Ethiopian Business Review

New Bakeries Tempt Addis Sweet Tooth

Addis Ababa is becoming home to a new breed of bakeries which offer unique types of breads, cookies and cakes in Addis Ababa. Their distinct features, such attractive interior design, quality and hygiene, has seen the number of city residents that patronise them rise dramatically. In fact, it is not uncommon to see long queues stretching out of the doors at these special bakeries. EBR’s Tiruneh Assefa explores the story behind these thriving businesses.

The first thing you notice when approaching Saba Bakery located Gulele District, near the Pasteur Institute, is the smell of pastries and freshly-baked breads. It is almost impossible not to be lured inside. The interior of Saba Bakery, which was  opened four years ago with an initial capital of ETB2 million, is designed in a strictly classical style with shelving units, attractive  roof shapes made from wooden tiles and walls made of glass.

Saba started with four foreign experts. “To produce a quality product, we needed to hire experts in the field. They helped us train the local workforce,” said Anwar Nasir, Saba’s manager. Currently it has 45 Ethiopian employees and one foreign employee. 

The bakery produces and sells special breads, cookies and cakes such as white and black forest, as well as bombolino and donuts. “We started the businesses after assessing the experiences of bakeries operating in Arab countries,” Anwar explained. 

Nowadays, it is normal to witness bakeries like Saba that offer pastries outside the standard fare. They have distinct features, usually sporting unique and quirky interior designs, better quality products and better hygiene standards than regular bakeries. Due to these unique features, the number of customers is growing astronomically, and has boosted their sales turnover. 

For instance, the average daily sales at Saba Bakery are around ETB30,000, according to Anwar, while its net profits are around ETB700. As a result, the bakery has been able to open three more branches around Piazza, Lideta and CMC areas. On the other hand, Te’am Bakery, around Meri in Yeka District, which start operation with an initial capital of ETB300,000, had daily sales between ETB5,000 and ETB7,000, which was ETB2,000 more than what they were making two years ago. 

Tadele Ferede (PhD), assistant professor of Economics at Addis Ababa University argues that the driving force behind the flourishing of special bakeries is the growing number of customers who are able to spend extra money in order to get a quality product. “Together with the rise of disposable income, consumers’ preference and tastes also change. Special bakeries are operating by the method of market segmentation, they target people of middle incomes and above.”

Habtamu Getahun, 27, is regular customer of Te’am Bakery, earns ETB6,000 net monthly salary working as a driver of Isuzu trucks. “I come here to buy because the bakery sells the best baked goods. Every day I pass more than five bakeries on my way to get here,” he explains.

The price of bread in such bakeries is three or four times higher than in regular ones. The price of normal bread weighing 100 grams is ETB1.30, with 200 and 300 grams cost ETB2.55 and ETB3.80 respectively.

On the other hand, the cheapest bread at Saba Bakery is ETB2.50, which is at least 70 cents higher than the normal bread if the weights of the bread are equal. The minimum price for single bread at Te’am Bakery is ETB2. 

“The main advantage of opening a special bakery is fixing our own prices instead of selling at the price set by the government, because we buy most of the flour on our own instead of buying from the government,” argues Hussain Suriri, manager of Te’am Bakery. “Sometimes we sell normal bread at the fixed price, but most of the time special bakeries aren’t interested in purchasing government wheat because they can’t make a profit.”

When regular bakeries receive government-subsidised wheat, they are also obliged to sell fixed-weight products for fixed prices. They are also subject to stringent follow up by government officials. Special bakeries do not have to contend with these restrictions. 

A quintal of flour costs a special bakery between ETB1,800 to ETB2,000 from private retailers. “This doesn’t concern special bakeries because we can compensate for high production costs by decreasing the weight of the individual products and increasing prices,” adds Hussain.

Government sources sell imported wheat for between ETB750 and ETB800. Although wheat production has grown significantly over the past two decades from 1.1 million tons in 1995/96 to 3.9 million tons in 2016/17, its local consumption also rose from 2.1 million tons to 5.2 million tons at the same time.  As a result, wheat has become one of the most important staple food crops imported from abroad. In the last fiscal year alone, Ethiopia imported 1.3 million tons of wheat worth an estimated six billion Birr. 

For Saba Bakery, trying to get flour from the government is just a waste of time. “On top of the profit issue, special bakeries want to avoid the bureaucracy and transportation cost that comes with receiving government-subsidised wheat,” says Anwar. “For instance, our monthly flour demand is 180 quintal but it is difficult to get even 20 quintal from the government.”

“As we are operating in the free market we will not force these special bakeries to adhere to the requirements and sell at a fixed price,” explained Kassahun Beyene, director of Post Licenses Inspection and Registration Directorate at Addis Ababa Trade Bureau. “If bakeries buy the flour on their own they can charge whatever they like.”


6th Year . June 16 - July 15 2018 . No.63


 

 

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