Focus on innovation

Compared to other years in recent history, 2008 was one of the most challenging for bakery businesses in every sector of the industry. Unprecedented ingredient costs and skyrocketing gasoline prices combined with a downturn in the economy left many bakery operators scratching their heads, wondering how to cope. Most raised prices, some cut back staff and a few incorporated cheaper ingredient alternatives in their product lines. All were forced to make some difficult business decisions this year. And, while gas and ingredient prices have eased some, the state of the economy in 2009 does not hold much promise either.

On the surface, the situation looks dire, but fortunately for the baking industry, people always need to eat, and some parts of the industry even benefit from the poor economy. Most importantly, the industry is filled with leaders who are always moving, thinking and capitalizing on new opportunities. On behalf of Bay State Milling Co., Baking Management and Modern Baking magazines brought together some of these leaders from different segments of the baking industry to talk about business challenges and learn their thoughts on future innovation and where the industry is headed.

Moderated by Heather Henstock, editorial director, Baking Management and Modern Baking, the roundtable included the following participants: Tom Gumpel, director of research and development, Panera Bread Co., St. Louis, Mo.; Kristen Repa, owner, Dessert Works, Norwood, Mass.; Simon Stevenson, pastry chef/bake shop/Hampden DC manager, University of Massachusetts, Amherst; Joe Piantedosi Jr., owner, and Lino Dischino, production manager, Piantedosi Baking Co., Malden, Mass.; Karen Trilevsky, founder/C.E.O., and Frankie Whitman, vice president, marketing, FullBloom Baking Co., Newark, Calif.

Baking Management: Today we want to focus on new opportunities in the baking industry, but I want to start first with the challenges you are facing. What is the number one thing you worry about in your bakery business?

Joe Piantedosi: Rising costs. Ingredients, mainly flour. Fuel costs, labor costs, insurance, utilities and trying to make a profit. We're feeling squeezed now more than ever. And just selling bread, we're charging more when flour goes up and justifying price increases, but how much can you charge for bread? Also, we supply restaurants where bread is not a total necessity or at least it can be cut back.

Kristen Repa: Absolutely. We of course are also dealing with flour costs, but dairy, eggs and other ingredients also are following this upward trend. For me, finding qualified bakery labor is a big issue as well. In a small business like mine, we're looking for trained employees, somebody with some experience, personality and talent. So, along with our flour prices doubling, my labor costs have practically doubled in the last year.

Piantedosi: We have labor concerns too because we have lots of equipment. So, we need mechanics and engineers, and I find it very hard to find these people. Also, the cost of living is so high, and to pay these people is very expensive.

Lino Dischino: We invest in equipment to produce faster and more efficiently, so our people can get more production out of an hour. It's tough to find a qualified baker or mechanic today. So, we're computerizing our equipment as much as we can.

Karen Trilevsky: At the same time labor costs are rising in this economy, customers are looking for increased value. Transportation is a rising cost, packaging, all of it is. On every front we're getting hit with increased costs, and the customer is looking for decreased costs.

Tom Gumpel: I look at fuel as obviously a huge piece for us. We are a company that has 19 fresh dough facilities. All we have in them are mixers and people moulding. It's a huge operation of 50,000 sq. ft. times 19 factories. So, when you see a Panera truck go by, there's bread fermenting on that truck, and we have to get to the stores. Do that math times $5 a gallon for gas. You can't just pass that on to the customer.

BM: Where do you see opportunities for innovation in your business?

Stevenson: At U Mass, we've gone the route of trying to integrate more fresh fruit into our products. We're looking at using more whole grains, particularly in products that aren't traditionally thought of as whole grain, such as cookies or brownies. And, we're definitely serving smaller portions. Smaller portions have been huge for us and have gone over a lot better than I thought they would.

Trilevsky: Yes, we're seeing the same kinds of things, especially for healthier products.

Repa: Something I've done along similar lines is scale back the extra stuff that we add to our products. They're still high quality products, the portion sizes are the same, but we're not adding so many foo-foo things to it. We're streamlining on the simple elegance.

BM: What about opportunities with natural and organic products?

Frankie Whitman: More and more people now are asking for it. Even our customers who haven't been asking are now asking. Other suppliers who are in our division are not using all natural. So, we have opportunity for expansion because natural ingredients are something we've always used.

BM: It sounds like for all of you, concentrating on what you do best is where the most opportunity lies?

Gumpel: During this change in the economy, I think the next big thing for us is just trying to hold onto our brand and not do something stupid right now. Make moves within our brand, within who we are.

If we took the bread wall out of Panera Bread because retail bread sales were declining, what would happen? If we didn't sell bread, we'd be just another sandwich shop competing with everyone else who makes sandwiches and soup. We would be taking the bread out of Panera Bread.

It is not so much, “What's the next big thing?” The majority of our work is probably 5 percent innovation and the rest is fixing things, maintaining things and staying true to our brand.

BM: Any other trends you see that might bring in more business? How about gluten-free?

Gumpel: They're a small group of people with a serious health issue. It's not a gluten allergy. It's celiac disease, and they're a small group of people who are very vocal. We're hearing more from celiacs. It's a totally serious situation, so I called the celiac association to get feedback. I was told two words: “Panera Bread. Anybody who has celiac disease isn't coming to Panera Bread.” That's why we don't have gluten-free items.

Piantedosi: What about other allergens? Lino and I are on the same page on this, but we have a compliance department now because we are a national company that requires the word allergen-free. I mean, what is allergen-free? Everything under the sun has allergens in it. We had to cut back on nuts in our products. And like you said, that's a small percentage of the population.

We find it challenging in our bakery because we don't have time to create new and exciting items because we have to worry so much about compliance issues.

BM: How about the trans-fat issue, how have you dealt with that?

Repa: Our products didn't have too many ingredients with trans fats, so I didn't have to play around too much. But, I saw the trend, and just said I'm going to do it now. I'm going to be the first in the area to be able to say our products have zero trans fats.

Stevenson: That is exactly the way I looked at it. I heard about it in New York and said this is going to come to Massachusetts. It did. And, we're a state university. We have to make this change now before it becomes legislation. It was tough in the beginning, but we found companies that were producing trans fat-free oils and other ingredients. We tested a lot of them with varying degrees of success. But, we're all set now. We're trans fat-free, and it's great.

Gumpel: You're not off the hook because you use butter. There are added trans fats and natural trans fats, and governments around the country, whether it is a county or city, are having trouble defining that. It's a pain in the neck.

Dischino: We have to purchase trans fat-free oil to put on the pans for customers that request it. But that's for production that day. It adds cleaning and sanitation time. You are looking at four hours for the crew to clean the line for the next product, and that's very costly.

BM: Is there anything new that you're researching and developing based on customer requests?

Piantedosi: Kosher is another thing. We ventured into it 20 years ago when a customer requested kosher products. It's been very difficult, and our compliance department is on me constantly. We bring a maintenance crew in to sanitize our entire line if milk runs through it, for example. We've talked about losing the kosher label, but some of our customers request that we still have it.

Repa: We're a cake place, so I look at what fits into my market. I want the dessert to work for you and your family, your life. So, I look at research and development at the very basic level. What are some of my alternative ingredients, and could I work with something new without getting into strange substitutes, something that's not natural?

Stevenson: My guests are notoriously fickle because their age group is 18 to 21. Anything out of the ordinary kind of blows their minds. When you start adding whole wheat to muffins or cookies, they get worried that it's a health food now. Once you get them to actually try it, you get positive response, and they're interested in it.

BM: I would have thought the younger, college-age customer base would be more open-minded?

Stevenson: Right. You would have thought that. The comment cards are full of requests for healthier options. They complain there are not enough healthy options, yet the most popular station in the dining hall is chicken fingers, French fries and hamburgers.

We also do a lot of vegan. We have a 21-day rotating menu for our regular guests, but last semester, we started a 21-day rotating cycle for a vegan menu. It's proven popular.

Gumpel: As we talk about it, students are not putting cash down. It's interesting to see trends when money is not an issue. So, they can do their own thing, but when people are putting money down, it all changes.

You know what? The quietest group that has the most impact on my future is diabetics. Diabetics are out spending money, and I don't mean to be disrespectful, but there's a portion of the diabetic community that is diabetic because of poor eating habits. Sugar substitutes, diets and smaller portion sizes are all part of our future.

BM: What are your biggest barriers to innovation, to going after some of these new opportunities you see on the horizon?

Trilevsky: As you're growing, it becomes far more complicated to whip up a new product. It's frustrating and not as much fun because now the quality assurance department looks at all the ingredients, and then you have to run it through software to verify the nutritional piece. What once was a very simple process is now six weeks, and there is simply not enough time to get everything out with ingredient purchasing and other requirements.

Piantedosi: We're a privately-owned, family company, and we'll go out and spend millions of dollars on equipment. It's scary. A lot of our equipment needs to be replaced, and you're looking at hundreds of thousands of dollars for each piece of equipment. Everyone thinks the equipment eliminates labor, but it really doesn't because we put quality people on the lines to check the product.

BM: So you've automated with more equipment, but you really didn't get the labor savings you expected?

Piantedosi: We never do because you bring in more mechanics. You bring in more maintenance people to manage the new equipment; you need qualified technicians.

Dischino: So, you have an extra person before the proofer, after the proofer and during the moulding. Then, you need a controller at the other end to check what the other guy is doing. By the time you're down the line, instead of six people, you have 13. You can only increase output so much because the oven is designed to handle so many pounds of dough. You can only do so much because the oven is the boss of the whole bakery.

Piantedosi: In our product there are variables. We have a customer that is adamant that it has to be a certain length or certain color, so there are going to be variations. We're not making pads of paper; we're making something that fluctuates.