Einstein Bros 2007 Annual Report Download - page 6

http://www.sec.gov/Archives/edgar/data/949373/000104746908002111/a2183061z10-k.htm[9/11/2014 10:12:02 AM]
user-friendly menu layout, new self-service coolers to drive impulse purchases, an expanded coffee bar and a separate station for quick "to go"
items. We also upgraded our furniture, lighting and other decorative items, such as artwork, to update the look and feel of our restaurants. We
upgraded 36 restaurants in 2007 at a total cost of approximately $3.5 million. Our upgraded restaurants have experienced an average 4.7% increase
in sales following the upgrade, excluding the Phoenix, Arizona market, which has experienced a recent decline in their local economy. Including
the Phoenix market, we experienced an average 2.0% increase in sales following the upgrade. We expect to upgrade at least 45 more restaurants in
2008 at a total cost of approximately $5.0 million, and to continue to upgrade additional restaurants in future years. We believe that there are a
significant number of additional restaurants in our system which would show improved operating results after this type of upgrade is completed.
Increased Restaurant Sales through Catering. We believe catering is an effective way to leverage our existing restaurant infrastructure with
little or no additional capital investment and to expose more people to our food and our brands. We recognize that an effective catering program
requires different skills for effectively selling to businesses that frequently utilize catering. Accordingly, we have assembled a dedicated staff of
catering managers and coordinators to perform this function. We have catering operations in 20 major markets and plan on adding a catering
manager in one additional market during 2008. We are also moving towards centralization of the ordering process to ensure the order is routed to
the restaurant best positioned to fulfill it in a timely manner.
5
Open New Profitable Restaurants
Company-owned Restaurants. We are planning to open new company-owned restaurants under the Einstein Bros. and Noah's brands within
existing markets. Our expansion plans are intended to increase penetration of our restaurants in our most attractive markets. For Einstein Bros., we
have selected 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. In 2007, we opened 8 new Einstein Bros. and 4 new
Noah's company-owned restaurants, and acquired a Manhattan Bagel restaurant from one of our franchisees. Recently opened restaurants that
follow our new prototype typically generate higher average unit volume than our existing restaurant base. In 2008, we plan to open a total of at
least 18 new company-owned restaurants.
Franchised and Licensed Restaurants. We are planning to expand our presence through a significant expansion of franchised and licensed
restaurants. This strategy allows us to generate additional revenues without incurring significant additional expense, capital commitments or many
of the other risks associated with opening new company-owned restaurants. We also expect to increase our geographic footprint and guest
recognition of our brands.
Licensed Restaurants. At the end of 2007, we had 124 licensed restaurants throughout the United States, located primarily in airports,
colleges and universities, office buildings, hospitals and military bases and on turnpikes. We have license relationships with Aramark,
Sodexho, AAFES, HMS Host, Compass, CA1 and Creative Host. We opened 31 new licensed restaurants in 2007 and currently are
planning to open at least 35 new licensed restaurants in 2008.
Franchised Restaurants. At the end of 2007, we had 72 franchised locations throughout the United States. We intend to leverage our
franchising experience with the Manhattan Bagel brand to begin franchising our Einstein Bros. brand and expand the current Manhattan
Bagel franchise system. We have identified specific markets in which we intend to grow through franchising and are currently in
discussions with several parties to develop in these markets. With respect to the Manhattan Bagel brand, we are working towards granting
additional franchise rights to current franchisees and entering into development agreements with new franchisees in 2008. We opened
2 franchise restaurants in 2007, and currently are planning to open at least 5 new franchise restaurants in 2008.
Restaurant Concepts
Einstein Bros.
Einstein Bros. offers a menu that specializes in high-quality foods for breakfast and lunch, including fresh-baked bagels and hot breakfast
sandwiches, cream cheese and other spreads, specialty coffees and teas, creative soups, salads and sandwiches, and other unique menu offerings.
The average Einstein Bros. restaurant is approximately 2,200 square feet in size with approximately 40 seats and is generally located in a
neighborhood or regional shopping center. We design each restaurant to create a comfortable, casual environment that is consumer friendly,
inviting and reflective of the brand's personality and strong neighborhood identity. We intend to design and build restaurants consistent with the
layout of our new restaurants which are approximately 2,500 square feet in size. This will allow for additional seating as well as the improved
menu displays and ordering system. During 2005, 2006 and 2007, Einstein Bros. company-owned restaurants generated approximately 80% of our
total company-owned restaurant sales.
6