I delight in bread from the local bakery. The anticipation as I walk a few minutes from home to acquire the treasure, the smell of the shop, the choosing and the build in excitement as I head back home to savour the prize. It's especially good if it's still warm but will it still be affordable and available in the new world of wacky economic incentives?
|Artisan Bread Is A Treasure|
The bread is not much more expensive than factory bread and with everyone getting double the previous unemployment benefit or at least 70% of the pre coronavirus median wage it is a small luxury we should all be able to afford. I expect the demand for artisan bread will increase as the customer base sits at home pondering the delights of the next meal but the bakery owner has a strong incentive to leave more than 30% of existing customers unsatisfied.
Without government incentive the bakery will be making at least as much profit as before and probably a little more but if turnover can be reduced by 30% the bakery can make a motza. Flour is cheap so rent and wages would be most of the bakery's expenses, let's guess wages are two thirds. Staff work two shifts daily seven days a week and they are part time. From friends that have worked there I've learned they pay minimum wage, so the $1500 per employee will mean a pay rise for staff while taking out direct wage costs for the bakery. There is still some staff overheads so overall staff expenses are reduced by perhaps 75%. The previous and new revenue distribution is shown in Figure 1.
|Figure 1 - Comparison of bakery revenue distributions with two Jobkeeper scenarios. Source: Model|
|Figure 2 - Comparison of original profitability with Jobkeeper profitability. Source: Model|
There is still nearly four times the original total profit achieved. In the next 6 months the bakery can generate as profit that normally would take nearly 2 years. How good is that? For the bakery great, but for me not so much. I'll probably have to go back to factory bread and if the factory responds the same way I'll be eating perhaps a third of the bread I eat now while paying twice as much.
I hope the bakery owner cares more about making bread than making money.