Bakeries (Commercial)
We have years of experience in this industry for the valuation of the business, equipment and real estate. Let us help you with our valuation consultation in all areas of the valuation of commercial bakery businesses. Below is a brief synopsis of the industry.
Description of Business
Establishments primarily engaged in manufacturing fresh or frozen bread and bread-type rolls and fresh cakes, pies, pastries and other similar “perishable” bakery products.
General Industry Information
The commercial bakery industry is quite sizeable, accounting for nearly $24 Billion in production as of the recent US Census. There were approximately 2,500 commercial bakeries in operation that same year, which is an 8% decline from the total operators in commercial baking during 1997, with average annual sales being $9,600,000 per business. Generally, commercial bakeries are located close to their clients (often in large municipalities), in an effort to maintain freshness of the product.
Commercial bakers sell their products to restaurants, hotels, other food manufacturers, along with food markets. Often, a contract is negotiated specifying term and fixed price of the product. Existing contracts are a strong positive for firms looking to sell their business. Indirect competition has been eating away at this industry for the last few years. Rather than engaging the services of commercial bakeries, some retailers have opted to bake their own bread utilizing dry mixes, or to purchase large quantities of bakery products from warehouse stores.
This business is associated with thinning profit margins. Companies in a good financial position are opting to buy poorer performing operations, and expanding the parent unit’s distribution base. The acquisition and subsequent industry consolidation trend is especially apparent during recessionary periods.
Licenses to produce bakery goods are necessary, and any industrial space occupied by bakers must be zoned appropriately. It is important to comply with Clean Air and Water regulations, which affect this industry in several respects. Oven emissions and wastewater are the primary materials of concern to regulators.
Red Flags and Risks
Operators of this type should be very concerned about competition from similar commercial bakers. The loss of a large client can be devastating, so buyers should carefully examine existing contracts. Similarly, a buyer should check on any lease agreements. Leases are particularly important in this business, as it may be difficult to secure a rental location that permits a commercial bakery. Potential on-the job injury can include burns or other body harm caused by baking and large kneading equipment. Safety precautions should be employed and enforced to minimize worker injury. Lastly, this business can face trouble if the product’s input costs rise. Recently, bakers have struggled to pay the higher prices of wheat flour, after a drought cut raw supplies. Some larger companies purchase futures contracts with the hope of stabilizing volatility in the prices for commodities. This option is not likely to be feasible for smaller operators. As such, upswings in prices generally affect the smaller businesses to a larger extent than their large diversified counterparts.
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