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Case Study: a Bakery Comes Back From the Dead

New owners rescued Awrey Bakeries and became local heroes. Now comes the hard part--making it profitable.

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It was an all-too-familiar story line out of Detroit: Last November, the owners of Awrey Bakeries announced their plans to close down the 103-year-old business, a hometown favorite, and lay off its 203-person work force.

Best known for its chocolate ripple cakes and windmill cookies, Awrey Bakeries is one of the largest privately owned baking facilities in the U.S., occupying a 218,000-square-foot factory in Livonia, Michigan, a suburb just outside downtown Detroit. Though Awrey was best known in the Midwest, it also had national distribution deals with institutional clients such as the U.S. Army. At its peak, the bakery did an estimated $75 million in revenue and employed about 400 workers, the majority of whom were unionized.

The company's fortunes started heading south in 2003. Sales continued to plunge, and in 2005, Awrey filed for Chapter 11 protection. Two private equity firms swept in and purchased the company for $25 million. They were able to revive the company for a few years, but Awrey's business continued to deteriorate.

Last November 28, Awrey's employees were told that unless new owners or investors were found, the company would be forced to close its doors within 60 days. With no buyer in sight, the company laid off its entire staff this February and arranged to auction off its physical assets, including baking equipment, stand mixers, flour hoppers, and cooling racks.

The auction was scheduled for February 20. In true storybook fashion, disaster was averted when two local businessmen, Ron Beebe and Jim McColgan, struck an 11th-hour deal on February 19 to buy the company and all its assets.

The rescue of Awrey Bakeries was good news for the economically depressed Detroit region. Beebe and McColgan were lauded as heroes in the Detroit press. On March 11, local officials joined them for a ribbon-cutting ceremony to mark the reopening of the bakery.

The Problem

Despite these good vibes, Awrey has already been through one unsuccessful restructuring and remains a deeply troubled company. When Hilco Equity Partners and Monomoy Capital Partners purchased the company in 2005, they streamlined Awrey's roster of products and eliminated about 300 items. In a bid to capture a more affluent market, the new owners also bought Atkins Elegant Desserts, an Indiana bakery that specialized in cheesecakes and decorated cakes.

The new strategies seemed to be helping. In 2010, Awrey had 227 employees, produced 40 million pounds of baked goods, and generated approximately $68 million in revenue. By 2012, however, revenue had dropped to $60 million, and the company laid off about 15 percent of its work force.

Roughly 200 Awrey employees remained, 157 of whom were part of United Distributive Workers, Council 30. In the spring of 2012, they accepted a $2-an-hour wage cut to continue working, the second negotiated cut in eight years. Less than a year later, they all lost their jobs.

The uncertainty surrounding the company's fate left many of Awrey's customers looking for other suppliers. "Our competition is the biggest hurdle," McColgan says. "When Awrey was out of business, the competition went to many of the former Awrey customers and tried to pick them up."

The Decision

McColgan and Beebe say that childhood memories of Awrey products were a big factor in their decision to purchase the company. Nostalgia aside, both are betting that Awrey can be a profitable business once more. "We are going to be very aggressive and very customer focused," McColgan says.

McColgan is an entrepreneur who has been in the food business for 25 years. He has owned and run three bakeries, as well as a frozen-foods-­distribution company, an ice cream manufacturer, and several restaurants. Beebe, a private equity investor and former accountant, is the designated money guy.

Their strategy includes getting Awrey products back into retail stores in Detroit and, in a nod to the growing number of people with wheat allergies, to launch a line of gluten-free products.

The new line fits in well with Beebe's other holdings, which include a gluten-free bakery called Mrs. Glee's Gluten Free Foods.

The Aftermath

Since February, the owners have hired back about 50 of the laid-off workers. McColgan says he hopes to hire the other terminated employees as sales allow.

The cost of labor will probably be a factor in the company's future. The workers are not unionized. McColgan would not speculate on the possibility of them becoming organized again, although he did add that Awrey and the United Distributive Workers have always been on excellent terms.

So far, the pair is cautiously optimistic about Awrey's future. McColgan declined to speculate on the company's 2013 prospects, but it has been reported that Awrey needs $22 million in revenue to break even this year.

Ultimately, their goal is to build the company back up to its $75 million high-water mark. Says McColgan: "We will never let Awrey go through a third chapter of possibly being closed."

The Experts Say...

Offer healthier options

Modern consumers want healthful and nutritious snacks. Awrey needs a contemporary identity, and it has to change its messaging to consumers so it can be seen as part of the health wave. It should use social media to get the word out about Awrey's new products. Gluten free is still a niche market, and it's not big enough to sustain a business on its own, but it's a great idea to look to markets like this.

--Charles Rothstein
Co-Founder of Beringea, a private equity firm based in Farmington Hills, Michigan

Reclaim your shelf space

I am a lifelong Detroiter, and Awrey is a household name. If it was just another brand, it would have to compete on price and quality, but in this town, Awrey is viewed as a premium brand. Awrey's biggest challenge will be expanding its network of grocery-store retailers. It's had to reduce its costs over the years, but now it's a matter of selling products consumers want. The company has to expand its product line.

--Van Conway
CEO of Conway MacKenzie, Detroit-based turnaround experts

Focus on employees

The owners need to instill in the employees the esprit de corps that you need in a turnaround. The union employees took two wage cuts in eight years. That does not make for happy employees. The owners should create incentive programs for the employees--say, for every dollar the company makes, 2 percent will be put into an employee fund. They could do a paid company lunch each month, where employees are free to ask the executives questions. Anything would help.

--Chuck Benjamin
President of Benjamin Capital Advisors, an advisory firm based in Rye Brook, New York

 

 

IMAGE: Courtesy Company
Last updated: Apr 30, 2013




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