In any business, whether you are selling computers, cars or bread, the need to diversify your business model is critical to building a robust and sustainable operation. Today’s bakeries, and customer’s perceptions of what bakeries should offer, have evolved into multifaceted concepts making diversification simple and necessary. You can offer whole grain breads, organic pastries, sandwiches and soups, a wi-fi internet access, the list goes on. One bakery that has not only diversified fully but whose robust business model has allowed it to survive what could have been a business killing event is Witherspoon Bread in Princeton, New Jersey.

Terra Momo, based in Princeton, New Jersey is a restaurant group that was founded in 1982 by two brothers Raoul and Carlo Momo with a single pizza shop called Teresa II (the original Teresa was a specialty food shop founded by their mother and father in the mid 1970’s). By 1995 they had two restaurants and in 1998 they opened Witherspoon Bread Company on Witherspoon Street in Princeton. The original concept was simple: a bakery, anchored in the neighborhood, that produced high quality breads and pastries. Witherspoon Street was an ideal location near the campus of Princeton University with lots of foot traffic and a production space that could double as a commissary for the bread and dessert production for their restaurants.

I first met the Momos and visited Witherspoon in the summer of 2002. By this time the bakery was well established in the community and business was good. The layout of the retail front is such that customers walk in and line up to place their orders along the right hand side of the shop. Separated from the customers by a low railing is a wall of wood shelving displaying all their breads. The retail staff come out and greet the customers who can easily select their items from close by. It is a great concept that brings to mind the retail experience at Zingermans’s deli in Ann Arbor, Michigan where, there too, the retail staff are out mixing with the customers, greeting and taking their orders.

But, on Christmas eve 2004, the bakery’s section of Witherspoon Street was closed to allow the construction of the new public library directly across the street. Foot traffic was reduced almost to zero, they lost their parking, and their business dropped 50% overnight. It stayed like this for almost 2 years! I talked with Carlo Momo, and Denis and Ben (both bakers at Witherspoon) a few weeks ago and Carlo pointed out that not only did foot traffic cease, but people’s habits changed during this period, and to compound the problem for Witherspoon, Whole Foods and Wegman’s opened, each with in-store bakeries.

So this is where we pick up the story and look at how a bakery could possibly survive such an event. Carlo told me that if the company, as a whole, had not been in such good shape at the time of the street closing they would have lost the bakery. But the reason that Witherspoon Bakery not only survived, but has re-emerged and is growing is owing to not only to the diversity of their product mix, but to the diversity of their business model and customer base.

First and foremost Witherspoon is a retail shop and Carlo told me that only the retail section of their business is truly profitable. 60-65% of the bakery’s income comes from retail and is broken down like this: 50% bread, 20% pastry, 5% beverage, 5-7% retail (jams, oils,etc) and 20% comes from what they call food-service: tarts, and cakes, and sandwiches, etc). Looks pretty typical of a well established bakery. The important thing to note, and it’s obvious, is they are not just selling bread. Now, the other 35%-40% of their income comes from wholesale which consists mostly of sales to the other businesses in their restaurant group. Of their total bread production 65% is for retail, and 35% is wholesale, and for pastry it is approximately 50% for each. Also at the bakery they are producing desserts for the restaurants, crostini (which allows them to reclaim unused bread from the previous day and turn it into a new item) and panini which Witherspoon sells out of their refrigerated case.

What counted for Witherspoon during the street closing was this mix of revenue that gave them sales even when foot traffic had almost ceased. Another strength from this model is the individual elements of the company are able to cross promote one another. When a customer dines at one of the Terra Momo restaurants and enjoys the breads the wait staff are able to direct the customer to the bakery and it works the other way as well.

Once the street re-opened Witherspoon had new challenges to face, chief of which Carlo pointed out earlier: people’s habits had changed and competition had moved in. Witherspoon is in the process of reclaiming their lost business and growing to the next stage. Some of the things they have identified as needed is a separate pastry production space allowing them to increase this profitable segment of the business. They need seating, allowing for a more cafe style atmosphere. They have added a second bread bake in the afternoon, so that customers coming by for bread for dinner are able to go home with something very fresh. They have also reduced the size of their breads. They wanted to accomplish two things with this: (1) get people to buy more than one loaf at a time and (2) they want people to come back more often, daily if possible.

The lessons from the hardships faced at Witherspoon have certainly strengthen their resolve to create the healthiest bakery business possible, yet these challenges are faced by most bakeries at one time or another. Obviously not every bakery can go out and open up restaurants as the key to spreading their risk. I think more multi-unit restaurant groups should look into producing their own breads and consider having a retail presence for cross promotion. But, even small single unit bakery operations should look at their mix of revenue streams, identify the profitable segments, identify ways in which they can diversify, and it would pay to have a disaster plan. The story of Witherspoon Bread shows that bad things can happen that are completely outside of your control. If something happened that killed one segment of your business for a time, would you be able to survive? If not, what are you going to do to prepare?