Ottenberg's Bakery may not be heaven, but if heaven has a smell, this must be it: the warm aroma of bread -- thousands of loaves of bread, freshly baked. At a time when other companies are diversifying, dodging hostile takeovers and scouting for acquisitions, Ottenberg's Bakery, the biggest supplier of bread, rolls and baked goods in Washington, has stuck to its baking -- 125,000 pounds of it six days a week.

Much as it has for 118 years, the Ottenberg family, now in its fourth generation of bakers, has concentrated on overseeing a Washington institution that puts more than 100 kinds of bread and rolls on the tables of more than 3,000 restaurant, hotel and institutional customers in the Washington area.

"We try to stay close to the way we made products a long time ago," said Lee Ottenberg, 40, vice president of the company, whose headquarters and main bakery are on Taylor Street NE. The bakery is still very much a family business: Ottenberg's brother Ray, 41, is president of the firm; their mother Florence, 76, is treasurer.

Ray and Lee Ottenberg, both lawyers, got flour on their hands early in life. As children, both spent summers and vacations at the bakery, tying dough knots, pushing bread into the hearth ovens and making deliveries. Their father, Mel Ottenberg, died when they were young, but brought the bakery into the modern age in the time he ran it from 1935 to 1956.

"Ottenberg's is one of the last of the Mohicans of family-held bakeries with a full line of products," said Paul Abernate, president of the American Bakery Association. "New facilities are like going into a GM plant. The only difference is, at the end, bread comes out instead of cars."

Some things have not changed that much from the days when great-grandfather Isaac Ottenberg, a German immigrant, hand-mixed and baked hearth rye and hard rolls and delivered them with horse-drawn vehicles from his bakery on 7th Street NE.

Family folklore has it that some of the "sour starter" that Isaac developed still finds its way into Ottenberg rye bread, because the vat that holds it never is totally drained. Or, as the sign above it admonishes potential violators: "The culture in this rye sour is older than you are. Do not, under any circumstances, drain this tank empty."

And though the baking lines have been automated and human hands now hardly touch the dough, the basic recipe for keeping the wholesale customer happy has not changed: Bake around the clock and whisk away -- while they are still warm -- truckloads of pullman white, submarine rolls, rye, pumpernickel, biscuits and bagels onto the streets before dawn. On the receiving end are such customers as Duke Zeibert's, the Parkway and Celebrity delis, the Red Lobster, Sizzler, Hamburger Hamlet and Sir Walter Raleigh restaurant chains, many local Sheraton, Hilton, Holiday Inn and Marriott hotels, and 7-Eleven convenience stores.

During the past two years, however, the overall thrust of Ottenberg's has changed from a company that concentrated almost solely on production to one that is paying attention to marketing.

Among other things, the company is attempting to break into the retail baked goods market, from which it has been absent for about a decade.

"Until recently they never gathered market data," said Mary Jollett, who was hired away from McLean's Vie de France Corp. about 18 months ago to become Ottenberg's first director of marketing.

"They really believed the market was saturated. I have to assume they were probably losing market share and didn't know it," she said.

Lately, however, the $20 million bakery company "has been making up for lost time," Jollett said.

Where Ottenberg's has had its greatest success is in the demanding business of supplying bread to hotels, restaurants and other institutions, a market in which it holds a 50 percent share in the District.

"I would consider them the largest food-service bakery factor in the Washington area," said Jeff Metzger, publisher of Mid-Atlantic Food Service News. "They have a good product and a full line of baked goods."

For those reasons, John Costello, executive chef at the D.C. Convention Center, puts only Ottenberg's in his bread baskets.

"You name it, they supply it," said Costello, who orders about $100,000 worth of bread a year. "It's a superior product for the price. It's consistent. A lot of bakeries come in and sell you one thing and the next day the size and everything else is different."

Others are less easy to please. Ottenberg's is trying to meet a request from Adam Schwartz, president of Jerry's Systems Inc., the franchisor of the 65 area Jerry's Sub Shops, to make a reasonable facsimile of a Philadelphia-style sub roll.

"A Philadelphia sub roll is longer and thinner," said Schwartz, whose franchisees order 3.5 million rolls a year. "It has a stronger hinge, much more flavor."

Still, Metzger said Ottenberg's has little competition for the Washington area bread business, because building a large commercial bakery is highly capital-intensive.

In addition, the company offers a wide variety of products and has an efficient distribution system, he said. "You're dealing with a perishable item and a tremendous service organization," Metzger said.

Besides "white bread companies," such as Continental Baking Co., Schmidt Baking Co. and Stroehmann Bros. Co., Ottenberg's biggest competitor is Baltimore-based and family-owned H&S Bakery, which has a sizable chunk of the Washington market.

Unlike Ottenberg's, H&S is a big purveyor of rolls to fast-food outlets and is the exclusive McDonalds bun baker from Maine to North Carolina, according to John Paterakis Jr., H&S' vice president of marketing and sales.

But Ottenberg's is looking to expand beyond its traditional base by moving into new markets. Ray Ottenberg, who is considered the family entrepreneur, has been developing two new market segments: products that Ottenberg's bakes and then freezes for customers in markets from southern New Jersey to Florida and consumer bakery products that can be bought in retail stores. About 10 percent of the bakery's revenue now comes from these two product lines.

The goal, Ray Ottenberg said, is to build them into one-third of Ottenberg's sales in five years.

To help reach the retail market, the company has introduced smaller packages of hot-dog and hamburger buns, sliced rye, marbled and multigrain breads, as well as six packs of bagels and biscuits.

The new packages contain smaller portions than those sold by most better-known retail brands, an attempt to grab a niche market.

"We decided to flank-attack our competitors with small packs," Jollett said.

New Ottenberg specialty products, such as biscuits, bagels and scones, which take more attention and are baked in smaller batches, come out of a second bakery the company purchased two years ago in Owings Mills -- a so-called "boutique bakery."

"We want to recreate a brand franchise," Ray Ottenberg said.

Ten years ago, major grocery stores in the area carried Ottenberg's products but, he admitted, the company "was not very focused on grocery stores."

Now Ottenberg products show up in stores such as Magruders, Chevy Chase Market, Larimer's and military commissaries, mostly in front of the deli counter.

But an attempt to grow even faster in the retail trade with a recent four-month trial in some Safeway stores didn't work -- Ottenberg's found it wasn't ready for that level of competition and pulled out.

In the past year or so, Ottenberg's also has made efforts to be a bigger and better player in the highly competitive wholesale dinner roll market, where inroads had been made by Vie de France and smaller Washington bakers.

Ottenberg's answer, which will be rolled out in a few months, is an improved dinner roll and a recently introduced French roll that is crisp on the outside, fluffy on the inside.

"When the dinner roll business became very competitive a few years ago, our business decreased as that of others picked up," Jollett said. "Customers want a higher-quality roll that is dense, chewy, flavorful and crispy."

The question of bread and crust texture is an important one in the baking business.

Schwartz of Jerry's Systems, like others who move to Washington from cities dominated by bakeries that serve ethnic populations who demand crunchier, denser breads, said Washingtonians turn their noses up at really crispy rolls. "They think it's stale," he said.

"Washington is a sanitized town when it comes to food," Abernate said. "It's not like Baltimore, just 50 miles up the road."

For that reason, much of the crustiness that crowns Ottenberg's breads as they come out of the hearth or tray ovens at the bakery is lost because the breads are popped into plastic bags shortly after they are baked. The crust caves, and the insides soften.

"The fact is, the market is a lot bigger here than unwrapped Italian or rye bread," Ray Ottenberg said. "We pack it so it has some shelf life."

Those who want crunchiness can bake it back in or special order in paper bags, he added. Hofberg's deli in Rockville, for instance, pops its Ottenberg's rye loaves into a convection oven for 15 minutes. "That gives it a crust, and that's very desirable for Jewish rye," said Stephen Earle, co-owner of Hofberg's.

While many family bakeries such as Ottenberg's are thriving, the trend in the industry is consolidation.

Giant baking chains and publicly owned companies are swallowing smaller family-owned operations as later generations often decide they no longer want to run the business.

"There usually is a real father figure in these bakeries and then the kids decide to sell," said Nicholas Pyle of the Independent Bakers Association, which represents 300 of the nation's wholesale bakeries.

"That happens a lot, but it's not bakeries going broke," he said.

"It's a tough business and it's very competitive," said Laurie Gorton, editor of Baking and Snack Systems, a monthly trade magazine. "To maintain a family business, you have to have the interest of family members and {the Ottenberg's} have a good record there."