Jim and Jacque Balmain buck the trend for multi-unit retailers, and have grown their business from three to seven units with $3.5 million in sales.
Smith's Bakeries is bucking a trend in retail baking.
Since the mid-1980s, the number of multiple-unit retail operators with six or more retail outlets across the country has shrunk from more than 100 to about a dozen. Meanwhile, this Bakersfield, Calif.-based MUR operation has increased its outlet count from three to seven. Annual sales of $3.5 million reflect that growth.
Jacque Balmain and husband Jim; whose father, Roy, and Howard Smith, founded the business in 1945; attribute their success to strategic selection of outlet locations, negotiating favorable terms with landlords, maintaining control of outlet operations, gearing product lines to meet customers' needs, providing helpful customer service and, most importantly, offering fresh, high-quality bakery foods.
As a youth, Balmain worked in the bakery. By 1960, he had married Jacque and was continuing his education when family medical expenses forced him to seek employment.
He chose to return to the bakery, which he ultimately purchased in 1985 when his father and Smith retired. They were operating three stores, including the current production bakery.
Balmain increased the number of cold spots to six. Two are in strip malls, two in conventional supermarkets and two in upscale mini food/convenience markets.
He eschews owning fixtures and real estate, preferring to rent space while owning the business. Initially, supermarket landlords provided all fixtures and staffed the outlets, while Smith's supplied product at a 22 percent discount to retail and a packaging allowance.
“That worked until the landlords began delaying payment of the bills, not controlling sales and stales effectively, and allowing customer service to slip,” Balmain says. “We soon agreed to have the landlords install the fixtures, pay utilities except telephone, and Smith's would handle staffing and sell its product in return for 4 percent of sales.” The bakery leases the two strip mall sites at rates equivalent to about 4 percent of outlet sales. “By all measures, the current set-up works much better.”
The concept requires minimizing overhead with minimal space and allows control of product and labor, he says.
The supermarket outlets have their own cash registers and the bakeries are positioned at the store entrances. Sales personnel sell morning items from two to four service cases.
In the afternoon, customers select items from packaged product displayed on tables near the showcases and pay at the supermarkets' cash registers. “This requires trust. I've known the stores' owners for many years and trust them implicitly to credit the bakery sales correctly,” he says.
Head salesperson runs location
Each location has a head sales person and one to five associates, depending on sales volume. Balmain handles hiring. The head sales personnel are responsible for employee training, placing daily product orders, monitoring sales and stales and requesting each week's labor hours.
When placing orders, head sales personnel use guidelines for required products; they also focus on products that sell best in their locations. “Our people know their customers and what they like,” he says.
The bakery produces an average of 72 different varieties of bakery foods, such as seven flavors of Danish and 35 of donuts. “These are the products that our customers tell us they want,” Balmain says. “We can make them in volume with high quality. We don't have to worry about making a lot of short-run items.”
Decorated shortbread cookies, the top-selling category, total nearly one-quarter of dollar sales. However, during holidays, cookie dollar volume rises to 50 to 75 percent. To help meet demand, bakers bake cookies for the freezer, which holds 2,800 dozen at -10°F, and pull them as needed for decorating.
Unit sales of smiley face cookies, the largest seller, average 150 dozen a day, he continues. “These cookies have become a signature product for us.”
An annual cookie promotion, “Cookie Carnival,” held the first week of the school year, helps boost cookie sales during an otherwise slow period and keeps them top of mind among customers, Balmain notes. The promotion offers a dozen cookies free of charge with the purchase of two dozen. “This week always is big for us,” he says.
Champagne cakes, one variety of several in Smith's line of specialty cakes, also are a signature product prepared daily. Decorators fill vanilla chiffon cake layers with vanilla cream pudding and ice them with real whipped cream.
Interestingly, dessert cake sales have stabilized, while those of decorated cookies continue to climb. “Changes in family lifestyles are the reason,” Balmain says. “Families rarely eat dinner as a unit. As a result, we have seen a decline in purchases of dessert cakes. Decorated cookies are filling the void.”
Balmain maintains control of the cold spots in part by visiting the largest locations briefly each afternoon when business usually is slowest and the remaining outlets every two to three days. He looks for store cleanliness, employees' appearance, appearance of the showcases and performance with customers.
Resists micromanaging business
He acknowledges that he must restrain himself from micromanaging the business. “I've told our production manager and head sales people that I'm here to provide the tools for them to do their jobs the right way,” Balmain explains. “If at any time they don't have those tools, I want to know. And, if something is not done correctly, we discuss how to correct it. Often, they have the answers.”
He reviews with the head sales personnel their sales and stales figures and when problems arise, helps them identify solutions. “You need to give them enough flexibility to show that you have confidence in them to do the job,” Balmain observes. “As a result, they try harder to prove that they can do it. I want to monitor what's happening, not do their jobs.”
Head sales personnel are asked to maintain a 4 percent stales rate and to clear their cases by the end of the day. “We want our customers to know that if they don't come in early, they may not get what they want. And, they know the product they buy the next morning is fresh,” he says.
Smith's outlets are located one to three miles from one another and the production facility. “The distance accommodates our deliveries well, and the stores are separated just far enough so as not to cannibalize each other's sales,” Balmain says.
Two drivers deliver fresh product four times daily to the stores, beginning with donuts and Danish at 5:30 a.m. and finishing with the last cake and cookie orders at 11 a.m. This enables Smith's to deliver all items within about an hour after they are produced. “Our customers know that they can buy products from our outlets that are just as fresh as those they would buy at our main store,” he observes.
Drivers return from final deliveries at about 12 p.m. with each outlet's order for the next day. Copies are distributed to each department: donuts, cookies, cakes and sweetgoods. Bakers work holiday and shorter-run items, such as pies, bagels and bread, into the day's production.
Bakers prepare products for the four primary categories mostly from scratch. Cakes and donuts are mix made. They also make icings and fillings from scratch. Limited volume items, such as bagels and croissants, are prepared from frozen dough.
The bakery produces all products with one shift Monday through Saturday; department schedules are staggered to gain efficient use of the equipment.
Mixer operators arrive at 1:30 a.m. to mix donut doughs and pull retarded Danish items, made up the previous day, for proofing and baking. Remaining production employees arrive at 3 a.m., followed by the cake decorators at 4 a.m. Donuts and Danish are completed by 5 a.m. for the first deliveries to the stores.
Increased distribution expenses would suggest that having multiple deliveries is not cost effective. Smith's adds increased costs to retail prices to maintain 6 percent of gross profit level. (Separately, customers pay $12.50 minimum for special delivery orders.) “Most important, our customers expect fresh, high quality product. And, that's what they get,” Balmain says. “This helps keep their loyalty.”
Smith's accepts charge cards for customers' convenience and includes the cost in retail prices. “With cash sales we come out ahead,” he says. “After we introduced charge card acceptance, we learned that customers often spend more per purchase and shop more frequently.”
Distribution and charge card expenses are among the components that comprise Smith's retail pricing structure. “I don't believe in using a three-times-materials or four-times-labor formula to set retails because sometimes materials are key costs and other times labor is key,” Balmain explains.
All costs in pricing
Before Smith's introduces a product, Balmain conducts a time-and-motion study to determine materials costs; production and sales labor, including benefits and distribution costs. Combined, the costs become a percentage of the retail price.
While Smith's customers willingly pay for quality products and helpful customer service, they do not necessarily expect to find them in highly stylized, upscale store environments.
“We're an unpretentious, conservative community. Our customers cover all classes: construction workers, farm hands, business people, professionals and government employees,” Balmain notes. “Because of this, I don't make my stores too fancy.
“We don't want customers to enter our stores and think that they don't belong. We keep the stores clean, neat and inviting. Still, more-affluent customers understand that we can provide custom-made products that they cannot obtain elsewhere.”
Smith's Bakeries' approach to business is working. Consider sales per square feet: A 900-sq.-ft. store in a strip mall generates about $550,000 annually. The smallest outlet, a 200-sq.-ft. store with two display cases in an upscale mini food/convenience market, took in $7,000 last Christmas Eve, Balmain says.
When investigating new locations, Balmain bypasses new developments. “Generally, these residents have their disposable income tied up in furniture, children and mortgages,” he observes. He waits four to five years for a development to mature and seeks sites near populated centers, such as schools, hospitals and small manufacturing facilities.
Despite Bakersfield's current economic slowdown, Balmain remains optimistic. The metropolitan area has about 450,000 residents. Projections suggest the number will grow to 1 million within 15 years. Most new residents will commute to Los Angeles County, which will open opportunities for Smith's, he says.
In many respects opening new outlets during the next several years will be no different than what Smith's Bakeries has experienced for 22 years. “Each of our stores has differences in its customer base. That will be true of new locations,” Balmain concludes. “It's all about knowing your customers and providing what they expect.”
AT A GLANCE
Location: Bakersfield, Calif.
Web site: www.smithsbakeries.com
Management: Jim and Jacque Balmain, owners; Inez Muratalla, production forewoman
Number of bakeries: one production facility/retail store and six retail stores in strip malls, supermarkets, upscale food/convenience stores
Bakery size: production facility/retail store, 7,400 sq. ft.; outlets, 200 to 1,600 sq. ft.
Number of employees: production, 26; sales, 26
Product line: full line, averaging 72 items daily, with emphasis on cookies, donuts, decorated cakes and specialty cakes
Market served: metropolitan Bakersfield
Annual sales: $3.5 million
Major bakery equipment: vertical mixers, bun divider, divider/rounder, sheeter, proofer, two traveling tray ovens, bread slicer, rack washer, espresso machine
Bakery supply distributors: BakeMark, Robb Ross Foods
…A SAMPLING OF PRICES
|Yeast-raised donut, glazed||$0.80|
|Plain donut, cake||$0.65|
|Decorated shortbread cookie||$1.19|
|Banana nut bread||$4.98|
|Apple pie, 8 ins.||$9.29|
|Fresh strawberry pie, 8 ins.||$13.95|
|Plain angel food cake, 9 ins.||$7.49|
|German chocolate cake, 8 ins.||$18.25|
|Carrot cake, cream cheese icing, 8 ins.||$19.25|
|Champagne cake, 8 ins.||$25.90|
|Decorated cake, 8 ins.||$22.80|
|¼ sheet, single layer||$20.40|
|½ sheet, single layer||$52.50|
|Butter dinner rolls, 12 count||$3.99|