AMY'S BREAD
Amy glanced at the clock and moaned. It was 3:30 a.m., time to get up and head to her Manhattan bakery, but she hadn't slept all night. She had a big decision to make. "No," she muttered to herself; she had a multitude of big decisions to make. Amy wondered, "If I decide to expand, can I do it successfully? Can I find another trustworthy manager, like Toy Kim Dupree, to help me manage the staff and maintain bread quality? Can I find expansion;space in Manhattan? Should I close our current location and expand to a much larger space, thus eliminating the need to manage two locations? Should I look for a locationfor my wholesale production, or a space that would provide both retail and wholesale opportunities?"
Amy's Bread, founded in 1992, served about 50 wholesale customers, including some of the finest restaurants, hotels, and gourmet food shops in Manhattan. Amy's Bread also had a waiting list of more than 30 wholesale customers from other quality restaurants, hotels, and shops.Amy thought, "I really want to meet their needs and accept their business, but any further production expansion in my existing space is impossible. I know I can't produce one more loaf without hurting bread quality, which is absolutely unthinkable! We are already working three shifts, and there is no more room for additional equipment."Amy worried that some of the customers on her long waiting list were on the brink of turning away.
Amy’s Personal History
Amy was born and raised in Minnesota, where her father was a high-level executive for Pillsbury and her mother was a gourmet cook with a family reputation for baking fresh breads. After high school, Amy earned a degree in economics and psychology. She then moved to New York in 1984 to try her luck in the Big Apple.Amy soon found that an office job was not for her. After 3 years, Amy left her job to pursue her dream. She decided to attend the New York Restaurant School for culinary training. After graduating from their program, Amy landed a job as a chef. After 2 years, Amy escaped to Europe. She backpacked around England and Italy and eventually settled in France, where there are strong traditions of bread baking. Amy worked at French bakeries in three different towns, spending a month at each. "After 1 year in Europe, when I returned to New York in 1989, I was brimming with ideas and excitement about opening my own bakery," Amy recalled.Amy spent the next 2 years as a pastry chef and bread baker for another top New York eatery. As Amy worked, she simultaneously developed recipes and business plans. Amy dreamed that someday soon she would be working for herself.
History of Amy's Bread
In1992, armed withsome savings, a loan fromherparents and former colleagues, a good business mind, and a very determined spirit, Amy took the big step. She opened Amy's Bread on Ninth Avenue in Manhattan. The space she found was an old storefront that had been a fish market and had been empty for 5 years. Although only 650 square feet, it was still expensive, but it was the most affordable space she could find. With the help of family and friends, it still took 6 months to renovate the space, including plastering and painting. Amy installed equipment, hired and trained staff, developed a customer list, and began production.
The Personnel
Amy's Bread started with a staff of six dedicated employees who scrubbed up used equipment, and built shelves. Amy recalled, "I taught them bread making techniques, and then, opened the business." We worked hard to create a happy, open, and friendly environment. We also tend to pay more than our competitors."Employees suggested solutions to management issues, with Amy having the final say. As Toy described, "We all put our heads together, bringing in our separate areas of expertise. Our goals were to produce very high-quality breads by hand, pay our employees a decent living wage, and ensure that our customers get good value for their money."The majority of her employees (88 percent) were minorities for whom English was a second language. Training was often done by demonstration. Payroll expenses were extremely high, representing over 50 percent of sales. With a handmade product, it was difficult to attain any economy of scale concerning labor.
Bread Production
Amy surmised that "practice and patience were the keys to perfect bread, and all successful bread started with quality ingredients." Amy explained, "Dough batters are very challenging. They can be too dry, too wet, not rising quickly enough, or rising too quickly. Many external elements can affect the dough, including the air temperature, the temperature of the water, the timing of each step." One of the most critical aspects of the success of Amy's Bread was her devotion to sourdough starters. The starters are essentially flour, yeast, and water. Amy quipped, "The starters are the miracle ingredient that gives life to the bread."The bakery operates 24 hours a day, 7 days a week. Wholesale customers want bread every day. On weekends and holidays, their orders double!" Dough production ranges from 1,800 to 3,000 pounds of bread per day, well over capacity for just 1,300 square feet." Amy's Bread had a staff of 32 bread mixers, shapers, and bakersby 1998.They had mixers and some other baking equipment, but most of their operations were manual.
Customers and Products
Amy's original business plans called for providing breads as wholesale to restaurants and hotels. Her location was really not the best for retail traffic. Retail business would simply be the second priority. Slowly, but surely, Amy began earning a city-wide reputation for high-quality, innovative yet consistent products. Her signature bread, semolina with golden raisins and fennel, brought Amy's Bread lots of attention. By 1996, her wholesale customer list had grown to almost 40 customers, and she was preparing about 600 lbs. of dough a day just for her semolina, golden raisin, fennel bread. Her product line included approximately 50 items made from 15 different doughs. Amy's best-selling products included her semolina bread, walnut scallion bread, black olive twists, apple-walnut-raisin rings, and organic whole wheat bread with toasted seeds.
Competitors
When Amy's Bread opened, bread baking appeared to be a growth industry, boosted by healthful eating trends. The U.S. Department of Commerce reported that per capita consumption of specialty breads increased 12 percent from 1988 to 1993. In 1993, per capita consumption of specialty breads was 23.28 pounds, which represented 30 percent of all bread consumption. Along with many rivals, perhaps the biggest of the franchise chains was the Great Harvest Bread Company, founded in 1976. In 1995, Great Harvest had 87 stores with 15 more under development, sporting a 30 percent annual growth rate. The rival bakeries tended to be more mechanized than Amy's Bread, utilizing equipment for dough shaping and baking.Amy felt that "the secret to financial success in the bakery business was to differentiate your breads with innovative and consistently high-quality breads. One of the ways I ensure high quality is by the hand-shaping and individual baking of the bread.
Financial Results
Shortly after her 1992 opening, Amy discovered what many entrepreneurs find to be a major roadblock: cash flow. As new entrepreneurial businesses began to flourish, more and more up-front money was needed for equipment, supplies, and staff. Typically, the customer base had not grown large enough to cover all the expenses, nor were customer accounts as current as desired, and sometimes products were not priced correctly. Amy remarked, "Soon after opening, I discovered that even if I sold every loaf I could make, my revenue would not be high enough to cover my high monthly lease and equipment rental expenses." Amy was very lucky though, when adjoining space opened up in December, and although she could not easily afford to lease the space, she also knew that she could not continue to exist without expanding. Quickly, Amy was able to borrow enough additional funds from family and friends to lease the adjoining open space. By January 1993, she was in full production in her newly expanded space.
Amy's Bread gradually grew. The 1998 income statement and accompanying schedules for Amy's Bread highlight her sales and profitability. Amy's contribution margin onretail and wholesale operations was 47% and 35%respectively. Other bakeries that were more mechanized experienced higher profit margins with 4 times less employees than the Amy’s Bread. The prices of various ingredients were continually rising, while the baking industry’s prices were almost stagnant due to rising competition.
Marketing Techniques
Amy said her most successful marketing technique was to "keep current customers happy." She noted, "Word of mouth is very powerful in business. She loved to allocate time for interviews to newspapers and TV channels’ journalists and discussed what is unique about her breads and, of course, everyone received free bread samples. She discovered that "whenever there was a mention of her business in a local paper, business increased a great deal for the next 2 to 3 weeks, and some of the new customers continued to return. Advertising was used for special events or seasonal product promotion.Amy's Bread has been recognized byprominent magazines.Amy regularly sent free samples of her breads to influential chefs. She donated bread to charities, taught baking classes, and appeared on television Food Network shows, in addition, the Amy's Bread delivery truck helped spread the word as it circled Manhattan delivering bread.With her assistant manager, Toy Kim Dupree, Amy developed a cookbook that was published in 1996, which introduced a variety of baking recipes. The book made her and her business very popular. Because of the popularity of her Manhattan bakery and her cookbook, Amy was contacted to consult with bakeries across the country. She also made a videotape appearance on the Oprah Winfrey show featuring successful young entrepreneurs. Then, she was in the process of developing an Amy's Bread website designed primarily for marketing, online orders, and public relations purposes.
Future Opportunities
Armed with 6 years of continuing success, Amy was facing a critical decision. Should she expand or stand pat? Amy eventually found a 6000-square-foot building on 31st Street that she felt she could afford. She also succeeded in getting a bank to agree to a $150,000 loan for her business plan. Unlike her 1992 application for a loan, Amy now had a proven track record and was interested in borrowing funds to purchase a hard asset, a building. However, her estimated budget for purchasing the building and making needed improvements was approximately $300,000. While, pursuing this plan, a developer contacted Amy with a new option. A lease was available on a 7,500-square-foot space that was part of a block-longwarehouse renovation on 15th Street. Amy estimated that it would take 4 months to construct her store at a cost of approximately $500,000. Finally, her key consideration were: "What should Amy do? Expand or stand pat? If expand, should it be a wholesale operation only? Wholesale and retail? Retail only (which brought cash sales and no credits? Two locations or one?"