How to Start a Bakery in Pakistan

Bakery and Confectionery business is growing in both urban and semi-urban areas. This pre-feasibility study encompasses the bakery business located in a commercial neighborhood surrounding and middle income residential localities.

Major products include cakes, snacks, sweets, nimko, biscuits, bread and general confectionery items, which will be sold to target customers of the vicinity. The sales outlet will be supported by an in house production facility. Selections of adequate product mix and business location, supported by marketing efforts are the critical success factors.

The proposed Bakery & Confectionery business will be started as sole proprietorship with an investment of Rs. 3.98 million. This project is based on 50% debt and 50% equity ratio. Projected NPV, IRR and Payback of this project are Rs. 8.31 million, 53% and 2.61 years, respectively. The business will provide employment opportunity to 12 individuals including the Owner Manager.

The proposed Bakery and Confectionery shop is a small scale project with a production area and sales out-let. It will be equipped with basic machinery and fixtures. The production area will require covered area of 5,000 sq.ft. and the outlet will be established on 750 sq.ft. The sales outlet will remain open for business for 16 hours per day around the year.

Product mix will include cakes, snacks, sweets, nimko, biscuits, bread and general confectionery items. This merchandise will be prepared and acquired according to the demand of local customers and in quantities directly proportional to expected sales.

Maximum sales are expected during Eid seasons and in winters. First year revenues of the project are estimated to be Rs 18.35 million. It is expected that production growth rate will be 5% per annum along with 10% per annum increase in sales price.

The installed capacity of bakery depends on the variety of the products being produced. Starting capacity utilization is 70% with growth rate of 5% per annum.

Critical Factors in Starting a Bakery Business in Pakistan

Following are the factors critical for the success of this business venture;

• Background knowledge and experience of the entrepreneur in the bakery business.
• Induction of trained human resource for production of requisite items.
• Maintenance of quality and hygiene standards.
• Pricing strategy & understanding requirements of the target customers.
• Decor presentation and layout of the shop and products.
• Location considerations for easy access of the customers.

Geographical Potential of Investment in Bakery Business

Smaller cities with growing middle income group such as Sargodha, Sheikhupura, Gujarat, Sukkur, Hyderabad, Noshehra, Charsada, Quetta, Khuzdar and Gilgit are some of the prospective cities for setting up this business. Areas of Lahore with more concentration of middle income class are also favorable for this project.

Potential Target Markets

Areas having presence of middle income groups in the above stated cities will be an ideal location for opening sales outlet of the business. Ideally, production facility of the workshop should be located alongside the sales outlet; however, if the rental costs are a constraint, production facility can be established at a distant economical location. In such a case, higher transportation costs may need to be factored in.

Space Requirements for Bakery in Pakistan

The space requirement for the proposed Bakery and Confectionery Unit mainly includes the production hall, store room and a retail outlet. For this purpose, it is recommended that a rental place of maximum 5,750 sq.ft. (i.e. 5,000 sq.ft. for production space and 750 sq.ft. for outlet) would be acquired. The production space and bakery outlet could be acquired at separate places. However, it should be ensured that both the facilities are located closely for easy supply of produced goods to the outlet.

Investment Required to Start Bakery Business in Pakistan

A detailed financial model has been developed to analyze the commercial viability of Bakery and Confectionery business. Project returns are based on the margins of the items sold. Profitability of the business is highly dependent on raw material cost. Moreover, in bakery or food item businesses the probability of wastage is higher, hence the reduction of wastage through demand and supply analysis will play a vital role in profit maximization. In this regard, efficient supply chain management will be an appropriate strategy for this venture. Another crucial factor for the success of this project is to maintain the hygienic standards and clean environment to avoid customer complaints.

For an in-depth financial projections, pre-feasibility of bakery business by SMEDA can be downloaded.

Best of luck!