Einstein Bros 2002 Annual Report Download - page 5

http://www.sec.gov/Archives/edgar/data/949373/000104746903027186/a2116520z10-ka.htm[9/11/2014 10:14:22 AM]
New World Coffee/Willoughby's Coffee & Tea. As of December 31, 2002, there were eight company-operated and 11 franchised New World
Coffee and Willoughby's Coffee & Tea locations in five DMAs in the northeastern United States. The locations are designed using natural
materials and warm lighting to create the comfortable atmosphere of an inviting neighborhood café. The locations offer up to 30 varieties and
blends of fresh roasted coffee, in brewed and whole bean format, a broad range of Italian-style beverages, such as espresso, cappuccino, café latte,
café mocha and espresso machiato, along with an extensive variety of primarily breakfast and dessert items meant to complement the beverage
offerings. The New World Coffee/Willoughby's brands generated approximately 2% of our 2002 revenues. New World Coffee/Willoughby's
revenues are primarily comprised of company-operated location sales, manufacturing revenues, royalty payments and fees.
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Sourcing, Manufacturing & Distribution
We believe that controlling the manufacture and distribution of our key products are important elements 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.
Dough Production. 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 dough manufacturing facility in Whittier, CA and have a supply contract
with Harlan Bakery in Avon, IN that produces dough to our specifications for part of the Einstein Bros. brand. We have recently increased the
production of our Whittier facility and now supply our Fort Worth and Denver hubs, which were previously supplied by Harlan. We also expanded
the Whittier facility, which enables us to supply our West Coast Manhattan locations. We recently closed our duplicative Los Angeles facility and
consolidated our Eatontown production into Harlan.
Coffee Production. We purchase only the highest quality grades of Arabica coffee available from the best crops and make purchase
commitments on the basis of quality, taste and availability. We have long-standing relationships with coffee brokers, allowing us access to the
world's best green coffees. Our roasting processes vary based upon the variety, origin and physical characteristics of the coffee and are designed to
develop the optimal flavor and aromatics of each coffee.
Distribution. We currently utilize a network of large regional custom distributors to distribute frozen dough and other materials to our
locations. By contracting with distributors, we are able to eliminate investment in distribution systems and to focus our managerial and financial
resources on cost savings, quality control and production efficiencies. The distributors pick up frozen dough throughout the week from the plants
and deliver to our locations. Virtually all other supplies for retail operations, including cream cheese, paper goods and meats are contracted for by
us and delivered by the vendors to our distributors for delivery to the locations. The individual locations order directly from the distributors one to
three times per week.
Site Selection
We have completed a detailed site selection and trade area analysis of the entire United States. Our extensive site selection process focuses on
identifying markets, trade areas and specific sites based on several factors, including visibility, ready accessibility (particularly for morning and
lunch time traffic), parking, signage and adaptability of any current structures. We then determine the availability of the site and the related costs.
Our site and selection strategy emphasizes co-tenant out parcel, end-cap and in-line locations in neighborhood shopping centers and power centers
with easy access from high-traffic roads.
Marketing
Our marketing programs generally target specific markets and regions, making extensive use of local promotional media. Local marketing
efforts may include print advertising and radio and television promotions. In mid-2002, we conducted a marketing test utilizing television
advertising in three Einstein Bros. markets, which produced dramatic results in driving traffic and, more importantly, in customer retention
(measured by sales trends post-advertising). The television advertising led to a 9.1% average sales increase during the advertising period,
significantly higher than the 1.7% average sales increase trend pre-advertising. In addition, the test markets experienced a 9.0% sales increase for a
four-month period following the conclusion of the advertising campaign in mid-August. Based on these
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