Rising Empire

L.A. chef Nancy Silverton sold her ultra-trendy bread-baking business for millions. So how'd she pull that off without selling out?

By Samuel Fromartz

Nancy Silverton, a renowned Los Angeles pastry chef, baker and cookbook author, is behind the zinc-and-concrete bar at Campanile, the 12-year-old restaurant she owns with her husband, chef Mark Peel. The bar's packed, and there's an hour's wait for tables in the dining room. As she does each Thursday, Silverton is creating a dozen different sandwiches. She slips a few asparagus spears, prosciutto, goat fontina, and a poached egg onto country white bread. For another creation, she carefully slices rare seared tuna, blankets the fish with braised leeks, generously spreads aioli on the thick-crusted bread, and off it goes.

The gourmet sandwiches are a winning concept for the weeknight crowd. But what really makes these sandwiches is the bread--the faintly nutty and chewy sourdough; the airy, moist ciabatta; and a hearty New York-style rye--which Silverton perfected a dozen years ago at Campanile's sister business, La Brea Bakery, right next door.

In those days she worked through the night in the 1,200-square-foot bakery, her goal nothing more than to bake a perfectly golden-brown loaf of sourdough bread. "I thought if I could sell $200 of bread a day retail, I'd be happy," Silverton insists. "It just didn't turn out that way." Instead she's managed to create a mini-empire out of an artisan bread. ("Nobody's is as good as hers," says Wolfgang Puck, who serves the bread at his star-studded restaurant, Spago, in L.A.) This year the business expects to top $50 million in sales, racking up profits of $9.4 million. So enticing were its financials (and profile) that in July, Irish food giant IAWS Group agreed to buy an 80% stake for $68.5 million.

More interesting than the numbers, though, is the fact that Silverton managed to maintain what musicians often refer to as "artistic integrity." She never abandoned her original mission--no cutting corners or altering the product to reach a wider audience. She was, of course, smart enough and lucky enough to have folks around her who could pull it all off. "I wasn't in a position to run the business, nor did I want to," she says. Put another way, Silverton had her cake and ate the whole thing too.

The bakery business itself might never have risen from the ground in 1989 if not for a little starry-eyed mumbo jumbo. The first restaurant location Silverton and Peel found in Los Angeles couldn't accommodate a bakery. But when they sought to sign a lease, the astrologically inclined owner refused to do business while Mercury was retrograde. In the meantime Silverton's father, a lawyer, who was putting together the investment group for the restaurant, found an art deco building on La Brea Avenue that had been built by Charlie Chaplin in 1929. Its two-story atrium made for a soaring dining room, and a small adjacent store was perfect for the bakery. Larry Silverton bought the building for $1.1 million, and the couple moved into an apartment upstairs. But there was a slight snag. Among the 60 investors, a few thought it was crazy to start a second business. So rather then seek more money, the couple kept both businesses as one entity and took about $250,000 from the $1.4 million raised to get the bakery going.

Maybe those investors were onto something. The inexperienced Silverton had dabbled in bread while a pastry chef at Puck's Spago restaurant, but now she had a full-blown bakery. Her model was a loose understanding of what another path-breaking European-style artisan baker, Steve Sullivan of Acme Bread Co. in Berkeley, had achieved. Following an article she had read about Acme, she took grapes, which have natural yeast, and let them soak for days in flour and water until the batter-like mixture bubbled with activity. She mixed the dough, shaped the loaves by hand, and let them rise twice, the second time for as long as a day, so that they would develop their flavor. "Some of those early breads are products of hundreds of tries," she recalls. After six months she was satisfied. La Brea Bakery opened in January 1989, and word soon traveled, since artisan bread of this caliber was unheard of in L.A. Within weeks, sales were up to $1,000 a day. "I literally have never seen anything like it," says La Brea Bakery CEO Manfred Krankl. "People used to line up at the door, and many days we sold out of bread inside of two hours."

Like the bakery before it, the Campanile restaurant was a hit when it opened six months later. Silverton and Peel were well known from their stints at Spago and Michael's in Los Angeles. The press anticipated the opening. Customers waited weeks for a table. Annual sales exceeded $2 million right from the start. But the bakery showed even greater potential. With the restaurant at full capacity, "you can raise the price on the menu or get people to drink another bottle of mineral water, but there's a certain finality to it," says Krankl, an Austrian schooled in hotel management who came aboard early on as general manager of the bakery and restaurant. Open a second place? No, said Silverton, because "what makes a great restaurant is that the owner is there."

Bread, however, has no such limitation. And Krankl's gut instinct to expand was reinforced by food trends. "If you went to supermarkets, you saw better produce, sushi was being served...food was certainly going upscale," he says. It helped that the bakery was booming. Each night after Campanile closed, the staff would clear out the tables and chairs from the dining room and roll in drying racks for the bread. In the morning, after loading up the trucks, moving out the racks, and cleaning up, they brought the tables and chairs back in. Silverton would bake bread all night, sleep a couple of hours, then wake midmorning to make pastries and desserts for the restaurant, napping again before dinner.

By 1991, with both businesses going full blast, Silverton's and Krankl's roles began to shift. Silverton stepped back and focused on the restaurant, where she continued to develop new desserts, work on her cookbooks (she has five, two of them written with her husband), and raise her profile on the celebrity-chef circuit. She felt guilty about leaving others on their own in the bakery but also knew it made no sense to be, say, a manager on a shift. From afar she kept a close eye on the bread, offering tips when the crust was too thin or the crumb too sour. She also remained La Brea Bakery's public face.

Meanwhile, with wholesale bread accounts growing, Krankl found he was spending an inordinate amount of time managing the bakery. He went back to the investor group and asked for another $800,000 to open a new 20,000-foot facility. This time no one balked. He projected full capacity at $5.5 million, a number he ended up raising perhaps 16 times. Dozens of bakers mixed, shaped and baked in multiple shifts, replicating what Silverton had originally done by herself. La Brea Bakery kept growing at about 50% a year, reaching $13.5 million in sales from the plant by 2000.

Krankl knew that La Brea Bakery could never match the delivery networks and low costs of giant corporate bakeries. But, he says, "what they couldn't beat us on was quality." The key question, then, was how to maintain quality as the bakery expanded--which was absolutely necessary to keep Silverton's blessing. As great as the bread was, it was highly perishable and could be delivered only in a 300-mile radius of Southern California. To grow, the bakery would have to build more plants, hire bakers and buy delivery trucks--"a highly unpalatable proposition," Krankl decided. In the mid-'90s, however, a company approached Silverton to explore making a frozen dough that could be shipped to and finished by the wholesale customer. Silverton was wary. Frozen dough slowly kills the sourdough yeast, and even if it were to remain alive, the customer would have to know how long to let the dough rise and how long to bake it--uncertain variables. "My instinct was always to say no to any change, to any growth, and anything frozen. If it wasn't fresh, forget it," Silverton says. "But then I thought, If I could make a good product, why not try it?" Frozen bread also had an allure, for if it could be frozen, then it could be shipped, and Krankl could avoid multiple bakeries and truck fleets.

The R&D project fell to George Erasmus, who began as a cook at Campanile. Since frozen dough was impractical, he began playing around with par-baked bread, in which the bread is taken through its full rise, partially baked, and then flash frozen. Customers would simply bake it for the final 15 minutes. Although this method had been used by commercial bakeries, it had not been applied to high-production artisan breads. Erasmus worked on the par-baked bread for eight months, until one day they held a blind test and could not tell which bread had been frozen. "People might question whether you are still a true artisan, but for me what's most important is the end product," Silverton says. "I mean, is your bread good or bad?" They'd soon find out. In October 1997, the San Francisco Chronicle ran a taste test of sourdough breads, buying samples from local supermarkets. La Brea Bakery beat out the artisan bakeries once, then twice, on their home turf. When Krankl mentioned to the Chronicle reporter that the bread was shipped frozen up to the Bay Area, "there was almost a silence on the phone," he recalls. "She nearly fell out of her chair."

With this critical success in the fall of 1997, the prospect of large-scale artisan bread production loomed large. Campanile and La Brea Bakery were set up as stand-alone businesses. Krankl secured a $10 million bank loan, paid $4 million to investors, and built a 68,000-square-foot plant in Van Nuys, Calif.--about as far from Silverton's humble roots as a skyscraper is from a hovel. Now the 80,000-plus loaves baked daily in Van Nuys cost 40% less than the handmade bread from Washington Boulevard. "We went from having 15 or 20 people shaping the bread down to seven, and now we want to reduce it to two," Erasmus says. Sales for the company hit $34 million last year. With plans set for an East Coast bakery, Krankl knew he would need far more capital. He began shopping the company and settled on IAWS. The Irish company has a par-baked operation in Europe and wanted a presence in the U.S. premium bread market. It got it in spades. For example: Whole Foods Markets, an upscale supermarket chain, sells 2,200 La Brea baguettes a week out of one store in San Francisco, up from 800 in 1998. Some customers wait 20 minutes for fresh batches to come out of the oven.

Speaking by cell phone from a café in Florence, Italy, a day after the company's acquisition was announced, Silverton says that she's happy about the deal but that she doesn't know what her stake is (she guesses at least 12.5%) or how much money she will make. For her it was never about commerce. It was about the bread. "I'm very proud of the product, but it's not my baby and hasn't been for a long time," she says. "I don't know how emotional you can get once the dough is out of your hands."

Published in FSB, October 2001