01 - Combine bread flour, granulated sugar, active dry yeast, and salt in a large bowl or stand mixer. Add warm milk, egg, and softened butter. Mix until a soft dough forms, then knead for 8-10 minutes until smooth and elastic.
02 - Divide dough into three portions: 60% for red flesh, 25% for white rind, and 15% for green skin. Knead red food coloring and watermelon extract into largest portion, then fold in chocolate chips. Leave medium portion plain. Mix matcha or green coloring into smallest portion.
03 - Shape each colored portion into a ball and place in separate greased bowls. Cover with plastic wrap or kitchen towel. Let rise for 1 hour until doubled in size.
04 - Punch down each dough portion. Flatten red dough into a log the length of your loaf pan. Wrap white dough around red log, then flatten and wrap green dough around both to create three distinct layers. Pinch seams tightly to seal.
05 - Place assembled loaf seam-side down in a greased 9x5-inch loaf pan. Cover and let rise for 30-45 minutes until puffy and doubled in size.
06 - Preheat oven to 350°F. Bake for 30-35 minutes, tenting with aluminum foil after 20 minutes if top browns too quickly. The loaf is done when golden brown and sounds hollow when tapped.
07 - Cool in pan for 10 minutes, then remove to wire rack. Cool completely before slicing to reveal the watermelon cross-section pattern.