Speaker 1: Hello, and welcome to another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. WI wasn't all Joe.
Speaker 1: You know we are smack d ab in the middle
Speaker 1: of the holiday season. That is true. I have a
Speaker 1: big feeling about this time of year because it's nice
Speaker 1: to take time off, it's nice to get some breaks.
Speaker 1: But on the other hand, that means people aren't listening
Speaker 1: to podcasts as much because of its family so like
Speaker 1: they're like celebrating the holidays, they're outside, they're like giving gifts,
Speaker 1: but that's time. That means, uh means fewer listeners. Well,
Speaker 1: I mean hopefully some people are still listening to podcasts,
Speaker 1: especially this one. I actually tend to listen to podcasts
Speaker 1: more around the holidays just because I listened to them
Speaker 1: while I'm cooking and baking, and Christmas of course is
Speaker 1: prime baking and cooking season. You know, my wife is
Speaker 1: baking like two cookies today for like various parties and
Speaker 1: kids school thing to Saider. I literally just got a
Speaker 1: text about how time consuming it is. I hope she's
Speaker 1: listening to odd lots while she's doing that to make
Speaker 1: the time pass. Okay, Well, this kind of got me thinking,
Speaker 1: you know, it's the holiday season. Everyone is off baking
Speaker 1: things or probably buying things for presents, and I really
Speaker 1: wanted to talk to someone who is in a sort
Speaker 1: of seasonal retail industry and ask them how they are
Speaker 1: experiencing the economy right now, because, as we've been discussing
Speaker 1: for some time, it does feel like we're kind of
Speaker 1: in this weird environment where there are a lot of
Speaker 1: concerns about inflation, we still have lingering supply chain constraints,
Speaker 1: there's a lot of talk about recession. But at the
Speaker 1: same time, a lot of the hard data that we
Speaker 1: get is saying that consumer demand is still relatively strong,
Speaker 1: unemployment is still relatively low. Things are sort of ticking along,
Speaker 1: and yet a lot of the sentiment surveys seem to
Speaker 1: indicate something otherwise. So I thought it would be great
Speaker 1: to speak to a small business owner about what exactly
Speaker 1: is going on. Let's do it, because baking is, you know,
Speaker 1: bakery is also one of those things. It's like so
Speaker 1: you know, it's laborious, it's commodity sensitive, it's rent sensitive,
Speaker 1: it's there's so many things that sort of come together
Speaker 1: in a baked goods. Bread, cakes, cookies, So a great
Speaker 1: way to get a snapshot of what's happening in the
Speaker 1: economy right now. Yes, it's like we are taking all
Speaker 1: the ingredients that go into a baking business and dissecting
Speaker 1: them one by one. Okay, Well, without further ado, we
Speaker 1: are going to be speaking with Ken Jerish. He is
Speaker 1: the owner of Jerish Bakery, which is a bakery in
Speaker 1: the suburbs of Cook County, Chicago, actually where I used
Speaker 1: to live. Ken, thank you so much for coming on
Speaker 1: the show. You're welcome, Thanks for having me. So how
Speaker 1: busy are you around this time of year? Um? Extremely? Um.
Speaker 1: You know, it starts at Halloween and goes through Thanksgiving
Speaker 1: and then uh, Christmas or the whole month of December.
Speaker 1: For us in general, every day is busier than the
Speaker 1: day before. So we kind of call it a hello,
Speaker 1: thank miss season, you know, because it's it's busy. And
Speaker 1: this year, as you kind of indicated in your introduction,
Speaker 1: there is still a high demand for our product. That's
Speaker 1: a wonderful thing, you know, so we're pretty much firing
Speaker 1: on all cylinders as far as the demand goes. Keeping
Speaker 1: up with it is another challenge. So can you just describe,
Speaker 1: like how big is your bakery roughly? I know it's
Speaker 1: been around since On your website, Uh, it looks like
Speaker 1: there's a bunch of amazing stuff from specialty cakes and
Speaker 1: wedding cakes and cookies, and it all looks amazing, But like,
Speaker 1: how big? Just to give us a feel and like,
Speaker 1: what are your customers and clients like in your geographic reach? Sure?
Speaker 1: So we are a single location retail bakery. We're located
Speaker 1: in Oak Grove Village, Illinois. We are immediately adjacent to
Speaker 1: O'Hare Airport. But what separates our community and our business
Speaker 1: from the airport is a very large industrial park. I'm
Speaker 1: told that it's the largest contiguous industrial park in the country.
Speaker 1: So it does a couple of things that it kind
Speaker 1: of buffers the noise of the airport from our community,
Speaker 1: which is a good thing. But we also have a
Speaker 1: lot of companies who are then also customers, So we
Speaker 1: do a great deal of retail business, you know, homeowners
Speaker 1: who just come in and buy stuff for their family,
Speaker 1: and a lot of company corporate work for meetings and
Speaker 1: anniversaries and retirements and all that. We have about fifty
Speaker 1: five full time employee, not full time, but fifty five
Speaker 1: total employees. About half of those are are full time.
Speaker 1: This time of year with Christmas, we kind of blossom
Speaker 1: up to about ninety nine employees seasonal workers who help
Speaker 1: us pack the thousands of pounds of cookies that we
Speaker 1: we make this time of year. We've been here for
Speaker 1: three years. We enjoy a very good reputation. The number
Speaker 1: of employees we have, and then the size of our
Speaker 1: physical store is bigger than I would say of the
Speaker 1: bakeries in the country, but there are certainly much larger
Speaker 1: baking companies corporations that provide for grocery stores and all
Speaker 1: that kind of stuff. So we're kind of a small
Speaker 1: business in the scope of businesses at large, but as
Speaker 1: far as bakeries were one of the larger ones. So
Speaker 1: you mentioned that consumer demand was holding up pretty well,
Speaker 1: but it was a challenge to keep up with it.
Speaker 1: Can can you expand on that a little bit, like,
Speaker 1: what are the constraints that you're experiencing at the moment,
Speaker 1: because you know, one of the things we talked about
Speaker 1: a lot on the show is everything from supply chain
Speaker 1: disruptions to higher input prices, to labor shortages, all of that,
Speaker 1: and it is all of that. So keeping up with it.
Speaker 1: From a labor standpoint, we are pretty close to where
Speaker 1: we we should be. Took us, oh jeez, all of
Speaker 1: this current year to kind of get to the level
Speaker 1: that we're comfortable with. For production, we're still a little
Speaker 1: bit short for the store, and whether it's production or
Speaker 1: people in the store, either one can throttle back the
Speaker 1: amount of product that we could sell. I mean, if
Speaker 1: we can make it, but we don't have the people
Speaker 1: that move it out out the door, that's the problem.
Speaker 1: And vice versa. If we can't make it, uh, you know,
Speaker 1: obviously we can't make it with the staff that we
Speaker 1: do have because they're a little bit less experienced than
Speaker 1: what we had had. We have reduced some of the
Speaker 1: varieties of product that we make because I'm not going
Speaker 1: to waste time making stuff that may or may not sell.
Speaker 1: I'm going to spend our time making this stuff I
Speaker 1: know is gonna is gonna sell. Um, so we do that.
Speaker 1: Cost of labor has definitely increased. We're in Illinois. Chicago
Speaker 1: went to a fifteen dollar minimum wage two years ago,
Speaker 1: maybe three at this point, and our governor thought it
Speaker 1: was a wise idea for the whole state to go
Speaker 1: to fifteen dollars, which fully takes effect in But when
Speaker 1: we saw that it became law, we looked at where
Speaker 1: we were in our employment costs to where we were
Speaker 1: going to be a number of years in the future.
Speaker 1: Drew a straight line. I just started increasing prices, you know,
Speaker 1: four years ago, when it was inevitable. I'm glad we
Speaker 1: did that because now, in addition to the increased labor
Speaker 1: cost we're dealing with increased ingredient costs, significantly increased ingredient costs.
Speaker 1: Back on the labor. We increased our prices, like I said,
Speaker 1: and I was kind of overcompensating at the at the beginning,
Speaker 1: but I didn't want to have to raise prices exponentially
Speaker 1: towards the end as more and more of our people
Speaker 1: were bumping up against a minimum wage and such as
Speaker 1: it turned out after the pandemic and there's a labor
Speaker 1: shortage and blah blah blah. My people wouldn't work unless
Speaker 1: we paid them more. So, I mean, they didn't go
Speaker 1: on strike, but if they could have, they may have.
Speaker 1: So I had to increase our wages. In our business,
Speaker 1: we are close to labor not quite it's like forty five,
Speaker 1: but in round numbers, it's so people start making more
Speaker 1: money and impacts our bottom line significantly. You throw on
Speaker 1: top of that the significant increases for for our goods,
Speaker 1: and we do deal in commodities. We're buying flour, sugar, butter,
Speaker 1: shortening all that kind of thing and making it into
Speaker 1: bakery products. We are not buying you know, prepackaged ho
Speaker 1: hoes and that kind of stuff. We are manufacturer of
Speaker 1: of bakery goods. So when you hear about the cost
Speaker 1: of you know, flour going up significantly, or the cost
Speaker 1: of eggs, is every consumer has experienced going up at
Speaker 1: times that we're experiencing that exact thing, for instance, our
Speaker 1: cost for eggs. And this is kind of since two
Speaker 1: thousand was a banner year. It's a great year for
Speaker 1: selling stuff right here, for making profits. So since then,
Speaker 1: like eggs have gone up between depending on what type
Speaker 1: of eggs you buy. That's huge because we use a
Speaker 1: lot of eggs. Sugar has gone up, like um butter
Speaker 1: has gone up. My supplier told me forty pcent. It
Speaker 1: feels a lot more than that, but um chocolate has
Speaker 1: gone everything, everything has just gone up. And then in
Speaker 1: addition to that, you mentioned supply chain issues. It's huge.
Speaker 1: For a time, we couldn't get certain ingredients, or we
Speaker 1: perceived that some ingredients were going to be a little
Speaker 1: bit short. So I've had to stockpile coco powder for
Speaker 1: a while, couldn't get it. Fortunately I got enough from
Speaker 1: a couple of different sources and we made it through.
Speaker 1: Now our suppliers have plenty of cocoa powder, but just
Speaker 1: today they don't have one of our shortenings that we use.
Speaker 1: I don't think that's necessarily a production problem. It's probably
Speaker 1: more of a distribution problem from the manufacturer to our distributor.
Speaker 1: But you know, needless to say, I'm scrambling to then
Speaker 1: figure out a substitution. It's all of the labor costs
Speaker 1: of labor costs of ingredients, and then getting what we
Speaker 1: need when we need it. I have so many I
Speaker 1: have like a million questions now after that, just on
Speaker 1: every different facet. But first another sort of like I
Speaker 1: guess semi big picture question, which is, and it's pretty
Speaker 1: important for macro stuff and the FED and everyone else,
Speaker 1: for all of the issues and the rising egg and
Speaker 1: coffee prices and the rise and labor costs, etcetera, how
Speaker 1: would you compare conditions now and the challenge of operation
Speaker 1: to say, either the start of the year or last
Speaker 1: holiday season left what did you call it, hollow, A
Speaker 1: hollow thinking hollow fatmos. I really like that. So in
Speaker 1: terms of like the various shortages and inflation, has there
Speaker 1: been some easing since the last Hall of fank miss season.
Speaker 1: Oddly enough, when the pandemic first hit, some of our
Speaker 1: prices actually went down because there was a glut of
Speaker 1: let's say, eggs and milk product on the market, so
Speaker 1: that was kind of weird. But then the following season,
Speaker 1: you know, which was last year. Then by then the
Speaker 1: prices had mostly increased to about where they're at now,
Speaker 1: at least ingredient prices, and they've just stayed high. They
Speaker 1: haven't come back down. So from a cost standpoint, other
Speaker 1: than labor, labor just keeps going up. Uh, the ingredients
Speaker 1: were we've stabled at just you know, overall painful, but
Speaker 1: at least they don't appear they're not increasing as greatly
Speaker 1: as rapidly as they had. The prices always fluctuate, but
Speaker 1: they're they're stable at just exceedingly high. So one thing
Speaker 1: I always wonder about, you know, when we talk about
Speaker 1: inflation and we talk about higher input costs like ingredients,
Speaker 1: like labor and wages, how do you actually make the
Speaker 1: decision about raising the prices of your own goods? So
Speaker 1: you know, if if the price of eggs goes up,
Speaker 1: do you immediately pass that cost onto consumers or do
Speaker 1: you sometimes wait a bit and eat some of that
Speaker 1: higher expense yourself. Just walk us through the process of
Speaker 1: deciding how much of this you actually pass on to
Speaker 1: your customers. Sure, so if you look at it historically, um,
Speaker 1: you know, back ten fifteen years ago, if there was
Speaker 1: a run on flower and there actually was some kind
Speaker 1: of a commodity thing I rye flower, rye flower tripled
Speaker 1: and price and it made national news. It really didn't
Speaker 1: affect our bottom line. It was one ingredient for one
Speaker 1: product that we make. We honestly don't make a whole
Speaker 1: bunch of it, So we really didn't go out of
Speaker 1: our way to increase prices. We may have just because
Speaker 1: we tend to increase our prices once a year anyhow,
Speaker 1: but we would take those kind of opportunities and whether
Speaker 1: it's rye flower or bird flu that impacts eggs when
Speaker 1: it makes national news, just running a business, it's an
Speaker 1: opportunity to increase the prices without getting a whole bunch
Speaker 1: of complaining from the customers. It's not that we're out
Speaker 1: there price gouging, but you know, timing can be everything.
Speaker 1: But that's when one commodity eggs or flour or sugar
Speaker 1: is going up and everything else is staying the same,
Speaker 1: that's then an opportunity to work the timing to increase prices. Currently, though,
Speaker 1: we have to raise our prices. If we don't raise
Speaker 1: our prices, we're going out of business. And for us,
Speaker 1: like I said, we're fifty labor, so as labor goes up,
Speaker 1: I'm raising prices immediately. As some of our ingredients fluctuate, um,
Speaker 1: I'm usually absorbing most of them. But when we have
Speaker 1: the level of increases that we have here, and so
Speaker 1: for me, on a product, the ingredients itself might be
Speaker 1: so on a loaf of bread, if flower doubles increase,
Speaker 1: my cost is by by three or five, five cents
Speaker 1: or something that doesn't bother me. But when every ingredient
Speaker 1: in that loaf of bread goes up, either you or whatever,
Speaker 1: now we're talking some real increases bread for us. It's
Speaker 1: kind of a lousy example, but cookies and cakes that
Speaker 1: use the higher priced items like the eggs that have
Speaker 1: gone up, um, the flower that's gone up, the sugar
Speaker 1: that's gone up, every ingredient has gone up, plus the labor.
Speaker 1: I'm increasing my prices and I you know, I use
Speaker 1: math to do it. I you know, look at what
Speaker 1: my costs are. What percentage of that increase is going
Speaker 1: to you know, filter down to the bottom line. I
Speaker 1: have to put in all the overhead and all that
Speaker 1: some of that has gone up. Insurance is certainly never
Speaker 1: going down. And we come up with an increase. And
Speaker 1: what we've done this year, you know, going back to
Speaker 1: the end of we have increased our prices three times.
Speaker 1: Each time it's been around four and a half to
Speaker 1: five five and a half percent. So if you look
Speaker 1: compared to a year ago, we've gone up about We've
Speaker 1: never done that before. I mean maybe my dad did
Speaker 1: back in the seventies when inflation was going nuts. But
Speaker 1: for us in the recent our recent history, you know,
Speaker 1: we we tend to increase our prices five percent at
Speaker 1: a time, and then it's a question of how often
Speaker 1: we have to do that in the course of the year.
Speaker 1: And we hate raising prices it's a lot of work
Speaker 1: for us. We have all sorts of price tax to
Speaker 1: change and signage and websites and all sorts of stuff,
Speaker 1: so it's it's not a trivial exercise. But if we
Speaker 1: don't raise our prices, we become a charitable organization and
Speaker 1: I can't operate that way. So this actually leads into
Speaker 1: something else I was wondering, But when you raise prices,
Speaker 1: do you notice is there a subsequent drop in sales?
Speaker 1: Or how does it work with baked goods, like how
Speaker 1: price sensitive are consumers of cookies and cakes and bread? Historically?
Speaker 1: The answer your question is, yes, we raise prices, customers
Speaker 1: either by less or come in less frequently. This time around,
Speaker 1: since everything is going up, we haven't really seen a
Speaker 1: huge drop off in that demand. Also haven't got a
Speaker 1: lot of griping, or at least I haven't. Maybe my
Speaker 1: store staff is, but I haven't gotten much pushed back.
Speaker 1: And when you're dealing with a holiday season, people are
Speaker 1: having twenty or thirty people over, they're going to spend
Speaker 1: the money. Now, what we have seen is some of
Speaker 1: our higher ticket items, so are decorated cakes, we're not
Speaker 1: making nearly as many as we used to and when
Speaker 1: we do, instead of making you a half sheet or
Speaker 1: a full sheet, we're making eight inch nine inch cakes.
Speaker 1: So they're still buying stuff, but smaller sizes. I don't
Speaker 1: know that that's strictly because of our inflationary time right now,
Speaker 1: We in the industry, at least in the Chicago area,
Speaker 1: have tended to see a drop in decorated cakes period,
Speaker 1: mostly because the kids don't want kids. People who are
Speaker 1: in their twenties and thirties don't want to buy the
Speaker 1: same things for their kids that they got from people
Speaker 1: our age, you know, when they were kids and stuff,
Speaker 1: so you know, they want ice cream cakes, so they
Speaker 1: do experiential things instead of having a birthday cake at home.
Speaker 1: So we're seeing a different cultural shift there too. But
Speaker 1: one other aspect that I think you touched on too,
Speaker 1: and I've had this conversation with my accountant over the years.
Speaker 1: He feels, and I have to agree that bakeries are
Speaker 1: somewhat recession proof. I'm not sure if we're inflation proof,
Speaker 1: but recession proof in that to some extent, people still
Speaker 1: have to eat. Now you don't have to have a
Speaker 1: bomb bot or a cookie or anything like that, but
Speaker 1: people do like to indulge. They are not going to
Speaker 1: skip their kid's birthday party. And businesses are still going
Speaker 1: to celebrate retirements. They are still going to have Christmas parties.
Speaker 1: It's just a matter of you know, when economy is good,
Speaker 1: a large corporation might have a Christmas party at the Marriott.
Speaker 1: If the economy is a little soft, well, they have
Speaker 1: it catered and the caterers buy stuff from us. If
Speaker 1: it's a little softer yet, they skip the cater but
Speaker 1: they're still getting cookies and cakes from us. So in
Speaker 1: a sense, we're still kind of making a lot of
Speaker 1: the same stuff, just selling it to different people depending
Speaker 1: on how the economy is going. I want to go
Speaker 1: back to something, but mainly because if I don't go
Speaker 1: back to it now, I'm going to forget. And there's
Speaker 1: something really interesting that you said, but can you talk
Speaker 1: a little bit more about the experience level of your
Speaker 1: employee base and your ability to be productive? And you
Speaker 1: pointed out how with the less experience employee base, you've
Speaker 1: narrowed the range of things that you can make. Talk
Speaker 1: to us a little bit about like experience productivity and
Speaker 1: what that means in terms of your ability to produce goods.
Speaker 1: We've actually been blessed. I think we historically have had
Speaker 1: a lot of people, many of our employees who had
Speaker 1: been with us for ten years, fifteen, thirty years. We
Speaker 1: have just a handful who have been with us for
Speaker 1: or over close one guys over forty years. We've had
Speaker 1: a number of people who left, not because of the
Speaker 1: pandemic or anything. They were they kind of aged out,
Speaker 1: it was just time. We have had a hard time
Speaker 1: hiring people who they themselves have ten or twelve or
Speaker 1: fifteen year is of experience. So we've been getting people
Speaker 1: with less experience, maybe right out of school, and so
Speaker 1: we are training them for how we like them to
Speaker 1: make our our product. So things just don't get done
Speaker 1: quite as fast. We don't have the institutional memory because
Speaker 1: they weren't working for us at the time, so it
Speaker 1: just takes a little bit longer. Now one would think
Speaker 1: that we would be paying them a little bit less
Speaker 1: because they're less experience, but that's where this whole minimum
Speaker 1: wage thing kind of throw that out the window too.
Speaker 1: The new employees are coming in with reasonable skills, and
Speaker 1: we tend to hire slow. When we get a decent person,
Speaker 1: they're still fairly productive but we just had to make
Speaker 1: decisions of you, we're not going to teach them to
Speaker 1: make that because maybe it was kind of a slower
Speaker 1: moving item, or it's just too time consuming, and so
Speaker 1: we just said skip it. Where COVID played into that
Speaker 1: is we wanted to get people customers in and out
Speaker 1: of our store more quickly. Consumers didn't want to be
Speaker 1: lingering in a crowd of people breathing on each other
Speaker 1: and stuff. So we eliminated variety and things that were
Speaker 1: a little bit more time consuming to pack, or we
Speaker 1: pre packed them to get customers in and out quicker.
Speaker 1: So by looking at items that could physically be sold
Speaker 1: to customers quicker. If something wasn't one of those, we
Speaker 1: just got rid of it. And probably a good thing
Speaker 1: to do now that COVID is kind of not an
Speaker 1: issue anymore. They're still not coming back. I mean, you know,
Speaker 1: we're just not bringing those products back. We're kind of
Speaker 1: happy we got rid of them, some of them. You know,
Speaker 1: you mentioned packaging there, and this reminds me of something
Speaker 1: I heard from a fairly high level economists. But they
Speaker 1: were talking about maybe one of the underappreciated aspects of
Speaker 1: food inflation at the moment was from packaging materials, so
Speaker 1: cardboard and plastic and thing like that, and everyone was
Speaker 1: talking about the higher costs of ingredients, but actually it
Speaker 1: was a lot of the packaging that had gone up.
Speaker 1: Is that something that you've noticed Absolutely anything we would
Speaker 1: put in, like plastic clamshells, those who have gone up.
Speaker 1: I think I had some numbers on that we're seeing
Speaker 1: between forty and increase in the packaging. And you know
Speaker 1: that may not sound a lot when you're talking about
Speaker 1: a plastic container that you know just cost a few
Speaker 1: pennies literally, you know, went from five cents to seven
Speaker 1: cents or something like that, But when you're buying cases
Speaker 1: of these things, well that adds up real fast. Again
Speaker 1: with supply chain issues in packaging. If we were using
Speaker 1: a package container that is kind of an odd size,
Speaker 1: those got discontinued and so you know, we can no
Speaker 1: longer get some of the sizes that we want. For us,
Speaker 1: we had bags, wax bags you put bread in our
Speaker 1: coffee cakes that since I was a kid, We've had
Speaker 1: those things printed with our logo, our name and all
Speaker 1: that stuff. It gives credibility to us as a business.
Speaker 1: We can't get those anymore. The bag manufacturers are prioritizing
Speaker 1: large chains like Jimmy John's, McDonald's or whoever where they
Speaker 1: are under contract to provide those printed bags and nose sizes,
Speaker 1: and if they don't, they lose money, uh, you know,
Speaker 1: penalized and such. So we as the little guys. If
Speaker 1: we can't buy half a million printed bags at a time,
Speaker 1: we're not getting those print printed bags. So at this point,
Speaker 1: all of our bags are playing unprinted bags, and people
Speaker 1: walk out of our store it looks like they got
Speaker 1: their stuff from a food truck. Our boxes were still
Speaker 1: able to get those printed for the most part, but yeah,
Speaker 1: the bags have you know, they're just kind of playing.
Speaker 1: So again, that's and that's because the manufacturers are having
Speaker 1: trouble keeping people working. Sometimes it's a matter of trouble
Speaker 1: getting the actual paper good the product to make the bags.
Speaker 1: And that's because the people you know, in Seattle or
Speaker 1: wherever they're you know, producing these paper they can't get
Speaker 1: the people to work out there. So it's it's definitely
Speaker 1: a domino effect on that. I did get word from
Speaker 1: one of our suppliers that maybe the first quarter of
Speaker 1: twenty three we may be able to purchase printed bags
Speaker 1: in the quantities that makes sense for us. I can't,
Speaker 1: you know, I get twenty five thousand or fifty thousand
Speaker 1: at a time that lasts six months to twelve months,
Speaker 1: for us to get a quantity of bags that lasts
Speaker 1: much longer than that, our suppliers don't want to warehouse them,
Speaker 1: and I can't afford to buy that man either. It
Speaker 1: just doesn't make sense. So actually this sort of brings
Speaker 1: me back to another thing I wanted to touch on
Speaker 1: before I forget. You mentioned that with some of the
Speaker 1: raw materials you bought, you sort of like scrambled and
Speaker 1: maybe overcompensated in your purchase. I think you mentioned cocoa
Speaker 1: powder is one that you felt like you had to
Speaker 1: stock pile. And that's sort of like been a theme
Speaker 1: we've you know, cross industries and this idea of like
Speaker 1: the bull whip effect and there's a shortage of some
Speaker 1: good and then everyone puts in a ton of orders
Speaker 1: and then suddenly it turns into some glut because people
Speaker 1: are trying to compensate for shortage and suddenly have you
Speaker 1: seen that are there any categories in which either you've
Speaker 1: been stuck, you know, sort of over inventoryd or where
Speaker 1: you've seen a shortage turned into a glut and prices
Speaker 1: have dropped a lot as sort of that cycle plays out. Okay,
Speaker 1: so I've not seen the prices dropped because of the glut.
Speaker 1: They're still elevated. Yes, I have probably been one who
Speaker 1: and coco powder was one of I took it when
Speaker 1: I could. Uh, and now it's not a big deal.
Speaker 1: Some of our starches corn starch, I have stockpiled on that.
Speaker 1: None of it's going to go to waste. Um, but
Speaker 1: we still can't get some varieties of corn starch in
Speaker 1: a in a food manufacturing facility like ours. It's not
Speaker 1: just corn starts a whole a bunch of different types
Speaker 1: of starches that we use. So I have stockpiled on
Speaker 1: some of them. I've actually sold a bag or two
Speaker 1: to other bakery owners who could not get them, possibly
Speaker 1: because I did. I mean, you know that is a concern.
Speaker 1: You know, we need to get what we need to get.
Speaker 1: We also don't want to be hogs about it. So
Speaker 1: to compensate when maybe I have overpurchased, I am accommodating,
Speaker 1: you know, the needs of some other bakery owners in
Speaker 1: the area by selling them a bag or two, and
Speaker 1: they're doing the same thing. And we've we've traded ingredients
Speaker 1: back and forth, so it gets to be a supply thing.
Speaker 1: And in our industry and particularly business our size, we
Speaker 1: kind of work on a just in time inventory system.
Speaker 1: We don't call it that, but when you're dealing with
Speaker 1: eggs and stuff that that that are perishable, you have
Speaker 1: to do it that way. And because I'm in the
Speaker 1: Chicago metropolitan area, I can get pretty much everything I
Speaker 1: need every week, so I don't have to have a
Speaker 1: warehouse to store all my ingredients. I just have a
Speaker 1: back portion of the of the bakery. And because I
Speaker 1: can get it once a week, it works well. So
Speaker 1: we have had to change from a just in time
Speaker 1: to a just in case inventory system. And I won't
Speaker 1: say that I originated that phrase. I actually got that
Speaker 1: from a seven hour I went to in at a
Speaker 1: baker's convention this past September, and the guy presenting was
Speaker 1: from a company called group O Bimbo. They are the
Speaker 1: largest bakery in Mexico and the United States, third in
Speaker 1: Europe or something. They supply a lot of grocery stores
Speaker 1: and such. They're facing the same problems we are, and
Speaker 1: he too, said that they are doing a just in
Speaker 1: case inventory as as opposed to a just in time
Speaker 1: and one of the people in the audience said, well, hey,
Speaker 1: you know, if you're getting it just in case, I'm
Speaker 1: screwed because now I can't get you at all. He
Speaker 1: didn't deny that, but yeah, we all recognize that, you know,
Speaker 1: we have to do it. Oddly enough, he told a
Speaker 1: story about gelatine. They were having a hard time getting
Speaker 1: gelatine in Mexico and it's like, well, why can't we
Speaker 1: get gut gelatine while they're not slaughtering as many hogs. Well,
Speaker 1: they're not slaughtering as many hogs because they don't need
Speaker 1: as many hides from the hogs that they use to
Speaker 1: make cars, and they don't need as many highs making
Speaker 1: as many cars. Why aren't they making as many cars
Speaker 1: because they can't get the chips from Taiwan. Yeah, this circle,
Speaker 1: this chip shortage is turning into a bake good shortage. Well,
Speaker 1: and then he finished that with saying, one of the
Speaker 1: biggest users in the world of gelatine is the company
Speaker 1: that makes Gumi bears. So you know, it turns out
Speaker 1: that you can't buy Gumi bears because you can't buy
Speaker 1: chips from Taiwan, and so you know the main thing there.
Speaker 1: It's not just a supply chain, it's really a supply web,
Speaker 1: and we are worldwide. We are so intertwined, and you
Speaker 1: just can't imagine the domino effect that one industry has
Speaker 1: on the other. Yeah, these kind of relationships I find
Speaker 1: absolutely fascinating. And I remember, I remember there was one
Speaker 1: instance from two thousand eight, and I think I wrote
Speaker 1: about it briefly, but it was that there was a
Speaker 1: milk shortage because there wasn't as much sawdust being produced
Speaker 1: because people stopped building houses after the housing bubble burst.
Speaker 1: And it turns out that cows like to sleep in sawdust,
Speaker 1: and if they're not sleeping comfortably, they produce less milk.
Speaker 1: So these are the types of things that I think
Speaker 1: you only realize once you start to have these types
Speaker 1: of disruptions. Yeah, anyway, I wanted to ask about one
Speaker 1: one other big input, presumably into the bakery business, but
Speaker 1: that's energy prices. Have you been affected at all by
Speaker 1: higher gas or electricity prices as a something that that's
Speaker 1: impacting you, not directly. I contracted both our natural gas
Speaker 1: and our electricity either during the very beginnings of the
Speaker 1: COVID thing or just before. So I've I've got a
Speaker 1: pretty decent rate per kill a lot our and our
Speaker 1: gas has been tolerable. Now the distribution charges you know,
Speaker 1: comment and night Corps seem to figure out ways to
Speaker 1: increase that, but that has been probably one of the
Speaker 1: more stable inputs into our business. What about transportation, I
Speaker 1: imagine deliveries and stuff like that in terms of not
Speaker 1: just in terms of your receipt of them, but also
Speaker 1: your ability to deliver to corporate clients, etcetera. We talk
Speaker 1: a lot about sort of like long haul trucking, but
Speaker 1: what about local deliveries things like that. Um, yeah, huge
Speaker 1: impact on that we do deliver. We have some, as
Speaker 1: I mentioned earlier, corporations in the area that get cakes
Speaker 1: and stuff for meetings, and so we have a new
Speaker 1: every van drives around. Oh man, my my gasoline expenses
Speaker 1: have for sure doubled, uh sometimes worse. At the same time,
Speaker 1: we got rid of our really small delivery van, which
Speaker 1: was like what they call it transit connects, so it's
Speaker 1: those little boxes that drive around and we have more
Speaker 1: of a full size van, not one of those you know,
Speaker 1: U haul rental van type things, but you know, the
Speaker 1: kind of van you can put seats in and you know,
Speaker 1: go for a drive, But my gas usage increased just
Speaker 1: because in the mile doesn't is is great on that.
Speaker 1: So the two combined have been really big, you know,
Speaker 1: in and of itself percentagewise, huge increase. Bottom line, it's
Speaker 1: not a major component of our business, so it's more
Speaker 1: of an annoyance than it is a price increased driver.
Speaker 1: Another thing, while we're just sort of talking about random components,
Speaker 1: what about equipment in the kitchen? And I'm sure stuff
Speaker 1: breaks down, you know, everyone has ovens and dishwashers and
Speaker 1: everything that breaks down and being able to get people
Speaker 1: either out to service it or replacement parts. What's been
Speaker 1: your experience with that and is that getting any better?
Speaker 1: So I'm knocking on would as I speak, Um, so far,
Speaker 1: so good. But yeah, that is a concern because you
Speaker 1: could have a piece of equipment that doesn't work and
Speaker 1: you can't get that one little you know, a part,
Speaker 1: but without it, you're you're out of luck. And like
Speaker 1: I said, knock on wood, we have been fortunate on
Speaker 1: that and getting service people out so far has not
Speaker 1: been a major major problem. You know, earlier, when we
Speaker 1: were talking about pricing, you spoke about how when when
Speaker 1: there's a big event in the news, like a supply
Speaker 1: eye shortage or maybe just generalized inflation, it sort of
Speaker 1: gives you cover to raise prices. Can I just ask,
Speaker 1: does that same dynamic happen with your employees and wages?
Speaker 1: Like if everyone is talking about how inflation the cost
Speaker 1: of living is going up, do you have more people
Speaker 1: who come asking you for wage adjustments or cost of
Speaker 1: living adjustments? Yeah? I haven't thought about that way, but yeah,
Speaker 1: and when it whether it's really cost of living that
Speaker 1: people are feeling their money isn't stretching us far, or
Speaker 1: if it's more of hey, my buddy just got a job,
Speaker 1: you know, and he's getting fifteen or sixteen and I'm
Speaker 1: working here at thirteen. You know, I want more money
Speaker 1: or I'll just go get my job at the factory.
Speaker 1: And uh so it's more of a competition for employees.
Speaker 1: And that's what we were dealing with more recently, you know,
Speaker 1: supply and demand. There was you know, a slow down
Speaker 1: into the supply of labor so that the man went higher.
Speaker 1: People like us, we're willing to pay more and we
Speaker 1: have been but so is everybody else. I don't know
Speaker 1: that my employees are necessarily feeling the pinch of inflation
Speaker 1: and relating that to Hey, I need more money compared
Speaker 1: to my buddy just got a better job. Why can't
Speaker 1: I get paid more? Other non wage things that you
Speaker 1: have done to compete for labor? Do people get free cookies? Sorry,
Speaker 1: I had to ask you. We've always had that policy
Speaker 1: and pretty much people you know, can sample our goods
Speaker 1: throughout the day, with the reason it's not a really
Speaker 1: good idea to take a piece out of a decorated cake.
Speaker 1: Customer gets kind of ticked off at that. But we
Speaker 1: have a fairly generous policy. I mean, we figure you
Speaker 1: can only eat so much after a while, you're just gonna,
Speaker 1: you know, either explode or pass out. So yeah, we
Speaker 1: we we do have that. We also have a profit
Speaker 1: sharing program. Now that's you know, it does cost money.
Speaker 1: It's not a direct wage at the employee sees, but
Speaker 1: it's definitely an expense for us, you know, sick days
Speaker 1: and vacation and all that. But as of lately, we've
Speaker 1: had those for for decades. But lately, no, I don't
Speaker 1: think we've had any non monetary type of incentive to
Speaker 1: stay around. So there's been a lot of talk about
Speaker 1: a looming recession as the Federal Reserve raises interest rates,
Speaker 1: And I'm wondering, like, do you get a sense on
Speaker 1: the ground in a bakery business of you know, an
Speaker 1: impending downturn in customer demand? And then secondly, what would
Speaker 1: a generalized economic recession actually look like for a business
Speaker 1: like a bakery. So as we speak today the middle
Speaker 1: of a holiday season, we're just we're busy. January will
Speaker 1: be the telltale sign of what either almost buyers remorse
Speaker 1: in a sense as people start getting their credit card
Speaker 1: bills and all that hits. January is always slow. People
Speaker 1: are tired of eating. But there's slow and there's dead.
Speaker 1: We expect slow this year. It could be dead. But
Speaker 1: like I said earlier, we we've just found that people
Speaker 1: still want to treat themselves and we we continue to
Speaker 1: do okay even in a recession. I mean, I hear
Speaker 1: the same fears of recession because of the radio station
Speaker 1: I listened to. It's hard for me to quantify that
Speaker 1: as as we're experiencing it. It's more what I'll see
Speaker 1: at the end of the year, the end of the quarter,
Speaker 1: comparing it to previous ones. That's, you know, holy cow
Speaker 1: it you know it was not busy, felt busy, but
Speaker 1: it wasn't. I'd love to say we're definitely recession proof,
Speaker 1: and I believe we are definitely recession resistant. And another
Speaker 1: thing that I've noticed is that we are Our business
Speaker 1: is excruciatingly steady throughout any kind of a year. We
Speaker 1: can advertise, we promote, we do things on Facebook or whatever,
Speaker 1: and business just kind of plugs a lot. People pretty
Speaker 1: much ignore our advertising. I think, I don't know, but
Speaker 1: you still advertise. Why why do you still advertise if
Speaker 1: you can't really tell a difference from it. That's a
Speaker 1: good question. But I don't do it in newspapers anymore,
Speaker 1: and I don't do in yellow pages if anyone even
Speaker 1: knows what the yellow page is. So we we've shifted
Speaker 1: how we advertise. But the point being, you run promotions,
Speaker 1: even if it's in store promotions, you know, it doesn't
Speaker 1: necessarily set the world on fire, at least in our industry.
Speaker 1: And again, like I said earlier, you can only our
Speaker 1: customers can also only eat so much, even if something's
Speaker 1: on a two for one special. It's like, well, I
Speaker 1: live by myself, I can only eat one. Buying two
Speaker 1: of them and having one to throw out doesn't make
Speaker 1: any sense either. Ken you've never had me as a customer,
Speaker 1: I guarantee you I could eat all of everything. Anyway,
Speaker 1: go ahead, I guess I have a long way of saying,
Speaker 1: we'll see it in just my employees getting done at
Speaker 1: eleven o'clock in the morning having started at you know,
Speaker 1: four thirty or five, instead of getting done at one
Speaker 1: thirty or two in the afternoon on Friday. Let's say
Speaker 1: that's kind of a measure of of just slow down
Speaker 1: and work again. If that happens in January, it's normal.
Speaker 1: If that happens in March, when we've got possibly a
Speaker 1: Punsky Day, I won't even tell you what that is,
Speaker 1: but we've got St. Patrick's Day, We've got Pie Day
Speaker 1: that's a big one, possibly Easter, and we got Eastern
Speaker 1: in either March or April. You know, if we're not
Speaker 1: working hard at that time of the year, then we're
Speaker 1: definitely in a recession. We did your care Pulaski Day.
Speaker 1: I remember that day. I went to school in Illinois
Speaker 1: for a while. Well day, Um, yeah, it's Polish. It's
Speaker 1: big in Chicago. It's big in Detroit, and you know,
Speaker 1: we sell tens of thousands of those things, and it's
Speaker 1: it's a wonderful day because I remember we used to
Speaker 1: get off for Pulaski Day, which is also in March.
Speaker 1: But yes, maybe that's not as much of it. Maybe
Speaker 1: that's not as much of a big goods holiday. I
Speaker 1: don't know, it is not a big goods holiday. It
Speaker 1: was great for going on ski trips because Chicago area,
Speaker 1: we'd all be off and we could take the kids
Speaker 1: out of school, go to Colorado and you know, on
Speaker 1: a Monday, which is always what it is, the slopes
Speaker 1: would be relatively uh unpopulated. But yeah, I got rid
Speaker 1: of Kasimir Pulaski and I don't know if they got
Speaker 1: rid of President's Day two. I'm not sure what we
Speaker 1: get off anymore. I just have one last question, and
Speaker 1: it actually goes back to this idea of like, you know,
Speaker 1: the hoarding question. But you know, during the worst of
Speaker 1: when it was the most challenging to hire workers, I'm
Speaker 1: curious whether you saw labor hoarding as a phenomenon where
Speaker 1: maybe you felt, Okay, we might be overstaffed relative to
Speaker 1: the amount of demand, but given the difficulty in hiring
Speaker 1: or competing with the next bakery over for employees, it's
Speaker 1: still extent to keep that level. I'm curious if a
Speaker 1: that was something you experienced and be can you just
Speaker 1: talk a little bit more, how you know what it
Speaker 1: looks like December two, which is today that day we're
Speaker 1: recording and versus say the start of the year, when
Speaker 1: you know, sort of the quit rate and other measures
Speaker 1: of labor market intensity seemed to be much higher. So
Speaker 1: as far as labor hoarding in our industry, and I
Speaker 1: do hang with several other bakery owners and we are
Speaker 1: talking constantly, we were not labor hoarding whatsoever. We were
Speaker 1: asking each other, Hey, is if something you want to
Speaker 1: get rid of, you know? And the answer was no,
Speaker 1: I'm looking to um. So we were just definitely short
Speaker 1: of bodies. I think most of us are again, like
Speaker 1: we are closer to being fully staffed comparing today too,
Speaker 1: when people are work quitting maybe more rapidly. I don't
Speaker 1: know that we necessarily how people it in per se,
Speaker 1: We just lost people for other reasons. Someone we just
Speaker 1: wanted to pursue other careers or or work for a
Speaker 1: different type of of bakery and it's still it actually
Speaker 1: seems like it's been a little bit easier to find employees.
Speaker 1: And I used indeed two to try and find people.
Speaker 1: I'm not necessarily promoting it. I'm not dissuading people from
Speaker 1: using it. It is what it is. I think they
Speaker 1: advertise on a lot of podcasts. They're going to like that.
Speaker 1: There's a totally organic mention of them. Yeah, keep going.
Speaker 1: But yeah, it worked, but it it was not immediate,
Speaker 1: and it took many interviews and many many responses of yeah, well,
Speaker 1: we'll call you back someday to find the people that
Speaker 1: we're going to be a good fit in our business.
Speaker 1: Are you advertising for potential employees more in general? Like
Speaker 1: keep post my job openings. So compared to ten years ago,
Speaker 1: we never had to advertise for employees. People would walk
Speaker 1: in asking if they could, you know, work for us,
Speaker 1: So compared to that, yeah, we're having to advertise much more.
Speaker 1: In the store, you know, retail sales clerk really hard
Speaker 1: to to post a job on. And indeed, for that,
Speaker 1: because you just got a lot of weird responses. Putting
Speaker 1: a sign in the window and word of mouth is
Speaker 1: what has worked best for us for for for the
Speaker 1: professional staff, for the bakers and the cake decoration we advertise.
Speaker 1: For the people in the store, we're just hope and
Speaker 1: pray that they come in and generally that has worked. Okay,
Speaker 1: So I have just one more question. It's an extremely
Speaker 1: important one. We could talk for easily another few hours,
Speaker 1: but I know it's your busiest time of the year,
Speaker 1: so I don't want to take up too much of
Speaker 1: your time. But very very important question. What's your favorite
Speaker 1: baked good to eat around the season of how thank
Speaker 1: miss oh Man? Um? So I have to say, I
Speaker 1: mean I like everything, most everything we make. Not so
Speaker 1: much of a fan of the poppy strip, but um,
Speaker 1: this time of year for me, one of the best
Speaker 1: things I take a sample of it every time is
Speaker 1: something called stolen. Oh stolen. I love stolen. Yeah, and
Speaker 1: what it's fresh out of the oven, you let it
Speaker 1: cool down a little bit, and we always have to
Speaker 1: sample at least one on every batch. You know. I
Speaker 1: I've acquired a taste for that, And no, I didn't
Speaker 1: like it as a kid, but I just really enjoy that.
Speaker 1: But if you know, if we're not making that, if
Speaker 1: it's not Christmas time, oh, then I go for a
Speaker 1: very in cream filled like, all right, Ken, you're making
Speaker 1: us both very very hungry. It was amazing having you on.
Speaker 1: Really appreciated getting your perspective and getting to hear you know,
Speaker 1: how a business owner is actually inter pritting a lot
Speaker 1: of these big macro economic themes that we talked about
Speaker 1: on the show a lot. So thank you so much,
Speaker 1: Thank you, Thanks for having me. Thank you so much.
Speaker 1: That was great. So Joe, I love that conversation and
Speaker 1: there are so many interesting things to pick out of it.
Speaker 1: But I mean, I guess let's just start with the
Speaker 1: productivity thing, because you know, not only does it sound
Speaker 1: like he's struggling to sort of keep up production at
Speaker 1: pre COVID levels, but also just this idea of consciously
Speaker 1: cutting back on things that might be more difficult to
Speaker 1: make just to sort of simplify the overall production process.
Speaker 1: That was really interesting. Yeah, that is really interesting. And
Speaker 1: I know there's we've talked and you know, productivity in
Speaker 1: general is this interesting question, and well, how how productive
Speaker 1: can any entity be with a younger, less experienced workforce.
Speaker 1: Maybe that means productivity is set to improve in the
Speaker 1: future as less experienced workforce has become more experienced workforces.
Speaker 1: That was an interesting thing. I thought the thing about
Speaker 1: printed bags was interesting and oh, totally bigger companies getting
Speaker 1: priority specialization and the idea that it's like what you
Speaker 1: don't want. You could make a bigger order for bags,
Speaker 1: but then you have to wear house all the bags yourself,
Speaker 1: and you don't have that space. Obviously. The fact that
Speaker 1: you know, the chip shortage is now contributed to gummy
Speaker 1: bear shortage is like one of those sort of classes.
Speaker 1: You never know where the semiconductor shortage is going to
Speaker 1: crop up. Yeah, it's usually where it makes total sense.
Speaker 1: When did you say, but you have never like sort
Speaker 1: of like intuitively come to that any other way. Absolutely,
Speaker 1: Also the inventory point, because this is a big thing.
Speaker 1: You know, people are wondering to what excents strong consumer
Speaker 1: demand is people just you know, making up for shortages,
Speaker 1: and the same thing for businesses. And the idea of
Speaker 1: and you know, accumulating big pots of cocoa powder. I
Speaker 1: thought that was pretty interesting. And also a secondary market
Speaker 1: in trading coco powder and corn starch and other essential
Speaker 1: baked goods. I mean, I hadn't thought that that existed,
Speaker 1: but it makes sense. I want to be a fly
Speaker 1: on the wall and the you know, the the heads
Speaker 1: of all these different Chicago bakers get together and they
Speaker 1: talk about who has extra coco powder, who has a
Speaker 1: who has an extra baker, and the kitchen is looking
Speaker 1: for a different job. So many interesting economic ideas to
Speaker 1: tease out of there. Yeah. Well, and the one other
Speaker 1: thing I was thinking about was Ken mentioned that, you know,
Speaker 1: it's actually difficult to raise prices because you have to
Speaker 1: change all the labels. You know, you have to go
Speaker 1: on the website and change prices. And one thing I've
Speaker 1: heard that's kind of interesting, and it's just a pet
Speaker 1: theory at the moment, but you know, with technological advances
Speaker 1: and with automatic pricing systems for the big business says,
Speaker 1: you know, for big box chains and things like that,
Speaker 1: there is this idea that actually it's a lot easier
Speaker 1: to raise your prices and change them than it has
Speaker 1: been in the past. So I've heard people talk about
Speaker 1: that is like one reason maybe that prices went up
Speaker 1: so quickly, But I guess it means that prices could
Speaker 1: go down quickly too. I hadn't realize that. It's very
Speaker 1: interesting what you said about how in the past sort
Speaker 1: of big notable disruptions were a good moment to sort
Speaker 1: of raise prices. Right, So if everyone's talking about you
Speaker 1: know that it's sort of like the opportunistic or strategic
Speaker 1: timing of price increases. And then you think, okay, well,
Speaker 1: now we have like inflation and so many different things
Speaker 1: are going up, and this idea that, okay, you can
Speaker 1: easily raise prices in five percent increments multiple times over
Speaker 1: and over again, and the fact that no one really
Speaker 1: seems to push back on it, or at least so far,
Speaker 1: is pretty notable. Yeah. Absolutely, I guess that's how the happen.
Speaker 1: You mean chocolate spirals? Right? All right, all right, we
Speaker 1: should leave it there because I need to go eat
Speaker 1: some sort of baked good. All let's leave it there.
Speaker 1: This has been another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe Why Isn't All? You could
Speaker 1: follow me on Twitter at the Stalwart. You can follow
Speaker 1: the Jerosha Bakery. They're on Twitter at Jerosh Bakery, although
Speaker 1: I think they're more active on Instagram, which makes sense.
Speaker 1: You can look at all their bake goods at Jerosh Bakery.
Speaker 1: Follow our producers Kermen Rodriguez at Kerman Armand and dash
Speaker 1: Will Bennett at Dashbot and check out all of our
Speaker 1: podcasts under the handle at podcasts and for more odd
Speaker 1: Lots content, go to bloomberg dot com slash Oddlods, where
Speaker 1: we post transcripts, we blog, and we even have a
Speaker 1: weekly newsletter that Tracy and I write that you should
Speaker 1: subscribe to. Thanks for listening to