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Becoming a presence: June 1990 to January 1993
As the company continued to expand, the pace of everything picked up. While savvy neighborhood site selection was crucial, it became clear, too, that the company had to keep getting better at every level if it were to grow without spinning out of control.
The factory began focusing on getting new products introduced every 90 days; the trick was to keep customers invigorated. In August 1991 the company opened its only non-Saint Louis Bread store, the Rendezvous CafÉ, which is positioned as a slightly more sophisticated version of Saint Louis Bread. The menu is very similar, and the restaurant serves as a test site for new menu items, from salads to soups to desserts.
Still relying on its extensive community involvement instead of advertising to attract and retain customers, Saint Louis Bread introduced Operation: Dough-Nation in 1992 to collect cash contributions from customers for local food pantries and to match those donations with fresh bread offerings. "Saint Louis Bread is just a remarkable organization," says Bill Nordmann, the executive director of Operation Food Search, which coordinated the distribution of almost $9 million worth of food from 900 stores and restaurants last year. "Its generosity, its community spirit..." All told, Saint Louis Bread's contributions to Operation Food Search alone totaled $700,000 in bread last year, and the company was involved in 60 other fund-raising and community events.
By mid-1992 the company was up to 10 stores and already had another 7 in development to open that fall and winter. The pace, Doron Berger says, had begun to feel frantic. "It was like running so hard that you can't breathe, but you have to keep running." Things weren't out of control yet, but it was getting harder for the three partners to visit all the stores as often as they wanted: their daily visits began to drop to every other day, or once a week.
In addition, margins were a little soggy: 1990 sales were $2.8 million, with net income of just 1.4%, and 1991 sales were $5.8 million, with margins at 1.7%. (Au Bon Pain, a publicly traded cafÉ chain, has margins of 5.5%.) Turnover also was not so hot, at the industry average of about 100% annually.
In mid-1992 the partners decided to do something that's anathema to people who thrive on growth: they would stop growing. After the flurry of openings that fall, they wouldn't open any stores for at least nine months. "It was time to take a breath, sit back, and make sure everybody was thinking about the same thing and that we all had the same vision," says Rosenthal. After planning in three- to six-month spurts, they figured they'd plan for the next one to two years.
"The opportunistic approach this company had taken," says Richard Happel, who came on in late 1991 as CFO, "wouldn't work anymore. Everyone here knows we have a window of opportunity, and we're anxious to capitalize on it. But the owners, above all else, understood that without the substructure, the superstructure would never hold. We reached the point where the controls and the information systems we had in place were woefully inadequate for a larger organization. And if we didn't stop soon, we were going to reach the point where we had total chaos."
The partners decided to go through extensive strategic planning. They brought in an outside team of facilitators, which took a group of 10 managers through a two-month, 50-hour program of evaluating every aspect of the business. They reached agreement on how many stores there should be, where those stores should be, and what volume they wanted to plan for, and then they wrote out detailed schedules for every step needed to get there. Two documents emerged: a business plan and a calendar of actions to meet strategic goals.
As a result the company began investing, for instance, in state-of-the-art point-of-purchase registers (at $30,000 a pop) that would allow it to better track everything from sales per hour and sales per stockkeeping unit (SKU) to sales by stores and labor per dollar generated. At the bakery, new equipment began automating processes on the line so the company could make more product with the same number of people. Thirty suppliers were given a seven-page synopsis of the strategic summary, to keep them up-to-date on the company's plans. "Most food-service people are not organized at all," says Paul Landsbaum, president of Stern Fixture, which now supplies Saint Louis Bread with all its furniture, fixtures, and equipment. "What makes Saint Louis Bread different is that it approached the food-service business from the viewpoint of a retailer," Landsbaum notes. "The company excels at displaying its wares and attracting the sale. And because it gives us projections, we can go out to our suppliers and strike volume deals on Saint Louis Bread's behalf."
In management, Rosenthal brought on David Hutkin, a real estate developer who found Saint Louis Bread its third site. Hutkin had decided, back in 1989, that he wanted to buy the company. "Ken was very polite, very gracious, and told me to get lost," he says. But like a persistent suitor, Hutkin kept in touch with letters and phone calls, and continued finding real estate as the company expanded. By early 1992 he had asked to be a franchisee. The partners agreed, but eventually, they decided that what the company needed more was a franchise manager. By May 1992 Hutkin was set to come aboard in September as president of a new entity, The Bread Co., which would coordinate franchising efforts.
