Minding the Store

Unlike the typical fast-growth company, six-year-old Saint Louis Bread Co. -- one of the hottest restaurant chains in the country -- has managed its rise without chaos. How?

Before he opened his first bakery/cafÉ and became expert in the nuances of sourdough starters and espresso-brewing times, Ken Rosenthal knew he wanted a chain of stores. His friends thought he was making a big mistake and tried to warn him off. A few had grown up in bakery families, and to a person they cautioned him that there was a reason most bake shops had long since shut down: they're ridiculously exhausting to run. "I'll never forget one story," says Rosenthal, 50, a lanky, even-keeled man. "This guy was working around the clock. He'd come home, get in the shower, turn on the water, and sit on the floor to rest. And when the hot water ran out and the shower ran cold, it was time to go back to work." Rosenthal shudders. "Oh my God! What a terrible story that is!"

It is terrible, but it reinforced his point: while a single shop wouldn't give him the life or the kind of business he wanted, a chain might. He and his wife, Linda, had spent 17 years running a women's clothing store, and the experience had left its mark. They had had little control over what they sold, buying a line of clothing only to be undercut on price by the big chains.

The bakery idea came to Rosenthal when he was visiting his brother in San Francisco. After the two had spent some time hanging out in North Beach cafÉs, Rosenthal's brother suggested taking the idea back to St. Louis. Rosenthal liked hearty bread, and he liked the idea of creating his own product line. "Once I developed it and perfected it, it would be my line -- good, bad, or indifferent." Since the cafÉ culture of the West Coast had yet to hit St. Louis, the market was wide open.

As it turns out, it was wide open and then some. No matter that when Rosenthal started, in 1987, all he knew about baking was that he didn't want to be the guy in the shower. By mid-1993 Saint Louis Bread Co. employed 565 people at its corporate office, central baking plant, and 17 bakery/cafÉs throughout the city. The company has been profitable almost since year one, with 1992 revenues of more than $13 million and a five-year sales-growth rate of 5,325%.

Standout success in the brutally competitive restaurant industry has come partly on the strength of the concept: the 11 bread varieties, along with the more than 25 types of muffins, Danish, and croissants, are baked the day they're sold. The old-time bakery counter at the stores brings in customers, while the soup-and-sandwich counter alongside does the volume -- two times that of the bakery. What's more, national food chains with similar concepts have so far left St. Louis alone, allowing Saint Louis Bread to establish a preeminent position.

But the company also has gotten where it is -- and set itself up for where it hopes to go, which is geographically out and financially up -- through small and steady steps of back-room improvements. This is not a company that has gone to hell and back. Instead, Ken Rosenthal and the team of managers he's added over the years have combined aggressive development with cautious calculation and a sense of what part of the operation must take priority each step of the way.

In its evolution Saint Louis Bread has passed through distinctive stages: after pre-start-up, that period of planning and self-education, came 15 months of operating one store. An initial expansion, over a year and a half, took the company to five stores. A more furious rollout, over two years, brought on another 12 stores. And since early 1993 the company has been sitting on a growth plateau, quietly preparing itself for further expansion both within St. Louis and into new territories outside the city.

"Each time you decide to grow again, you realize you're starting at the bottom of another ladder," says Rosenthal. "When we went from one to two stores, we had to commit to getting a refrigerated truck. We could have stopped at two stores and made a nice living, but we decided to move into the central baking plant and take on a tremendous overhead. We wanted to bring on a chief financial officer, and MIS and accounting people, and each time you do that you make a commitment to grow the company a little more."

The decisions were consistent with what Rosenthal had always wanted, to run a chain of stores. Through steady improvements in product mix, behind-the-scenes operations, public personality, and management -- to name four critical areas -- the company has blossomed. It is now, Rosenthal and his partners hope, poised for its next big surge. Here's how it all began:

The idea stage: Mid-1986 to October 1987
For over a year, Ken and Linda Rosenthal worked to nail down their product concept: the deli and, especially, the bread.

Rosenthal threw himself into a self-education process in 1986 and 1987, traveling to San Francisco six times to visit bakeries. At one of them he got the concept of using a central baking facility for preparation and then doing final baking at the shops; at others he took hundreds of photos, often getting tossed out for doing so. Still other bakers took him on for tutoring by day and baking by night. In all, Rosenthal logged thousands of hours and paid out $50,000 for training and sourdough recipes.

The Rosenthals picked out a storefront in a strip mall in Kirkwood, Mo., an upscale suburb that seemed primed to pay slightly more for better quality bread. The location also fed the "neighborhood bakery" image the Rosenthals wanted to develop. Start-up capital totaled $350,000: the Rosenthals took $125,000 from their savings, got a $125,000 Small Business Administration loan, and took out a $100,000 second mortgage. The point of no return came when they bought equipment from a bankrupt bakery.