Downtown San Mateo lost a well-patronized establishment this past weekend when Grace Baking on 3rd Ave. closed down. Faithful morning customers walked up to the store Monday morning expecting their cup of coffee and pastry - only to find the door locked and a sign that read Saturday was the store's last day of operation, and grocery stores, such as Draeger's, Trag's, and Safeway would continue to carry Grace's breads. Employees, the note said, were offered employment at the store's other locations in Richmond, Albany, and Corte Madera.

"I can't believe they closed," said one passerby to his friend. He said his wife would be "broken hearted."

The store's closing took customers and employees by surprise. After being in operation in San Mateo for three years, the owners of Grace decided suddenly that the store was not profitable enough, and it was becoming too difficult to find employees.

It was especially difficult after the manager and assistant manager of the store quit.

Friday was their last day, according to Cindy Mitchell, one of the owners.

"I know it always looks full, but people just bought cups of coffee," said Mitchell. "It wasn't making money. It was a restaurant, not a bakery. We're bakers."

Mitchell said that customers in San Mateo wanted to use the store as a restaurant, more than as a bakery, which is what the company specializes in.

Out of the other three retail stores in the Bay area, the San Mateo store sold the least amount of baked goods. Mitchell said customers at the other stores walk out with boxes full of Grace's baked goods.

There was also the problem of getting the baked goods to San Mateo - often the trucks were late coming from East Bay because of the traffic.

In addition, the store always had problems finding enough staff and paying the higher salaries for this area.

To afford to live in San Mateo, one must garner more than the average $8 an hour that service positions pay. Three years ago, the company thought it would go more into retail, but then the labor market became tight.

"We have to steal people from the neighborhood [stores] to get them to work for us," said Mitchell. Now they want to focus more on the wholesale market - they are already selling their bread to other parts of the country.

But employees of the store feel they have been given a raw deal. They knew of the store's closure only a day before customers. "I've talked to all the employees - they all feel upset and betrayed," said Jeff Smith who has worked full-time for Grace for two years, and just recently returned from the store in Corte Madera to work as Assistant Manager of the San Mateo store. Smith said he was not given the option of working back at Corte Madera or any other stores - Mitchell told the public employees would be given that option. Smith said employees were not offered any severance pay either.

"I just thought they would give something. If you think about it, you're planning and all of a sudden you're not working. Five or six people use this job to pay rent," said Smith. "Hey, I understand that these things have to be done, but I'm bitter. They expect us to give them notice and here we are."

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