Competition, tight credit, diet trends force some Twin Cities bakeries to close

The future of the bakery business rises and falls on the tastes of customers like Tina Kelly of Champlin. She enjoys buying chocolate cakes, bread loaves, dinner rolls and bread bowls.

But despite her passion for baked goods, Kelly has changed how she shops. She used to visit bakeries every two weeks. Now it's once a month. "I'm trying to eat healthier," she said. "Bread is high in calories and low in nutrients."

Kelly, and millions of customers like her, are changing their buying habits, leaving independent bakeries scrambling. The number of stand-alone retail bakeries in the United States has declined from 30,000 in 1970 to about 6,000 today, according to Paul Sapienza, director of finance for the Retail Bakers of America.

In the Twin Cities, Bread, Coffee and Cake in Mendota Heights, Jack's Bakery in ­Brooklyn Park, Hans' Bakery in Anoka, and Tschida Bakery and Sweets Bakeshop in St. Paul have all closed in the past 15 months.

"Retail bakeries are slowly going away," said Pete Nowicki, president of the Upper Midwest Bakers Association. "And there aren't as many bakers going into the business anymore."

It's not only the independents lost in the flour dust. Three Sara Lee/Taystee outlets have recently closed in Eagan, Richfield and White Bear Lake, although Blaine and New Brighton locations remain open. Last year after Hostess/Wonder Bread entered bankruptcy, bakeries, distribution centers and outlet stores were all shuttered, including seven in the Twin Cities. Although the brand recently returned to some store shelves after being purchased by bakery conglomerate Flowers Foods Inc., none of the outlets are expected to reopen.

Experts say there are a ­variety of factors behind the trend, including consumer price sensitivity, a retail market spread thin, consumers' indifference to scratch-made baking and gluten sensitivity.

Marie Philippi, co-owner of Taste of Love Bakery in West St. Paul since November 2012, said that despite working 16-hour days, her bakery is just scraping by. She and her business partner have used social networking and a neighborhood town hall meeting to put out an S.O.S., but with little capital to keep the business running, they've had to tap friends and family since banks won't lend them money.

"Banks want to invest in something that can't go to zero," said Tony Sisinni, owner of Mainstreet Bakery, an Edina-based wholesale bakery for restaurants, hotels and grocery stores.

Young bakers have it harder since the recession, he said, because banks won't lend them money anymore.

Philippi even had customers tell her to raise prices to bring in more money, but she worries that doing so would make her less competitive with the discounters on cakes, cookies and sweet rolls. "I can't make a cake for the price that Sam's Club charges," she said. "Their half-sheet cake is about the same price as my quarter sheet."

It's not just warehouse clubs and discounters that are killing the local bakery. Buying habits have shifted to convenience, said Wayne Kostroski, co-owner of Franklin St. Bakery and Cuisine Concepts wholesaling in Minneapolis. "Now people grab a loaf of bread at the grocery store, Target or Holiday when they're filling up for gas."

Supermarkets and even convenience stores have responded to consumers' needs by adding their own ­bakeries. All 67 Cub Foods stores now have made-from-scratch bakeries. "About 120 items are baked fresh in our stores," said Luke Friedrich, Cub spokesman.

Peter Kelsey, who owned New French Bakery wholesale business until he sold it earlier this year, said that with on-site bakeries in grocery stores, as well as par-baked breads to be heated at home, consumers aren't sacrificing much by ­buying at chains.

"The corner baker can compete on quality, cachet and the 'buy local' movement, but they can't compete on being superior," he said. "With automation, you can make a much more consistent, quality bread than one made by hand … A great baker can do it better some days, but it's not enough of a difference to the ­consumer."

Local bakers who specialize in artisan baking may dispute that, but Kelsey still considers those a niche product. The bigger trend that's both helping and hurting bakeries today, he said, is the gluten-free ­movement.

While some bakeries are losing customers who are eliminating or reducing gluten from their diet, retail sales of gluten-free foods and beverages increased 24 percent in 2012 to nearly $4.2 billion in the United States.

Despite the challenges and closings for independent bakeries, the business as a whole isn't about to vanish. The outlet stores that closed did so not because of poor sales but almost entirely due to consolidations and mergers in a business that has a handful of major players.

Remaining thrift bakeries and outlets in Edina, Fridley, Hopkins, White Bear Lake and Plymouth say business is good. "Our business is doing very well, but we sell at a huge discount," said Jimmy Hanson, vice president of sales at Pan-O-Gold outlet in Plymouth.

And a number of premium bakeries are thriving and growing. Rustica in Minneapolis has expanded into the wholesale business and now sells to ­co-ops. Patisserie 46 in Minneapolis, which opened several years ago, still has long lines of customers.

Michelle Gayer, an award-winning pastry chef and owner of Salty Tart bakery in the Midtown Global Market in Minneapolis, is excited about the number of new or expanded bakeries in the Twin Cities, including Angel's Food Bakery in Minneapolis and Buttered Tin in St. Paul. Honey and Rye Bakehouse in St. Louis Park and a revival of Hans' Bakery in Anoka will be opening soon.

"Operating a bakery successfully is a challenge," Gayer said. "It's all about location, but the community is very supportive of us."

Olsen, who will manage the business and hire baking staff, has spent months sitting down with successful bakers as well as those who closed up shop.

"I've talked to phenomenal bakers with passion and talent who were working so many hours with their heads down baking that they didn't have time to oversee the business," she said. "Some bakers had no idea what it cost them to make a cake or only charged what the market would bear. They need a bean counter like me to make sure it's a viable ­business."

One big advantage that Olsen has is not spending a fortune on her building. She was able to pick up the property in foreclosure, so there won't be a lease payment hanging over her head.

She's also taking steps to canvass the neighborhood with news about her bakery, including a nearby water park, elementary school and hospital. "Only time will tell if I'm optimistic or delusional," she said laughing.

John Ewoldt • 612-673-7633