Einstein Bros 2008 Annual Report Download - page 5

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312509042707/d10k.htm[9/11/2014 10:10:56 AM]
We experience competition from numerous sources in our trade areas. Our restaurants compete based on guests’ needs for breakfast,
lunch and afternoon snacks. Our competitors are different for each daypart. The competitive factors include brand awareness,
advertising effectiveness, location and attractiveness of facilities, hospitality, environment, quality and speed of guest service and the
price/value of products offered. We compete in the fast-casual segment of the restaurant industry, but we also consider other restaurants
in the fast-food, specialty food and full-service segments to be our competitors.
• Associates: As of December 30, 2008, the Company had 7,698 associates, of whom 7,310 were restaurant personnel. Most restaurant
personnel work part-time and are paid on an hourly basis. We have never experienced a work stoppage and our associates are not
represented by a labor organization.
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Table of Contents
Manufacturing and Commissaries:
Approximately 7% of our 2008 total revenue was generated by our manufacturing and commissary operations.
• Manufacturing: We currently operate a bagel dough manufacturing facility in Whittier, California and have a supply contract with a
single supplier to produce bagel dough to our specifications. These facilities provide frozen dough and partially-baked frozen bagels
for our company-owned restaurants, franchisees and licensees. We use excess capacity to produce bagels for sale to resellers, such as
Costco Wholesale Corporation and Super Target.
We have long-standing relationships with Costco, and Super Target. Costco sells our bagels, which are co-branded with the Kirkland®
brand, and Super Target sells both bagels and cream cheese in retail kiosks. We also sell frozen dough in the U.S. to a third party
foreign entity who sells that product under our Einstein Bros. brand in Asia.
• Commissaries: Currently we operate five United States Department of Agriculture (“USDA”) inspected commissaries geographically
located to best serve our existing company-owned, franchise and license restaurants. We believe our commissary system provides a
competitive cost advantage by buying in bulk and assembling or repacking the product into store-friendly sizes for use at our company-
owned restaurants, franchise and license restaurants. These operations primarily provide our restaurants with critical food products such
as sliced meats, cheeses, and pre-portioned kits that create our various salads. Our commissaries assure consistent quality, supply fresh
products and improve efficiencies by reducing labor and inventory requirements at the restaurants. We distribute commissary products
primarily through our regional distribution partners.
• Status of products/service: There are currently no plans to open new commissaries or production facilities in the near future.
• Product supply: We have developed or use 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 company-owned, franchised and licensed restaurants.
Frozen bagel dough is shipped to all of our company-owned, franchised and licensed Einstein Bros., Noah’ s and Manhattan Bagel
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 proprietary recipes. Our cream cheese and certain other cheese
products are purchased from one supplier under a contract that has been extended through the end of 2013. We also have developed
proprietary coffee blends for sale at our Einstein Bros., Noah’ s and Manhattan Bagel company-owned, franchised and licensed
restaurants.
We purchase other ingredients used in our restaurants, such as 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 from corn-fed, domestic cattle. Where available, we buy high quality fruits, vegetables and specialty
produce from local farmers and shippers through distributors.
• Seasonality: Seasonality related to this segment is driven by the seasonality at the restaurants.
• Dependence on a single customer: A significant concentration of our manufacturing and commissary revenues is with several customers
who resell our product; approximately half of this revenue is from one large customer; however, no single customer has accounted for
10% or more of our total Company revenues and, therefore, the loss of any one customer would not have a material impact on our
business.
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