Einstein Bros 2008 Annual Report Download - page 6

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312509042707/d10k.htm[9/11/2014 10:10:56 AM]
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• Backlog: Our manufacturing and commissary facilities do not have a material amount of backlog orders.
• Government Regulation: Our manufacturing and commissary facilities are licensed and subject to regulation by either federal, state or
local health and fire codes. We are subject to the regulations of keeping our facilities USDA compliant. Additionally, we are also
subject to federal and state environmental regulations.
• Competition: Our manufacturing and commissary operations are primarily ancillary and support our company-owned restaurant
operations as well as our franchisees and licensees. Our competition would be from several large bakeries and from local bakeries in
the states in which we operate.
• Associates: As of December 30, 2008, the Company had 7,698 associates, of whom 155 were plant and support services personnel. We
have never experienced a work stoppage and our associates are not represented by a labor organization.
Franchise and Licensing
Approximately 2% of our 2008 total revenue was generated by our franchise and license operations.
• Einstein Bros. franchising: We are offering Einstein Bros. franchises to qualified area developers. As of December 30, 2008, we were
registered to offer Einstein Bros. franchises in 49 states and are currently working to finalize our registration in the 50th state. During
2008, we actively marketed the Einstein Bros. brand franchise rights and signed several multi-location deals. We currently have seven
development agreements in place for 47 restaurants that we expect will open on various dates through 2016. The first two Einstein
Bros. franchise locations opened in 2008.
Unlike past Manhattan Bagel franchises, which were sold as single franchised units, we plan to utilize a franchise area development
model for the Einstein Bros. brand in which we will assign exclusive rights to develop restaurants within a defined geographic region
within a specified period of time. We are targeting franchise area developers who have the existing infrastructure, operational
experience and financial strength to develop several restaurants in a designated market. The franchise agreement requires an up-front
fee of $35,000 per restaurant and a 5% royalty based on sales.
We intend to enter into franchise area development agreements in geographic markets where we either currently do not have Einstein
Bros. restaurants or in markets that can support both franchised and company-owned restaurants. In markets where we have limited
market penetration, we may also consider selling existing Einstein Bros. restaurants to a franchise area developer. In these instances,
we plan to require the franchise area developer to open a minimum number of additional restaurants within a designated period of time.
• Manhattan Bagel Franchising: We currently have a franchise base in our Manhattan Bagel brand that generates a recurring revenue
stream through royalty fee payments and revenue from the sale to our franchisees of products made from our proprietary recipes. The
typical Manhattan Bagel franchise agreement requires an up-front fee of $25,000 per restaurant and a 5% royalty based on sales. Our
Manhattan Bagel franchise base provides us with the ability to grow this brand with minimal commitment of capital by us, and creates a
built-in customer base for our manufacturing operations. The core market for this brand is the northeastern United States with the
majority of the Manhattan Bagel restaurants located in New Jersey, New York, and Pennsylvania. Our Manhattan Bagel franchise
restaurants generally have average unit volumes of approximately $561,000.
• Licensing: We have license relationships with Aramark, Sodexho, AAFES, HMS Host, Compass, and SSP. Our licensees are located
primarily in airports, colleges and universities, hospitals and military bases and on turnpikes. Our license agreements vary by venue,
but typically have a five-year term and provide that the licensee pays us an up-front license fee of $12,500 and a weighted average
royalty fee of 6.2%. Our license restaurants generally have average unit volumes of approximately $495,000.
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• Status of development plans or expansion: We are planning to expand our presence through a significant expansion of franchise and
license restaurants. This strategy allows us to generate additional revenues without incurring significant additional expense, capital
commitments or many of the other risks associated with opening new company-owned restaurants. We also expect to increase our
geographic footprint and guest recognition of our brands.
At the end of 2008, we had 71 franchised locations throughout the United States. We intend to leverage our franchising experience
with the Manhattan Bagel brand and to accelerate the franchising of our Einstein Bros. brand and expand the current Manhattan Bagel
franchise system. We have identified specific markets in which we intend to grow through franchising and are currently in discussions
with several parties to develop in these markets. We opened two franchise restaurants in 2008, and currently are planning to open six
to eight more in 2009.
At the end of 2008, we had 152 license restaurants throughout the United States. We opened 32 new license restaurants in 2008 and