Declining Rents Trigger Sullivan Street Bakery’s Expansion In New York City

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The pandemic has caused a lot of woe with many restaurant and bakery-cafés, but some entrepreneurs have discovered a glimpse of opportunity.

Take Jim Lahey, co-founder of Sullivan Street Bakery, which has been operating since 1994. He has found that declining rents in Manhattan, due to the pandemic, have helped it expand.

It currently has five locations in Manhattan in Hell’s Kitchen, East Village, West Village, SoHo and Chelsea, and one outlet in Miami. But two are new due to lowered rents in Manhattan.

When the pandemic first hit in March 2020, Lahey felt as if he was falling off of a cliff. He faced “unpaid bills by 300 restaurants. It was all about survival.”

The local residents implored him to reopen, needing an outlet. “In New York it’s your neighbors who are your business. New York City was lacking amenities and basic pleasures,” Lahey pointed out.

But his bakery also had a large wholesale business, selling to restaurants and cafés that generates about 50% of its revenue, and diversifies its revenue stream. Because so many restaurants closed or cut back, business was, at first, down 70% from the past.

He closed all of his retail shops for a week or so in mid-March and then reopened them gradually. And then he got the idea in the late summer, that some landlords would rather see their spaces occupied than vacant.

When many small businesses shuttered in Manhattan during the pandemic in spring and summer 2020, due to office workers operating remotely and millions of tourists staying home, Lahey seized the opportunity to open up new locations.

There were so many vacancies and small businesses closing, he figured many landlords would be flexible with their leases.

Lahey opened two storefronts, in the West Village and East Village, because he secured month-to-month leases. He said the rents were about 20% below market rents prior to the pandemic. Without that kind of flexibility to exit the lease if business crashed, he wouldn’t have signed it.

Still Lahey, who has a wicked sense of self-deprecating humor, laments that “I’m still paying too much for the space. I’m not selling designer jewelry; I’m selling loaves of brand,” he said.

The stores are quite compact, with about 100 square feet of selling space, and about 350 to 400 square feet totally.

Because so many people are staying home and aren’t permitted to dine indoors at eateries, his bakery and sandwich retail sales have been spiking. Some shops have seen revenue double.

Its menu is streamlined and sells round versions of pizza, fruit tarts and some simple lunches including prosciutto sandwiches and broccoli wraps. Most patrons spend $10 to $14 for a sandwich plus a cup of coffee.

Who do his bakeries appeal to? “Anyone we can find,” Lahey quipped. But he added, “It’s mostly neighborhood people. It’s a mix of snacking and lunching and donuts and coffee.”

All the food is prepared daily in the Hell Kitchen’s commissary and then transported by its trucks to the retail outlets. In its heyday, those trucks delivered to 500 to 600 wholesale customers a day, mostly restaurants, specialty stores, and supermarkets.

Lahey is open to other possibilities. The Miami outlet is a part ownership and licensing deal, and he wouldn’t rule out franchising, though he’s not actively pursuing it.

And what is his plan for building up revenue during the pandemic? Returning to indoor dining would be a boost, he replied, and he’s trying to get his products sold in larger supermarkets like Whole Foods, but so far no luck.

He is looking to open new storefronts and spent last week exploring spaces in Williamsburg, Brooklyn, a natural move from Manhattan.

He also expects the wholesale business to start bouncing back in the not too distant future.  “I expect the business to grow, as restaurants return, and they can’t bake loves of breads in house. And we’ll have a greater retail presence,” he said.


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