Einstein Bros 2003 Annual Report Download - page 8

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http://www.sec.gov/Archives/edgar/data/949373/000104746904009609/a2132006z10-k.htm[9/11/2014 10:13:55 AM]
7
menu features a full line of premium coffees and café drinks. Our gourmet offerings are prepared in front of customers using fresh ingredients, a
key trait to the quick casual segment. We strive to maintain a pipeline of new menu offerings that are systematically introduced in order to keep our
menu innovative, delicious, and relevant to our consumers' lifestyles. For example, in the past year we have seen a trend towards "healthier
lifestyles" in our consumers. We have responded by offering choices focused on a variety of dietary needs from introducing a lower carbohydrate
bagel to salads, vegetarian soups and egg dishes that do not include bread.
Develop Alternative Sales Channels
We believe we have opportunities to develop multiple sales channels outside of our traditional retail locations. These alternatives can generate
incremental revenues, enhance our brands' visibility and improve customer convenience. In particular, in-store bakeries in the grocery and
warehouse club channels are increasingly seeking strong consumer brands to help drive their sales of bread and bagels. We have established a
vendor partnership with Costco pursuant to which we sell Einstein Bros. and Noah's products dual branded with the Kirkland signature brand
through more than 300 Costco stores. We recently entered into a similar arrangement with Target Corp. pursuant to which we sell Einstein Bros.
products through more than 100 SuperTarget stores. We expect to attract additional alternative retail customers based on Einstein Bros.' substantial
brand equity and superior food quality and freshness.
Pursue Disciplined Growth
We have a significant opportunity to add new company-operated Einstein Bros. locations in existing markets to realize additional operating
and marketing efficiencies, leverage existing brand awareness and enhancing customer convenience. We also have opportunities in the 22 states in
which the Einstein Bros. concept does not currently have a company-operated store presence. We added six new Einstein Bros. company-operated
locations during 2003 and intend to open an additional 4 to 6 locations during 2004. We have a strong platform for growth through store licensing
as a result of our solid positioning within the quick casual restaurant segment. Our store licensing program, which is available to qualified
foodservice operators, continues to expand with 41 licensed store locations open at the end of 2003 up from 26 locations at the end of 2002. We
intend to continue that expansion by opening approximately 25 to 50 licensed store locations during 2004. We continue to evaluate a franchising
program for Einstein Bros., which would be available to experienced, well-capitalized operators, to help build our leadership position in the quick
casual segment of the restaurant industry.
Sourcing, Manufacturing & Distribution
We believe that controlling the manufacture and distribution of our key products is an important element in ensuring both quality and
profitability. To support this strategy, we have developed proprietary formulations, invested in processing technology and manufacturing capacity,
and aligned ourselves with strategic suppliers.
Bagel Dough
We have significant know-how and technical expertise for manufacturing and freezing mass quantities of raw dough to produce a high-quality
product more commonly associated with smaller bakeries. We believe this system enables locations to provide consumers with a variety of
consistent, superior products. We currently operate a bagel dough manufacturing facility in Whittier, CA and have a supply contract with Harlan
Bakeries, Inc. in Avon, IN that produces bagel dough to our specifications.
8
Cream Cheese
Our cream cheese is purchased through two third party providers and is sold at our Einstein Bros., Noah's and Manhattan locations.
Coffee
The majority of our coffee is purchased through a third party provider and is sold at our Einstein Bros. and Noah's locations. For our
Manhattan, Chesapeake, New World and Willoughby's locations, we have a coffee production facility. For that facility, we purchase high quality
grades of Arabica coffee and make purchase commitments on the basis of quality, taste and availability. We have long-standing relationships with