RECIPE FOR PROFIT

$18 million a year in fresh baked success for Breadsmith chain.

When Albert Hasse became president of Breadsmith in June 2001, it wasn’t because he thought the market needed another bread retailer. After all, bread is bread. Isn’t it?

The 40-year-old Hasse (pronounced Ha-see) came to Breadsmith from Krispy Kreme Doughnuts, where he had been vice president of franchise operations. To that end, Hasse learned to plan one great performing store per market, such as the new one coming up in Phoenix, before he concerns himself with rapid growth and multiple units in that market.

Based on what Hasse witnessed at Krispy Kreme, he plans slow and steady growth for the Breadsmith chain, planning to add one unit at a time with a minimum of four stores opening in 2005 and a maximum of seven. This growth goal is almost unheard of in today’s franchise community, but Hasse feels that many more companies should be growing at this rate.

When Hasse came to Breadsmith, he found the crusty European-style artisan bread baked at their bakeries was different. With its bread hand-made and baked from scratch in a stone-hearth oven, Breadsmith was rekindling a culture that began hundreds of years ago when European villagers baked their daily breads in communal, wood-burning hearth ovens.

“It was bread, but it was different and special,” Hasse said. “When I tasted the Breadsmith product, I couldn’t imagine going back to what I was eating before. It didn’t get any better than this and that’s what I liked about it. I thought I could really build a chain based on this excellent product. And using the knowledge I garnered at Krispy Kreme, I feel confident we are on the right path.”

That was the intention of founder and Chicago native Dan Sterling when he opened the first Breadsmith in Milwaukee in 1993. Sterling had a Harvard MBA and had spent time traveling Europe, where he grew to love its traditional, crusty breads. His ambition was to bring those same breads to the United States through locally owned and franchised artisan bakeries.

Today, having begun franchising in 1994, Milwaukee-based Breadsmith Franchising, Inc. has 35 locations in nine midwestern states. Breadsmith is planning to open in Phoenix in June, providing the chain’s “gateway to the West,” Hasse said. “How did we arrive at Phoenix as a market? Initially, we plan to target markets with a population density of 500,000 people. Every city in this country with that many people should have a great artisan bakery where the breads are baked by hand or by scratch daily.”

But don’t count smaller markets out, says Hasse. “Some of our best performing stores are in smaller markets such as Appleton, WI and Sioux Falls, SD—markets with populations of fewer than 200,000 people.” Why are these so successful?

“There is an appreciation in these smaller markets that have a great hometown atmosphere, for our scratch-baked products,” says Hasse.

The chord Breadsmith strikes with customers is similar to what Hasse experienced with Krispy Kreme—where a glazed doughnut represents more than simply a glazed doughnut—except that Breadsmith offers even more. The chain’s culture is built not only on its bread, but also the passion that Breadsmith’s artisan bakers put into creating it from stone-ground flours and yeasts with no fillers or additives. Besides European and soft-crusted breads, Breadsmith also offers a variety of whole grain breads, focaccia, brioche, specialty breads, cookies, muffins and sweets.

Breadsmith was founded as a traditional retail store model, but Hasse’s goal is to “get our great bread in as many people’s hands as we can.” Thus, franchisees have the option to sell their products commercially to restaurants, caterers and hotels, as well as on a wholesale basis to grocers, who sell it under the Breadsmith name. Wholesale and commercial sales can represent anywhere from five percent to 50 percent of sales for Breadsmith franchisees and during the last five to seven years that sales niche has grown in importance. Breadsmith products can be found on grocers’ shelves in cities such as Chicago, Detroit, Cincinnati, Milwaukee, St. Louis, Cleveland and Fargo, ND, as well as in numerous fine restaurants across the country.

Hasse also revamped Breadsmith’s corporate structure, providing value to franchisees by adding a technical baking manager and full-time marketing director. Operations was also overhauled by consolidating staff and developing leadership possessing the skills of “quintessential franchisees,” thereby offering existing franchisees the resources necessary to make them more efficient and profitable.

“What we have now is a team approach to store support,” Hasse said.

Looking to add four new franchises in 2005 and seven in 2006, Hasse’s focus is on controlled growth for Breadsmith over the next five years, building to an average of eight to 10 new agreements from 2007 through 2010. Systemwide revenue of $18 million is projected for 2005.

Hasse says Breadsmith’s growth will be dictated by the success of its individual franchises. Breadsmith isn’t promoted as multi-unit opportunity and Hasse doesn’t subscribe to the strategy of “stacking” a market with additional locations at the expense of existing franchises. Also in its favor, Breadsmith is a debt-free company.

The low-carb fascination caused Breadsmith’s retail sales to drop approximately seven percent from third quarter 2002 through the first two quarters of 2004, but wholesale revenues increased 12 percent during that same period as franchisees became more aggressive in their wholesale efforts.

“Our industry went through a pretty difficult time,” Hasse said. “But the great news is that we’re starting to see a real turnaround in terms of inquiries and people who are interested in looking at Breadsmith. People are seeing that there are terrific healthy bread options out there and that we offer a dramatically diverse mix of products.”

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