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German bakers fear bankruptcy over price hike

September 4, 2022

Skyrocketing prices for electricity, gas and grain are putting an existential burden on Germany's many bakeries. Only large chains and successful artisan bakeries are likely to survive, says one baker in Bonn.

loafs of bread in Max Kugel's bakery
In Germany, you can find 300 different kinds of breadImage: Oliver Pieper/DW

If you want to buy what many believe is the most delicious bread in the city of Bonn, you have to plan well ahead. That's because the line in front of the Max Kugel bakery is long.

The prices are high, too. The cost of a wholewheat loaf has just gone up by 80 cents to €6.60 ($6.56). That's about €2 more than the competition charges.

But Max Kugel's customers in Bonn's affluent Südstadt district are buying his wares as if the Ukraine war and its impact on electricity, gas and grain prices never happened.

The 32-year-old bakery owner is a little surprised. "I always expect a loss of sales when there are price increases, but we don't see a decrease at all. It was rather surprising that even during the hot summer months, we still sold a lot of bread," he told DW.

A smiling Max Kugel showing off loaves of bread
Despite price increases, baker Max Kugel is bucking the trend and still doing good businessImage: Oliver Pieper/DW

The bakery boasts huge high-consumption ovens that run on electricity and gas. Prices of flour and grain are shooting through the roof. Then there's the fierce competition, with the many discounters and large bakery chains selling bread and rolls at much cheaper prices.

In Germany, of all places, where bread is seen as much as a cultural asset as Goethe, football or Mercedes-Benz, it's hard to imagine traditional bakeries being forced to close their doors.

But many of them are already calling for a government bailout. "Only the very big and the very small will manage to survive," Kugel predicts.

With 13 employees working the oven and the counter, he views his bakery as a small business. Although Kugel would certainly have what it takes to expand his concept, which is embodied by his slogan "We only do bread" ("Da wo's nur Brot gibt") written across each of the white paper bags used to package the loaves.

Every day, the bakery makes 10 types of bread without preservatives and premixes. No cakes, no croissants. Kugel's business model is to focus on the essentials.

"This focus is the recipe for success for me," he said.

A woman working at the counter in the bakery
Kugel has 13 employees who make and sell organic bread in his Bonn shopImage: Oliver Pieper/DW

Growing up in his parents' bakery

As a young child, Kugel would play in his parents' bakery, where he would later complete his vocational training. His life was mapped out right from the start — at some point, he would take over his parents' bakery.

But then he embarked on what he called his "road to bakery," which took him to Vancouver, San Francisco and London. He decided to do things his own way. In 2017, he took out a loan for €200,000 and invested in specialist equipment. Today, five years later, he sees his business as crisis-proof.

"It has a size that enables me to react well to market developments, and that is a very reassuring feeling. We are flexible. We can decide to leave out one type of bread at short notice and increase the production of others a bit. If I had five, 10, or 20 stores right now, I would have a problem I couldn't handle."

Skyrocketing grain prices

It's not that increased energy and grain prices aren't giving Kugel a headache. At the end of September, the annual electricity bill will arrive in his mailbox, with what is expected to be an exorbitant increase.

Bakers shaping loaves
Kugel's bakery can react quickly to any sudden shortage of a particular grainImage: Oliver Pieper/DW

The young entrepreneur had the foresight to raise his prices four weeks ago. It was only the second time he had increased prices since since the company was founded. There are also surcharges for rye, wheat and spelt, as well as sunflower and pumpkin seeds.

"We aren't dependent on conventional flour, which is often made from Ukrainian grain. We buy organic grain from Germany. But here, farmers held back their grain and waited for the price to go up on the commodity markets. And only then did they release the grain to the mills," he said.

Germany has around 10,000 bakeries. With total sales worth almost €15 billion, the bakery trade is one of the country's most important economic sectors.

In the land of bread lovers, each household consumes an average of 56 kilograms (123 pounds) of bread and baked goods every year, according to the central bakers' association.

But Kugel shakes his head in disbelief when he hears calls for the state to come to the aid of the struggling industry.

"We bakers are always at the forefront when it comes to complaining," he said. "But it's others who have bigger problems. Throughout the COVID pandemic, bakeries remained open as they were classified as essential businesses.

"Restaurants had to close down and use up their financial reserves. Of course, we have very high energy consumption, there's no question about that. But for me, the bakers' complaining is completely overblown."

What's so special about German bread?

Renewable energy

Kugel is convinced that every baker who is now sliding into insolvency had problems before the price hikes and was doing things wrong.

Even before the start of the Russian war on Ukraine, it was possible, he said, to be less dependent on natural gas, for example by installing a photovoltaic system on the roof or a heat pump in the basement, or by using excess heat from the ovens to heat water in the bakery.

Perhaps it is possible to glimpse the future of German bakeries in Bonn's Südstadt district. Max Kugel's specialist bakery shows that affluent bread lovers are prepared to pay more for a high-quality loaf.

But just two doors down, a big bakery chain offers lower-priced wares. On this particular afternoon, it's filled with students from a nearby high school. 

In these tough economic times, Kugel has a simple message: "Defy the crisis, continue to stay focused. And remember that a small business can really be a great stroke of luck."

This article was originally written in German.

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Oliver Pieper | Analysis & Reports
Oliver Pieper Reporter on German politics and society, as well as South American affairs.