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A couple who capitalized on a rising trend

Eugene and Suzy O’Donovan:
A couple who capitalized on a rising trend

On Dec. 6, a woman received a Montana Mills Bread Co. gift box in the mail.
“She put it under the tree and left it there for two or three weeks, then called the day after Christmas to complain,” recalls Montana Mills president Eugene O’Donovan, who notes that gift shipments arrive in preprinted boxes stating there is fresh bread inside.
Montana Mills explained to her the baked goods have a shelf life of seven to 10 days, not three weeks. She also received fresh bread to replace her stale gift.
Montana Mills operates three stores in the Rochester area, three in Buffalo and one in Fairfield, Conn. A Greece location is slated to open at the end of this month.
A great deal of research preceded the O’Donovans’ decision to start Montana Mills, and the couple–both trained as accountants–resolved to learn the business from the ground up.
The bakery was Suzy’s idea; she had fallen in love with bread from a whole grain baker when the O’Donovans were living in Denver. After moving to Rochester, she was unable to find a comparable product and suggested the two start their own business baking and selling the bread.
At first, Gene O’Donovan was skeptical. “I guess I didn’t really consider it to be a viable business; I thought of it more as like a little hobby.”
When the local company he was working for went out of business, O’Donovan began to take the bread concept more seriously. He embarked on a period of intensive research.
“I spent about two years traveling the country looking at bakeries,” he recalls. “I probably looked at 100-plus in that time.”
O’Donovan’s research led him to formulate a theory on why specialty bread bakeries–among them Montana-based Great Harvest Bread Co., with some 155 franchise bakeries and gross revenues of $62 million in 1997–are becoming so popular.
He identified three key elements in the trend. First, a focus on health has changed nutritional habits.
“People are more conscious these days (about) where their food is coming from,” he explains. “That very much is a part of our concept today–it’s what you see is what you get.”
The second element O’Donovan calls “entertainment in retailing.” As an example he cites Starbucks Corp., whose customers not only purchase a product but also watch it being made and experience the entire process.
“We wanted to do the same thing with bread,” O’Donovan says. “You come in, you smell the aroma of baking and see what’s going on.”
Finally, O’Donovan saw specialty bread bakeries tapping a backlash against retail giants.
As more and more large chains displace small mom-and-pop stores, an opportunity for businesses like Montana Mills has emerged.
“Fifty or 75 years ago, there were bakeries on every corner,” he says, “but they’re all gone now.”
Although it might be more convenient for consumers to buy bread while at the supermarket, Montana Mills appeals to a nostalgic feeling for bakeries of years gone by–or even better, homemade bread hot out of the oven.
Tradition is only a starting place for Montana Mills in the varieties of bread it produces–from Grandma’s White and Honey Whole Wheat to Jalapeno Cheddar Corn and Rosemary Olive Sourdough. The O’Donovans purchased their first few bread recipes, but now develop their own. Current projects include a cherry cheesecake bread to be offered in May, as well as granola and cinnamon-bun recipes.
Even with the growth of specialty bakeries nationwide, Montana Mills–in the beginning and even now that the business is somewhat established–has struggled with what O’Donovan describes as a “credibility gap.”
“Nobody was very receptive at the beginning,” Suzy O’Donovan says. From telling friends about their idea to leasing space from landlords, the couple encountered plenty of doubters.
“Even today, when we go to a new market, it’s still a challenge,” her husband says. “However, now I can show them a file of clippings and the gap gets taken up pretty quickly.”
The O’Donovans initially financed the business themselves by taking out a second mortgage on their house and building the first couple of stores out of cash flow. Last year, Pittsford Capital Markets Inc. helped the firm raise $2.5 million through a sale of Montana Mills private stock. O’Donovan says this will fund the next stage of expansion.
Mark Palazzo, president of Pittsford Capital, was involved with the private offering. Although his firm usually raises money for larger ventures, such as mobile-home parks, occasionally it sees a small-business plan that stands out.
“We really liked Gene’s company,” Palazzo says. “There’s not a lot of bread companies out there. We really thought there was a niche here.”
What’s more, he says, Montana Mills’ owners were a selling point with investors. “Both Gene and Suzy are energetic and strong-willed, (and) you need that to be a successful entrepreneur.”
Roughly 80 investors from Rochester and Buffalo bought 312,400 preferred shares of Montana Mills stock at $8 a share. The stock is convertible to common stock at the time of a public offering. Palazzo says it was the fastest offering Pittsford Capital has conducted.
“Our game plan is ultimately to look at potentially taking this company public somewhere down the road,” O’Donovan says. “That’s just one of the possibilities.”
Growing up on a farm near Dublin, Ireland, O’Donovan’s thoughts were far from baking bread. He attended University College Dublin, where he received his bachelor’s degree and a master’s in accounting.
While working for the former Price Waterhouse in Dublin, O’Donovan seized the opportunity to enter the company’s international program, eventually requesting a transfer to the United States and ending up in Denver.
“I came initially for a two-year term,” he recalls. “But I liked it, and I extended it and extended it and eventually just stayed.”
In Denver, he met Suzy, a Wisconsin native who also worked for the former Price Waterhouse. They stayed in Denver four years, then moved to New York City for two years, after which Gene took a job with a real estate firm in Syracuse.
The O’Donovans came to Rochester when he became chief financial officer of Warehouse Auto Centers, a firm that has since dissolved. The couple plans to stay in Rochester.
“I think all in all Rochester is pretty nice,” O’Donovan says. “My wife and I both like it. It’s a great place to raise a family.” The O’Donovans have a 2 1/2-year-old daughter and Suzy is pregnant with their second child.
The work ethic of Rochesterians has provided Montana Mills with a good work force, he adds. A year ago the company employed 20 people; today, it has a staff of 120.
“If all goes well, within a year we might have 400-plus (employees),” O’Donovan says.
During the first year of operations, both O’Donovans worked full time in the Pittsford store, doing everything from baking bread to serving customers and closing. O’Donovan believed this was an important aspect of really getting to know the business, and today all employees must pitch in at the bakeries.
In fact, during holidays and other peak bread-buying times, the firm’s offices close and the whole staff is dispatched to help at the bakeries.
“I really felt that was important,”
O’Donovan says. “I’ve seen too many companies where the home office gets kind of removed … and there’s not as much camaraderie, and I think it hurts the company.”
The new Greece store will contain all the ingredients of Montana Mills’ success at its other locations. At the same time, the store–located on Ridge Road, across from Buckmann’s Plaza–will unveil a few new features.
Along with a slight redesign of the front end, which O’Donovan hopes will make it a little more sophisticated, the store will boast a “gift corral.”
Montana Mills’ gift business has exploded, with boxes being shipped here and around the country as personal and corporate gifts. The corral is expected to spur sales.
Also in store for Montana Mills is an expanded Internet presence. By this summer, the company’s Web site will be redesigned to take orders and showcase its full product line. O’Donovan says the Internet expansion is being undertaken because so many customers have asked for it.
“I still think a major part of our business will be from our stores, but this could be substantial going forward,” he adds.
The future might also bring significant competitors–which Montana Mills has not encountered so far.
Eugene Fram, J. Warren McClure professor of marketing at Rochester Institute of Technology, says Montana Mills’ business is “viable as long as it can maintain its niche and its uniqueness.”
A constant risk for small businesses, Fram explains, is that their products often can be duplicated by larger companies and sold at a lower price.
On the positive side, he says, Montana Mills has quickly developed a strong local following, which would help protect it against competitors.
For O’Donovan, potential competition is “not a particular concern.” The bread business, he says, “is on the front end of a huge wave of growth.”

3/5/99

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