Daystar Desserts CEO chef shares recipe for survival

In this economy, even cheesecakes are downsizing.

At Daystar Desserts Inc. in Hanover County, smaller and simpler cakes are part of a back-to-basics strategy adopted by owner John Fernandez to tackle the recession.

"Let's face it, if we are hurting and worrying about our budget, we aren't going to be spending $40 for a cake," said Fernandez, a chef turned chief executive officer.

The company, which makes a variety of cakes in a 42,000-square-foot bakery in the Hanover Air Park, is producing more small cakes that sell at a lower price. Instead of 10-inch cheesecakes that go for up to $20, the bakery is turning out more 6-inchers for $7.

The key is to not sacrifice quality, Fernandez said. "We are doing 6-inch cheesecakes, but it is just as good because it is the same recipe," he said.

"So far, it is working well," Fernandez said of the product strategy, which isn't the only way that Daystar has dealt with the downturn. Things got rough for the small company earlier this year when the economy was in a downward plummet.

"When that happened, some of our customers were panicking and trying to reduce inventory, and our sales tanked," Fernandez said.

Before that happened, the credit crunch was putting the company in a bad spot. In the fall of 2008, the company needed a $2 million loan to complete its contractual obligation to buy the bakery building it had been renting for five years.

"The consequences were dire if I did not get that loan done," Fernandez said. The timing for seeking the loan was awful, though. "That was smack dab in the middle of all the bad news" about the credit crisis, he said.

Fernandez said he tried several banks. "We got turned down by a lot of the big guys," he said.

Through it all, Fernandez, who is trained in jujitsu and mixed martial arts, remembered something his father told him whenever he got knocked down during a competition.

"He always said, 'When you get knocked down, you have to bounce,'" Fernandez said. "I have perfected the art of the bounce."

In the credit crunch, the bounce for Fernandez came when his research led him toward the U.S. Small Business Administration, which has a loan guarantee program aimed at helping small businesses.

Fernandez contacted James McClure, director of business assistance for the Crater Region Planning Commission, who helped him get the ball rolling to apply for the program.

"John fit the bill," McClure said. "He has been successful, and he has hung on through thick and thin, and his determination to make it successful was one of the reasons it worked so well."

Fernandez was able to obtain financing through the SBA's 504 loan program, which provides growing businesses with long-term, fixed-rate financing for fixed assets such as land and buildings.

Fernandez said Village Bank provided the loan, with SBA backing. "They were just amazing," he said.

Fernandez gained some unexpected fame in July when he appeared at a news conference with Vice President Joseph R. Biden Jr., who was touting the federal government's economic stimulus plan.

The stimulus plan provided additional money for the SBA loan program to help small businesses hurt by the downturn.

In fact, Fernandez said, his own experience with the SBA happened well before the stimulus plan was passed.

"I turned out to be the guy that was the poster boy for the recovery act," he said. "What came off as a tout for the stimulus package was really a tout for the Small Business Administration."

Months before the stimulus package, Fernandez and the staff at Daystar had to come up with strategies to deal with a sudden drop-off in sales earlier this year. Fernandez had to consider the possibility of job cuts from the company's staff of 50 people.

"I didn't want to do that," he said. "I have worked with these people for years."

After discussing the situation and options with his management staff, "they came back and said, 'John, we don't want you to let go of anybody.'"

Instead, the company tightened its belt, cutting work hours and salaries.

"I cut my salary in half for the year, and during those rough months I did not take a salary at all, to build our cash flow," Fernandez said.

Hearkening back to more lessons from martial arts, Fernandez said his first piece of advice to businesses facing trouble is to "get a hold of the fear. Don't let fear drive your decisions."

He also says, "All I needed to know about finance I learned from my grandparents. Keep your debt low and you will survive rough times."

Fernandez, 32, is a chef by training. A graduate of the Culinary Institute of America, he worked at upscale restaurants in New York and Italy before founding Daystar in New York with a partner in 1998. They built the company from a home-based operation on Long Island into a large supplier of cakes in the Northeast.

The company moved its operations to Hanover County in 2004 after buying the World's Best Cheesecake business that was based there.

The move was prompted, in part, by economic forces. Daystar previously owned a factory in Canada. But when the U.S. dollar started to decline in value versus many other world currencies, the company's business was hurt and it needed a U.S. base of operations.

Daystar sells desserts through distributors to grocery stores, hotels and restaurants all over the country. It also sells desserts for church and school fundraisers.

After the downturn early in the year, the company's business has since turned around, Fernandez said. Although customers are still buying less than last year, Daystar has managed to get some new contracts, including a significant national account, he said.

"We have already got contracted business to grow [revenue] 50 percent this year, which is astronomic growth in this economy," he said.

The downturn also prompted the company to evaluate its production processes and make some changes in work flow to reduce wasted time and save costs. "We changed our factory layout," Fernandez said.

It was a learning experience in lean manufacturing for Fernandez. To improve efficiency, he even looked at how long it takes a worker to fill up a pastry bag when decorating a cake.

And that gets back to the cakes themselves. Daystar has been shifting its emphasis from expensive, fancy, gilded cakes to plain cheesecakes and carrot cakes, the smallest of which sell for $2.99, versus something like a Charlemagne, which is one of the more upscale, individual mousse cakes that sells for $4.99.

But the shift isn't just about cost, Fernandez said.

"It almost feels wrong to go and spend money lavishly now," he said. "People may feel better about buying a carrot cake now than they do about buying a Charlemagne."

"Everybody knows what a carrot cake is -- it is a comfort food," he said.

Contact John Reid Blackwell at (804) 775-8123 or .