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Scholar's Inn ready to rise: Starbucks-like strategy: 'Bread for the masses'

April 24, 2006

Scholar's Inn bakers load delivery trucks with more than 5,000 loaves of bread each week. And each time head bread baker Jeff Duez rolls a rack of apricot almond bread out to the loading dock, he ducks his head.

A 5-foot-high doorway separates the bakery's Bloomington kitchen from the ramp where delivery trucks pull up twice daily.

That's one of the many inefficiencies co-owner Lyle Feigenbaum addressed when he purchased a 10,000-squarefoot production facility the company will fire up this summer.

He thinks productivity will improve as much as 20 percent as bakers no longer have to lug ingredients up and down flights of stairs and duck their heads when going outside.

But Feigenbaum didn't spend $400,000 on the new building-and another $600,000 on new equipment-just to help his beloved bakers and pastry makers get the kinks out of their necks.

He did it as the "next step" in a quest to do for bread what a certain coffee company did for macchiatos.

"We want to make this bread for the masses like Starbucks makes coffee," said Lyle Feigenbaum, who co-owns the Bloomington-based business with his wife, Kerry. "My goal is for every person in Indiana to eat our breads on a daily basis."

At the least, analysts say, the new production facility will allow Scholar's Inn to compete on a more level playing field with the current king of the artisan bread jungle-Richmond Heights, Mo.-based Panera Bread, which has nearly 900 bakery-cafes and had 2005 revenues of $640.3 million.

"[Scholar's Inn already] competes well in the fast-casual category against Panera," said Steve Delaney, a partner and restaurant specialist at The Linder Co., a Carmel-based real estate firm. "Now that they've got a [new production facility], it'll allow them to improve their quality and expand at least regionally or in the greater-Indianapolis area."

The Feigenbaums bought Scholar's Inn in 2001. Since then, sales for the company's three retail locations, which offer counter service and light fare such as sandwiches and soups, have jumped from $1.2 million to $3.5 million. The company has two retail locations in Bloomington and one in Broad Ripple.

Sales likely will get another boost on June 1, when the Broad Ripple store switches to a 24-hour format in order to take advantage of pub-crawlers in search of hangover-preventing carbohydrates.

Feigenbaum plans to open a fourth retail location on Indianapolis' north side within a year.

Scholar's Inn also operates a bed-andbreakfast in Bloomington as well as Scholar's Inn Gourmet Café and Wine Bars, which offer sit-down service and a full menu, in Bloomington and Indianapolis.

But befitting a man who wears Nike cross-trainers to work, Feigenbaum isn't focused on one activity-another plus in the eyes of restaurant analysts, such as Delaney.

It addition to retailing, the bakery does a significant amount of wholesaling. Roughly 30 percent of the 20,000 bagels, 10,000 pastries and 5,000 loaves of bread pulled from the oven weekly end up with about 70 wholesale customers that include upscale restaurants such as the Keystone Grill as well as the gourmet coffee shop Hubbard & Cravens.

But the current production facility-which is crammed into the back of the original 5,000-square-foot retail location in Bloomington-pumps out breads around the clock and still can't keep up with demand.

Even without a sales staff, every loaf is spoken for before it finishes cooling, thanks to 40 percent annual growth in the wholesale business.

The bakery's catering business is also growing. It used to tackle one or two jobs a month, but now it's piling up Boar's Head cold cuts and putting together made-from-scratch soups as many as four times per week for companies like Bloomington-based Cook Group.

Total company revenues are now about $8 million a year.

All Scholar's Inn products are preservative-free and contain no artificial ingredients. Many of them are organic. The market for such products is rising faster than a loaf of yeast-rich farm bread.

Consumers bought $966 million of organic breads and grains in 2003, according to the Massachusetts-based Organic Trade Association, a 23 percent increase from 2002. The group estimates the market for all organic products now stands at $15 billion annually.

"The market [for organic products] is definitely growing," said Steve Berne, editor of Baking and Snack magazine. "It is still relatively small when one looks at the overall baked goods segment of the food industry, but it is definitely growing and has been growing now for the last five or six years at close to 20 percent a year."

Scholars Inn will eventually be able to produce four times as many 3-inch chocolate mousse cakes and lemon tarts as a result of the expansion.

It could grow even more if Feigenbaum adds on to the new facility. And there's plenty of land to do so at the 2.5-acre location.

Just don't confuse expanded capacity with mass production, Feigenbaum said. While Scholar's Inn will be able to make more pumpkin cream cheese muffins, quality won't suffer, he said. He's even flying in an Italian ovenmaker to put together the pieces of his new $100,000 European hearth.

Some processes, like measuring dough, will become automated, but all of the products still will be shaped by hand.

The expansion may result in as many as 40 new hires. The company presently employs more than 300.

The new facility is directly across State Road 37 from Oliver Winery.
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