Profitable bakeries keep food costs below 35 percent. 

As the retail bakery universe shifts gears into two basic types of operations, the small shop with a defined niche and the larger bakery with a strong reliance on volume, there remains an urgent need for all bakery owners to sharpen their math skills and gain a clearer understanding of how to calculate accurate food costs.

Profitable bakeries and bakery cafes tend to keep food costs below 35 percent. This is an estimate and can vary depending on the types of products your bakery sells. But it is a great starting point to use as an effective measuring stick.

Consider that during the past five years average wholesale food prices climbed 25 percent, according to industry estimates. Retailers can expect to get pricing relief on several of the major commodities in 2015.

Still, retail prices have not risen at the same pace, though, putting additional pressure on bottom lines. In fact, food costs are cited as the top challenge by about one-quarter of restaurant operators this year, according to the National Restaurant Association.

How to calculate food costs

Keep track of food costs month to month to guarantee accuracy.

For bakery owners, start with a defined time period over which you are going to calculate food costs, say 28 days. Include all food and beverage expenses in your food cost percentage.

Don’t forget to factor in the cost of your inventory. This is where many people make mistakes when calculating food costs. Determine your inventory adjustment for each 28-day period by recording your beginning inventory (in dollars) and ending inventory.

Subtract your ending inventory from beginning and add that number to total purchases. This is your total cost of food sales. Divide this number into total sales for the 28-day period to compute your food costs.

If your food costs fall below 35 percent, ideally below 30 percent, your operation should be in good shape. But keep close track of food costs month to month to ensure you are not losing touch with an accurate measure.

Looking at leaders

Industry leaders like Starbucks and Panera know how to keep costs low without sacrificing quality.

One of the most effective ways to managing food costs and maximizing profitability is to examine how leaders in the industry measure up. One of the most successful restaurants at succeeding through high quality and low food costs is Panera Bread. The bakery cafe chain is one of the fastest growing chains in the country, with more than 1,800 stores nationwide. It has done so by keeping food costs at or below 29 percent.

Panera Bread’s cost of sales, or food costs, increased slightly by 0.66 percent to 29.86 percent, as reported in its latest quarterly fiscal report. Overall, the company faced a food inflation of 2 percent year to year, mainly due to dairy and butter.

Starbucks is another well worth watching. Starbucks, which reported record revenues of $16.4 billion (11 percent growth) in 2014, has been testing new lunch sandwiches at its US locations to attract more customers after the morning rush, as well as adding bakery items and breakfast sandwiches. The food expansion contributed to a 6 percent gain in same-store sales for the Americas region in 2014. Analysts had estimated a 5.1 percent increase.

Starbucks is adding new products without changing its targeted food cost percentage, which falls roughly in the 34 percent range.

Cliff Burrows, group president the Americas for Starbucks, says that the company will be introducing a new smaller footprint with a select range of products (take away only) that are focused on meeting the demands of customers in urban locations during the morning peak. “This new format will open up new doors in places we haven’t been able to go before,” he says. “I am pleased to announce that our first of this new format will open next quarter in New York and we are on track to open 4 more by the end of the year. By the end of 2019 we will double food sales in the Americas through breakfast, lunch, snacks and the evenings program.”

Starbucks plans to grow its food business in the US from 18 percent to 25 percent of revenues by the end of 2019, adding an additional $2 billion to its base business.

Starbucks Canada already is giving customers in British Columbia and Ontario new reasons to enjoy more than just their cup of coffee each morning. More than 70 percent of Starbucks Canada cafes have transformed their pastry cases with the Canadian debut of a brand new assortment of classic French-inspired, artisanal pastries from La Boulange  Bakery.

“Great coffee deserves great food and like Starbucks and coffee, La Boulange represents so much more than finely baked goods,” says Isabelle Hemond, director, Food, for Starbucks Canada. “We share common values with the goal to inspire moments of connection at our core.  We are bringing our customers products made with simple, high quality ingredients that are truly exceptional.”

Starbucks has made strides in evolving its food portfolio and La Boulange represents a significant next step in the company’s journey to bring authentic and delicious food to customers who expect the best, free from artificial dyes and flavors. Founded by renowned baker and chef Pascal Rigo, La Boulange was shaped by taking French baking traditions and developing authentic, homemade specialties. The Starbucks Canada La Boulange pastry assortment includes nine artisanal pastries.