H&S Bakery at 70

Launched by Greek immigrants and family-owned since 1943, H&S Bakery continues to flourish and reshape East Baltimore's waterfront
By Rafael Alvarez - July 2013

H&S Bakery at 70

Launched by Greek immigrants and family-owned since 1943, H&S Bakery continues to flourish and reshape East Baltimore's waterfront
By Rafael Alvarez - July 2013

The aging Zeus of H&S Bakery, a man born into a simple family business now 70 years old with annual sales of $800 million, John Paterakis has a few things in his Fells Point office that explain a lot. Beneath the calm gaze of his mother Kyriaki - a gentle woman from the island of Chios, her portrait in oil on the wall facing his desk is a low shelf of books that people thought Paterakis should read. They include business texts and C. Fraser Smith’s biography of the late William Donald Schaefer, with whom the businessman long maintained a friendly and mutually beneficial relationship. With the pride of a self-made man who never went to college, Paterakis says he hasn’t read any of them.

Curio cabinets are filled with trinkets of gratitude from some of the major politicians of our time, including a heroic figurine of Schaefer, the Baltimore mayor, Maryland governor, and state comptroller who died in 2011.

“Schaefer used to sit alone in a conference room we named for his mother [Tululu] and talk to her after she died,” recalls Paterakis, sharing a story with a visitor. “He’d sit and talk to his mother for half an hour. He was a little odd.”

A framed invitation from 1972 bears the seal of the Vice President of the United States and the signature of Spiro Agnew, fellow Baltimorean and Greek-American. Outside the office is a large photo of Paterakis with George W. Bush. (Paterakis’s advice to his heirs: “Always be involved in whatever you can politically, but never run for public offices.”)

And on his desk, two loaves of his company’s raisin bread.

The shelf life of a modern loaf of industrially baked bread is 10 days. Paterakis likes to inspect his product around day nine to see how it’s holding up. Raisins are expensive. Last year, H&S bought more than a million pounds of the dried fruit for about $1.5 million.

That’s a lot of money for a lot of raisins; yet Paterakis, known as “Mister John” to younger associates, determined some tinkering was in order. “I didn’t think we were putting enough in,” he says. “So we’re increasing the raisins and putting in a little more sugar.”

Each raisin, like every bank check that goes out with Paterakis’s signature—hundreds of them by the week—counts.

“The guy who signs your check is your boss,” he says, noting that it is also the best indication of where his money is going. “If I’m not sure what it is or who it’s for, I ask, ‘Tell me who this company is. Who is this person?’”

A recent inquiry came when a check made out to a Glen Burnie painting contractor crossed the office table Paterakis favors over his more formal desk. It prompted the $64,000 question: Who is O.T. Neighoff & Sons and why did we pay them $64,053.82?

The boss was assured that all was in order; the firm had done considerable painting at an H&S property, and the expense was legit. The old man did, however, have a telling follow-up question: “With all the Greek painters out there, we had to use this guy?”

When Baltimoreans of a certain age think of a bakery, warm thoughts come to mind—a guy on the corner with a white apron and displays of cakes and pies, dinner rolls hot from the oven perfuming the store—like the one Barbara Mikulski’s family ran for decades near Patterson Park or the Mayberry-esque Keller’s Bakery, founded in the Shipley-Linthicum Shopping Center in 1942.

When John Paterakis talks about his bakeries—10 of them along the East Coast from Connecticut to North Carolina under the corporate umbrella of Northeast Foods—he means sleek, industrial behemoths that churn out bread, rolls, and English muffins for markets in 23 states. To walk into the mammoth H&S baking plant on South Bond Street is to see 230,000 square feet of automation close enough to flawless to make Henry Ford come back from the dead, hungering for a muffin. Paterakis turned the day-to-day operations over to his four sons and learned, sort of, to stay out of their way.

“After awhile, I stopped going into the bakeries,” says Paterakis, a blunt, straight-talker who has softened just a bit in recent years. “I’d see that something was different and say, ‘Who the [expletive] changed this?’” Of course, he’d learn the decision had been made by one of his sons. The four Paterakis boys are Bill, the CEO of Northeast Foods; John Jr., head of sales and known as “JR”; Chuck, in charge of transportation and construction; and the oldest, Steve, president of the Schmidt Baking Company, the 127-year-old maker of “Blue Ribbon” white bread, based in Fells Point.

Though he still oversees operations,“I had to pull back,” says Paterakis of his anger at seeing changes he had not approved. “Instead of raising hell, I began to send notes.”

JR Paterakis says his father was still “a bear” to deal with until about five years ago, when he began to take things easier. (One longtime employee says Paterakis often drinks out of a Styrofoam cup at company meetings, noting, “If he starts chewing on the cup, you better duck!”)

John Paterakis also has two daughters, Vanessa, literally the company dentist (although those on the H&S health-care plan are free to choose other options), and Karen, the youngest of the six Paterakis kids and married to George J. Philippou, general counsel for the family’s business holdings.

Wracked by infighting, the Schmidt family sold its majority share in the company to Northeast Foods in 1999.
“We were able to get into Schmidt because two factions of later generations went to war with one another,” Bill Paterakis says.“Family businesses often fracture in the third or fourth generation. Not everyone wants to work. Some just want the money.”

With clients like McDonald’s, up to 90 percent of all Maryland public schools in a given year, hundreds of supermarkets, including private labels like Trader Joe’s and Whole Foods, and restaurants from Ikaros in East Baltimore to Jenning’s Café in Catonsville, it’s possible there isn’t a soul in Maryland who hasn’t tasted a piece of bread made by H&S or one of its many subsidiaries, like the historic Schmidt’s company.

“We’re everywhere,” says JR Paterakis.

“From Maine to Georgia and into the Deep South all the way to Texas,” adds brother Bill.

Plants like Automatic Rolls of North Carolina, the newest line with a 2011 opening, help Northeast Foods supply more than half of all buns and muffins used by McDonald’s in U.S. stores. At full capacity, the Carolina plant produces 2 million hamburger buns a day.

The technology is so advanced that sensors discern the number of sesame seeds on a bun while flagging those with missing or discolored seeds. Those long, undulating scores that give crusty bread its Old World distinction? They are cut into the dough by thin jets of pressurized air or water.

The days when the company scored its bread with a knife are long gone, harking back to 1943 when the business was a two-man operation on Fagley Street in Highlandtown. There, in rented brick ovens, Paterakis’s immigrant father Isidore (known as Steve, the “S” of H&S) began baking Italian bread and rolls with the late Harry (the “H”) Tsakalos at Athens Bakery.

Harry and Steve went into business together not long after Harry married Steve’s daughter Liberty, now 93 years old.

Steve baked, Harry delivered, and Liberty kept the books. John was born via midwife in 1929 in the family row house at 132 S. Bouldin St. At about 13, he worked at the bakery after school and on weekends. Before that, he shined shoes on the street.

From his earliest days, Paterakis remembered in a 2009 oral history published for the family, “I was always interested in making money and saving it.” He’s fond of saying that earning $100,000 was an early goal and that he sometimes daydreamed about retiring as a young man (though no one believes him). “The trouble is, when you make $100,000, you want to make $200,000.

“And then,” he says, “you want to make a little more.”

A little more is now almost unfathomably more after founding H&S Properties Development Corp. in Harbor East in 1995 with developer Michael S. Beatty. Combined with bread sales, H&S real-estate holdings in the tony neighborhood—defined as President Street on the west, Lancaster Street to the south, Fleet Street on the north, and Eden Street on the east—push Paterakis’s estimated personal wealth to roughly $240 million. The Harbor East developments, valued at an estimated $1.67 billion, encompass some 1.4 million square feet of office space, 300,000 square feet of retail, 2,100 hotel rooms, 650 apartments and condos, and 4,500 parking spaces.

Office tenants include Legg Mason’s global headquarters, Morgan Stanley, Johns Hopkins Medicine, and Baltimore magazine, among others. Hotels brought to Harbor East include Marriott Courtyard, The Four Seasons, and Hilton Homewood Suites. J. Crew and Anthropologie opened stores in Harbor East last year, followed more recently by Under Armour’s new retail outlet. Restaurants include some of the finest in the city, including Charleston and the new Ouzo Bay—owned in part by Paterakis’s 28-year-old grandson Alex Smith.

In April, H&S announced plans to relocate the company’s Fells Point distribution center to land that is part of the Hollander 95 Business Park in East Baltimore near Pulaski Highway, a move that will free up prime real estate next to Harbor East.

Paterakis says he acquired the distribution center property more than 50 years ago when a stranger walked into H&S, claiming to represent a Philadelphia businessman and almost begged him to buy the land. Paterakis paid $70,000—writing the man a down-payment check for $10,000 on the spot—and says the land is now worth $9 million. The current 51,000- square-foot warehouse is assessed for $2 million, according to state land records.

Possible plans for the one-story, dark-brown cinderblock H&S Bakery distribution center—the block bounded by South Eden Street, Central Avenue, Fleet Street and Aliceanna Street—include converting the building into one or two floors of retail space, with apartments above. But first, the land just to the south of the old distribution center will likely be developed into residential units, possibly anchored by a new, larger first-floor Whole Foods supermarket.

News of the distribution center’s relocation sparked rumors, which H&S has subsequently denied, that the company was moving its entire bakery operation out of Fells Point. It’s a situation, Bill Paterakis conceded, that might have been avoided if the family business had better relationships with local reporters.

“I never wanted to be a developer,” says John Paterakis, whose political ties led to a 2009 guilty plea for violation of campaign finance laws in Baltimore City. “It was Schaefer who pushed me to buy all the land down there because he didn’t want someone else to have it.”

From Fagley Street, H&S moved to a one-time Bohemian-Czech stronghold near The Johns Hopkins Hospital, an area known in the old days as “Swampoodle.” The bakery stood at the corner of Castle Street and Ashland Avenue. The ovens were in the basement and the Paterakis family lived above them.

When his father died in 1952, John took his place and soon moved the bakery to Fleet Street, in those days a Polish-American seafaring village called “Broadway.” A short walk from the mammoth H&S ovens, the company runs a retail “thrift store” near the old Fleet Street location that sells fresh and day-old bread to the public.

“When we run out of bread, we send someone down to the outlet,” says Tony Vasiliades, who owns the fabled Sip & Bite diner where Aliceanna meets Boston Street. Unless someone is really a jerk, Greeks tend to look out for other Greeks, especially in business. Vasiliades said Paterakis came through for his family more than 30 years ago when Tony’s father—George Vasiliades, now retired—had to outbid a former in-law to regain control of the diner at public auction.

“My father was able to keep bidding because John had his back behind the scenes,” Vasiliades says. “Of course, my father paid him back.” On a recent sunny weekend, Paterakis sits outside at the Harbor East Deli, also owned by his grandson, where Paterakis can be found most Saturday mornings, holding court.

At the table with him is Little Italy’s John Guerriero, who built his fortune with Continental Foods; Pete Koroneos, owner of the Broadway Diner on Eastern Avenue near I-95 and Alex Smith’s partner in Ouzo Bay; and Tom Korologos, who owns the Double-T diner chain with his brothers John and Louie.

Gene Raynor, retired director of the city Board of Elections and perhaps the closest of all of William Donald Schaefer’s confidantes, is also on hand, playing gin rummy with Michael N. Stavlas, a wealthy Anne Arundel County restaurateur who made his mark with crab cakes at the G&M Restaurant in Linthicum Heights.

Stavlas jokes that he and Raynor are playing for $1,000 a point. If he were playing cards against Paterakis, whose fondness for gambling is well known, it could be true.

Smith, one of John Paterakis’s 19 grandchildren, is the son of Vanessa Paterakis and Frederick G. Smith, whose family owns the Sinclair Broadcast Group. Alex is an apple that shines especially bright in his grandfather’s eye—an honor that comes with frequent advice.

John Paterakis’s views on relations between men and women, especially husbands and wives, were forged in a school older than the old school, the one where Greek is the official language. Paterakis likes to remind the unmarried Alex that a modern woman won’t put up with a working man who doesn’t come home the same time every night for dinner.

“I was never home to have dinner with my kids,” says Paterakis, known to go into the bakeries on Christmas and New Year’s Eve in his younger days, with pride.

The lesson is clear: John loved his wife and was devoted to his kids. But he was married to the bakery. (Paterakis’s 1950 marriage to the former Antoinette “Toni” Apostolou ended in divorce about 16 years ago.)

A waitress brings English muffin breakfast sandwiches for Paterakis and the boys. Conversation circles to the recent decision to move the H&S distribution warehouse out of Fells Point to Hollander 95 Business Park and plans to build condos atop the Four Seasons Hotel. As it does, Paterakis takes the top slice of a muffin and holds it up for inspection.

Pointing to what a famous competitor has immortalized as “nooks and crannies,” Paterakis heralds the “aeration” in his muffin, technically known as “porosity.”

“The ones we make for McDonald’s win prizes,” he says, an industry standard for excellence confirmed by his son Bill.
H&S/Northeast Foods owes a lot to a 1965 handshake in Chicago between Paterakis and hamburger giant Ray Kroc. The gentlemen’s agreement—enriching the Baltimore bakery as McDonald’s became ubiquitous—endures with guidelines but no formal contract.

At the meeting, when a McDonald’s hamburger cost a nickel and a dime, Kroc pitched a partnership with Paterakis, offering $250,000 worth of stock to build ovens to meet the demand. The H&S attorney at the time—the late Konstantine “Gus” Prevas of the fabled Broadway Market family—advised Paterakis not to take the deal.

“Gus said they might go bankrupt selling 15-cent hamburgers,” laughs Paterakis.

Meanwhile, the fate of the Schmidt baking family is not lost on the Tsakalos and Paterakis clans. Of the 22 young people in the third and fourth generations, each of Bill’s triplets is in the business along with JR’s son Ryan, Alex Smith in Harbor East, and the grandsons of Harry Tsakalos—young working adults Harry, Michael, and Chris—on the bakery side.

None are promised the throne, just as John Paterakis’s four sons had to work the bakeries from the ground up—loading tractor-trailers, fixing equipment, breathing flour—before their ambition and abilities cast them in current positions.

Michael Tsakalos, 37, a CPA in cost accounting for the company, spent a year in an AmeriCorps program in Arkansas and another four with International Orthodox Christian Charities, based in Towson. He then went to ask John Paterakis if he could come back to the bakery.

“My generation will try to lead the company to even greater prosperity,” says Tsakalos, who hopes to create a philanthropic foundation to honor his grandfather. “I’d like to see us share that wealth with even more people, whether it’s our employees or the homeless.”

Whatever the motivation, be it pure profit or good works, the young people who want to bake their own dreams will have to wait. At least the way Tom Stavrou tells it.

Stavrou, 78, has worked for John Paterakis in a wide range of jobs for almost 60 years. A merchant seaman from Chios who jumped ship in Locust Point in 1955, Stavrou has perfected many H&S baking formulas. He’s been loyal and successful and a few years ago talked to his old friend about retiring.

According to Stavrou, Paterakis said they should wait a little longer “and retire together.”

“I said, ‘Good, how long should we wait?’ Stavrou says. “And John said, ‘We’ll retire after we die. . . .’”

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