Journal of Business Case Studies – July/August 2009 Volume 5, Number 4 The Brownie Baker Case: Ingredients Of Success Lisa M. Houts, California State University, Fresno, USA ABSTRACT This case study examines The Brownie Baker, which makes gourmet and specialty baked goods, from an operations management perspective. Its product line includes brownies, muffins, Danishes, cookies, cakes, and Hispanic pastries. Located in Fresno, California, the bakery distributes its products across much of the United States. The Brownie Baker was acquired by president and CEO, Dennis Perkins, in 1990. What started with four or five employees and $180,000 in annual sales has grown to 80 employees and more than 10 million dollars in sales in 2007. Perkins’ down-to-earth, receptive management style coupled with product innovations and productivity improvements have been key ingredients in the company’s successful growth. Perkins himself was named the Small Business Administration’s Central California Business Person of the Year in 1999, and The Brownie Baker was awarded the Small Business Administration’s Western Region Choice Award in 2004. This case details the operations strategies and management techniques that have led to these accomplishments. Keywords: Brownie Baker, operations management case study, bakery operations COMPANY BACKGROUND hen Dennis Perkins purchased The Brownie Baker in 1990, it was a small bakery in Fresno, California with just a handful of employees and annual sales of $180,000. By the end of 2007, this W maker of gourmet, specialty bakery goods was employing approximately 80 people with annual sales of over $10 million. Key ingredients to The Brownie Baker‟s success include a well-designed business strategy, an innovative product mix, productivity improvements, location and capacity planning, and Perkins‟ down- to-earth, receptive management style. STRATEGY When asked to describe his essential business philosophy, Perkins responds that he strives “to supply the consumer with fresh, high quality packaged bakery products, delivered on time, with friendly and accommodating customer service, exceeding all expectations.” 1 The Brownie Baker‟s distinctive competency as a producer of gourmet specialty baked goods has served it well. It uses only the highest quality ingredients for its products, such as local California raisins, gourmet chocolates, fresh eggs, C & H sugar, General Mills flour, and real fruit. The ingredients are more expensive than those used by some competitors, but Perkins is targeting customers who want a higher quality baked good. Its products come individually packaged and labeled with the Brownie Baker elf. Also key is its focus on the “grab and go” convenience store market. Other distribution points include colleges and universities, resorts, golf clubs, and national parks. The Brownie Baker stays away from selling unwrapped products in self-service, open display cases such as those seen at convenience stores. Although this can be less expensive and thus yield higher margins than individually packaged products, unsold leftovers have to be thrown away. Perkins also finds that Brownie Baker loyalists like the quality image of an item that is individually packaged and neatly displayed, and the shelf life of the item is improved. Also, the Brownie Baker‟s gourmet baked goods have been a good fit for convenience stores 1 “The Profile: Dennis Perkins,” The Business Journal, July 1, 2005, p. 15. 41 Journal of Business Case Studies – July/August 2009 Volume 5, Number 4 seeking to upgrade their coffee bars with higher quality pastries to better compete with businesses such as Starbucks. 2 Although some competitors sell similar products in multi-unit, clamshell packages to places like Costco and Food For Less, The Brownie Baker avoids these types of distribution points too, because selling in bulk is more price sensitive and has smaller margins than packaging individually for resale. Production runs around the clock in three eight-hour shifts, five days a week. Two operations managers oversee the scheduling and decision making for the production facility. About 40 of the 65 manufacturing employees at The Brownie Baker are of Southeast Asian descent. They have been hired as part of a longstanding outreach partnership with the Center for New Americans which assists new citizens in finding jobs. A Fresno Small Business Administration director remarked that Perkins has devoted time and energy to building skills in employees “who would normally have a very difficult time finding employment and has created a win-win situation for both his company and his employees.” 3 A refugee jobs placement specialist employed by the Fresno County Department of Social Services observed, “This company has shown the patience to get to know these people and understand them.”4 Perkins himself has commented on the excellent work ethic that he has found among the employees he hires through the Center for New Americans. The Brownie Baker‟s products are generally made to order, not made to stock. Products are shipped fresh within two days of being made or are frozen for later shipment. Temperature controlled trucks are used to deliver the items to distribution outlets, and those products which were not already frozen become so on their way to their final destination. The bakery cannot put a pull date on the product, because how long it lasts depends on when the product is taken out of the freezer. The clock does not start ticking until the product defrosts. Cakes last 21 days, while cookies and brownies last 28. The distributors or stores have to know when to pull the product off the shelf by keeping track of when it came out of the freezer. Maintaining product freshness is another vital ingredient to the bakery‟s quality image. HISTORICAL DEMAND PATTERNS Demand for The Brownie Baker‟s products has increased each year since Perkins purchased the business in 1990, and developing ways to keep up with this has posed an ongoing challenge. The number of employees stays fairly steady throughout the year, since there are no major seasonal fluctuations in demand. The only exception is that sometimes demand slows down between December and February, which may result in cutting back to a four- day work week. Perkins worries about losing people and may lay off four to eight people in January, but some of these workers may eventually be brought back. In other cases, it provides an opportunity to weed out those workers with marginal productivity and skills. Finding potential causes for this mild seasonal variation occasionally has proved challenging. Distribution points in colleges are closed during the holidays which could account for some decrease in demand. However, sales at ski resorts should seemingly offset this. Post-holiday dieting could possibly account for some decrease in sales. However, Perkins describes a key demographic segment of his market as “Bubba,” the big guy at the truck stop, whose purchases would unlikely be affected by dietary or seasonally related factors. Perkins‟ mantra is “Bubba is our friend.” Therefore, the reason for this post-holiday slowing is somewhat unclear. PRODUCT MIX AND NEW PRODUCT DEVELOPMENT The Brownie Baker originally offered customers several flavors of brownies, cookies, and pound cakes. Over the years a number of new items have been added to the product line including oversized, gourmet, home style cookies; various types of Danishes; Hispanic pastry products called “pan dulce”; and seven flavors of muffins. For 2007, muffins led sales, followed by pound cakes and cookies. Sales for Danishes, brownies, and pan dulce also remained strong. 2 “Brownie Baker‟s gourmet confections are sweet smell of success,” The Business Journal, September 3, 2001, p. 16 3 “Baker‟s Jobs on the Rise,” The Fresno Bee, April 12, 2004 4 “In-the-chips baker going high tech,” The Fresno Bee, March 4, 1998, p. C-2 42 Journal of Business Case Studies – July/August 2009 Volume 5, Number 4 The Brownie Baker distributes its products throughout the United States. In most markets, muffins are the number one seller. Blueberry is usually the favorite flavor, closely followed by double chocolate and banana nut. Cookies or Danishes are next in popularity, depending on specific market preferences. Overall, the product line works nationwide, but flavor preferences do vary by market. For instance, coffee cakes are popular on the West Coast, but not on the East Coast, where lemon cake is preferred. Interestingly, Perkins has found pockets of Hispanic pastry buyers in markets across the United States. In Atlanta the number one selling item was the “panque,” or Hispanic cake. Currently, however, there are no plans for other ethnic product variations. Each item in the Brownie Baker line is individually packaged in clear wrap. Package design is similar for all the bakery‟s products. The text design and The Brownie Baker elf logo are imprinted directly onto the plastic packaging of all the bakery‟s products, but on the Hispanic pastries the elf wears a sombrero instead of a hat. In generating ideas for new products, Perkins listens to feedback from customers, buyers, and store owners. He watches the competition closely and also looks at trade magazines and trend books. The suppliers of the flavors, fruits, and mixes help create the recipes that will be used for new products. New product development also involves the cost of creating the packaging. Developing the artwork and plate for printed film packaging costs between three and four thousand dollars for each new product SKU (store-keeping unit). A significant commitment to the new product is required to justify the cost of new packaging. Just over ten years ago, while scanning the market for new product ideas, Dennis Perkins noticed Carol‟s Cookies, based in Long Beach, California. These super-sized cookies would prove to be a very popular acquisition for The Brownie Baker. While some people suggested that Perkins should just copy Carol‟s product, his response was, “I don‟t like to operate like that.” Instead, he struck a ten-year deal with her to acquire production rights, accounts lists, and equipment and to give Carol a percent of all sales.