Inflation causing higher prices at the local bakery | Hacker News Reader

Inflation causing higher prices at the local bakery

twitter.com

41 pointswrycoder23 comments

Inflation has been brutal on the industry. Saved a 4-location retail bakery chain in my hometown from collapse in mid-2020. Converted 2 locations from "bakery cafes" with 60-80 seating to no-seating, quick pick-up locations with much larger production capacity and an online order focus. Shutdown one location that was not in a neighborhood that was going to support 2-3x increased prices. Turnaround has been going great and we've managed to save 100 jobs and go breakeven on our original investment 18 months following re-opening.

We treat the 4th location which has the most upscale geography as our lowest margin "loss leader" by retaining the bakery cafe model and have used it to move the brand upmarket significantly. Total input costs are up 70-80% and in response we've moved pricing on staple items up 2x and tacked on upsell to increase AOV from $14 to almost $50.

A lot of you are going to dislike what I wrote above, but this is how we survived. Even after all that, the business has only 8% margins vs. the 40%+ margins in our B2B SaaS portfolio (what I did before taking this project on).

And we had planned out this upscaling playbook before inflation was even a concept. Rents are up, energy costs are up, water costs are up, and we're now paying our average employee 50% more. If we had tried to preserve what was there, we'd probably be out $2M+

> A lot of you are going to dislike what I wrote above

I don’t know who would dislike a story of hard work urgently forming a sustainable business during a series of black swan economic impacts and saving so many (now) higher paid jobs in the process! Perhaps people whose opinions you oughtn’t concern yourself with anyway?

Appreciate it sincerely. I was describing the project to an (admittedly very young) former colleague who I wanted to hire on to do our social media. She told me I was hollowing out the middle class with my overpriced muffins. Had another tell me I was "destroying third spaces" in under-served neighborhoods when I described the renovations and shutdowns.

What you described sounds much better than one of the default alternatives, which is : the business would be closed with 0 locations.

Trying to put myself in their shoes, I think what they would have wanted is a zoning law requiring the business there to provide a third space. Landlords would have then be forced to lower the rent until it became profitable to run a bakery-cafe or similar.

> I was "destroying third spaces" in under-served neighborhoods

Whoever it was is free to create that space themselves and if they succeed long term great but they won’t have such a smug ideological point of view once they’ve had to struggle to make it work.

I really like what you wrote above. Experts rarely chime in, especially not with numbers and other details.

The picture claims some massive increases, but I tried spot checking the data against BLS statistics[1][2][3] and found big inconsistencies.

For flour:

    time period      | tweet  | PPI   | CPI
    -----------------+--------+-------+-------
    jan'21 to jan'22 |  63.8% | 26.6% | 26.1%
    jan'21 to jul'22 | 136.9% | 38.4% | 38.9%

For granulated sugar:

    time period      | tweet | PPI  | CPI
    -----------------+-------+------+-------
    jan'21 to jan'22 |  2.5% | 2.9% | 5.6%
    jan'21 to jul'22 | 34.6% | 6.2% | 15.5%

I'm not accusing them of lying necessarily, but we should probably suspect that their figures are skewed in some way that's not reflective of the whole country.

[1] https://www.bls.gov/web/cpi/cpi-u.xlsx

[2] https://fred.stlouisfed.org/series/WPU02120301

[3] https://fred.stlouisfed.org/series/WPU02530702

The price of eggs increased 38% year ending in August. Inflation doesn't hit all areas equally.

>Inflation doesn't hit all areas equally.

I'm not saying that no category experienced high inflation. The BLS data does indeed say that inflation for eggs is up 39.8% YOY. The problem I have is that the price increases quoted in the tweet is both outrageously high (even higher than that of eggs, which is already the highest in the BLS data) and is inconsistent with government data. That said I checked the data for eggs and it does check out.

I would guess that a large part of the discrepancy is due to the wholesalers' increased costs. I've noticed in an unrelated industry (HVAC) that the middleman supply houses have increased their prices at a rate that outpaces the big box stores or the manufacturers themselves. As with many things today, labor costs seem to be the real killer, and staffing a business that needs to handle ordering, receiving, stocking, and often redelivery of materials is expensive.

It's probably also fair to point out that businesses tend to be less price-elastic/sensitive than retail end-consumers. I, personally, am unwilling to purchase rainbow sprinkles if they exceed some reasonable cost, an elasticity I'd imagine a bakery doesn't have the luxury of when they have cupcakes to sell.

It would probably be more meaningful to compare these input prices to the bakery’s final sale price. That is, list the prices they charge for an item with the price of the inputs, and how that changed over time.

Food inputs are usually a trivial fraction of retail price. IIRC the restaurant rule of thumb is 1/3. Much lower if not full service (the bakery probably isn’t).

I suspect a bigger cause of higher prices would be the bakery needing to charge bigger margins to cover rent increases.

As a merchant would go, markup is a competitive datapoint and is usually withheld.

>Food inputs are usually a trivial fraction of retail price. IIRC the restaurant rule of thumb is 1/3.

1/3... So, it's 'trivial' about as much as housing costs are trivial in household budgets.

I was comparing to a case where the figure would be much, much higher than it would be for this bakery. But even then, a 30% increase in input prices would only translate into a 10% increase in food prices, or a $4 bagel becomes $4.40. Woe is us!

I’m not sure why you’re being sarcastic. Everything is going up 10-30-50%. That is far from trivial and affects my monthly expenditure significantly.

When’s the last time you got an unannounced 10% salary bump? Would a 10% decrease in salary not affect you?

I wasn’t being sarcastic on the core point, and, again, 10% is much higher than the actual figure would be. I regret even mentioning that figure now, since you’ve fixated on it as word of god, when it was only intended as an upper bound.

The point is, an X% increase in flour prices not explain an X% increase in bakery item prices, rendering the core premise of the Twitter thread moot.

If you want to contribute to this discussion, you could provide relevant information on what the actual figures would be, rather than lecturing me on how painful some bakery-unrelated 10%-price-increases are . Do you agree that might be a better use of your time?

The link is about an attempt to explain inflation by flour being 30% more expensive, not an invitation for general thoughts on why 10% inflation is bad.

Ouch. What does #30 mean in that post? Like, 30 eggs should not cost that much, is that price per palette?

# in this context is shorthand for pounds, which is 453.59 grams (or 448 grams if you’re buying/selling drugs)

The # symbol has a few names: octothorpe, number sign, hashtag, and pound sign, hence the usage of # as abbreviation for pounds of weight.

Whoa. I always assumed 'pound' was just a weird outdated phone term meaning something like 'enter/return'

> hashtag

Hash, surely? A hashtag is the combination of the hash and the tag text.

Why do pounds weigh fewer grams if you’re buying or selling drugs?

an "eighth" (1/8 oz) is rounded to 3.5g. That means an ounce is 28g and a pound is 16 times that.

Reply on news.ycombinator.com