms, plus a week. They don’t say anything, and I get to keep my money working a little longer. What is the best practice? I like the driver to put he order up for me and to rotate. Am I smart or what? My salesman is not friendly so I have to beat him up on prices every week. Is there a better way to do this? They are always out of stock of my favorite brand of butter. What can I do about it? 1. Think of it like grocery shopping.. Would you go to 5 grocery stores to do your weekly shopping? It is best to have a primary & secondary. 2. Not paying on time hurts your credit score, racks up additional feed, can penalize you on future accounts and costs. 3. No, it can cost you money for the truck, the driver, or additional fees. 4. No, it would be like having a customer that comes and treats you like garbage every week! Find a new rep, hash it out, keep the relationships professional. 5. You may need to find a permanent replacement. Sometimes it may be seasonal, you may not be a large enough purchaser to maintain the product, good communication is key.

Costing materials DECIDING HOW TO PRICE MERCHANDISE: 3 THINGS TO CONSIDER - Part science - Part math - Part competition - Part instinct

How do you manage high and low margin items How do you manage high and low margin items? How do you predict one or the other? High margin items in bakeries, usually are Low margin items in bakeries, usually are - Convenience Items - Lower product quality Contain shortening vs. butter Contain fillers Scratch made items. But then what is your biggest cost? - Wholesale items that you are reselling - Hand decorated items - High Quality Specialty ingredients

Costing materials Yield Margins Gross Margins Recognized loss and calculated it into selling price. Loss known as shrink. Yield margin is calculated by: taking the retail price, reduce it by 10% (assuming you will mark down or throw out 10% of what you make). Then you take the yielded 90% retail and divide the yield price into the cost, that would give you the cost of material as a percentage. EXAMPLE: 1.00 selling price x .9 = $0.90 as the yielded selling price; divide it into the selling price, which in this case is 30 cents. The result is 33.3%, the material cost percentage. This method does not account for packaging and labor. This method is out dated. Gross Margins Newer concept, basic, one of the best methods. Net Sales- Labor + Materials + packaging = Gross Profit The goal is to have gross profit of 44-46% (this is an example) Which means your costs have to be 54-56% You are paying for labor when you purchase, receive, and sell. Gross margin is one way to stay in balance. Materials = 25 Percent Under this method, materials are 25% of the total. So, you would cost your product, determine your yield per batch, and determine the cost to make each item. Then multiply the results by 4, and that was the price you needed to see the product for. This was 50+ years ago! Wages were low, labor was plentiful Materials = 30 Percent Figure bowl cost of product, yield, then cost per item. Take the cost of the item and divide by .3 and the result was the price you sold merchandise for. This was 50+ years ago!

BUT Also consider- your best seller is Many bakeries use a margin mix to check the overall health of their business Margin mix refers to the average margin of multiple items you are selling. For example, let’s look at cookies: - Chocolate Chunk 58% margin - Snickerdoodle 67% margin - Oatmeal Raisni 52% margin Average margin on your cookies is 59% BUT Also consider- your best seller is CCC 60% of sales SKR 30% of sales OAT 10% of sales

Demand Based Methods Why make something unique? Let’s review the following examples: - When does a clothing store not have a sale? - What day is it cheaper to fly? - Is movie popcorn worth the price? - Hotel rooms change prices daily, why? - When you buy a mini can of shaving cream in the airport, why can they charge $4? - When you buy flowers on Valentine’s day, are they more or less expensive? LET’S REVIEW PRICING NOT BASED ON COST There is a store down the street that sells low priced, prepackaged muffins. You craft your to a special formula and have a lot of great flavors. Can you charge a different price to the customers? Are you unique? Door Buster Deal Example: Selling a 10” cherry pie for $3.99 ONLY for the first 3 customers. After that the same pie is $9.99

*Creating Demand for your products *Capitalizing on impulse pricing * Demand Pricing Relatively new to our industry, but a growing trend. Setting your prices high and discounting as needed. Clothing stores/hotel rooms People who plan ahead get a better price, people who do not, pay more. Think of cake decorating.. A 3oz blueberry muffin is .59 down the street. Does that mean you can only charge .59? Is yours larger or smaller? How does your product quality differ? How does your bakery differ? Your staff, your selection? Your packaging? People shop based on: Convenience, quality, price When you have the right product, location, service= who cares about price? Popcorn at movies Shaving cream in airport Sporting event food items/drinks

Recipe costing & yield handout Basic cookie recipe. Should always be in pounds and ounces. Figure the total batter weight Figure how many 2 oz cookies How many 3 oz cookies yield a batch Figure your batter costs per pound Figure your labor on creating 1 batch of dough Waste? How will you price your cookies 2 oz? 3 oz?

profit Increase sales as much as possible! Profit in this industry usually ranges from 0-15%. It can be considered a low margin business. Some cupcake shops can turn a 20%+ profit. profit See example Gross Sales $ 105,000 Minus: Over Rings & Returns $ 5,000 Net Sales $ 100,000 Materials $ 27,500 Labor $ 41,000 Total $ 68,500 Gross Profit Dollars $ 31,500 Operating Expenses $ 25,000 Net Profit $ 6,500 Profit 6.5% How does this change your goals? Increase sales as much as possible! Keep material costs as low as possible. Keep labor as low as possible. Use your budgets and forecasting. Be careful of your operating expenses.

Components to profit Avoid materials cost increase by attending to these details: - Yield test your batches - Scrape everything CLEAN! - Oven timers are a great investment.. WHY? - Lighting in and around the oven area - Keep proper track of waste - Curtail grazing/theft Failure to control labor is the single greatest problem bakery owners face! Material prices keep going up, and you cannot afford to have your prices out of line. How much is enough? What does enough mean? Can there be too much?

discounts - 5 TYPES Wholesale- ex 15% off + free delivery Occasional Structural - Driven by specific events Increased customer base New item Coupons Promotions Bulk orders- have your structure in place Ms Smith is asking to purchase 100 dozen rolls. Should you give her a discount? How much? Your entire profit is only 6.5% If the rolls were $6 per dozen, the $60 discount would be worth the price of the total bill, you would still make a profit. The key here is that you remain constant on the cost of materials and labor! - 5 TYPES Wholesale- ex 15% off + free delivery Everyday bundling- buy a sandwich get a free dessert Everyday pricing- buy 12, get the 13th free Discount when you purchase 6-12 Class of customers

Wholesale 15% off + Free delivery Everyday Bundling Buy a sandwich & get a free dessert The key to pulling this off is taking the cost of both items and divide by the amount charged. Give an example. Where do you have to be careful in pricing the bundle? Everyday Pricing Buy 12, get the 13th free This is a gimmick, be sure to build the cost into your price for a dozen items. It is all about perception! Discount When Purchasing 6-12 This is a way to increase your basket size and move through your product Class of Customers You own a bakery across from a hospital. You are asked to give hospital employees a 10% discount. Looking at your customers- 65% of them are from the hospital. What they are asking for is for your to lower your prices across the board. Offer other incentives, catering, pickups, large order purchasing discounts, great service, and daily specials. Peak hours- delivering $30 order. Delivery= 20 minutes, 10 miles total Delivery cost is at least $10- how much are you actually discounting? Original order was $34.50 You took off $4.50 + $10=$14.50=42% discount!! NOT GOOD! Better option: Offer the buyer 20% off, but they pick up and pay weekly. Save your resources, save your $$$ $34.50-20%= $27.60

One last discount (not suggested) MARGINAL PRICING Marginal pricing is a short term game and should be used for very limited applications. Greater risk Form of pricing where you do not cover your overhead, justifying that it will be covered by other sales. You may use this sparingly when dealing with a one time order, perhaps a charity, friends business needs, or passion project.