Einstein Bros 2007 Annual Report Download - page 30

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http://www.sec.gov/Archives/edgar/data/949373/000104746908002111/a2183061z10-k.htm[9/11/2014 10:12:02 AM]
As of January 1, 2008, we have identified approximately 10 to 15 company-owned restaurants that we anticipate closing over the next three
years as their leases expire. Generally, these restaurants have an average unit volume of less than $650,000 and contribute negligible cash flow.
Additionally, there are four restaurants with average unit volumes greater than $650,000 that we anticipate closing over the next three years as they
are either in areas being taken over by eminent domain or the landlord is completely redeveloping the area and will not renew our lease.
We have recently implemented a number of initiatives in an effort to drive sales and improve profitability including quality service checklists,
secret shopper inspections, improved ordering systems and enhanced training programs. These initiatives have led to our positive comparable store
sales over the past nine quarters, which reversed a two-year negative trend. In addition, we have started to upgrade restaurants where we have the
opportunity to improve sales. The upgrades are intended to provide superior merchandising, enhance our guests' experience and increase the speed
of service while maintaining the neighborhood feel of the restaurants. We are upgrading our Einstein Bros. restaurants based on sales volume,
demographic traits and the related cost of the upgrade. Only those restaurants that offer the potential for a superior return on investment are
considered for an upgrade. During
35
2007, we upgraded 36 restaurants at a total cost of $3.5 million. The upgrades that have been completed averaged $98,000 per restaurant. We
anticipate the costs of upgrades in the near future to average $110,000 per restaurant.
New Restaurant Openings
Using the knowledge gained from our upgrade program, we plan to pursue a measured approach to new company-owned restaurant openings.
During 2005, 2006 and 2007, we opened 4, 5 and 12 new company-owned restaurants, respectively. Our ability to open new restaurants during
those years was limited by the capital expenditure restrictions of the debt agreements in place at that time. Our current plan is to open new
company-owned restaurants in existing markets where we have an established brand name. 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.
In 2008, we plan to open at least 18 new company-owned restaurants. For Einstein Bros., we have targeted Atlanta,, Baltimore, Chicago, Las
Vegas, Phoenix, Tucson, and various cities in Florida and Texas for development. For Noah's, we intend to focus our development efforts on
Portland, Seattle and various cities in California. We are also in the process of identifying new restaurant sites for 2009 to ensure that we achieve
our development goals.
During 2007 we opened 31 license restaurants and 2 franchise restaurants. We plan to open at least 35 license restaurants and at least
5 franchise restaurants in 2008. The license restaurants will be located primarily in airports, colleges and universities, office buildings, hospitals
and military bases and on turnpikes.
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 average unit volume of the restaurants, and
•the change in comparable store sales.
For the year to date period ended January 1, 2008, approximately 63% of our revenues were generated from restaurant sales during the
breakfast hours, 29% were generated during the lunch hours and 8% were generated during the late afternoon hours.
Manufacturing and Commissary Revenue