Einstein Bros 2009 Annual Report Download - page 5

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Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312510040721/d10k.htm[9/11/2014 10:09:50 AM]
traffic patterns.
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.
Manufacturing and Commissaries:
We generated approximately 7% of our 2009 total revenue from our manufacturing and commissary operations.
• Manufacturing: We currently operate a bagel dough manufacturing facility in Whittier, California and have a supply contract with a
two suppliers to produce bagel dough and sweets to our specifications. These facilities provide frozen dough and partially-baked frozen
bagels and fully baked sweets for our company-owned restaurants, franchisees and licensees. We use excess capacity to produce bagels
for sale to third party resellers. 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.
4
Table of Contents
• Commissaries: Currently we operate five commissaries geographically located to best serve our existing company-owned, franchised
and licensed 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.
• 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, or partially baked and frozen bagel dough is shipped to all of our company-owned, franchised and licensed 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 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 United
States Department of Agriculture (“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.
• Government regulation: Our manufacturing and commissary facilities are licensed and subject to regulation by either federal, state or
local health and fire codes. We are subject to the regulations of keeping our commissaries USDA compliant. Additionally, we are also
subject to federal and state environmental regulations.
• Competition: Our manufacturing and commissary operations are primarily ancillary and support our company-owned restaurant
operations as well as our franchisees and licensees. Our competition is from several large bakeries and from local bakeries in the states
in which we operate.
Franchise and Licensing
Approximately 2% of our 2009 total revenue was generated by our franchise and license operations.
• Einstein Bros. franchising: We are offering Einstein Bros. franchises to qualified area developers. As of December 29, 2009, we were
registered to offer Einstein Bros. franchises in 49 states. During 2009, we actively marketed the Einstein Bros. brand franchise rights
and signed several multi-location deals. We currently have 14 development agreements in place for 63 total restaurants, six of which
have already opened. We expect the existing 14 development agreements will result in 57 additional restaurants being opened through
2014.
We utilize a franchise area development model for the Einstein Bros. brand in which we assign exclusive rights to develop restaurants
within a defined geographic region within a specified period of time. We are targeting franchise area developers who have the existing