Business Spotlight: Bagel Bound

Time to make the bagels.

The classic Dunkin’ Donuts’ slogan is aptly adapted for Panera Bread Co. franchisee Traditional Bakery Inc.

In 20 years, the Springfield-based operation has baked 66 million bagels.

It started with one store in the Galleria Shopping Center on East Battlefield Road. But before opening the bakery cafe on June 16, 1993, its owners had to convince executives of St. Louis Bread Co. – the predecessor of Panera LLC (Nasdaq: PNRA) – to sell the rights for a Springfield store.

Jim Magers, co-owner of the Springfield-based franchisee, recalls there were only about 18 of the cafes operating in the St. Louis area, and all of them were corporate owned.

“At that time, they were just beginning to work on a franchising model,” says Magers, who with his wife, Gaynell, and her brother Dr. Tom Stees and his wife, Sue, struck a $30,000, five-store franchise deal and signed an agreement a few pages deep, compared to today’s 100-page franchise agreements and $35,000 franchise fee.

“We kind of helped them work through that,” adds Magers, an experienced franchisee for Pizza Hut, Long John Silver’s and Wendy’s brands.

Some 29 million loaves of baked bread later, Traditional Bakery operates 35 Panera bakery cafes in four states, with combined annual sales approaching $100 million, Magers says.

President and Chief Operations Officer Brian Camey says organizationally the franchise stores run as a single company but legally are structured under two S corporations: Traditional Bakery, comprising 22 units in Springfield, Branson, Joplin, Tulsa, northwest Arkansas and Tucson, Ariz.; and Oklahoma City Bakery Inc., covering 13 units in the Oklahoma City and Little Rock, Ark., markets.

The 32 stores in the Midwest are served by dough made daily in Springfield.

During the last two decades, Traditional Bakery’s fresh-dough facility near Kansas Expressway and Battlefield Road has purchased 29 million pounds of flour to produce 58 million pounds of raw bakery dough. As the only dough facility owned by a franchisee, the operation is unique in the Panera system, which Camey says owns and operates 22 dough-production plants nationwide.

Cafe managers in the local franchise forecast dough orders four to seven days in advance. On any given day, roughly 8,500 bread loaves and 20,000 bagels are prepped for storage – at a cool 42 degrees – and loaded onto refrigerated trucks, says Edward Zak, production manager.

“It’s a whole different kind of business. It’s a manufacturing business, and it’s a distribution business,” Camey says, noting drivers of the five-truck fleet log 665,000 miles a year for deliveries. “It’s like driving around the earth 20 times, 25 times. That’s a lot of miles.”

On day one, the dough is prepared; day two, it’s delivered to cafes and baked overnight; day three, the baked goods are displayed in cases and sold; and on day four, any leftover bagels, breads and pastries are donated to about 20 area organizations. In 2012, Panera product donations in southwest Missouri were valued at $236,000.

The National Restaurant Association pegs annual sales in the fast-casual niche at $174 billion – from such top-performing brands as Chipotle, Qdoba, Five Guys, Einstein Bros. and Panera, which alone exceeded $4 billion in 2012 sales between its corporate-owned and franchise cafes, according to its annual report. But by carving out only 27 percent of the food-service industry, the statistics indicate there is room for the segment to grow.

Magers credits the combination of a contracted economy and favorable fast-casual food price points to recent growth for Traditional Bakery.

The franchisee opened a half-dozen stores in the last three years, its largest development spurt.

“We did well through the crisis, which makes no sense at all,” Magers says from a seasonal home in Oregon, noting he spends three months of the year in Springfield. “We thought we’d see some flattening out and we did not see that. We think probably there was some trade down from full-service concepts.”

Camey says Traditional Bakery’s comparable store sales are up 4.5 percent this year, with the largest volume store in Edmond, Okla., outside of Oklahoma City.

Across the 1,673-store Panera system, average weekly sales are $47,000 per store, according to the company’s first-quarter earnings report.

While Traditional Bakery’s stores in the Oklahoma City market average $50,000 in weekly sales, the franchisee’s $42,000 weekly store average falls below Panera’s systemwide average volume including corporate owned and franchise operations.

Camey says the five Springfield stores average $41,000 in weekly sales, and the South Campbell Avenue cafe leads the pack. He says the freestanding Branson store behind the Moon River Theatre also performs well, and during the holidays and summertime sometimes becomes the top-grossing area site.

With eyes on trends, Camey says Traditional Bakery has found growth potential within its existing territories between strategic relocations and drive-thru additions.

“We’re learning that our customers want us to have drive-thru windows,” he says, noting 11 stores have been tabbed for drive-thru service potential. “We don’t have any drive-thrus in Springfield, yet. But I’m working on it.”

Camey says relocated cafes in Oklahoma City, Tulsa, Okla., and Bentonville, Ark., each doubled sales, and a drive-thru added in February in Norman, Okla., quickly grew sales by 40 percent.

“It confirmed for us that this is a good investment,” he says of the estimated costs of $350,000 to $500,000 to retrofit a store, compared to the $1 million to $1.6 million price tag for new store openings.

While Magers, who turns 70 in July, considers himself semiretired, he still has a hand in business development, real estate and financial decisions – and he doesn’t miss Panera’s biannual franchisee roundtables to provide input and stay connected.

He’s had a unique vantage point partnering with the publicly traded company when shares were trading in the $5 range to the point of pushing $190 per share today.

“It’s a good investment,” he says of the Panera stock that’s traveled a steady climb since trading at $40 a share five years ago. “People ask me all the time, ‘Should I put money in it?’ I say, ‘It’s been good to me.’ It seems awfully high, but it keeps going up.”[[In-content Ad]]