Profit & Loss Reimbursement for a bakery

Joined Nov 29, 2015
Hi All:

I am a professional chef that now is running a cafe/bakery as a general manager (for the past 4 years).  I have a question regarding cost of goods for the business.

Backstory:  The bakery and cafe are run as separate entities..including a different general manager for each.  Since its inception (4 years ago), the cafe has received its baked goods from the bakery without paying for the items.  The cafe is the main retail front for the bakery, however the main revenue source for the bakery are farm markets and wholesale.  Bakery Sales at the cafe represent about 6-10% of net a low figure.  The profit margin of the bakery sales is about 15-18%.  The employees/inventory for the bakery is paid for by these accounts.  

Question:  Recently, the cafe has begun to reimburse the bakery for the breads/pastries that it receives daily for retail sales.  It is viewed that this will create an atmosphere of greater accountability and less waste at the cafe with these baked goods.  Since the bakery management has many accounts, it views this cafe as just another one and would like to handle the business like this, as well.  It is my assumption that the push for this system is to aid with cash flow, labor/inventory cost, etc.  

The cafe purchases the baked goods for 50% the retail price...$4 retail..we pay $2.  

This new system has made a drastic impact on our cash flow and it just does not seem to make sense.  One of my biggest concerns is that I must maintain a full and complete stock of the bread line (even if it does not sell that well)...which creates waste/loss that I incur.  Does anyone have experience with a bakery that is primarily a wholesale/market bakery and has this kind of system?  I am crunching the numbers to find a pay back % that will be good to the cafe business as well as fair to the bakery (which of course should be seeing some of this money.)

Thank you
Joined Feb 18, 2007
First let me say that it's late and I'm tired so I could be not processing a few points so my apologies.

I'm confused by what prompted the change (the cafe reimbursing the bakery) - what problem existed before that this change is trying to solve?

Before the change, did the cafe just order what it needed? I'm not sure where the need for maintaining the full stock of the bread line; is the bakery now forcing you to order based on minimums and not actual sales? Is maintaining this stock new or has it always been this way, only now you're (as the cafe) accounting for the loss?
Joined Feb 8, 2009
It's ok for the Cafe to pay for the baked goods that are bought from the bakery. The only thing is you s/b ordering what you want at a reasonable cost. $2 is to high of a price to pay for the goods your getting. In most cases when you transfer from one restaurant to another I always did it at cost. Do you order the amounts of bakery goods that are sold in the Cafe ?????
Joined Jul 28, 2001
I'm still not understanding how this is going to effect the accountability. Does the retail create a stales list at the end of every day.

Have the businesses been separated legally.

If the bakery is going to look at you as just another wholesale account, I would shop around for prices from other wholesalers. Who is demanding that you have full stock at the end of the day. That's the person who you need to talk to. Inform them  that you can crunch numbers until the cows come home, but you can't survive with a 50% COGS and demand full ending stock. If the wholesale won't sell to you at cost + and you can't order according to sales and they just want a full look all day, that's fine but it will require the bakery to buy back stales.  If they are looking for accountability than that is the best system.

 The bakeries profit margin should be good. I know mine are. You should buy from the bakery at cost + percentage.

Do you sell items prepared in the cafe and the baked goods?

Who knows why these things happen. This time of year businesses look to lower profit margins for reasons of tax.

The change will effect your expenses greatly and put you at a loss. I just don't see any benefits. Your COGS for the cafe should be around 30%

Although I don't have a cafe, just a bakery with an attached retail outlet. The national average for cafes are anywhere from .50 to 3% based on having average mid range prices.

Your job should be to manage, maintain revenues and make money for the business. If you don't get a logical explanation for the change then just raise the prices accordingly until they bitch. Then tell them you assumed your job was to make money./img/vbsmilies/smilies/wink.gif
Joined Jun 3, 2013
i agree with what was said above me.

However i think the issue of you having to full stock is ridiculous . I would suggest having the cafe place an order with the bakery for the items they need the day before so you have have exactly what they need prepared, then you make whatever the bakery typically needs. 

I work for a small restaurant and we focus on not wasting anything! work with your team to control waste as much as possible to increase your profits. If you throwing product away thats throwing money in the garbage. Go over sales/inventory and figure out what sold and what gets thrown out. Adjust your products from there. Also sell the stuff to the cafe at cost plus a percentage ( most likely to cover labor). 

good luck
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