RANDY MCARTHUR, C.E.O. OF MCARTHUR'S BAKERY in St. Louis, thinks the small, retail bakery business is in crisis. The second-generation baker believes that too many retail bakeries settle for too slim of a profit margin.
"It's a blanket indictment. We don't make a high enough rate of return. I'm just as afraid as the next guy to raise prices, but what we can't do is drop our prices to compete with the Costcos and Price Clubs of the world. The supermarket used to be the low end, now the price clubs have lowered the bar even more. In the old days, the guys in the back believed that a good product was the key to everything. It's not good enough to just make a good product," Randy McArthur says.
Randy McArthur feels strongly about the business his father started in 1956. McArthur, whose top management team includes his brothers, David, who joined the business a year ago, and Brian, onboard for the past decade, has taken proactive steps to maintain the family business. Not only is McArthur's Bakery thriving, to the tune of $3.2 million in annual sales, but its growth and expansion has been accomplished strategically with successful results.
Originally located in inner city St. Louis, McArthur's Bakery was at a crossroads in the late 1970s, with changing neighborhood demographics gradually sucking the life out of its profits and customer base. "We moved to a 2,500-sq.-ft. location in South County on a wing and a prayer," Randy recalls.
A loyal following and McArthur's commitment to the specialty and wedding cake market proved to be the financial engine that drove the business to continued success. Although it took a while to build a customer base in the new location, an emphasis on progressive management techniques and a willingness to adapt the product line to meet changing customer needs paid off.
Importance of renovations
In 1984, Randy purchased the building the bakery occupied and expanded it to 4,500 sq. ft. He also invested $200,000 in new equipment.
"Sales went up 17 percent that first year, and then an average of 10 percent every year after," he says. In need of more space in 1996, he purchased a strip mall, and a two-year renovation period resulted in a tidy row of stores called McArthur's Plaza in suburban St. Louis.
"I had time to do some research while we were working on the shopping center," Randy says. "I looked at fast food restaurants, supermarkets and quick stop markets, not just bakeries, because they're our competition. How does a place make me feel? I know what didn't make me feel good: spaces that were dark, dirty, not well kept, as opposed to a space that was modern, decorated and upgraded with clean air ducts and ceiling fan blades."
Two other factors influenced how the bakery was outfitted and decorated. "My wife convinced me that women were our primary customer, yet most bakeries look masculine," Randy says. "They're decorated by the guys in the back, and it shows. We wanted a light and airy feeling." Secondly, when Randy told his brother David he was going to redo the bakery with straight front cases, his brother disagreed.
"I said, 'go ahead, go back to the Stone Age," recalls David. "I told him to go down the street to the supermarket, and see what they were doing. If he wasn't going to put in curved glass cases, he might as well close up."
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| McArthur's walk-in refrigerator plays a critical role in fulfilling orders for 60 wedding cakes and 650 specialty cakes a week. |
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| Randy McArthur uses a surveillance system made up of 14 cameras that he can check from any computer. |
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| More than 60% of the bakery's sales are from cakes. Last graduation week, McArthur's sold 9,000 pounds of cake. |
Randy spent double what he'd originally intended¯ $60,000 instead of $30,000¯but the bakery saw a 40 percent jump in sales immediately after the renovation. The post-renovation McArthur's Bakery totals 11,000 sq. ft. of space with 4,500 sq. ft. of retail, wedding consulting and cafè space and 6,500 sq. ft. of production, which includes a 22-sq.-ft. pastry kitchen and an oven room.
The bakery also has a cafè, which serves snacks, salads and sandwiches, a boon for the typical "dead zone" of 11 a.m. to 2 p.m. Another section of the store includes cards, party goods and gift items, a profit center that typically generates $650 to $1,000 a week.
"Those items are marked up 300 percent, so we constantly change the merchandising to make the area look inviting," Randy says.
Yet, while sales continued to grow into the mid 1990s, Randy saw the numbers flatten out towards the end of the decade. "That's how we knew it was time to expand," he says. "We'd saturated our market, and our growth was stalled. The key was to buy a bakery that would produce for us from day one."
Expansion plans
Randy purchased an existing bakery about 20 minutes away. He opened McArthur's at Kirkwood Junction in February 2002. The 2,000-sq.-ft. space included an outdated production kitchen and 350 sq. ft. of retail space. Randy and his team updated the front, adding new finishes and decorative details, and moved all production to the main facility, which delivers twice daily, at 6:30 a.m. and 11 a.m. "We literally got a return on our investment from opening day," he says.
When the location opened, it sold 60 decorated cakes a week, but now sells 150 to 250 a week. McArthur feels the location is on track to generate $2 million in sales. He attributes its success to opening the location far enough away that it did not poach customers from the original location. McArthur's will be renovating and expanding its Kirkwood location into a bakery cafè by year-end.
Profit center in cakes
Following his father's lead, Randy put a strong emphasis-on decorated cakes and wedding cakes from the start. Business has grown to the point that in an average week, the bakery decorates 50 to 60 wedding cakes and 650 specialty cakes.
McArthur's booming specialty cake and wedding cake business is a study in how flexibility and being willing to change translates to the bottom line. Ten years ago, after doing a series of blind taste tests, Randy decided to substitute sponge cake for regular white and chocolate cake in all the fancy pastries.
"Our customers like it, and it stays moist," Randy says. McArthur's uses a range of production methods for cakes and pastries, with all scratch icings on everything. Last graduation week alone, McArthur's sold 9,000 pounds of cake.
"It's not rocket science, but we try to do little things to make production go smoother. Like flipping all of our wedding cake layers to eliminate knife trimming. And using corn syrup in between layers to prevent slippage," Randy says. McArthur's owns two photo-cake systems, giving customers the option of all licensed images, as well as custom photo cakes. Specialty cakes account for 50 percent of the bakery's business. "One baker does nothing but mix cakes and bake. He keeps a 36-pan oven full of cake, non-stop," David says.
Randy and his brothers embrace the wedding cake business wholeheartedly. Their Web site showcases countless cake combinations, with the trend being filled cakes and traditional stacked cakes. One full-time and three part-time wedding consultants work with couples one-on-one to help them make the best choice. Tastings can include sending a cake home for further research.
"We're doing 12 to 15 percent of our business in wedding cakes," David says. "We have people who do nothing but deliver and set up cakes."
Drivers of the three refrigerated trucks are paid $10 per cake for delivery, and average 25 to 30 cakes a day. "Thirty years ago, my father decided it was easier to make one wedding cake than to make 200 loaves of bread, and he was right," David says. He oversees the deliveries on Saturday, and is always on hand to put out a fire, should one occur.
Organized production
Organizing production of the more than 100 products into three zones, pastry, cake and breakfast/ bread, each with its own manager, has helped keep things running smoothly, David says. Pastry production starts at midnight with mixing, baking and setting up breakfast dough for sweetgoods and coffee cakes. Donuts are mixed, cut and frozen for the next day. They are thawed the following morning at 4 a.m., so they can be in the fryer by 6 a.m. and hot when the store opens at 6:30.
The decorators come in at 7 a.m., begin decorating by 7:30 and continue until mid-afternoon. All of the cakes are side-iced first, which helps expedite the process, and each decorator uses an airbrush decorating system. "The system had a little bit of a learning curve, but once it's mastered, it really speeds things up," David says.
The addition of a third bakery cafè at a nearby church in June was the company's third phase of expansion. "We're actually at a tough size right now," Randy says. "We've survived the mom and pop stage, but with 80 employees, we're not big either. We have to make our moves carefully and not make any missteps."
Rewarding employees with above average wages (pot washers start at $9 an hour), and offering benefits like a 401K plan, health insurance and employee-of-the-month rewards has gone a long way to keeping the company on track.
"We empower people," says David, who handles many of the employee issues. "We're building our culture. Nobody worked a Sunday in December. And we usually are able to give everybody two days off together. We pay fairly."
Putting money back into the business, in equipment, human resources and technology, has been a paramount element to McArthur's success.
An example of investments that have paid off is the $10,000 digital surveillance system Randy installed, which positions 14 cameras all over the bakery, as well as in the parking lot and loading dock area. The motion-activated cameras, which he can log onto from anywhere, do everything from catch somebody sleeping on the job to deterring theft. On a much smaller scale, investing 70 cents each into sturdy, corrugated cake boxes may cost 30 cents more a box, but it ended the loss of an average of 10 cakes a week that were damaged because of flimsy boxes.
Besides word-of-mouth referrals, McArthur's spends 2.25 percent of sales on advertising, a combination of shopper's coupons and local TV spots. The bakery is active in community and charity events, using pastry giveaways to continually reinforce its positive image.
"That's not something you see a return from right away," David says. "It may take five years, but eventually, people will perceive you as better than everybody else. My dad always said, 'If it doesn't taste as good as it looks, I'll give it to you,' and we still hold to that tradition."
| A sampling of McArthur's Prices | |
| Decorated cake, full sheet | $46.99 |
| half sheet | $27.99 |
| 8-ins. | $15.99 |
| Danish | $0.99 |
| Donuts | $0.62 |
| Filled donuts | $0.72 |
| Cheesecake with fruit, 1/8 sheet | $12.99 |
| Blueberry muffin | $1.49 |
| French chocolate torte with strawberry filling, 8 ins. | $30.49 |
| Four-tier wedding cake (basic) | $233.54 |
| (Cornelli lace is $10 per tier) | |