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Atlanta Bread Co., once one of the fastest-growing franchises in America, has some of its stores closed, AJC.com reports.  It is bogged down by problems ranging from location of its stores to legal issues.  Jerry Couvaras, Atlanta Bread’s President, agreed that “Atlanta Bread made mistakes”. The company may have grown too fast, causing it to pick franchisees “who culturally were not a good fit”.

A dozen years ago, Atlanta Bread Co. was among the nation’s fastest-growing franchises, with plans to double its stores almost as fast as you can munch one of its ABC Special sandwiches.

By 2004, the Smyrna-based deli and bakery chain had tripled in size, to 164 shops spanning much of the nation.

Since then, however, Atlanta Bread has been in retreat. More than half its stores have closed, leaving 74 in 20 states.

Likewise, half of the 66 U.S. Small Business Administration-backed loans made to Atlanta Bread franchisees since 2001 have failed, according to a 2011 study by Blue MauMau, an online publication that tracks the franchise industry. The loans totaled $32.8 million, with the federal government losing $5 million.

By SBA loan failures, Atlanta Bread ranked 11th on the website’s list of the 25 worst-performing large franchises. The list is based on companies whose franchisees received at least 50 SBA-backed loans from 2001-2010, according to Blue MauMau.

Such reversals impact a company that once was one of the nation’s largest and fastest-growing deli/bakery chains, spreading the “Atlanta Bread” name from California to Connecticut.

Atlanta Bread’s owners called the retreat largely strategic. The company, which had system-wide sales of $122 million last year, needed to go through a painful, multi-year retooling in order to shore up its brand and remodel its stores, they said.

The shrinkage has now stopped and Atlanta Bread is rebounding. The privately held company, with about 1,000 employees in metro Atlanta, is hiring again and remains profitable, they said.

“We’ve come back with a tremendous amount of strength,” said Atlanta Bread President Jerry Couvaras, who runs the company with brother, chief operating officer Basil Couvaras. “If we hadn’t gone through this catharsis, we wouldn’t be where we are today,” he said.

But a different picture of Atlanta Bread emerges from the company’s franchise disclosure documents and interviews with industry experts.

While Atlanta Bread embarked on an aggressive expansion plan in the late 1990s, its revenues and store network began shrinking dramatically after 2004. Store closures, due partly to poor locations and problems with franchisees, including mounting legal issues, took their toll.

The sinking economy in 2008 and 2009 worsened the decline. Forty-four stores have closed since 2008.

“I think Atlanta Bread had found some success early on,” said Morgan Keegan restaurant analyst Bob Derrington. But it got derailed and became a “secondary player” in a brutally competitive industry, he said.

“Atlanta Bread needs to figure out a niche that it can serve successfully if it wants to survive long-term,” he said.

Still, the legal matters, store closings and other challenges, which must be disclosed to potential investors before they buy a franchise, may have distracted top management, soured relations with current franchise operators and scared off potential new business partners, experts say.

Atlanta Bread’s reduced operations “speak for themselves,” said Don Sniegowski, editor of Blue MauMau. “Obviously something’s fundamentally wrong.”

Indeed, Atlanta Bread’s evolution — whether by catharsis or crisis — has been riddled with heavy losses for scores of its former franchise partners. Many lost their businesses, livelihoods and homes.

Jerry Couvaras concedes that Atlanta Bread made mistakes. The company may have grown too fast, causing it to pick franchisees “who culturally were not a good fit,” he said.

Also, “a couple of years ago we realized we do need a bigger core of corporate stores,” he added. Atlanta Bread now has 13 company-owned stores, which “has made us a much better franchisor,” he said. The company may open three or four more next year, he said.

“There’s no question that the economy played a role” in the company’s retrenchment, he added.

But he stands by Atlanta Bread’s decision to push franchisees starting in 2006 to re-tool their stores to offer more private and inviting spaces where customers would linger. The remodelings, which are due every five years under the franchise contracts, cost $80,000 to $250,000.

“The better thing to do sometimes is to pull back from the market” and fix things, he said. “We needed a group of people — franchisees — who understand where we are going.”

“I know we closed a lot of stores,” he added, but it has paid off with rising sales at the stores that have remodeled.

“The plan has worked,” he said.

Atlanta Bread hired 30 employees this year at its headquarters and central bakery, and expects to open up to nine new company and franchisee-owned stores next year, officials said.

Photo by Earl – What I Saw 2.0