Fasting Month brought Turnover of Bakery Companies down to 50%

Past experience showed that during the fasting month turnover of bread and bakery traders usually decreased by 50%, due to drop of demand. Under such circumstance it was hard for bakeries to expand because of their struggle to increase selling price when during the month of Ramadhan prices of raw materials normally jumped to 15% to 30% higher. Chris Hardijaya, Chairman of the Association of Indonesia Bakeries disclosed to Business News.

“Toward end of the fasting month our sales or turnover tend to be back to normal, in addition to that some traders begin to re open their outlets, after visiting their hometowns during the early days of Ramadhan. The condition is different from selling traditional snacks or dry cakes which are merrier toward the Idul Fitri Holidays” Chris Hadijaya remarked.

Bakery business did not only mean production of bread, but also a range of other items like doughnuts, pastry, cakes, snacks and traditional wet cakes.

Biscuits were not part of the bakery business, because the business scale was industry, whilst the scale of bakery ranged from micro to big business. Around 60% of bakery business belonged to the micro and small category, around 20% to 25% was of medium scale business while only 15% were small business. The production process of bakery was 90% manual, carried out by skilled workers, while their number were limited.

Increase of Raw Material Prices
To make bread, it look at least eighteen types of raw materials, starting from flour, white sugar, yeast, raisins, etc. Toward the month of Ramadhan, the price of white sugar had gone up by 15% since last July and was estimated to continue to rise until end of Ramadhan and Idul Fitri to as high as 30%. The same was with price of eggs, which might increase between 15% to 30%.

“Usually toward Idul FItri, since H minus 7 the prices already sky-rocketed. Meanwhile the price of flour needed by bakeries are the types containing high protein like Cakra Kembar which are now priced at Rp. 165 to Rp. 170 thousand per 25 kg. The price of flour are relatively stable but prices remain high since August last year, particularly because the Value-Added tax is no longer borne by the Government”, Chris Hadijaya remarked.

“The problem is that once a price goes up, it is mostly unlikely to go down again. At that time the reason of traders increasing the price of flour was due to production slump due to harvest failure some countries, and also due to strengthening of the US dollar against the Rupiah. Now things have changed, Rupiah is strengthening against the US Dollar while flour harvesting in some countries are flourishing, but unfortunately the EI Nino long drought comes as another menace”.

The most influential factor to bakery business was not growth of real estates since they had their own potentials for developing bakery outlets, but rather it was the per capita income of the people. In terms of flour consumption, the biggest absorption was in noodles which was posted at 60%, whilst the bakery industry consumed around 20% to 25% of total flour consumption which totaled 4 million tons/year.

“The higher the income”, Chris remarked, “the bigger the chance for consumers to consume bakery products. Meanwhile bakery business in hotels has little impact on the development of premium housing, hotels, and apartments because if the occupancy were high the hotel guests would prefer to dine at the hotels. The bakery business in those locations were merely complementary factor”.

That was the reason why expansion could only be made by bakery shops especially among the middle class and up, because their condition were hardly affected by crisis. Meaning, since the market segment were exclusive, in the event that they increase the selling price, the impact were not too strongly felt. The case was different with bakeries of the middle and lower class, where the market now was in stagnant position.