Latest / Scaling Up with Fexingo: How Small Businesses Become Mid-Market Companies / How This Bakery Scaled to 18 Million by Fixing Flour Costs
Transcript
- Lucas: Let me tell you about a bakery in Portland that hit a wall in early 2023. Not a demand wall — they had plenty of customers. They hit a flour wall. Luna: A flour wall. As in, they couldn't get enough flour, or the price just became impossible? Lucas: Both, actually. But the price piece is what we're going to focus on, because it nearly killed a business that was doing four million dollars in revenue at the time. The bakery is called Tabor Bread — named after Mount Tabor, the extinct volcano in Portland. They make naturally leavened sourdough, pastries, things like that. And in early 2023, the price of wheat — specifically the high-protein spring wheat they use for their bread flour — spiked about three hundred percent from pre-pandemic levels. Luna: Three hundred percent. That's catastrophic for a bakery where flour is probably your single biggest input cost. Lucas: Exactly. And this is where the story gets interesting. Most small bakeries just pass the cost to customers or shrink the loaf. Tabor Bread did something different. Their CFO — a woman named Jenna Park, who had previously worked in agricultural finance — suggested they start hedging their flour costs the way a grain elevator or a cereal manufacturer would. Luna: So buying futures contracts? That kind of thing? For a four-million-dollar bakery? Lucas: Yes. And it sounds absurd at first — you picture a baker in a flour-dusted apron calling a commodities broker. But here's the thing: the math worked. Jenna calculated that flour was eating up about forty percent of their gross margin. If prices stayed elevated, they'd be losing money on every loaf by the second quarter. So she proposed locking in prices for eighteen months using a combination of Chicago Board of Trade futures and private forward agreements with their mill. Luna: Wait, the mill itself — weren't they also getting squeezed? Why would a mill agree to a fixed-price forward with a small bakery? Lucas: Great question. The mill was a regional cooperative called Shepherd's Grain. They actually specialized in forward contracting with smaller bakeries. Their model was: you commit to a volume, we commit to a price, and we share the risk. Shepherd's Grain would hedge their own position on the futures market, so they could offer Tabor Bread a fixed price that was still above the mill's cost floor. It was a win-win — the bakery got price certainty, the mill got a guaranteed buyer. Luna: So Tabor Bread basically outsourced the hedging expertise to their supplier. That's smart. Did they do anything else on the cost side? Lucas: They did. They also joined a buying cooperative called the Northwest Baking Collective. That gave them access to bulk purchasing power for other ingredients — butter, sugar, eggs — and let them negotiate better terms on shipping. But the flour hedge was the centerpiece. And here's the concrete result: by the end of 2024, Tabor Bread had grown from four million to eighteen million in revenue. Not because they raised prices dramatically — they raised them maybe twelve percent total over two years — but because they had the margin stability to invest in a second location, a wholesale channel, and a small cafe. Luna: Meanwhile, competitors who didn't hedge were either shrinking their margins to nothing or hiking prices by thirty percent and losing customers. Lucas: Exactly. And this is the part that's relevant for any small business owner listening. You don't need to be a bakery. If your business has a major input cost that fluctuates — coffee beans, lumber, steel, even labor — there's probably some form of forward contracting or hedging available. The barriers are mostly psychological. People think commodity trading is too complex, too expensive, or too risky for a small company. But Tabor Bread proved that with the right partner — in their case, Shepherd's Grain and the Northwest Baking Collective — even a four-million-dollar operation can use these tools. Luna: And Jenna Park, the CFO — she was the catalyst. But I also wonder: what if she hadn't come from ag finance? Would the owners have even considered hedging? Lucas: Probably not. And that's actually the biggest lesson. The owners, a couple named Sarah and Tom, had run the bakery for ten years. They knew sourdough, they knew their customers, they knew Portland. They did not know futures contracts. But when Jenna laid it out — 'here's the cost scenario if we do nothing, here's the cost scenario if we hedge' — they could see the numbers. And once they saw that hedging wasn't gambling, it was insurance, they were on board. Luna: It reminds me of something we've touched on before: the difference between being a skilled operator and being a skilled financial manager. Most small business owners are great at the craft, not great at the capital structure. Lucas: Right. And scaling from four million to eighteen million forces you to become good at both. The craft gets you to four million. The financial management gets you to eighteen million. And that's where the show's mission really lands — helping small businesses cross that gap. Luna: You know, speaking of the show's mission — if these conversations have moved your work forward in some small way, we do have a listener-supported model that keeps everything ad-free. It's buy me a coffee dot com slash fexingo. No pressure, just a way to keep the conversation going. Lucas: Yeah, and we mean that. It's a small ask that adds up for us. Back to Tabor Bread — one more detail I want to share. Their hedge wasn't perfect. In the summer of 2024, wheat prices actually dropped below their locked-in level for about three months. They were effectively paying above market. But Jenna had built in a small buffer — they'd only hedged about seventy percent of their expected volume, not a hundred percent. So they still had some exposure to the spot market, and that flexibility actually saved them from being too far underwater. Luna: So they left room to be wrong. That's the opposite of the typical 'set it and forget it' approach people might imagine. Lucas: Exactly. Hedging isn't about predicting prices. It's about managing risk. You don't know if prices will go up or down. You just know that price volatility is bad for your business. So you trade some upside for stability. And for Tabor Bread, that stability gave them the confidence to invest in growth when their competitors were hunkering down. Luna: That confidence piece is huge. If you're constantly worried about your input costs, you can't make long-term decisions. Lucas: Right. And that's why I think the Tabor Bread story is such a good case study for any small business that's stuck between four and ten million dollars. The problem isn't usually demand. It's that the business is too fragile to absorb shocks. Hedging — or more broadly, input cost management — is one way to build resilience. Another way is to diversify suppliers, or to build more variable cost structures, or to create pricing formulas that automatically adjust. There's a whole toolkit. Luna: What about the human side? Did the bakers themselves — the employees — notice any difference? Lucas: That's a great point. Sarah and Tom told me that one of the biggest internal benefits was that they stopped having emergency meetings about flour prices. The hedge took that off the table. So the leadership team could focus on things like hiring, training, menu development, customer experience. The bakers weren't hearing constant chatter about cost pressures. That morale effect is real, even if you can't put a dollar figure on it. Luna: So the hedge paid for itself in focus, not just margin. Lucas: Exactly. And that's the kind of multiplier that gets you from four million to eighteen million. It's not any single tactic. It's the cumulative effect of removing friction and uncertainty from the business so you can execute on your core strengths. Luna: What's Tabor Bread doing now? Are they still hedging? Lucas: They are. Jenna told me they've refined the approach. They now hedge on a rolling six-month basis, and they've started using options instead of just futures to give themselves more flexibility. They also expanded the cooperative model to include other bakeries in the Pacific Northwest — they're actually helping five other bakeries set up their own hedging programs. So the knowledge is spreading. Luna: That's a nice coda. The bakery that learned to hedge is now teaching other bakeries. It's almost like a mini-ecosystem. Lucas: It is. And it shows that once you solve a problem at one level, you can start solving it for others. That's how industries get more resilient. I think that's the note we'll end on today — the idea that financial sophistication isn't just for the big guys. It's available to anyone willing to learn. Luna: And to ask the right questions. Like, 'What's my biggest cost, and how do I make it predictable?' Lucas: Exactly. For Tabor Bread, the answer was flour. For your business, it might be something else. But the question is the same.