Follow-Up File: House of Bagels is rebounding

Name: Sharon Michelucci

Job: Co-owner

Business: House of Bagels

What she said then:

In a Tribune story on rising food prices from October 2007, Sharon Michelucci said House of Bagels was forced to raise prices in both its Paso Robles and San Luis Obispo shops.

“It’s a tough time right now, and I don’t see an end in sight,” she said. “I could have switched to cheaper products, but I didn’t want to do that.”

In just two years, Michelucci had seen grain flour prices jump 78 percent to $14.43 a bag. A 30-pound block of cream cheese rose 35 percent to $65 in the same period.

In response, the bakery boosted its retail bagel price to 95 cents, a five cent increase. Cream cheese went up 50 cents.

What she says now:

In the following years, House of Bagels continued to wrangle with challenges on the cost side.

Even worse, sales began to drop. But things have improved and Michelucci believes it will only get better.

“When things go bad, the first thing you can live without is a latte and a bagel in the morning,” she said. “It was a brutal couple of years in business. We got buried so deep funneling our own cash into the business.”

Both Michelucci and her husband, co-owner Mike Prowse, returned to full-time jobs in the high-technology industry when they saw finances at the stores getting tight.

Their third owner, Bill Reeves, returned to baking in the wee morning hours.

That helped them weather months when House of Bagels’ short-fall ran as much as $3,000, she said. When things began to turn up, those second jobs were no longer necessary.

“People are starting to come back,” Michelucci added. “That (financial) hemorrhaging has stopped. It’s been almost a year now since we’ve put any money in.”

Cost for flour rose to about $32 per bag and have come down to $16.46, though Michelucci hears prices could rise again soon. Rising grain costs have been attributed in part to the diversion of wheat fields to corn production for ethanol.

But House of Bagels hasn’t raised retail prices again.

“In New York, they were charging $2 a bagel,” she said. “Here we couldn’t have done it.”

Instead, the company focused on cutting other costs and running more efficiently without laying off its current 14 employees.

It did lose one position in Paso Robles when it stopped baking there.

By consolidating production at the larger 2,200-square-foot San Luis Obispo store, it cut monthly electricity bills to about $800, saving $500 a month.

It eliminated five bagel flavors, keeping the 16 most popular, and four cream cheese flavors.

Rent on the Paso Robles location had doubled since opening in 2005, so the owners asked the landlord for a break — saving about $1,800 a month.

The shops turned off unnecessary lights and air conditioning. They used fewer half-cent wrappers on sandwiches. Workers invited patrons to dine there and conserve a bag or plastic fork.

“Back in the day, people grabbed handfuls of napkins,” Michelucci said. “Those little costs started adding up.”

With House of Bagels back in the black, she’s resumed advertising on “every radio station in town” and other promotions to win back customers who might have fallen away.

This month, House of Bagels will relaunch its coffee club, in which customers who pay $25 for a “coffee card” earn a steel mug that can be refilled indefinitely for $1.

“It gets us back into their daily routine. I still see our original (mugs) from five years ago,” she said. “God, I hope it works. If not, I’ll have a lot of coffee cups.”

— Raven J. Railey