Like most kids growing up in Southern California, stepbrothers Steven Brody and Tony Roberts loved pizza. They also craved fresh bagels from the Sherman Oaks bagel shop owned by Brody's father. So as college kids looking for a business opportunity, they combined their two favorite foods and developed one of the first pizza bagels (a concoction of tomato sauce and cheese on top of a half bagel).
Fifteen years after launching their venture with a $500 loan from Tony's mother, Brody and Roberts have built their Carson-based Southland Bagel Co. into a $6 million business, providing pizza bagels as well as regular bagels to tens of thousands of school kids throughout Southern California.
This past summer, Brody and Roberts were honored as Small Business Persons of the Year by the Los Angeles district office of the U.S. Small Business Administration. Brody is Southland Bagel's president, while Roberts is vice president of marketing.
Brody is essentially the operations chief, who runs the company's Carson bagel factory and develops bagel-related products, while Roberts is looking for new accounts. In addition, Southland Bagel contracts with about 10 outside sales reps throughout Southern California and the Western United States.
Their success might never have happened if it weren't for a 1986 fire that destroyed their Anaheim retail bagel store.
"We were right at the cusp of the explosion of the retail bagel business," Brody said. "If that fire hadn't occurred, we would have gone on with our retail operations. We probably would have gotten swamped by the big chains that were starting to move into the business and it all might have ended right there."
Instead, Brody and Roberts focused exclusively on the wholesale market, working from their Carson manufacturing facility and concentrating on the newly emerging school meal niche.
They already had their foot in the door. Two years earlier, in 1984, the stepbrothers had won a contract to provide 24,000 pizza bagels to the L.A. Unified School District. The pizza bagels which had to be modified slightly from the brothers' formula to conform to school district specifications proved to be a hit among students, and more orders from LAUSD followed.
With contracts from L.A. Unified, the 800-pound gorilla of school districts, Southland could penetrate the rest of the school meal market. The company now has contracts with more than 100 school districts throughout California, which together generate more than 50 percent of total sales.
Pizza is consistently a big seller in schools. A recent nationwide survey by the American School Food Service Association found that two-thirds of students rated pizza as their favorite food choice. Chicken nuggets were a distant second.
"Students just lap it up," said George Thorsen, owner of Los Angeles-based Gold Star Foods, one of Southland's main distributors.
Unlike many food-service companies, Southland Bagel sends sales reps to school cafeterias, where they monitor what students eat.
"One of the biggest misconceptions about school meals is that we have a captive audience," Wells said. "We do not. Students can choose to eat off campus, bring their lunches from home, or skip meals especially breakfast."
But the brothers don't want to rely solely on increasing school enrollments to boost revenues.
"The school meal business is especially tricky," said Marilynn Wells, director of food services for the Alhambra School District and president of the California School Food Service Association. "Students are probably more fickle than the general public. At one school, students may like one type of food prepared in a specific way, while at another school across town the tastes may be totally different."
The situation is complicated in L.A. because of the different ethnic groups. "Many people in the Asian community or the Latino community have never even seen a bagel," Thorsen said. "But pizza is different. It seems to cut across ethnic lines and is liked by everyone."
Besides schools, another major public-sector customer is the U.S. military. The company sells its bagels and pizza items to about a half dozen military bases, primarily to people working or training on the bases.
It also has moved more to the private sector, picking up Costo Cos. Inc., and also selling to a number of private bakery distributors. Eventually, Roberts has plans for overseas markets, perhaps Latin America or Asia.
While pizza bagels launched the business and still account for 25 percent of total sales, about half of the firm's sales comes from regular bagels. Unlike other purveyors like Otis Spunkmeyer and Manhattan Bagel, Southland makes a soft bagel, using a steam-injection process.
"Soft bagels are equated with freshness," Brody said. "And, with our steam-injection process, they can stay fresh for several days, which is essential in the wholesale market."
The remaining quarter of Southland Bagel's sales come from pizza and a variety of other pizza and bagel-related products, like bagel dogs and French bread pizzas.
With the SBA award under their belt, Brody and Roberts now seek capital to expand their business.
"We want to move from being a small business to a mid-sized wholesaler with national appeal," Brody said. "But we realize that we need to be able to use the additional funds wisely; otherwise, we're not going to be able to grow."
In preparation for their expansion, Brody and Roberts are undertaking efforts to increase their company's efficiency. That includes increasing output without a corresponding increase in costs. Currently, Roberts said, Southland Bagel produces about 100,000 bagels and 100,000 pizzas a day, with baking crews of some 40 workers. The company recently went from one shift to two, thereby eliminating most of the overtime. Brody and Roberts said they also are devising ways to reduce the time it takes to clean the machines.
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