Flour price rise across two bread lines
Your village bakery bakes two lines. Sourdough: 900 loaves a week at €4.80 retail, 480 g flour per loaf, €0.18 of other ingredients, €0.06 packaging, €1.10 direct labour and €0.85 allocated overhead per loaf. Baguette: 1,400 a week at €1.05 wholesale, 250 g flour each, €0.05 other ingredients, €0.02 packaging, €0.28 labour and €0.22 overhead. Flour has just moved from €0.95 to €1.30 a kilo and the mill says it will hold there. Unsold waste runs at 8 % on sourdough and 6 % on the baguette. The wholesale customer for baguettes is eleven months into a contract and wants a fixed price. The owner's instinct is to add 5 % to every price. You have a week to bring a proposal.
1. Calculate the old and new unit cost and margin for both lines, and say which line is genuinely exposed and why.
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Sourdough (old): flour 0.480 × €0.95 = €0.456; + €0.18 + €0.06 = €0.696 ingredients. Total = 0.696 + 1.10 + 0.85 = €2.646. Margin = 4.80 − 2.646 = €2.154 (44.9 %).
Sourdough (new): flour 0.480 × €1.30 = €0.624; ingredients €0.864; total €2.814. Margin €1.986 (41.4 %). Loss ≈ €0.168 per loaf, about €151 a week.
Baguette (old): flour 0.250 × €0.95 = €0.2375; + €0.07 = €0.3075. Total = 0.3075 + 0.28 + 0.22 = €0.8075. Margin = 1.05 − 0.8075 = €0.2425 (23.1 %).
Baguette (new): flour €0.325; ingredients €0.395; total €0.895. Margin €0.155 (14.8 %). Loss ≈ €0.0875 per unit, about €123 a week.
The cash loss is similar in absolute terms, which is why the owner's '5 % on everything' feels fair - but it is wrong. The baguette has lost 8.3 points of margin against 3.5 on the sourdough; its margin has fallen by a third. A flat 5 % lifts the sourdough to €5.04 (already comfortable) and the baguette to €1.10, which still leaves it at ~19.5 % - below where it started, on a contract price you cannot easily revisit for eleven months.
2. The wholesale customer refuses any price movement for eleven months. What are your options, and which do you take?
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Options, cheapest to most drastic:
- Take cost out of the baguette without changing what the customer sees. Longer cold bulk and a same-day bake reduces waste; tighter scaling tolerance and better shaping reduce giveaway. Realistically this buys 1–2 %, not 8.
- Reformulate. A small hydration increase or a switch to a slightly cheaper flour grade for the baguette only - but the baguette is a cheap product where the crust and crumb are the whole value proposition, and a visibly worse baguette loses the account anyway.
- Renegotiate the contract on a specific, evidenced basis. Bring the mill's price letter, show the flour cost per baguette before and after (€0.2375 → €0.325), and propose a modest, capped increase - say €0.05 now, with a review if flour exceeds €1.40. Buyers accept arithmetic far more readily than a general 'costs are up'.
- Change the mix of what the account buys. Move volume toward a higher-margin item in the same delivery; the customer's total spend rises while the baguette price holds.
- Exit the contract. Only if the numbers genuinely do not work.
I would run 1 and 4 immediately, and put 3 in writing within the week with the figures attached. The one thing not to do is absorb the whole increase silently: at €123 a week, eleven months is roughly €5,400 - more than the line is worth.
3. Quantify what cutting sourdough waste from 8 % to 3 % is actually worth, and explain the limit of that saving.
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8 % of 900 loaves = 72 unsold loaves a week. Cutting to 3 % = 27 unsold, so 45 loaves a week are no longer baked. At the new sourdough ingredient cost of €0.864, that saves 45 × €0.864 ≈ €38.90 a week, about €2,020 a year.
The limit matters: only ingredient and packaging cost is recovered. The labour and the allocated overhead are already spent - the baker is there and the oven is hot whether you bake 45 loaves or not. So the saving is roughly a third of the retail value of those loaves. It also cannot be banked twice: waste reduction is a one-off step, not a recurring annual saving, so it funds a price decision rather than replacing one.
How to get there without losing sales: bake to a two-week rolling sales record by day of week rather than to habit; hold back a small frozen part-baked buffer for the last hour; mark down at 16:00 rather than binning at 18:00; and for the baguette, whose 6 % waste is 84 units at €0.395 = €33 a week, shift the last bake 30 minutes earlier so the final batch is not orphaned. Worth noting the two together - about €72 a week, €3,700 a year - is more than the entire flour increase on the sourdough line, which is the strongest argument you have when the owner asks why the answer is not simply a price rise.