Estonian bakery Muhu Leib has been forced to close several shops on the mainland as the company finds itself owing tax arrears. CEO Martin Sepping admitted the firm bit off more than it can chew by opening so many shops.
“We ran off in the wrong direction and are trying to adjust,” he said. While Muhu Leib products are available with several large retailers, the company sells the lion’s share of its products in its own bakeries.
The credit info database suggests OÜ Muhu Leib owes €135,099 in taxes, with the arrears first created in May 2017. While the company has not filed its annual report for last year, the bakery closed 2017 with a loss of €70,000 despite sales revenue of €1.4 million. The company has closed at least four sales locations. Sepping said Muhu Leib will undergo reorganization.
Reorganization instead of bankruptcy
“We have not filed for reorganization yet but plan to. I see no other way as things stand,” Sepping said. Asked about tax arrears, the CEO said the company does not have major creditors. “We owe a few renters and suppliers. The rest of the debt is quite self-explanatory (for a bakery – ed.). None of it is terrifying. We owe most to the tax board.”
Sepping believes Muhu Leib will overcome current difficulties. “Things are not that bad. Otherwise, bankruptcy would really have been our first choice.” He admitted, however, that should reorganization not go well, Muhu Leib will be forced to stop baking bread on the mainland. “We have not gone overboard in Muhu. We do very well in the summer, and it helps us stay alive in the winter.”
As a positive development, Muhu Leib has started opening bakery stations in Selver stores. “We opened a shop-in-shop type station in Viimsi Selver in spring.” Sepping said the company has a long-term cooperation agreement with the supermarket chain. “We will be opening more shop-in-shop bakeries in the coming years, provided we don’t go under. We can have smaller bites and more shoppers there. It is a less risky business model.
Saare Leib in trouble too
Another small bakery Saare Leib seems to be having difficulties after reporting a loss of €52,709 last year. CEO Janar Vaima gives weak demand for bread in Saaremaa and sharp competition with cheaper bakeries as the main reasons. “Competition is fierce, it’s not easy. People’s choices tend to be price-sensitive.” Saare Leib products are roughly twice as expensive as loaves of major bakeries.
The company believes it can solve the problem by changing its product lineup. “We are doing well with muesli of which we are the only Estonian manufacturer, and we have just introduced a line of healthy snacks to take the place of potato chips. We try to offer products others are not making in Estonia,” Vaima said. The company does not expect turnover or profit to grow next year.