In 2008, Tarek (T) Elnazer along with Basel (B) Mashhour, Sameh (S) El Sadat and Yasser Abdelsalam launched The Bakery Shop (TBS), now a very successful Cairo homegrown bakery brand with over 90 stores and home delivery, offering everything from croissants and fresh bread to sandwiches to coffee.

Arab Finance sat down with Tarek Elnazer, CEO of TBS, to discuss how this business grew from just a single bakery shop with initial capital of only EGP 500,000 to become a major chain with a centralized production facility that now also owns a holding company with a new industrial bread operation and major B2B aspirations.

 

Can you give us some general background on TBS? How/why did you and your partners decide to open?

Back in 2008, I along with the 2 other TBS co-founders really wanted to start up our own private business. This was something that we had been considering for a while, and when we got serious we began contemplating different business ideas, searching for gaps in the market, trying to find a good business idea. We eventually reached a consensus that there weren’t really any quality bakeries in Cairo. Back then, if you wanted a good croissant or donut or other western-style bakery item, your only option was to go out of your way to a fancy hotel, if they even had what you were craving. Other than that, the only other option was traditional Egyptian bakeries (forn), which lacked variety. So we decided to launch a readily available fresh bakery shop with quality products to cater to the Egyptian market.

Now TBS has expended into several other brands as well, including the original TBS brand, Delicious Bakery, The Four Fat Ladies, Seabite, Coffee Berry, as well as a few other brands aside from our B2B arm.

 

How much of an initial investment did your business need to first get up and running?

We started the whole project — from ideation up until the first day of sales — with EGP 500,000 in capital investment. In 2008, that was enough for equipment, the first store, initial employees, etc.

 

You started off your business as a bakery, but now you offer sandwiches, coffee, and a bigger variety of products. Why the shift from the initial idea?

Our business is not a franchise, it is a homegrown brand, so we aren’t really constrained by any specific concepts or product offerings. That means we are fortunate enough to have the agility and flexibility to change to better serve our customers and cater to their needs and fill in more gaps that we can identify. 

There was quite a bit of a learning curve to reach the point we’re at today. When we first started, we only had 1 employee behind the counter, which we very quickly learned was not enough to serve the number of customers coming in. The other co-founders, myself, even whoever was available from our families had to help and serve customers until we gained more experience and hired the right people and the correct number of staff.

We also listened to customer feedback and benchmarked our products and services against what we considered competition abroad. We noticed that people want sandwiches, and if they do, then they want beverages to drink along. Same goes for croissants and baked good, customers want coffee. So a lot of our evolution can be traced directly to matching our customers’ needs.

 

How do you manage costs, inventory, suppliers, etc? Can you tell us more about the business of running a bakery and deli/cafe?

We have invested significantly over the years to reach the integrated ERP system we have now. From the moment raw ingredients reach our centralized kitchen and production facility to the second a consumer buys the final croissant, and absolutely every step in between, everything is recorded and helps us determine and manage efficiency, freshness, sales, inventory, and product trends as well as any gaps or issues. This system allows us to track all our online/delivery sales and client destinations as well. We can determine what products sell well and which don’t, which products need better marketing or need to be discontinued, or what new products we need to look into if we don’t already offer them.

This is important because we have a specific shelf life for all of our products, with that being as short as four hours for some of our baked products like our croissant range. The reason we are able to do this is because we employ a bake-off technology business model where we prepare many of our products in advance up until a particular stage, and then we distribute to our individual stores to bake fresh. As a matter of fact, at most of our stores our customers should be able to spot the oven somewhere and watch as our various products are baked right in front of their eyes. After all, our slogan is “So fresh, it’s baked in front of you” and we make sure to live up to that. 

 

With such a short shelf life, how do you determine how much to bake to avoid waste? What do you do with your products after they’ve passed their shelf life?

We have sales and production forecasts that help us also determine a target “spoilage” rate. This helps us determine how much and when to bake certain items depending on anticipated demand, ensuring we always have fresh products for our customers while simultaneously reducing any waste.

Whatever passes the shelf life window is still healthy and delicious food, but it just doesn’t meet our standard for in-store sales or home delivery, so we have partnered with various charities and orphanages to give that away. And while it will always be our goal to give to charity whenever we can, the more efficient we become the less waste we produce in the first place.

 

How many branches do you currently have open? How many new branches do you plan to open in the short to medium term? How many employees do you have? How do you decide where to open a new store?

We have well over 90 branches, split among standalone stores, those in other supermarkets and gas station marts, and even different brands that we own. We employ over 2,000 people.

We have presence within several major supermarkets, and we operate outside of Greater Cairo and Alexandria in other Egyptian governorates under a brand called Delicious Bakery. We also recently signed a franchise agreement.

We have a multi-year sales target strategy, and most of the time that target along with the insight from existing sales figures based on current stores and online delivery destinations from our integrated ERP system will help us identify where we need to open.

We are also very lucky because now when new malls and shopping centers open, they come knocking on our doors asking us if we are interested.

 

What’s your top line growth like? How much is your average customer bill? What is your highest selling product? What are your average CAPEX/OPEX?

We’ve actually been able to grow our top line at double-digit figures over the last few years, and it looks like we are going to close 2021 with top line growth of close to 40% Y-o-Y, though this is comparing this year to the year of the pandemic.

Opening a new store could cost us anywhere between EGP 700,000 and EGP 3 million, depending on the kind of store. As for OPEX, that stands at round 35% of our top line.

Our average customer bill is around EGP 120, and our highest selling products are split between our sandwich varieties and our croissant range.

 

How did TBS perform during the COVID-19 pandemic?

We are a bakery, so technically the curfew and lockdown restrictions did not apply to us, but we still took precautionary measures for the health and safety of our customers and staff and decided to close certain shops during the peak of the pandemic. Our home delivery via our call center was still operational, of course, so were our shop in shop bakery segment located within supermarkets, which were also exempt from closing during the lockdowns and restrictions.

Sales wise, we naturally did experience a drop during the quarter from March to June that coincided with the peak of the pandemic, but because of our new store openings, the drop was offset by significant growth during the other 3 quarters, resulting in significant overall top line growth during the year.

 

How do you stay competitive in this market, especially with so much competition all around you?

We stay competitive because we are always open to innovation and are able to shift strategies and quickly respond to consumer needs and demands. Additionally, we really focus on customer service and our goal is to always have our customers leaving our stores or receiving an in-home delivery always satisfied with their order. We conduct customer surveys and are always eager to receive feedback from our clients.

Aside from that, it’s quite difficult to scale a bakery to our size. While the barrier to entry for a single shop, or even two or three is not that difficult, scaling to larger than that is not an easy thing to do, so we are fortunate enough to have grown to the size we’ve reached and we leverage on our experience and business model to constantly enhance our business strategy to offer our clients the best we can offer.

We also have a B2B arm that provides white label products to major cafes around Cairo, and that is a good source of revenue and helps us remain competitive.

Can you tell us about Breadway? Is this part of TBS or is this an entirely separate venture? How much did that cost to get up and running? Why decide to open in this space? What sets you apart from your competition?

Breadway is a brand owned by DAMFI (Dough And More Food Industries), which is 51%-owned by TBS as well as other shareholders. 

That needed over $20 million to get up and running, which to us was a significant investment, but well worth it to get a fully automatic production facility up and running. From the moment the raw ingredients, mainly flour, are input in the silos to the moment the final bread is packaged, there are no hands involved in the process to ensure hygiene.

We decided to enter this market for a few reasons. Before we entered the market, there really was only a single competitor in the industrial bread market, which naturally created room for competition. We want to produce better quality products, using a sourdough starter, which has a host of health, dietary, and taste advantages. Not only that, but we will leverage all of this innovation and introduce a new variety of products using the highest technology shortly, so stay tuned for that.

 

Where do you see your business 5 years from now? Do you plan to expand regionally? What does innovation in this market look like?

We do plan to expand regionally with both TBS and DAMFI.

For TBS, we plan to keep expanding at a rate of not less than 10 stores per year and via our new franchise agreement will expand across the entire country. We plan to become regional by 2022. We also plan to continue looking for gaps to fill in the market via new brands, and we could launch new brands to produce other products depending on market needs.

As for DAMFI, it’s really more of a platform that we plan to expand going further. While DAMFI started off with just Breadway to produce better quality bread than what was already available in the market, we plan to expand DAMFI with more brands and enter into the B2B business. All of the major fast-food franchise chains, for example, are potential clients, and there are a ton of market opportunities for DAMFI.