Bread Winners

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. . . .’”