Einstein Bros 2006 Annual Report Download - page 28

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http://www.sec.gov/Archives/edgar/data/949373/000104746907001622/a2176540z10-k.htm[9/11/2014 10:12:36 AM]
Our Sources of Revenue
The components of our revenue are restaurant sales, manufacturing and commissary revenue and franchise and license revenue.
Company-Owned Restaurant Sales
Over 93% of our revenue is generated by restaurant sales at our Einstein Bros. and Noah's company-owned restaurants. Restaurant sales also
include catering sales where the food is prepared at the restaurant and either delivered to or held for pick-up by the guest. The principal factors that
affect our restaurant sales in the aggregate are:
•the number of restaurants in operation for the period,
•the AUV of the restaurants, and
•the change in comparable store sales.
In addition to AUV, we measure the change in comparable store sales on a weekly basis. The majority of our growth in comparable store sales
has been through an increase in our average check. This increase has been achieved through a combination of multiple initiatives including:
system-wide price increases, regional price increases in markets with a higher cost of living and suggestive selling by our restaurant personnel to
add-on higher priced items.
Manufacturing and Commissary Revenue
Approximately 5% of our 2006 total revenue was generated by our manufacturing and commissary operations. Our manufacturing revenue is
primarily derived from the sale of frozen bagel dough to our franchisees, licensees and third party accounts. Our commissaries generate revenue
from the sale of sliced meats (turkey, ham and beef), dairy products (cheese), and pre-portioned salad kits to our licensees. Additionally, our
commissaries sell bagels, cream cheese, salad toppers and salads through various supplier relationships, typically with conventional grocery stores
as the end user. These products are sold either through a private label program or under the Einstein Bros. or Noah's brand.
The principal factors affecting manufacturing and commissary revenue are:
•the number of franchised and licensed restaurants that purchase frozen bagel dough and commissary products from us,
•sales of our products in existing franchised and licensed restaurants, and
•sales to third parties, including conventional grocery chains and warehouse clubs.
Franchise and License Revenue
Franchise and license revenue consists of a license or franchise fee at the inception of the agreement and ongoing royalty payments based on a
percentage of the restaurant's sales. For 2006, we generated approximately 2% of our total revenue from these fees. The principal factors affecting
franchise and license revenue are the number of franchised and licensed restaurants as well as the level of sales at those restaurants.
33
Our Primary Expenses
Company-Owned Restaurant Expenses
Food, Beverage and Packaging Costs
Food, beverage and packaging costs represent one of the largest expense elements at our company-owned restaurants. The most important
factor that affects the cost of these products is the underlying cost of the agricultural commodities such as flour, cheese, coffee, turkey and other
products. In order to mitigate the impact of rising commodity costs, our suppliers enter into agreements to fix the cost of these products for a