One family-owned business is trusted enough by the U.S. government to run bakeries on six U.S. military bases.



NEWBURGH, N.Y. (MainStreet) -- Family-owned Favata's Bakery has been around since 1927, but these days only active and retired military and their immediate families can buy its baked goods.

The company -- originally named New Modern Bakery (then Favata's and back and forth at least two more times before settling on Favata's) -- was known for delivering goods to restaurants, businesses, homes and schools. The company started delivering to military bases in 1989 when West Point opened a commissary, the owners say. The Favatas are one family-owned business trusted enough by the U.S. government to run bakeries on six U.S. military bases.

From retail stores to gas stations to restaurant franchises to the main Exchange (equivalent to a civilian department store), military bases are a hotbed for business, particularly for small businesses, and the bakeries and delies run by the Favata family on military bases provide a model for others to follow.

Another part of the equation on military bases is the main grocery store or commissary. In the late 1990s, the Department of Defense reorganized military base commissaries under the Defense Commissary Agency, or DeCA. It also changed the structure to service-based contracts for delis and bakeries to have one prime vendor per group of commissaries. To keep the business at West Point, Favata's took a chance and bid on the group of bakeries clustered within, the family says.

Favata's won the bid and became the DeCA-approved in-store bakery and deli initially at four commissaries -- Carlisle Commissary, Pa.; Fort Drum, N.Y.; McGuire AFB, N.J.; and West Point, N.Y. A year later another military commissary was added to the Favata's contract, this time in Fort Hamilton, N.Y. In 2008, one more was added to the contract in Saratoga Springs, N.Y. for a total of six bakeries run by Favata's today.

Running a commissary business
Running a business inside a military installation, especially within the set commissary, is much different than owning independent stores.

In some ways it's easier. For instance, since Favata's operates within the commissary itself, it doesn't have to deal with equipment leasing or real estate issues.

"It's a good living," CFO Pat Favata says. "Working with the military I have holidays off. They pay me within seven days. With this economy today you don't see that anywhere."

Christie Favata Fairbanks, its president, says working with the military is also personally rewarding.

"I came from investment banking. I left my job," she says. "I feel like I get something out of it. These are the people I want to make happy. They're protecting us."

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In other ways working on a military base is much more difficult because there are strict food and pricing regulations.

Commissary patrons buy items at cost plus a 5% surcharge, which covers the costs of building commissaries and modernizing existing ones, according to DeCA's Web site. Shoppers save an average of 30% on their purchases compared with commercial prices.

That means a business such as Favata's has to keep track of commercial prices from supermarkets and discount retailers such as Wal-Mart(:WMT) and be sure to price their own goods 30% lower than stores within a 10-mile radius of the base. It's tedious at best.

Favata's also has to pay its roughly 68 employees what is considered the "prevailing wage," which is set by the government, plus a health and welfare benefit, which employees can either put toward health care or take as a cash benefit, Christie Favata Fairbanks says. The prevailing wage is based on the service contract for each job classification, she says.

Additionally, the military has to approve which goods Favata's sells to make sure they are up to standard and to avoid repetition in multiple areas of the commissary.

Contractors are also scrutinized intensely for quality control and a host of other business issues -- everything from marketing to customer service. Scores are sent into DeCA headquarters every six months and the results sent to the business owner to follow through on any suggestions or improvements.

"You can get the boot if you're not doing well, which they have done. We've seen that," Christie Favata Fairbanks says. "It's a lot more paperwork involved, a lot more opinions. Each commissary has a different store director and each store director has their own image of how the store should operate. But there is a basic template of how those things should operate. You work with the store directors."

Contracts are finite, and even a company such as Favata's that has run several commissary bakeries for years must rebid for contracts. This past summer, Favata's went through the process for the third time since 1998. Its most recent contract, which lasted eight years, was set to expire in November.

DeCA recently came out with its forecast for fiscal 2012 contracting opportunities. Interested parties can read more information by going to the designated small-business section on DeCA's Web site.

There is also plenty of opportunity.

Plenty of opportunity
"Each store has a different set of customers, so we tailor our bakery and deli products," Christie Favata Fairbanks says. "For instance we have a store down in Pennsylvania that has a lot of retirees, so we carry half-pies, half-cakes, no-sugar items for them. But my store in New Jersey is mostly families -- they don't want a half pie."

Operating a deli and bakery has meant expanding into niche international foods favored by troops when they're stationed in places such as Germany, Italy, Japan and the Middle East, she says.

"Most of our soldiers have lived around the world. We can get those products," she says. "When people request things, we find it."

Operating on a military base also means dealing with the ebb and flow of soldiers shipping out and coming home.

The difference is particularly noticeable at Fort Drum, where many of the active duty military have been shipped out, primarily to Afghanistan, Fairbanks says. Knowing when troops come home, Favata's prepares by building up inventory.

"We feel the movement a great deal," Fairbanks says. "When they leave our sales drop drastically. When they come home we can see it in the first few days."

Military bases aren't recession proof, but business owners such as the Favatas say they are more likely to do what they can to help customers who are struggling -- a stance that is somewhat refreshing in today's profit-driven world.

"When they have less money we try to sell things at lower profit margins," Fairbanks says. "We have no problem selling things cheaper to help them out. We do smart buying to lower our costs and to lower the prices. We don't have a lot of the overhead."

Pat Favata says she would consider adding stores if they were contacted by DeCA. But she doesn't want to stray too far from her home turf.

"We like to work in our own backyard," she says. "We're a family-operated business. We like to have a face to the business. So as much as I would like to go to Hawaii, I don't want a store there."

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