The cost of basic ingredients used in bakery has risen extraordinarily over the past year.
Poor wheat harvests, increased production of biofuels and demand from China have helped to push commodity prices ever higher. The price of wheat increased by 88% during 2007, and has gone up by another 5% since the beginning of the year, according to Bako’s chief executive David Armstrong. Cereals, fats, dairy and eggs have also risen rapidly - in fact, it would be quicker to list those ingredients that haven’t risen in price.
Craft bakers are certainly suffering the effects. Phil Davis, managing director of Woodheads of Scarborough, said the business is feeling the pressure from raw material price increases across the board. The cost of flour is having the biggest effect, almost doubling over the past year, he said. Fat, meanwhile, has gone up in price threefold over the same period.
Woodheads has increased its retail prices to cover the extra costs and Davis cannot rule out further rises over the next year. "If you’re facing increases in raw materials, then you have absolutely no choice but to raise your prices and face the consequences," he said.
Unfortunately, customers tend to be less accepting - or more aware - of increases at craft bakers than in supermarkets. "Certainly, in our sector, it’s much more recognised when you’re increasing prices - then you’re at risk of losing sales," he said.
Craft bakers around the country report a similar picture. Above-average rises in raw materials have affected Penrith baker Bells of Lazonby "massively", according to managing director Michael Bell. Flour has gone up by at least 200%, and almost all other ingredients have also risen significantly. "We use an awful lot of anything cereal-based. We use rice and rice products. Egypt and India have stopped exporting it, and it recently rose by 35% in one day." Eggs, butter and skimmed milk have also risen beyond average, he said. Bells has had to raise retail prices, but "in no way have we recovered the increased cost", said Bell. The rising costs of energy have compounded the problem.
Flour prices have also been a major issue for Flourish Craft Bakery in Tottenham, London. Founder Paul O’Connell said the cost had gone up by around 60% over the past year. Butter has also rocketed. As a result, Flourish was forced to put its retail prices up by 5-10% recently, and has just sent its revised product list out to customers - most of whom are restaurants, hotels and upmarket food shops.
While few hotels and restaurants have complained about the increases, some of Flourish’s café and deli customers have said their own customers have moaned about the price rise. He expects more complaints next month when the new pricing structure kicks in.
Fellow London-based baker Eric Rousseau, owner of Belle Epoque patisserie and bakery in North London’s Newington Green, said things are "pretty tough" for his business at the moment. The patisserie sources most of its raw ingredients from France, and has suffered a double-negative effect from spiralling ingredients prices and the strength of the Euro. Rousseau has put prices up over the past year to cover the extra costs, and customers have been generally accepting of that because of the wide media coverage on commodity costs.
In the current climate, negotiation skills and lateral thinking seem to be vitally important if craft bakers want to survive and thrive. Stuart Oetzmann, owner of Norfolk’s Metfield bakery, said careful negotiation with millers means he has not had to pay more for flour over the past year. Customers, however, expect to pay more for baked goods, as they have read about wheat prices in the papers. Because of this, Oetzmann has been able to put prices up and his margins have improved. "In a perverse way, it’s done us a favour," he said.
== Tactics for growth ==
Craft bakers are employing different methods to tackle the problem of rising costs. Scarborough’s Woodheads has been able to insulate itself against price spikes to some extent with forward contracts, but this has been limited, because it doesn’t have the buying power of major operators such as Greggs. Davis is hoping for a downward trend in prices for raw materials sooner rather than later. The higher prices for wheat will motivate growers to plant more, easing supply and causing prices to fall, he said. As prices fall, "those that have stockpiled [the wheat] will have to release it to realise their profits".
Davis described the current climate for craft bakers as "scary" but added: "In unprecedented times like these, we have taken the right measures to make sure we will survive and come out the other end."
Belle Epoque’s Rousseau has also taken steps, including negotiating with his suppliers on forward contracts for flour and butter over the next three months, but said there will be no guarantee of a set price after that. He added: "My flour dealer is talking about another increase, so I’m going to have to renego-tiate hard."
He’s also planning to reduce costs by cutting down on packaging - a move that fits in nicely with ’green’ trends - and start using paper bags. Rousseau hopes to attract new customers by continually developing new products. He has already developed a fine line in macaroons, and is launching a summer flavours range, with five to 10 new flavours. In addition, he has developed a good relationship with local press, so that word about the latest products and offers at the bakery spreads fast in the local community. The one thing Belle Epoque will not do, Rousseau said, is compromise on the quality of its ingredients.
Flourish’s O’Connell is also staying positive. The current situation has been a wake-up call to the business, he said. He plans to cut down on packaging and introduce other efficiencies. "It has given us a bit of a kick up the backside to be more prudent," he said. "And, as long as we can still produce a good-quality product, people will be willing to pay."
Bells of Lazonby’s Michael Bell believes craft bakers are particularly innovative, and can use this skill to protect their business. "You can try to re-engineer products, or withdraw those from which you are not making a good margin."
Buying groups such as Bako are also providing vital negotiating power to smaller operators. Bako’s Armstrong said: "We are spending an awful lot of time and money studying the markets to try and deliver to customers the best possible prices. Sometimes that means buying long and sometimes buying short."
Whatever the challenges, there is clear evidence that craft bakers are shaping up and adapting where necessary to survive, but without com- promising on the high quality that their customers have come to expect.