Einstein Bros 2006 Annual Report Download - page 8

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http://www.sec.gov/Archives/edgar/data/949373/000104746907001622/a2176540z10-k.htm[9/11/2014 10:12:36 AM]
interior decor package including furniture, decorative lighting and an "up-scaled" finish to our trademark poster series. Based upon the operating
performance of those restaurants, we plan to complete similar remodels of approximately 25 additional restaurants in 2007. We believe the
remodeled restaurants will provide a superior guest experience as well as improved speed of service and order accuracy.
Site Selection
We consider our site selection process critical to our long-term success. Our 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 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. We are prioritizing locations which allow for the construction of drive-through windows, since our existing locations with this feature
have a higher AUV than our locations that do not.
Our AUV goal for a new restaurant is at least $1.0 million by the end of the first full year of operations. We believe by leveraging and
implementing the key attributes of our remodel program as well as understanding the characteristics driving the performance of our strongest
restaurants, we will be able to open restaurants that operate at this level. Excluding tenant improvement allowances, the cost of a new restaurant is
approximately $550,000 but can vary based upon square footage, layout and location. The cost includes equipment, leasehold improvements,
furniture and fixtures, and other related capital. To the extent available, we plan to open locations with greater visibility such as drive-through
windows or end-cap units. While these attributes increase our lease and construction costs, they generally increase our revenues by more than
$100,000 per year.
Support of Our Restaurant Operations
We believe controlling the development, sourcing, manufacturing 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.
Purchasing
Our purchasing programs provide our company-owned restaurants and our franchised and licensed locations with high quality ingredients at
competitive prices from reliable sources. Consistent product specifications, as well as purchasing guidelines, ensure freshness and quality. Because
we utilize fresh ingredients in most of our menu offerings, inventory at our distributors and company-owned restaurants is maintained at modest
levels. We negotiate short-term and long-term price agreements and contracts depending on supply and demand for our products and commodity
pressures. These agreements can range in duration from six months to five years.
Key Ingredients—Bagel Dough, Cream Cheese and Coffee
We have developed proprietary recipes and production processes for our bagel dough, cream cheese and coffee to help ensure product
consistency. We believe this system provides a variety of consistent, superior quality products at competitive-market prices to our restaurants,
franchisees and licensees.
9
Frozen bagel dough is shipped to all of our company-owned, franchised and licensed Einstein Bros., Noah's and Manhattan restaurants and
baked on-site. Our significant know-how and technical expertise for manufacturing and freezing mass quantities of raw dough produces a high-
quality product more commonly associated with smaller bakeries.
Our cream cheese is manufactured to our specifications utilizing our proprietary recipes. Our cream cheese and certain other cheese products
are purchased exclusively from a single source. We also have developed a proprietary coffee blend for sale at our Einstein Bros. and Noah's
company-owned and franchised locations. All of our coffee is purchased through a sole-sourced third party provider. We are currently looking at
the industry for other viable sources of supply in order to mitigate some risks associated with single sources of supply.
Other Ingredients
We purchase other ingredients used in our restaurants, such as sliced meat, lettuce, tomatoes and condiments, from a select group of third party
suppliers. Our chicken products come from naturally raised chickens that are cared for in strict accordance with established animal care guidelines
and without the use of growth accelerators such as antibiotics, steroids or hormones. Our roast beef is USDA Choice, Grade A, and comes only