Bakery Services suffers from retailers' convenience drive
business model which means that more than 80 per cent of its
revenue is exposed to the changing strategy of a single chain store
group hosting its bakery operations, writes Sibonelo Radebe.
Measures to liberate a chunk of revenue from this over-dependence on stores owned by the UK's Co-operative Group are moving slowly, and could not save the group from slipping into the red this year.
The group's annual revenue declined by 7 per cent to £3.6 million, pushing it into an operating loss of £59.3 million.
Bakery Services' subsidiary Inbake supplies in-store baking systems for Co-op stores, which in turn produce the retailer's own label bread, rolls and cakes. As a result of a shift in strategic focus, the Co-op has decided to close down some of its larger stores, with obvious repercussions for Inbake.
As a result, Bakery Services remains greatly uncertain about its future - although it has already been informed by the Co-op that further store closures could occur, giving it little reason for long-term optimism.
"Although revenue is expected to decline, the Inbake business is profitable and is expected to remain so for some time unless the rate of host store closure increases," the company said in a statement. But with the British retail market moving increasingly towards more smaller stores and away from large out-of-town hyper or supermarkets - the type of outlet with in-store bakeries - Bakery Services needs to find an alternative revenue stream.
Indeed, the company's move towards creating an additional income stream can be traced as far back as 2000, when it acquired the Don Miller business, which consisted of both franchised and wholly-owned retail bakery units.
But this, too, has failed to bring in the money as Bakery Services struggled to integrate the two very different sides of its business. Two of the franchised outlets have been closed over the last year and a third one is ailing and going downhill fast - ironically impacted by growing sales of baked goods through the supermarket sector, among other factors.
But troubled as Bakery Services' business are, the company's management has unswerving faith in its new project - Millers Eating Experience - designed to turn the ailing Don Miller units into vibrant, up-market eateries such as those which have sprung up so rapidly (and successfully) in London. Don Miller outlets are based in the English North and Midlands, markets where such outlets are still rare but are becoming more popular.
The first Millers Eating Experience outlet is scheduled to open later this month, and while there are no immediate plans to change the formats of the other existing Don Miller units, franchise holders are likely to be offered the chance to convert at a later date. Further new outlets could also be built if the first unit proves a success.
The company has put most of its eggs into this one basket - "the long-term future of the group lies with the success of Millers Eating Experience" it said in its result statement - but faces a long haul before the new concept becomes a real money spinner, not least because it is being launched into an increasingly crowded market place and a consumer climate more concerned than ever about healthy eating.