Einstein Bros 2006 Annual Report Download - page 10

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restaurants or in markets that can be segmented so that a franchised restaurant does not compete with a company-owned restaurant. 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 in a designated period of time.
Manhattan Franchising
We currently have a franchise base primarily in our Manhattan brand that generates a recurring revenue stream through fee and royalty
payments. Our Manhattan 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 restaurants located in New Jersey, New York, Pennsylvania and Delaware.
We look for franchisee candidates with appropriate operational experience and financial stability, including specific net worth and liquidity
requirements. We typically receive continuing royalties on sales from each franchised location. Our Manhattan franchisees are not required to buy
all of their non-proprietary products directly from us, but rather their product sources must be approved by us. The Manhattan franchise agreement
requires an up-front fee of $25,000 per restaurant, a 5% royalty based on sales, and contributions to an advertising fund of up to 5% of sales.
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Over the past three years, we have terminated our relationships with certain franchisees for failure to comply with the requirements of their
franchise agreements. Additionally, we have allowed certain franchisees to terminate their franchise agreements in locations that are outside our
core markets. In 2006, we opened two new Manhattan locations. One of these was an existing Einstein Bros. restaurant that was converted to the
Manhattan brand. Both restaurants were opened by existing Manhattan franchisees and are located in our core markets.
Licensing
We currently license both the Einstein Bros. and Noah's brands. Most of our 96 licensed locations are Einstein Bros. restaurants. Our license
partners include Aramark, Sodexho, AAFES, HMS Host, Compass and CA1. These partners' operations are located in airports, colleges and
universities, hospitals, military bases and on turnpikes and feature a more limited menu selection than our company-owned restaurants. We are
actively seeking to increase our current base of licensed locations with strategies to allow us to open multiple locations through partnerships with
hotel chains and other non-traditional locations, such as thruway and turnpike locations. Our current operating plan calls for an additional 40 to 50
licensed locations to open during 2007.
Marketing and Advertising
Our 2007 marketing and advertising strategy focuses on publicizing and increasing awareness of our food, beverages, seasonal and retail
offerings as well as our catering program. Our tactics revolve around a marketing calendar that is divided into three trimesters with specific
products supporting our overall objective of protecting our breakfast daypart, while building the lunch and afternoon dayparts.
In addition, we view our new products as another vehicle to contribute to developing brand positioning, stimulating transactions, enhancing
customer engagement, improving the in-store experience and exploring new food trends and trade channels.
From a media standpoint, our focus will be on outdoor, broadcast, internet, a cohesive in-store point of purchase program and merchandising
displays. We are developing a new packaging program to strengthen each brand's identity. All of these initiatives are part of a full year systematic
rollout of our initiatives to the restaurants.
Quality Control and Training
We have implemented a quality assurance and food safety program that is designed to provide our restaurants and guests with high quality
and safe foods. Quality and food safety programs and procedures include regular and comprehensive vendor and distribution inspections, process
control assessments, food performance and sensory evaluations. The inspections and assessments are based on the federal Hazard Analysis of
Critical Control Points (HACCP) principle and prioritized to monitor those foods that have the most potential for food safety and performance risk.
Furthermore, our quality assurance program has developed a detailed specification and nutritional database that provides our restaurants and guests
with current nutritional information on our menu items.
Supplementing the corporate quality assurance program is the restaurant QSC survey that is done by regional training persons, secret shopper
surveys, internal food safety and handling programs for our general managers and our toll-free customer call-in number. All of these measures
provide us with information that is used to assess the effectiveness of our internal quality surveillance programs.
We held our annual leadership summits for our Einstein Bros. and Noah's general managers and our Manhattan Bagel franchisees in early