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The upmarket bakery chain Gail’s is planning 40 more outlets after sales rose by a fifth last year as it opened 36 new bakeries and sales to supermarkets increased.

The cafe and retailer, which currently has 185 sites, said sales rose to £278m in the year to the end of February but that pre-tax losses widened to £7.8m, from £7.4m a year before, as costs rose and it spent millions on opening new outlets.

Gail’s directors said staff and energy costs had risen, hitting profit margins, while it spent £51m on store reopening costs.

Sales at its retail arm rose almost 23%, more than double the pace of its wholesale division, which supplies clients including Waitrose, Ocado and Amazon from bakeries in London, Manchester and Bath.

A Gail’s spokesperson told the Propel trade journal: “We are pleased to have delivered strong year-on-year growth. This performance is underpinned by the increasing demand for high-quality, nutrient dense food, and by the support of the communities we serve. We will continue to build on this momentum by growing with purpose and remaining committed to improving access to good food.”

Speaking at a conference organised by Propel this month, Tom Molnar, who co-founded Gail’s 20 years ago, said the business was “still early in our growth”.

He said: “We do have a lot of bakeries now, but it took 20 years to get there. It wasn’t easy, and it wasn’t very fast. Twice, we had to stop growing altogether, because we didn’t think that we could be better; we were worried about getting consumed by speed. We’re still early in our growth. You take McDonald’s, Greggs or any other successful food business here in the UK – they operate from thousands of sites, and we’re still below 200.”

Gail’s owners, led by the private equity group Bain Capital, last year reportedly hired the financial advisory company Goldman Sachs to help find new investors in an effort to drive expansion. The chain was said to be worth as much as £500m.

The bakery was founded by Yael (Gail) Mejia in the early 1990s serving restaurants and other venues in London. In 2003, Molnar and a few others joined Mejia and the group opened the first bakery cafe in Hampstead in 2005.

The rapidly expanding chain has become an unlikely political bellwether – used by the Liberal Democrats to help identify areas where voters might be ready to switch from the Conservatives.

Its expansion has also spurred local protests, including a heated one in Walthamstow, east London, where a petition to stop a Gail’s opening was signed by hundreds of residents. A new branch in Brighton was spray-painted with the world “boring” and a large image of a penis, according the local newspaper the Argus.