Wastage of unsold products can be a problem with bread, and even more so with higher-cost items, such as pies and pastries. But in the deli trade, it can mean the difference between being in business and out of it.

Stocking potentially dozens of high-cost lines, each of which has a short shelf-life (but different sell-by dates), is a daily jaunt through a financial minefield. As Shirley Cobley, co-owner of the Bakery & Delicatessen in Woodhall Spa, Lincolnshire, puts it: "We have to be very careful on rotation."

Of the shop she calls her "mini-Harrods", she adds: "It’s a good business, but it’s stressful. A lot of that stress comes from the fact that you cannot allow any waste. You have to keep watching your stock."

Recently, these and other strains even led to a falling-out with her business partner. And, in the 21 years she has run the business, she reckons she has had just four holidays.

Over in Worcestershire at the Ombersley Bakery & Deli, co-owner Diane Seivewright agrees that wastage is a constant concern. "You have to keep an eye on what you’re selling all the time," she says. "Otherwise, what you’re throwing away is your profit."

As she points out, most delis will factor potential waste into their margins (see panel). Increasingly, even locally-produced lines, such as cheeses and bacon, can be supplied portioned and pre-packed, says Seivewright. This means that shelf-life is longer, and the mark-up might be less. With some products such as sausages, she says, chilled storage simply does not make sense for her business, and they are supplied frozen.

She has one prime piece of advice for would-be doyens of the deli: "If you have a small kitchen or preparation area that has been approved by Health & Safety, you can make use of many of your leftovers in soups and so forth."

BB columnist Jo Fairley makes the same point. Better-known as one of the founders of the Green & Blacks chocolate brand, she took on the co-ownership of Judges Bakery in Hastings in 2005. Judges stocks local fresh produce, and anything that is not sold is likely to end up in a soup. Similarly, she says, any smoked salmon reaching its sell-by date becomes the filling in a sandwich. Other owners offer free tastings or sell off products at cost price.

When Fairley bought Judges, it was a bakery only. "The numbers didn’t add up, and we realised that the only way to make it work was to turn it into a ’one-stop-shop’," she says. "Organic is the given. All food has to be sustainably produced." It is also all sourced from within 15 miles.

The shop has some 40 different suppliers altogether. "It was time-consuming and labour-intensive to begin with, but people do respond to the local message," she explains.

Given concerns about wastage, Seivewright at Ombersley says her philosophy with suppliers of short shelf-life items is "little and often". This way, using local suppliers can yield two benefits. It plays to growing consumer awareness of - and preference for - local products, but also allows more frequent and precise regulation of stock. Some suppliers may stipulate minimum order values such as £50, she adds, although many locals will waive that.

Backhaus development

Gerd Kusche owns the Backhaus deli and bakery in Ham, south-west London. Although he has a history in bakery-related new product development, international consultancy and entrepreneurship, in this case the deli came first. Later, he opened the craft bakery two shops away.

The area’s substantial expat German population provides the backbone of his business. On the deli side, this includes some 100 different sausages, which will keep for up to 28 days, around 40 cheeses and up to 700 popular grocery items.

Surprisingly, supply lines to Germany are not complex. "In fact, we have a single merchant who provides us with all the products we need," he says. "One of the big advantages is that most of our products are not available elsewhere in the UK - or else are prohibitively expensive."

In this business, health and safety concerns are never very far away, and food safety training for staff is important. But even where part-time staff are trained and well-intentioned, the owners will inevitably find themselves in a state of eternal vigilance.

"You always need someone on-site who will take responsibility," says Seivewright at Ombersley. "I used to constantly be double-checking that certain things had been done, such as dates written down for fresh pâté."

Fairley at Judges takes all of this in her stride. "We have temperature checks three times a day and a daily date check," she says. "Any short-dated stock gets noted down."

In terms of inventory management, she advises would-be deli-owners to invest in a good electronic point-of-sale (EPOS) analysis system. "Ours was quite an investment, but you know what, you’re selling hour-by-hour," she says.

In the end, whatever the benefits of spreading the risk and the opportunities with deli lines, they are no guarantee of profits - or even turnover. Fairley confesses: "Grocery sales generally are in freefall." She puts this down to customers throwing less food away. Or could they be shopping around more?

Whatever the reason, it has had a dramatic effect on her business. "We’re looking at temporarily closing down the back of the shop and having just our 500 best-selling lines at the front," she says.

So the verdict seems to be, if you have clear ideas about stock management and margins, a strong pool of local suppliers and possibly a specialist or ethnic angle, then an in-store deli could be the break or extension you are looking for. Otherwise, there are always other less risky options, such as launching a new chocolate brand...


=== What are the margins? ===

Exceptionally, perhaps, Judges in Hastings claims to make proportionally less on deli products than on baked goods. "If I were making the margins on everything that I’m making on bread, I’d be a happy bunny," says co-owner Jo Fairley. Instead, she says, non-bakery products are marked up 33-35%.

At Backhaus in London, the relationship is reversed, with bakery pulling in 40-50% of net profit, says owner Gerd Kusche. Margins on the wide range of imported German deli products range from 60% to a whopping 120% net profit, he claims.

Meanwhile, at the Ombersley Bakery & Deli in Worcestershire, co-owner Diane Seivewright aims for margins in the 40-45% range, and will go no lower than 35%. "But 65% or even 80% margins are quite usual for deli businesses," she says. "Some even go as high as 100%, because you end up wasting the food."


=== Case study: Huntley’s ===

Farmer Eddie Cowpe opened his farm shop, Huntley’s of Samlesbury, in response to the foot-and-mouth crisis of 2001 and has developed it into a full-blown deli and a destination attraction. A bakery was built in March 2008 and, with former Greenhalgh’s employee and one-time BB Young Baker of the Year Mark Hanson at the helm, the bakery is already turning over £3.5k a week - around a 10th of the deli’s sales - plus an extra £1.5k sold through the adjoining restaurant.

Hanson uses back-to-basics methods, including 48-hour fermented doughs. Cowpe says: "We cannot make enough bread at the moment - it’s taking off. Everything is done traditionally and Mark really knows what he’s doing."

The range has developed to include pies, cakes and pastries and the next step will be to wholesale the bakery. "We’re finding we can compete with the supermarkets," says Cowpe.