Whole-grain Rebound Fortifies Breadsmith

Franchiser plans measured growth

WHITEFISH BAY, WI (Sunday, May 01, 2005) - Breadsmith Franchising Inc. president Albert Hasse -- having seen the glaze melt off the doughnut of his overbuilt former employer, Krispy Kreme -- is planning more measured growth for his Whitefish Bay-based breadmaking chain.

Breadsmith will open as many as 50 stores by 2010, more than doubling the size of the company. The expansion will capitalize on growing interest in whole-grain products.

The strategy will differ from that of Krispy Kreme Doughnuts Inc., Winston-Salem, N.C., which found its financial health in question amid an aggressive nationwide expansion.

Hasse was vice president of franchise operations for Krispy Kreme before joining Breadsmith as president in 2001. He hopes not to repeat Krispy Kreme's development agreements that sometimes promised dozens of new stores in a new market.

Of course, Breadsmith, a private company founded in 1994, does not same face the same pressures from Wall Street investors that Krispy Kreme did. Its growth will be more modest, with the addition of four franchises in 2005, seven in 2006 and an average of eight to 10 annually from 2007 to 2010.

Breadsmith will open its first store in Phoenix in June, Hasse said. The company is also eyeing a franchise in Boston.

Breadsmith has 35 locations in nine states from Ohio to South Dakota, down from about 45 in the late 1990s. Breadsmith has locations in Milwaukee, Greenfield, Wauwatosa and Whitefish Bay.

Prime competitors include Great Harvest Bread Co., a Dillon, Mont.-based chain in the Milwaukee area with three stores.

Grocery stores and their bread aisles are also competitors. Breadsmith provides branded products to Sendik's, V. Richard's and Grasch's.

A 20 percent increase in wholesale revenue from sales to food stores, restaurants, delis and other merchants helped Breadsmith grow its sales by 3 percent in 2004 to $17 million. Retail sales, which account for more than 60 percent of Breadsmith revenue, fell 5 percent in part due to low-carbohydrate diets.

Hasse, however, is confident the increasing popularity of whole-grain products will help spur Breadsmith's retail expansion.

In January, the U.S. Department of Health & Human Services called for the consumption of 3 or more ounces of whole-grain products daily as a strategy toward long-term weight loss.

For Breadsmith, whole-grain sales account for between 10 to 40 percent of individual store revenues.

Stores can individually choose types of bread to offer daily. Loaves typically cost between $3 and $3.50.

Great Harvest too, suffered amid low-carbohydrate tastes, but has gained in the industry shift toward whole-grain products, said Maria Emmer-Aanes, brand manager.

Specialty bread remains a relatively small market, but has growth potential, said Neil Stern, senior partner for McMillan Doolittle, a Chicago retail consulting firm.

"During the Atkins phenomenon, you didn't want to be called 'Breadsmith,'" he said.

To fuel its growth, Breadsmith has increased its franchisee recruiting efforts through advertisements on franchisee solicitation Web sites and appearances at franchisee conventions and other events.

The Breadsmith franchise fee is $30,000. In addition, franchisees pay annual royalties on a sliding scale.

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