Value Drivers invited Paul Rhynard CEO of Wilkinson Baking Company to discuss the market opportunity of baking automation, the company’s GTM strategy and his career journey from strategy consulting to scaling and executing a business idea into success.
Transcript Generated by AI
| Peter Ho | Today we have Paul Rhynard, CEO of Wilkinson Baking Company on the program. Paul has extensive experience, driving strategy and growth for clients through his experience at Mckinsey, Joshua Green and Russell investments. Paul, welcome to the program. |
| Paul Rhynard | Thank you for having me. |
| Peter Ho | Tell us a bit about Wilkinson Baking. What does it do? |
| Paul Rhynard | Sure, yeah. So we’ve we’re the inventors of the breadbot. The world’s first and only fully automated bread baking machine. So basically it is a robot that sits inside the grocery store. That consumer facing grocery staff adds a mix to the beginning of the process, and then it takes that mix, adds yeast and water, mixes a dough ball, and bakes a loaf of bread in about 96 min at full capacity, can be baking a loaf of bread every 6 min, and then consumers can vend a loaf directly out of the cooling cabinet or bread that’s been sitting for a few hours gets taken out, sliced and bagged. But really what we’re doing is miniaturizing manufacturing and decentralizing the entire manufacturing process, taking it into the store and bringing bread that’s really just been baked right in front of the consumer, which doesn’t get much fresher than literally watching the bread get baked for you. So it’s a pretty disruptive technology that’s looking to change kind of a way fresh pan breads are brought to market. |
| Peter Ho | Right interesting. If I am a customer walking into a supermarket, I can see the machine, I suppose. Then I can pick out the loaf of bread that has been just baked in the machine. I can pick that one, slice it, and then I pay for it, and then leave with all the groceries that I’m buying. |
| Paul Rhynard | You can pick the one you want in the cabinet. If you don’t want a hot loaf you can take, you know, loaves have been cool and sliced just like regular bread and taken package, and just go check out with the rest of your groceries, and you’re good to go. |
| Peter Ho | That’s interesting. How big is the machine. |
| Paul Rhynard | It’s about 11 feet long and 3 and a half feet deep, so it takes up some footprint, but it does have a full miniaturized manufacturing plant inside of it, so that takes a little bit of space. |
| Peter Ho | Sure, and I would assume the machine, the recipe of the bread can be customized according to the need of the customer right? If the supermarket wants to make wheat bread versus some other type of bread, they can adjust it as needed. |
| Paul Rhynard | We do have preset varieties that we sell to the grocery stores. If they wanted their own kind of private label varieties, we would work with them to do that. The formulations have to be done to work on the breadbot specifically, because it is a process that differs from just, you know, mixing it in the bowl and putting in the oven. And so it does take some testing and formulation, and then we also order. mix, 3000 pound at a time, which is enough to do 3000 loaves and mixes. In order to do that, grocery would have to have some promise of volume before we would help them do that, but certainly, like larger chains, we fully expect we’ll be looking for some private label, and we’ll help them figure that out, and you know, get the volumes that we need to justify. |
| Peter Ho | It makes sense. If I’m the owner of Stop and Shop. Why would I need a product like this? Wouldn’t they have something in their store already? What does this bring to the customers? |
| Paul Rhynard | Very few grocery stores offer fresh pan breads. What you will often see, your fresh kind of artisan breads, your sourdough and your french breads, and whatever else but the pan bread which is largely the bread aisle bread, Oroweat and Sara Lee. Whatever other brand that you have in your local store that tends to be made in the factory, takes 5 plus days to get into a store, so it’s not fresh. It’s full of preservatives to make it last forever. That’s what you buy if you want sandwich bread. So we offer several things: really the only way outside of baking your own pan bread, most don’t get fresh pan breads in the store, and that’s just a place where most grocery stores haven’t gone, and consumers love fresh bread as they should. In addition to that, because the breadbot is designed the way, it adds a lot of theatre and aroma to a store. When you walk into a store that’s got a bread that’s baking, it smells amazing. Bread has this great kind of warm feeling and smell to it. It’s not like popcorn machines which are a little risky, because if you burn the popcorn, it has a different aroma, but bread always smells great, and so they add the aroma, and then the theatre to it. We’ve got video after video of, everyone from a 4 year old, staying it front of the machine checking it out, to the 85 year old man who’s leaning over trying to figure it out like. People love to watch it. People stand for 20 min watching bread get baked, that’s probably twice the amount of time you spend the store, so that element of improving the consumer experience is really strong. And then we actually offer really good margins on our bread. Bread-aisle bread (i.e. DSD bread where the bread is actually come in and stock the shelves automatically. It is fully serviced by the bread aisle bread providers) comes with lower margins generally to the store. Our margins tend to be a per loaf basis. If you’re doing good volumes, we are 50 plus percent higher on a per loaf basis. So good economics. You got theater and aroma. You’ve got just a better product. |
| Peter Ho | That’s interesting. I think that makes perfect sense. So basically the customer will get three things right: First, you’re getting the freshest possible product for the end user. Number 2, there’s a bit of theatre. People can see the machine making fresh bread. It’s nice to see that being made in this glass machine. I haven’t seen that yet, but I would love to find it in one of our local store soon. And then from what you just said, the economics actually work pretty well for the supermarket. |
| Paul Rhynard | Yeah, absolutely. That ‘s the levers. And then you know, beyond that, we have a bit of a sustainability story. Bread is typically shipped. It spends a lot of time in trucks. Bread has a lot of air in it, so it takes up a lot of space. In our case, we add water in the store as opposed to shipping the finished loaf to the store. So from a weight basis, I think it is about 35% lighter to mix the ingredients at the store than to ship the finished loaf. From a carbon footprint, there’s an improvement. Then from a waste standpoint, a lot of bread gets thrown away. It’s like a couple hundred millions slices of bread get thrown away in the US every year. From the way we bake the bread, we never stock out because we’re always baking, based on demand in the store. We also never have shrink, which is when loaves are thrown away because they’re too old. We only bake enough to meet demand. If we have one day of inventory on the shelves, you never throw any bread away. So from a sustainability standpoint you also have a nice story. It just is a more efficient process, with less waste and less carbon being used ultimately. |
| Peter Ho | Yeah, I never thought about it. You are absolutely right. There could be situation where they have stocked too much bread in the aisle, and they might end up throwing away a good percentage of them. It’s scary. I never thought about it when I walk into a store and pay $5 for a loaf of bread. I walk out and then I’m done with it. One thing I definitely check is the expiration date. Beyond that I don’t think about the bread as much as I should be. Who are your competitors? You’re competing with the existing brand like Sara, the big companies, or maybe even local bakers who provide bread to the supermarket. Is that correct? |
| Paul Rhynard | Yeah, there’s 3 providers of bread in a store. There’s the local bakery bread that’s brought in from all the different sources in the region, artisan bread to the store. The in-store bakery of a grocery store itself clearly bake as well. Often that’s usually partially baked, which is frozen bread that’s finished baked in the store. Then the traditional bread providers that are more bread aisle breads. Because we’re doing pan bread, our biggest competitor is clearly those traditional incumbents that do bread aisle bread because that’s the product that we’re aligned to: Orowheat or Sara Lee, or whoever. That’s largely our competitors. We don’t have any competitors on the technology side. Nobody else from what I understand even tried to do this. It wasn’t an easy problem to solve, and will be hard for somebody to replicate. They also have to get through all our patents. It’s not that easy. It’s really the traditional bread providers who we compete with. And we actually think we’re a good compliment to other fresh breads, artisan style bread. They’re in the store because you buy different bread for different reasons. You know you buy a French bread because you want it with your pasta and then you buy sandwich bread because you want peanut butter and jelly sandwich. Different types of bread for different applications, and we don’t have to be competitive with each other. We actually should be complimentary to each other largely. That’s the traditional incumbents that we’re competing with. |
| Peter Ho | And how big is the market, Paul? |
| Paul Rhynard | It’s big like. In the US, it depends on who you ask but somewhere between 30000 and 40000 groceries. Of that we think probably 8000 or 9000 of those are applicable to this. We tend to skew a little bit higher end grocery. It has to have the size. New York City is a struggle because the stores just aren’t big enough to have a large machine sitting in them when you can barely get a cart through the aisle. There’s certainly restrictions around the size of a store. We think 8000 to 10000 stores could have a a breadbot in them. If you extrapolate that to the developed world, it’s probably another 4 or 5 times the size of that. We could easily have 40000 to 50000 bots in the world if things go really, really well. That’s a lot of machines. We’re a long way from that. But it’s not small. The bread industry is 200 billion dollar industry globally. It’s massive. It is arguably the oldest consumer product. There’s no history book in the world that doesn’t mention bread somewhere along the way, right? It is been around for a long time. It’s not going anywhere. It’s pretty stable. Everybody eats it. So it’s not bad industry to be in. |
| Peter Ho | Yeah. I would imagine the existing incumbents must have optimize or tweak how to make bread in the most efficient manner for most of their product lines whether it’s white bread or wheat etc. One major cost for them to get the their product into the aisle of the supermarkets clearly is the transportation right? So your product would have a huge advantage there, because in this day and age of inflation and supply chain disruptions, the supermarket don’t have to deal with that anymore? |
| Paul Rhynard | Yeah, certainly. Inflation has really hurt bread. One is transportation costs, You say the other is like wheat prices and input prices, right? So we clearly are still exposed to that. Our mix prices have gone up pretty dramatically. You can’t get away from that. Everybody’s exposed the same. But transportation cost, we certainly have an advantage. We don’t have the fleet of trucks and the distribution centers required. We only have to get mix to the stores, but that’s a much simpler distribution process then finished bread. We haven’t had the same inflationary pressure on input costs traditional provider have. There’s not none. (Wheat prices and input prices have gone up dramatically) But that’s equal, at least across the spectrum. |
| Peter Ho | The machine is in supermarket today? So if I walk into certain supermarkets in the North West. I will see some of them? |
| Paul Rhynard | Yeah, we’ve got 6 deployed right now. We’re actively working. We’ve another 13 to deploy. We’re just at a big conference for independent groceries here a week or 2 ago, and we’ll be deploying more here shortly. |
| Peter Ho | Paul, you have a traditional strategy and finance background. Can you tell us about it? And how do you get yourself into the business of baking automation? |
| Paul Rhynard | Yeah, I certainly didn’t come from grocery, food robotics or baking although there is a bit of history of baking in my family. I went through the fairly traditional route in finance before going to business school. I ended up in Mckinsey doing consulting, in fact, doing strategy work for financial services for firms primarily in asset management. About a year ago, I made this transition. I’d always had a goal to be a CEO and to run a business. I have spent a decade plus in strategy and growth roles, telling everybody else what I thought the right answer was. But I was never the one actually doing the execution. Watching people sometimes listen, and that work. Sometimes not listen, and maybe that works, maybe it didn’t. I certainly have a desire to be in a position where I was in control and could not only make the strategic calls but actually execute against them. This company I had known about for a long time. I sit on the board of trustees of my alma mater of my undergraduate. One of the other trustees was a Wilkinson, the owner, and one of the co-founders of the company. We talked about it for years. I follow the company for a decade. We were catching up probably 18 months ago now. Just talking about career stuff, and he was the serial entrepreneur and he said if you want to make a change, why don’t you come run my bread company but you wouldn’t want to do that? I told him can I think about it before you decide for me? And we started a dialogue that lasted 6 months with the 2 co-founders and myself. They were in late sixties, you know weren’t really at the stage in their life where they wanted to really hit the growth button on the company. Then once you go, you got to hold on tight. And what the company needed was capital and somebody that really drive the go to market approach. Those are the 2 biggest needs of the company. In the last year I’ve raised capital and been focused on sales and trying to grow the company. Things are starting to come together along this line. It was a very big pivot. Lot of people are scratching their heads and at the same time telling me that’s super cool. I’m learning a lot about robotics and technology that I didn’t know before. At the end of the day, what I’m focused on is a very clear and crisp strategy and just executing against it. That’s where my skill set comes across. |
| Peter Ho | Yeah, that’s fascinating. I can definitely relate to your experience. Now you are in the driver seat and driving the business. Is the founder still involved in the strategy? Are they still on the board of the company? |
| Paul Rhynard | Yeah, the 2 co-founders, one as chairman, one on the board. We have one other board member and then myself. They’re still very involved. I use them as counsel. They’ve got the history. We have a contract manufacturer in China that we’ve worked with for over a decade. I have certain governance control and that was very important to me. I need to have control to make the decisions and run the company even if they don’t like them. I will keep them involved. I’ll seek their counsel but ultimately I get to make the decisions. They agreed with that as well. They weren’t going to micromanage me from afar. We have an open dialogue. They’ve been great in the transition and they’re a great resource, the long history with this company. There’s a lot of things I don’t know. It’s been a good relationship overall. |
| Peter Ho | It sounded like the configuration of governance works pretty well. You basically have the management control as well as the counsel that you need from the founder. It worked really well. How was the fundraising process. What were the key drivers you think making it successful? You said you just finished it 6 months ago? |
| Paul Rhynard | Yeah. it was tough. It started before I join formally. I didn’t really activate my network till after I made the move for obvious reasons. But we’re starting to have some conversations. Because the company has a bit of a complex background, there’s a long R&D history. It was more of a quote/unquote project than a company. What it had was advanced hardware but a go-to-market traction that was probably behind where a similar stage company would be. For most traditional venture capitalists, they’ve looked at it saying, I don’t really understand. You’re like Series A hardware and precede go-to-market. I don’t know how to think about it. I knew it was a bit of a transitionary capital raise where I just needed to find, probably high net worth capital, because when you take the risk, and I’d catch up to go to market. And then when we do Series A this year, it’ll look and feel more like a traditional capital raise. Traditional VC should be more interested. We started just tapping my network, the founders network, everybody we could talk to. I’ve never asked anybody in my network for anything like that before. That was a good thing because I’m not like a serial asker for favors. I think there was a lot of respect in that. Obviously I had strong belief in what we were trying to do. I started activating the network. Unfortunately, about 2 months into that process, the market dipped down 20%, and that line everything was fine until we crossed that rubicon in the market and then, like my list, went from 10 to 15 high value prospects to 0. It just evaporated. It was a bit challenging because we were in need of some capital. We hit the reset and go after it again a couple of different angles. One investor who’d come in early had more capital until we put in an ask to see if he’d anchor more of the round. He stepped up and took a big piece of the round which was awesome. He is a great partner and sits on our board. I rounded out some other individuals in my network, and we got 3 million raised last September. But it was not an easy process given the market turmoil. It was all over the place. I got it done which is all that matters. |
| Peter Ho | Yeah, absolutely, that’s fascinating. I’m sure that’s interesting experience for our listeners. In terms of economics of the business. The R&D of the machine is mostly done. Are you focusing go-to-market and increasing the distribution to supermarkets and the like? |
| Paul Rhynard | Yeah, I think that places where we’re spending capital are building machines. It is hardware. I have a balance sheet business, not an income statement business, not a SaaS company. I actually have physical hardware that I have to build and that comes with costs. And then onto go to market. In the last year we’ve gone from 0 machines out to 6 machines out with strong pipeline right now to do more. We’ve built 20 machines total which are almost all finished now. We’re going to look at deploying here in the next few months. And we need more capital to build more machines. It cashflows well given the model when you have the machines built. But we’re doing a lease on the machine. You pay upfront and then it takes a while before lease payments pay that capital back and you start making profit. We have bread fees as well on top of that which are profitable day one (working capital aside). It takes time to develop enough cash flow and as you’re on a growth trajectory, you’re building machines and building more machines costs you cost of capital. The biggest challenge of a hardware business in my mind is just managing your balance sheet effectively. Nobody will lend against your equipment because you don’t have proof points of how along the equipment’s going to last. You’re kind of in this betwixt area where traditional hardware financing doesn’t apply There is debt financing available, and there’s other leverage you can pull, but you know you ultimately you’re trying to manage your balance sheet as you grow. |
| Peter Ho | That’s interesting. The machine is leased to supermarkets. They didn’t own the machine. Your company owned the machine. It’s leased to the supermarkets? |
| Paul Rhynard | Yeah, that’s the model that we’ve been going out with. Most groceries don’t want to spend the capital upfront. With the lease model, we just get monthly lease and then fees for every loaf baked, and for that they get the ingredients, the yeast, the bags and all the maintenance on the machine fully included. It’s a turnkey solution that’s somewhat variable on production. That creates a pretty easy, mathematical equation on how many loaves a day we have to do to break even on the lease. You know how many of those we have to do to have strong margins. I can show all that economics to them really easily. They’re not paying tens of thousands of dollars out of the pocket day one with hope that it works. It’s much easier to get across that financial hurdle. I can show them when they start making money, like day 12 or something, which isn’t too bad. |
| Peter Ho | Yeah. I mean from the supermarket standpoint, they can see profitability very quickly, right? Because they are not committing a lot of risk other than they have to commit some space in the store for the machine. And obviously this is a new concept. But it’s probably not that difficult for them to see the benefit once you’ve one machine in the store. |
| What KPI or metrics do you focus on to make sure the business is tracking to your plan? | |
| Paul Rhynard | The easiest one is how many breadbots do we have deployed. That’s the biggest marker of our success. I know the average revenue per bot per year is. I can at any point do really quick math to tell you what my run rate is based on how many machines I have in the market. That one’s simple. The other one we watch is loaves per day. We look at the production of each machine to track all that data endlessly. There’s a lot of detail underneath that that we look at to around like varieties and all that kind of stuff. But ultimately the metric that matters the most is how many loaves do we make each day. Then one from our side of it, just like how well the machines performing, we track errors. But more importantly, we track discards so loaves that get started, but for whatever reason, aren’t saleable. Maybe they are in part of the process, they fall on the pan which happens on occasion, or they get under baked, or something happens where it’s not a good finish loaf, and so we track what we call discard. Ultimately we want discards to be 0 but we’re still new hardware. We’re dialing things in, so they’re not 0, but they’re not terrible. They’re good numbers, but we certainly watch that and we have events that cause a bunch of discards. Sometimes you can’t help it right there power outage in the store for 5 min, and then every loaves in the oven has to be thrown away. Things happen. We’re certainly watching to see the efficiency of the machine, that’s kind of the best proxy to get to it quickly. |
| Peter Ho | Great. I think we are running out of time. But I’m gonna ask you two more questions before we wrap. What keep you up at night, Paul. Based on what you tell me, I think this business is very different from the typical startup (e.g. SaaS) or some other business model. |
| Paul Rhynard | Capital is always a struggle, effectively using our cash. Are we going to be able to raise more money? I’m going to be about ready to go to market to raise more capital. Certainly that is a stress point. But really, I think operationally. You’ve never run 100 machines at a time before. We’re doing 6 now, never done more than 4. 6 is going fine. But if we add 6 more, we just doubled whatever machines we have in the market and we’ll be there soon. As we scale, the complexity of managing the supply chain, the complexity of monitoring the machines, the complexity of managing any technical repairs that are required, the complexity of all the bakery staff and each store relationship just goes up exponentially. And we’ll add systems and things to manage those things and people as well. But we don’t know what we don’t know yet when you’re running a system. Because ultimately what you think about is not just running bots but running a system of bots around the country over time. From here to there, from here to a 100 bots is a big move. From a 100 bots to a 1,000 bots is a massive move. Hopefully, after that, you figure it out. But that kind of transition from a small company adds a lot more complexity. Certainly I wake up thinking about all sorts of random things of how we’re going to make that successful which was also fun. It’s also part of the challenge of the role which makes it exciting because it’s all solvable. But it doesn’t mean it’s not stressful at the same time. |
| Peter Ho | A lot of brain cycles into making bread fresh and making it looks good. Congrats on all the success you had in fundraising. I would love to see one of these machines in my neighborhood very soon. Can you tell our listeners where they can find it today? Or maybe you have them in a convention right now, or in certain stores already. Where can they find them? |
| Paul Rhynard | Today, we’re in 6 stores, one at our headquarters in Washington. Andy’s market is where we have one. There’s 5 Super One Foods locations in Northern Idaho, just North of Coeur d’Alene, and then in Montana, in Hamilton and Stevensville. We are currently in dialogue with a New York City based chain. We’re in dialogue with some Wisconsin retailers, some Kansas retailers and some other Washington retailers. The one in New York is interesting. We talked with them yesterday. They’re pretty excited. |
| Peter Ho | Thanks again, Paul. Fascinating story and definitely call me when you have a machine in the New York area. We would love to check out the machine and buy the fresh loaf for sure. |
| Paul Rhynard | Thanks for having me. |
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