The stock market was in a free fall and credit lines were evaporating faster than ice cream melts in Death Valley, yet somehow, amidst the financial meltdown taking place this past October, Gatehouse Ventures, LP, Berwyn, PA, added Sunrise Bakery in Brooklyn, NY, to the bakery division of Gatehouse Holdings, LLC. “We couldn’t have picked a better time for this acquisition,” joked Karl Buettner, founding partner, Gatehouse Ventures. This was the private equity firm’s fifth bakery acquisition during the past 3½ years. Its first foray into wholesale baking came when it bought D’Ambrosio Bakery in Philadelphia, PA, a family-owned business that has been in operation for 70 years.
Gatehouse learned about the possibility of acquiring D’Ambrosio from the owner’s attorney, according to Mr. Buettner. “At first when they asked if we wanted to look at a bakery, we said probably not,” he explained. “Then we started to analyze the industry and got to know the business, and it had a lot of characteristics we look at. It was not what I thought in terms of how production gets done, and it wasn’t the customer base that I thought.”
The D’Ambrosio family sold the bakery because of generational issues — the owners wanted to retire but didn’t have anyone in the family as a likely successor, according to Mr. Buettner. Gatehouse closed the D’Ambrosio acquisition June 30, 2005. In December 2006, Gatehouse purchased certain assets of Vilotti-Pisanelli Baking Co., also of Philadelphia, and folded its operations into the D’Ambrosio plant. As part of the acquisition, the bakery gained a production manager, Dan Pisanelli.
In March 2007, Gatehouse purchased a baked foods distribution company, Total Bakery Source, so that it could better support the independent distributors who are primarily responsible for selling D’Ambrosio’s products.
This past July, the holding company acquired Amalfitano’s Italian Bakery, New Castle, DE. However, even before purchasing Amalfitano’s, D’Ambrosio had begun manufacturing products for the bakery, according to Christopher Jansen, president, D’Ambrosio. “We saw a smaller bakery struggling, and we said, ‘Let us handle your production for you. You maintain your distribution and customers, and we can make your products for you,’” he said. “And that is how we started with Amalfitano’s. It just kind of worked into us acquiring it.”
D’Ambrosio is currently looking for other bakeries with which it could work synergistically with to copack product.
Nevertheless, the Sunrise Bakery acquisition has had the greatest impact on Gatehouse Holdings since it purchased D’Ambrosio, more than doubling the bakery division’s sales. Sunrise operates a 43,000-sq-ft plant in Brooklyn and produces nearly 400 items. In many ways, Sunrise’s operations and products are similar to D’Ambrosio.
In addition to gaining a second production facility, Gatehouse also obtained valuable members for its management team through the Sunrise acquisition. “If we were going to grow our enterprise, it was important not to just add revenue but to also add talent,” Mr. Buettner said. “And the breadth of its products was extremely appealing.”
As it concerns talent, Gatehouse retained the services of Frank and Michael LaFerlita, who are the third generation to run the family-owned bakery and retain part ownership of Sunrise Bakery. “The LaFerlitas energized our vision for what could be accomplished,” Mr. Buettner noted. “They know a lot of people in the industry and bring unique talents to the management team that we did not have.”
Frank LeFerlita, president of Sunrise Bakery, brings a different mindset to Gatehouse with his combination of accounting background and bakery experience, according to Mr. Buettner. Michael LaFerlita, executive vice-president of operations, is a graduate of the 18-week resident course at AIB International, Manhattan, KS. “We did not have that kind of expertise inhouse,” Mr. Buettner observed. “They know how to get things done efficiently.”
Gatehouse was attracted to Sunrise not only because of its reputation for producing good, consistent-quality product but also because of its reliability, according to Mr. Jansen. “When its distributors go to pick up product, it is there every single day, and in the New York market, that is a big deal,” he said. “The same is true here in Philadelphia.”
Sunrise is currently being integrated into Gatehouse. “We have some work to do to make it a business and not an acquisition,” Mr. Buettner noted. “We will use lessons learned from the past.”
In the immediate short-term, Sunrise is undergoing IT, financial and operating integration so that its systems match those used by Gatehouse Holdings. Over the next couple of months, the bakeries will investigate their production schedules, looking for opportunities where they can move production from one site to the other to maximize output or free capacity for future product lines, according to Mr. Jansen.
Gatehouse also hopes to capitalize on the depot concept that has been so successful for Sunrise, which operates a bakery depot in Stroudsburg, PA. “Sunrise has a good foothold in the Poconos and northeastern Pennsylvania,” Mr. Jansen said, referring to the Stroudsburg depot.
D’Ambrosio recently opened a depot in New Castle, DE, after purchasing the Amalfitano brand. “Having a physical presence makes all the difference,” Mr. Jansen said. “Our customers know the products are going to be there, and it is also important to have a salesperson on site.”
SIMILAR YET DIFFERENT.
Sunrise and D’Ambrosio both consider their products to be mid-tier baked foods. “We have good price point and solid quality, and our products appeal to just about every type of buyer, whether it is a high-end restaurant, hotel, country club, deli, pizza shop, university or hospital,” Mr. Jansen said.
Mid-tier bakery products are the driver in the market both in good times and in bad, according to Frank LaFerlita.
Although the products are similar, both bakeries make their own style of baked foods, and even the Amalfitano bread produced at D’Ambrosio is different from the bakery’s other products. D’Ambrosio makes the Amalfitano bread the same way as the original manufacturer, according to Mr. Jansen.“Delaware, believe it or not, has its own style of bread,” he said. “It is referred to as blonde bread, and it is very light in terms of its color; whereas, in Philadelphia, most people would consider our bread dark, and in New York, it is somewhere in between.”
Sunrise makes 48 different doughs to produce its more than 300 products that include bagels, breads, rolls, hoagies, ryes, dinner rolls and Pullman loaves, according to Michael LaFerlita. D’Ambrosio, on the other hand, uses only four doughs to make its breads and rolls. Both plants feature no-time dough operations, retard product to develop flavor and bake with two tunnel ovens that are the same size. In addition to the two tunnel ovens, Sunrise Bakery also employs six double-rack ovens for smaller runs and two revolving ovens for bagels.
Following a suggestion made by Michael LaFerlita, D’Ambrosio, which used bases for many years, will switch to scratch baking. He said this will not only save the bakery money but will also improve the consistency of the final product. “You know your plant and can design formulas that work specifically in that plant,” Michael LaFerlita observed. “We retard our products, and bases are not meant to be retarded.”
D’Ambrosio retards 85% of its products for at least four hours, and many items will stay in the retarder overnight. The bakery actually has three different retarders, which are all kept at 40 to 42°F. Sunrise retards all of its products overnight.
Gatehouse is currently budgeting capital expenditures at the plants for the coming year. “Any capital expenditures will focus on driving efficiency and reducing labor costs or expanding and offering new product lines,” Mr. Jansen said. “We are looking at creating some new product lines. We buy so much from third parties, and we have the expertise to make it.”
Mr. Buettner added that automation and quality control are two areas the D’Ambrosio plant is seriously considering to improve the consistency and reliability of its products. In 2009, D’Ambrosio plans to upgrade relay logic controlled machines to PLCs with the use of touchscreen terminals, servo drives and modulation control.
The bakery recently hired Ron Shade as chief engineer. Mr. Shade was employed by George Weston Bakeries at a plant producing Stroehmann bread for the past 15 years. “Ron worked at a fully automated high-speed plant and knows the advantages of touch-screen controls and systems that drive consistent, reliable product quality,” Mr. Jansen said. “He is able to point out areas of the plant that can be automated. I love walking through the bakery with him because he can come up with a million projects that are less $2,000 but can save $10,000.”
One area Mr. Shade mentioned that he hopes to address this year is installing modulation controls for steam in the ovens.
ON THE PLANT FLOOR.
Kaiser rolls are the hardest items in a hearth bread bakery to make consistently, according to Michael LaFerlita. An 8-pocket Winkler divider was making these products when Baking & Snack visited the D’Ambrosio plant in mid-December. After dividing, the kaiser rolls are stamped with the distinctive rose pattern and were flipped before being loaded on peel boards. The rolls must proof upside down because the dough has a tendency to tear where it has been stamped during proofing, and they are turned right side up as they are hand loaded into one of the two Thermitron ovens.
Processing at the plant begins in the one of three 1,000-lb Oshikiri mixers. The plant features two 110,000-lb indoor flour silos, and a Pfening bulk flour system delivers the flour to a gyratory sifter before loading the mixer. Doughs mix for 10 to 12 minutes before being dumped into troughs. Two Winkler divider/ rounders make rolls ranging from 1.75 to 5.25 oz. After dividing, rolls generally receive a 10- to 11-minute intermediate proof on the MCS roll lines before being loaded on peels and racked. An Oshikiri bread divider and Werner & Pfleider bread rounder are used for creating larger loaves.
The plant features two proof boxes — an 84-rack Pfening and a 48-rack Reed. After proofing, racks are rolled into a retarder where products naturally ferment, giving flavor to the products and texture to their crust, according to Bob Marino, general manager.
An automatic scoring machine is located at the entrance of the tunnel ovens; however, employees also score some loaves by hand. Products are loaded by hand into the ovens. After baking, products exit onto Stewart System racetrack conveyors, where they cool for approximately 1 hour before reaching packaging.
The packaging area features a LeMatic roll slicer, and products are packed by hand into cardboard trays. Approximately 5,000 sq ft of the 35,000-sq-ft plant are dedicated to packaging. A majority of the plant is for production, approximately 28,000 sq ft. If the plant is short on space for anything, it is shipping and receiving, Mr. Jansen said. The company is currently looking to purchase either one or two adjacent properties, a 12,000 sq ft building to the south or a 14,000-sq-ft building on the east side of the plant. Either of these buildings would meet the plant’s needs, Mr. Jansen observed.
Gatehouse Holdings appears to have both the D’Ambrosio Bakery and the Sunrise Bakery on solid footing as they move forward. Both plants want to decrease their excess capacity as they move forward, make more products and increase their geographic reach.