Are you sure?

Homegrown bakeries on the rise

Unless you are committed to a low-carbohydrate Atkins diet, you eat bread in some form every day. Baked goods are a staple in Hungary: they are tasty, nutritious and excellent for take-away. Just walk into any store and count the number of bread buyers in the morning or during lunch break. But will our love of bread be enough to help bakers survive a tough market? They think so: Just in the past months, more than ten new bakeries were opened in the busiest parts of Budapest, many of them close to each other.

The most remarkable growth in terms of shops opened has probably been by Lipóti Pékség, a bakery with 53 selling points in Budapest and more than 100 outlets in the country. The bakery, originally serving the residents of Lipót, a small village in western Hungary, never aspired to expand so fast. However, between 2008 and 2010, the number of their shops increased from 25 to 105. This expansion has resulted in an annual 10%–12% growth in turnover, which is expected to have reached HUF 3 billion in 2010.

In the last month alone, Lipóti Pékség opened four new stores and five more are in the offing. “We have never had to worry about how to sell our goods. We have been more concerned about handling growing demand,” said Zsolt Albert, the managing director. “Requests to open new outlets come from existing and potential future business partners every month.” 

Jókenyér, the brand store of goods by Ludwig és Mentesi Kft, has also become more visible to customers. Ludwig és Mentesi, which has been a supplier of major retail chains such as Spar, CBA and G’Roby, opened two new bakeries recently. “Retail chains keep ordering the same ten or so products while we have 90 to choose from,” said managing director Klára Ludwig. Besides introducing the entire selection, the aim of these shops is to communicate directly with the customers, Ludwig explained. Communication apparently works: between 2008 and 2010, turnover increased from HUF 1.2 billion to HUF 1.5 billion.

Another bakery that has seen spectacular growth is Fornetti Kft. The company launched its “New Time Program,” a project of opening outlets with extended space and state-of-the-art technology a year ago. As a result, approximately 100 new franchises have been added to its partner list of about 500 since. Fornetti claims that, for the most part, it is able to operate successfully and outperform its competition at the same location by 30% on average.

Apart from these brands, many more bakeries have multiplied the number of their outlets lately in addition to single-store brands that have also appeared. Interestingly, this boom comes at a time when world food prices, including grains and vegetable oil, are at their highest levels in years worldwide. Have price hikes spared Hungary this time? Unfortunately, no. The procurement price of flour rose by 80%–90% last year, though this increase has not yet appeared in shelf prices.

Bakeries had to incur rising costs which, together with surging fuel prices, resulted in a fairly poor year for the industry. “We have had a tough year and are not yet over it,” said Péter Werli, secretary general of the Hungarian Baker Association, assessing future prospects. “The majority of bakeries were barely able to break even due to soaring grain, oil and fuel prices.” The modest profit they do make is them skimmed off by their multinational buyers or distributors, Werli added. That is the reason why bakeries have decided to open own-label stores. “There is a seeming contradiction between economic difficulties and expansion. However, by opening their own stores, bakeries can reduce their dependency and increase profitability,” Werli explained. Why is this tendency taking on now? Because bakeries that needed loans to promote development have only now been able to repay their debts.

It is uncertain how long this expansion boom will last. Own-label sales account for 16%–17% of the market currently and only a slight increase is expected this year. Companies prefer to focus on technological upgrades and quality improvement. “We won’t turn down offers to open new shops of an existing partner, but we will not enter into new agreements,” said Lipóti’s Albert. The company recently launched a partnership with Univer, a Hungarian food maker, which bakes Lipóti goods in its Kecskemét plant and sells them in its own brand stores mainly in the Great Plains, but won’t go further than that. Jókenyér – well-known for its whole wheat products that meet modern dietary requirements – may open three new shops. Fornetti has just reassumed franchising rights from a master franchise partner in western Hungary, so is likely to seek expansion there.

For all this growth, the industry’s outlook is not that bright. Production costs will continue to rise, extreme weather worldwide will raise prices further, and floods and inland waters in Hungary will probably lead to a supply shortage. “There is no precise inventory of available wheat and flour stocks, which increases uncertainty,” Werli noted. One thing, however, is certain: the price of baked goods will rise and this time consumers are going to feel it. (Zsófia Végh)