You can’t have your cake and eat it

January 16, 2023

Consumers were paying almost 30% more for a loaf of bread at the end of 2022 than they had been at the beginning of the year. The price, however, doesn’t even begin to reflect the soaring costs faced by bakeries, a sector heading for a wave of insolvencies.

As an industry dependent on the cost of heating ovens day in, day out, it’s unsurprising that bakeries are hostages to energy markets. Some have seen energy cost increases of up to 200% in the past year, meaning monthly bills rising from £1500-£4500 per month. The government’s six-month price cap for energy hasn’t been enough to help, since keeping ovens hot is only the tip of the iceberg.

Although UK bakers aren’t reliant on wheat from Ukraine, the impact of the war has sent wheat prices rocketing globally. UK Flour Millers says the benchmark November quote for bread wheat in north-west England was £328.50, up 60% on the previous year. Edible oils
have also been a pressure point, with poor 2021 harvests in some regions compounded in the following year by difficulties in getting sunflower oil out of Ukraine. Other key ingredients used in cakes, such as butter, alongside other dairy products, have risen steeply in price, while high fuel costs have made deliveries prohibitively expensive for many in the sector.

As is so often the case, small business operators get hit hardest and fastest. Many in the bakery sector rely on sales through social media channels. These are useful and relatively cost-effective for reaching new customers, showcasing unique and appealing products, and building a niche brand. For these enterprising small bakers, costs aren’t the only problem: the wider cost of living crisis affecting customers means they are now opting for cheaper supermarket alternatives for celebrations, rather than enjoying more expensive bespoke goods.

The new energy bills discount scheme announced in December has raised concerns about how the discounts will be applied. It is possible that higher users of energy, who are typically less able to pass on the costs, will qualify for a higher level of relief. On the plus side, the list of eligible sectors includes bakeries; nonetheless, it is feared that small operators, with little remaining scope to pass on higher costs, will before too long find closure inevitable.

The insolvency toolkit offers several options for breathing space to put businesses in the bakery or related sectors on a sounder footing. Managers wishing to explore these shouldn’t hesitate to get in touch with us at Buchler Phillips for a free initial consultation.

Written by Anoushka Desai, Analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency. The cake on the picture is baked by Anoushka herself for David Buchler’s recent birthday!  

How can we help you?

We offer initial free confidential advice without obligation.