Starting From Scratch With Better Coffee

February 25, 2015

Joan Verdon

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The food-services company Mascott has fed its growth by introducing other people’s restaurant and food franchise ideas to North Jersey. Now it wants to build a beverage and food concept from the ground up.

Hillside-based Mascott, which brought the first Smashburger and Noodles & Co. restaurants to Bergen and Passaic counties, is launching a coffee-shop business called Ground Connection that it hopes will become a home-grown New Jersey hit. The company opened the first Ground Connection last week at The Shops at Riverside in Hackensack and plans to open three more locations in Livingston and Jersey City in the spring and summer.

Just as Smashburger sizzled as the “better burger” trend exploded, Mascott Chief Executive Officer Scott Gillman is betting the “better coffee” movement will create demand for Ground Connection. The shops serve small-batch roasts, use specially sourced milk and flavorings, and buy its sandwich breads, salads and other foods from local suppliers.

Gillman said he is trying to bring the coffee connoisseur experience found at some of the hot big-city artisanal coffee chains such as Blue Bottle Coffee, Stumptown Coffee Roasters and Intelligentsia Coffee to the suburbs, with prices and an atmosphere friendlier to suburban shoppers.

“There’s a huge movement into specialty coffee,” Gillman said. “It’s a better quality coffee. Often it’s handpicked. It’s relationship coffee,” he said, with the roasters developing a relationship with small farms.

Rather than trying to become a franchisee for an existing artisanal coffee brand, just as he did with burgers and Smashburger, this time Gillman decided to create his own response to a trend.

“I wanted to do what I thought would sell the best, and also what would sell the best in the suburbs,” he said. Brands like Blue Bottle, while it has millennials lining up and willing to wait for single-brewed cups, probably would be too expensive and too slow-paced to succeed with suburban mall shoppers. The Ground Connection’s prices are comparable to Starbucks’, at $1.75 for an 8-ounce cup and $2.75 for a 16-ounce, but are 50 cents to 75 cents lower than other specialty coffee brands.

Gillman and Mascott are entering the coffee field at a time when the competition is heating up, according to research firm IBISWorld, which noted in a report in December that the two biggest coffee chains, Starbucks and Dunkin’ Donuts, plan to open hundreds of stores over the next five years.

While the artisanal “better” coffee chains are growing their sales by more than 20 percent a year, big players such as Starbucks are hoping to cut into those sales by introducing their own better brands. Starbucks recently rolled out the Starbucks Reserve brand in some 500 of its more than 20,000 stores worldwide, and is selling the small-batch roasts through the mail to subscribers.

Gillman has a proven track record in the food-service industry and a reputation as one of the smartest franchise operators in New Jersey. His company owns an upscale restaurant in Jersey City, Markers, and has operated dozens of franchise restaurants over the past two decades, ranging from Popeye’s Chicken and Biscuits, Cinnabon, and Seattle’s Best Coffee, to more recently Smashburger and Noodles & Co.

Mascott opened the first Smashburger in New Jersey in 2010 in Glen Ridge and built the franchise into 14 locations, before selling them back to the Smashburger Corp., which wanted the high-performing stores in its corporate portfolio.

With the Ground Connection, “I wanted to do something that took everything I learned over 25 years,” and put his own stamp on a concept, Gillman said. He hired Casey Killo, a 21-year-old who already had a half-dozen years of barista experience, to train his baristas. Steve Parker, the corporate chef for Mascott, developed a breakfast and lunch menu that included muffins and pastries baked in a separate kitchen elsewhere in the mall, as well as soups, flatbread pizzas, sandwiches served heated, and salads.

The restaurant serves coffee from Toby’s Estate, a Brooklyn small-batch roaster. The lattes and cappuccinos use milk delivered fresh from Battenkill Valley Creamery in upstate New York, because it is richer than commercially available milk. Central Bakery in Hackensack supplies the sandwich breads, Gillman said. He estimated his start-up costs to open the Riverside location at $500,000.

Curtis Nassau, of Ripco Real Estate in Lyndhurst, which brokered the Riverside lease for Mascott, said Ripco “sees terrific growth potential” for the Ground Connection. Coffee, he said, “is a well-established, yet still expanding category in New Jersey retail.”

The Ground Connection was drawing a healthy lunch crowd on Thursday, and Gillman said the first week’s sales exceeded his expectations.

But success at Riverside could increase his risk from Starbucks, said Darren Tristano, executive vice president of food-industry research firm Technomics. “It isn’t just build them where Starbucks isn’t,” Tristano said. “Once you’ve built it, that kind of gives Starbucks a reason to build one there,” he said. “You’ve proven that the demand is there, and all they would do is come in and take your business away.”

But, Tristano said, there are customers looking for coffee shops that have more of an independent feel than Starbucks. “Although Starbucks fans are very loyal, there’s some really good opportunity to even go beyond that,” he said.

Grounds for expansion; * $30.2 billion – annual U.S. coffee and snack-shop revenue, 2014; * $1.8 billion – profit, 2014; * 2.7 percent – annual growth rate, 2009-14; * 3.8 percent – projected annual growth rate, 2014-19; * 42.4 percent – market share of dominant player Starbucks; * 25.5 percent – market share of second-largest competitor, Dunkin’ Donuts; Source: IBISWorld Coffee & Snack Shops in the U.S., December 2014

 


Così CEO Carin Stutz resigns

June 28, 2013

carin-stutzmainCompany names executive chair Stephen Edwards president, CEO

Carin Stutz has resigned as chief executive of Così 18 months after taking the top post at the long-struggling brand.

The Deerfield, Ill.-based company’s board of directors has named executive chair Stephen Edwards president and chief executive.

“On behalf of the board,” Edwards said in a statement, “I would like to thank Carin for her service to Così. We wish Carin well in her future endeavors.”

Edwards and the board indicated that the 124-unit fast-casual chain’s first priorities under the new management structure would be to shrink its cost structures by focusing on unit-level profitability and exiting unprofitable locations, preferably through refranchising.

Accelerating franchise growth had been a key goal for the company when it raised $12.8 million last year in a secondary-rights offering to shareholders, which it completed on July 9, 2012.

“Our franchise partners have proven that they can operate successful restaurants under our brand,” Edwards said. “Our focus will be to give these partners and other entrepreneurs like them the tools they need to grow the Così system. … Così is a great brand. Our mission is to create a business model that builds on the strength of our brand while generating profits for our shareholders. And to do so quickly.”

The company’s first-quarter earnings, which it reported last month, reflected franchisees’ outperformance in Così’s uneven operating results. For the April 1-ended quarter, franchisees’ same-store sales decreased only 1.3 percent, compared with a 6.6-percent drop in company-owned restaurants, leading to an overall 4.5-percent decrease for the chain’s entire system.

Così Inc.’s first-quarter net loss widened to $2.74 million, or negative 15 cents per share, compared with $1.13 million, or negative 9 cents per share, a year earlier.

In that filing, the company reported pockets of success, including several franchised locations and an aggregate same-store sales increase in the New York City market, where reimaging efforts and a program designed to improve unit-level operations had started to return positive results. The company’s home market of Chicago also had been completely remodeled, and one downtown location served as a “pop-up” unit last winter, where an extensive new menu was tested.

Darren Tristano, executive vice president of Chicago-based Technomic Inc., acknowledged that Così had fallen behind competitors in the bakery-café segment, but still characterized Stutz’s resignation as a “sudden decision.”

“I had just spoken to Carin during the NRA Show and she was excited about the direction Così was going,” Tristano said. “So her decision is evidence that this is a very competitive segment of the industry, not just in bakery-café or sandwich, but, in general, breakfast. Even with a good product and good locations, it’s been difficult to build profitability.”

With more transition in leadership, Così’s path back to profitability and growth will probably be a little longer, he added. The sustained focus on refranchising could bring much-needed capital to Così Inc. and allow it to focus on building the brand rather than running restaurants, Tristano said.

“This decision can help narrow down what Così focuses on,” he said. “I don’t think it has to do with the menu, because they have a good product and their pricing is competitive and the décor is appropriate.

“They still have to tweak the service format and better understand what dayparts they want to own,” he continued. “I think it very likely comes down to service when competing with Panera Bread and Corner Bakery.”

In addition to Stutz’s resignation, Così layed off some administrative staff, which the company said would result in annual savings of approximately $1 million.

Così operates 74 company-owned locations and franchises another 50 restaurants in 16 states, the District of Columbia and the United Arab Emirates.


Panera Expands Pay-Say-You-Want Concept to One Menu Item in St. Louis Cafes

May 28, 2013

5152efd49a48d.preview-620It started off nearly three years ago as a small experiment at a Clayton cafe to test whether people would be willing to pay full price — or more — when there are no set prices so those in need can pay less or nothing at all.

After following it up with four more nonprofit cafes across the nation, Panera is now taking this concept to the next level.

Starting today, patrons will be able to walk into any of the company’s 48 bakery-cafes in the St. Louis region (where it operates as St. Louis Bread Co.) and pay what they want for a new menu item: turkey chili.

If it proves sustainable, the “meal of shared of responsibility” — as Panera calls it — could be expanded to other regions.

“But we never want to put the cart before the horse,” said Ron Shaich, the company’s co-chief executive and the driving force behind the concept. “So we want to see how this does, how it works, and how people respond.”

Shaich said he wanted to find a way to bring the pay-what-you-want concept into more communities.

“We have five stores now,” said Shaich, who often refers to the Panera Cares cafes as a test of humanity. “That’s big by some standards, and it’s still small. So how do we help more broadly?”

The shareholders of the publicly traded company would not be pleased if all 1,650 cafes nationwide were converted to this nonprofit model, he added.

So instead, the Sunset Hills-based company came up with a single menu item.

The meal, which comes in a sourdough bread bowl, will be offered at the suggested price of $5.89 with tax. The item was developed to be rich in nutrients, protein and fiber, to nourish those who are not sure where they might get their next meal.

Even shareholders may have reasons to like this concept.

While the company says it will not directly profit from this new program, experts note that the company as a whole will likely benefit as a brand in terms of the positive feelings and emotions it will create in the minds of customers.

“Consumers are increasingly — particularly young people — looking for socially conscious values in the things they purchase,” said Ken Harrington, director of Washington University’s Skandalaris Center for Entrepreneurial Studies. “They are looking for corporations who are doing what Panera is doing.”

Such a charitable consideration can tip the balance when people choose which businesses to patronize. In fact, he said studies have shown that consumers are willing to spend 10 to 15 percent more on items to support values or causes they share.

The idea isn’t lost on Panera, whose recently launched marketing campaign encourages customers to “Live Consciously — Eat Deliciously.”

FOOD INSECURITY

The pay-what-you-want chili, Shaich added, is also meant to help elevate the discussion of food insecurity at a time when the unemployment rate continues to be fairly high. According to the U.S. Department of Agriculture, about 15 percent of American households in 2011 were unsure whether they would have enough food to meet the needs of family members.

“We want to challenge the people in St. Louis to understand this issue and vote with us in helping to pay it forward,” Shaich said. “Our commitment is we don’t make anything on this.”

If patrons pay full price for the chili, they will be helping to subsidize the cost for those who don’t pay, because the company will use the 10 percent profit margin on that item to fund the program. But customers can donate to the “meal of shared responsibility” regardless of what they order from the menu.

Any net proceeds after the cost of the program is covered will be channeled to hunger relief efforts, Shaich said.

To be sure, most companies have some sort of charitable contribution built into them as a way to build trust and goodwill with consumers, said Darren Tristano, with food industry research firm Technomic. Just think of the Ronald McDonald House, which helps cover the cost for families to stay close by to hospitalized children.

Panera also donates tens of millions of dollars in leftover products and has recently partnered with Feeding America to channel donations collected in its stores to providing its black bean soup to food banks.

In the case of Panera’s pay-what-you-want model, Tristano said Panera may be better positioned than others to take on the risk of such a program because it is such a profitable company. Panera made $174 million in profit last year, a 28 percent increase from the year before.

And he noted that other companies take on some risk when they offer reduced prices or buy-one-get-one-free deals on new menu items — something that Panera doesn’t usually do.

“Panera is not a discounting kind of brand,” Tristano said. “So they can afford to take these risks. If nothing else, it becomes a trial for this item.”

For his part, Shaich doesn’t see this “meal of shared responsibility” as being a big gamble for Panera. If it doesn’t work, they will just end it.

He said the general competitive landscape in which Panera jockeys against other restaurants is more likely to keep him up at night rather than this pay-what-you-want model.

“Do I wake up in the middle of the night about the ‘meal of shared responsibility’?” he asked. “No, not anymore than I wake up in the middle of the night and worry that somebody is taking advantage of our bathrooms — or our free Wi-Fi.”

In recent months leading up to today’s roll out, Panera has quietly tested the “meal of shared responsibility” at one cafe in St. Louis and at about nine locations in Dallas.

As Panera tests out the pay-what-you-want turkey chili, it remains to be seen whether it will open more nonprofit cafes. For now, Shaich said the company has not announced any plans for more such locations.

“This is not one versus the other,” he said. “It’s kind of a multipronged approach.”

Since opening the first nonprofit cafe in Clayton, the company has opened other Panera Cares cafes in Detroit, Portland, Chicago, and most recently, Boston. Panera spent $1 million to build the Boston cafe, which it then gifted to the foundation and opened in January.

These cafes have ups and downs, but they have mostly stabilized and bring in about 70 to 75 percent of the retail prices of menu items, Shaich said. That’s roughly enough to sustain the cafes. Panera’s foundation kicks in support to fill in any gaps.

Of course, one of the challenges with this model is that it requires a leap of faith on the part of donors that those who are not paying the full price actually need the help and are not gaming the system.

To that end, there are some checks in place. As with the nonprofit cafes, Panera discourages take-out orders and asks that people limit themselves to one free or reduced-price meal per person per day.

For Shaich, the human behavior element has been one of the most fascinating aspects of this experiment. While there have definitely been people who have tried to abuse the system, overall, he says, the results so far show that most people have been responsible.

He said it’s not unlike the question of whether or not you should leave a tip for the housekeeper who cleans your hotel room.

“What do you do?” he said. “Nobody is watching. This is the same kind of thing. It’s meant to create opportunities for people to do the right thing.”


Starbucks Believes M&A Bolsters Company’s Core

September 14, 2012

A pedestrian passes by a La Boulange outlet in San Francisco. Starbucks is paying $100 million for the chain.

Most people flock to Starbucks to buy coffee, Frappuccinos and lattes. But Starbucks is sending out a siren call for customers to add sandwiches and pastries to their java orders. In fact, it spent $100 million to acquire La Boulange, a San Francisco-based bakery with 19 outlets, in June. Integration is slated to begin by early 2013.

How does the hefty acquisition fit into Starbucks’ long-term strategy? The skinny is that to grow revenue, companies must go beyond their core products. Known for coffee, Starbucks has to expand its repertoire in order to boost income. As a result of the merger, La Boulange’s products will be sold at Starbucks outlets and supermarkets nationally.

Starbucks’ springing for La Boulange achieves two primary goals, says Darren Tristano, a Chicago-based executive vice president at Technomic, a food industry research and consulting firm. The first is boosting sales of its baked goods, which only account for about 20% of total sales. The second focuses on the fact that selling La Boulange’s products in supermarkets adds to its line of consumer packaged goods like coffee.

‘We Are Bakers Too’

At the time of the acquisition, Starbucks CEO Howard Schultz said, “This is an investment in our core business. After more than 40 years, we will be able to say that we are bakers too.”

David Tarantino, a Milwaukee-based senior research analyst with Robert W. Baird, says Starbucks views this purchase as a “strategic asset to grow their food sales dramatically.” Currently, about one-third of its customers buy food, and if La Boulange can boost that number to 40% or more, Starbucks will see a return on its investment.

Tarantino says the fact that Pascal Rigo, the founder and CEO of La Boulange, is staying on and joining Starbucks as a senior executive is critical to the acquisition.

“His involvement will help make sure that Starbucks maintains the quality, recipes and execution of its food items as it rolls out nationally,” he said.

Moreover, it allows Starbucks to become more of a fast-casual cafe rather than a quick-service coffee shop. That will let it compete vs. Panera Bread, one of the most rapidly expanding chains in the restaurant industry.

Since Starbucks lures hordes of coffee drinkers, its target clientele will have an opportunity to increase spending. Consumers will be able to buy freshly made croissants, muffins and sandwiches to accompany their beverages at breakfast and lunch, Tristano says. Starbucks will have to develop kitchens in several regional locales to transport the pastries to its outlets and ensure freshness.

In the past, Starbucks has offered panini sandwiches that needed microwave heating. This led to mixed results in sales.“It slowed down service and took baristas away from their specialty,” Tristano said.

But why spend $100 million to acquire 19 bakeries, a premium price, instead of developing their own? “Buying the bakeries accelerates growth,” Tristano said. Panera is expanding quickly and Dunkin’ Donuts offers specialty coffees, so the La Boulange purchase primes Starbucks to vie in a more upscale way against two rivals.

Rather than spend millions in R&D, La Boulange offers immediate help. “They now have a supply chain that can provide its 10,875 U.S.-based stores and create retail products for supermarkets,” Tristano said.

Tarantino says that customers currently spend $1.5 billion on food at Starbucks annually. He says this justified the $100 million price of the acquisition because Starbucks “sees the potential return they might get from having La Boulange products in its cafe.”

Expanding La Boulange beyond the U.S. is a strong possibility. Tarantino said that “Starbucks is a global brand. It’s clearly possible you could see La Boulange outlets outside the U.S. in Asia and Latin America.”

Of course, any major M&A has risks. Tarantino says this purchase could “start to stretch the management bandwidth too far and could lead to management losing focus on its core.”

Global Expansion

Starbucks has said that it wants to retain La Boulange’s identity and not rebrand it as Starbucks. That strategy enables it to franchise the bakery and expand it nationwide, Tristano says. Growth won’t happen overnight and could take several years to achieve, but Starbucks could ramp up revenue by opening many new La Boulange bakeries.

Starbucks faces challenges maintaining its brand. Tristano says it acquired Evolution Juice for $30 million in November 2011 to expand its juice offerings and tackle industry leader Jamba Juice, and despite adding the bakeries, it’s still “a coffeehouse at heart.” It must continue to focus and specialize on the coffee while adding to its repertoire of products.

But Tarantino sees La Boulange spiking Starbucks’ revenue when combined with Starbucks’ ubiquity.

“Starbucks has significant growth potential of its retail brand,” he said. “Coffee is a convenience, and if you have to walk six blocks to find it, it can be too far.”


Panera Seeking Bigger Slice of Market with Several New Cafes

July 16, 2012

Dan Eaton, 22 June 2012, © 2012 American City Business Journals, Inc. All rights reserved.

Columbus is one of Panera Bread Co.’s oldest markets, but observers might not guess that based on the frenetic pace of its new franchisee for the region.

Warren-based Covelli Enterprises Inc. has wasted little time launching plans for more Panera cafes after acquiring the 20-restaurant Central Ohio franchise from Columbus-based Breads of the World LLC late last year. It has opened four cafes this year, including the largest Panera in the nation near Ohio State University, and has at least seven more on tap before the calendar flips to 2013.

“We’re being aggressive in Columbus right now,” said owner Sam Covelli.

Planned openings this year include sites in the Brewery District, the revamped Shops at Worthington Place and at a new retail plaza at West Third Avenue and Olentangy River Road near Lennox Town Center.

“Columbus has been a high-volume market for us,” Covelli said. “I really feel there is a heck of a lot of opportunity to still grow.”

High volumes

Covelli is Panera’s largest franchisee with nearly 200 restaurants in Ohio, Kentucky, West Virginia, Pennsylvania and Florida. It is expanding into Toronto, Canada, this year and recently acquired five cafes in Lima, Wooster, Marion and Mansfield. The company, which also franchises five O’Charley’s restaurants, has been in the Panera business since 1998.

St. Louis-based Panera has grown to 1,562 cafes, including 816 that are franchised, since its debut in 1987 as the Saint Louis Bread Co. It reported same-store sales for franchised restaurants last year rose 3.4 percent, and were up 5.2 percent in the first quarter of 2012. Sales across the chain totaled $1.82 billion last year, up 18 percent from $1.54 billion in 2010.

Covelli won’t disclose his operation’s sales but said cafes in the Columbus market have seen consistent double-digit increases.

“High volumes make it a lot easier to grow,” he said.

Bakery-cafes have been one of the fastest-growing segments of the restaurant world in recent years, with sales growth outpacing the overall industry, according to a 2011 study by Chicago-based Technomic Inc. Darren Tristano, executive vice president, said in the report that one in three consumers surveyed still hasn’t visited a Panera-style cafe, which spells a lot of upside for operators.

“The most common reasons have to do with location and unfamiliarity,” Tristano said. “As more units open and as marketing efforts continue to boost awareness, there is little reason to think the segment will not continue to perform well.”

Rising up

Covelli is working on making Panera ubiquitous in Central Ohio. The next openings include two in the Delaware area – one in the city and one at the Route 36 exit off Interstate 71 – another in Heath, and a Gahanna restaurant on North Hamilton Road. More highway exit sites could be coming. Covelli runs six Paneras along the Ohio Turnpike.

“We don’t want to depend solely on interstates, but we’d like to start doing more in Central Ohio,” he said.

Covelli made a splash in the Ohio State campus area with a Lane Avenue restaurant at nearly 8,000 square feet in size. He expects a planned cafe in the Brewery District to be high profile as well. The cafe would fill the former Hoster’s brew pub at 550 S. High St., putting Panera close to the heavily traveled Franklin County government complex to the north and German Village to the south. It also has 80 parking spots.

“We just think that’s going to be a tremendous site,” Covelli said.

Other possibilities include a third campus restaurant and a second in the Polaris area, perhaps along Gemini Parkway to complement its cafe at Polaris Towne Center.

The key is to identify and jump on opportunities, Covelli said, even if they are close to existing Paneras.

“There are sites out there that we don’t know about yet,” he said. “We’re getting sites now that we didn’t know about several months ago.”

The cafe coming to West Third and Olentangy is a little more than a mile from its Grandview Avenue unit, but it can cash in on redevelopment of Gowdy Field, he said. The Lane Avenue and South Campus Gateway Paneras are a mile apart but pull from different areas of the OSU campus.

“We’re just right down the road from the other one,” he said. “They hardly affect each other.”

Covelli may be looking for a move soon on the office front as well. The company took Breads of the World’s offices in the Olentangy Plaza on Bethel Road, next to one of its restaurants.

The growing fleet is going to lead to more office needs. Covelli said the company could try to expand at Bethel or look for new offices.


Starbucks’ La Boulange Deal Creates Some Indigestion

July 11, 2012

By KEVIN HARLIN, INVESTOR’S BUSINESS DAILY, Posted 06/05/2012

Starbucks’ moves to cook up a better dining experience has made for a bit of indigestion among its investors and some of its competitors.

Shares of the world’s largest coffeehouse chain were down 4% midday Tuesday to 51.68, a day after it announced it was paying $100 million for the San Francisco bakery chain La Boulange.

The idea, Starbucks’ CEO Howard Schultz said in an after-hours conference call Monday, was to build La Boulange into a national brand, while also incorporating some of its gourmet cafe offerings into his own coffee shops.

Coffee chain Caribou Coffee (CBOU) was off 1.3% midday Tuesday to 12.05. Green Mountain Coffee Roasters (GMCR), a sometime Starbucks partner and sometime competitor in the home single-serve coffee market, was down 3.3% to 22.70.

Both had shot up late Monday when Starbucks said it would have an after-hours announcement — possibly on takeover speculation.

Smaller competitor Peet’s Coffee & Tea (PEET) also slipped slightly Tuesday to 58.02.

Darren Tristano, executive vice president of Technomic, a restaurant industry consulting and research firm, said the bakery acquisition will put Starbucks more squarely in competition with bakery-cafes such as Panera Bread (PNRA) and the privately held Corner Bakery chain. Panera shares were down about 1% to 138.67.

Starbucks has experimented before. It’s rolled out beer and wine sales at some of its cafes and has rejiggered its menu multiple times. The acquisition of the La Boulange brand could bring in more customers in the early morning hours for the bakery’s pastries and croissants, and later in the day for loaves and sweets. The chain’s 19 cafes also serve artisan sandwiches.

Tristano thinks Starbucks loyalists will appreciate La Boulange’s pledge for high-quality, locally sourced foods.

“Better quality food will provide a better tasting product for Americans who are willing to pay a little more to get a little better,” he said.


Executive Profile: Carin Stutz, CEO of Cosi Inc.

July 5, 2012

Her intent is to clean up chain’s image, one location at a time

June 04, 2012|By Emily Bryson York, Chicago Tribune reporter

On a morning visit to Cosi at Grand Avenue and Rush Street, CEO Carin Stutz checked out the prep area where salads and sandwiches are made, practiced her Spanish with the baker rolling out dough for afternoon flatbreads, and told the general manager to keep an eye on the amount of espresso coming out of the machines.

Stutz, who joined the company in January, also stepped from behind the counter to greet incoming patrons — and boast a little about the floor.

“I remember walking in here one time and thinking these floors were filthy — and now look at ’em, they’re spotless,” she said. “You’ve got to scrub floors.”

To underscore the point, Stutz, 55, flips through her iPhone for photographs of the floor at another Cosi before and after her scrubbing mandate.

“You can just see the difference in cleanliness in the restaurants,” she said.

As Stutz attempts a dramatic turnaround at the troubled Deerfield-based fast-casual chain known for its Signature Salad and Tuscan Pesto Chicken flatbread, the Aurora native is thinking large and small. After logging 34 years in the restaurant industry, she began her first CEO job in January and started examining her stores one by one.

On the broader level, Stutz is also wrestling with a perilously low stock price. On Friday, Cosi stock closed at 85 cents, and the company said it had received its third delisting notice in as many years. The chain has until Nov. 21 to get its stock price above $1 for 10 consecutive business days or be dropped from the Nasdaq.

Cosi’s 2002 initial public offering was priced at $7.

Under Stutz, company stock rose above $1 in March, only to drop in April after news of her plan to raise $15 million from shareholders to update restaurants and get the chain growing again. Analysts have complained the move would dilute shareholder value too much.

It has been a tumultuous year for Cosi, a 135-unit chain that went from hot commodity to has-been in less than a decade. In August, the last time Cosi was threatened with a Nasdaq delisting, CEO James Hyatt quickly resigned, and activist investor Brad Blum began lobbying for the job, offering a cash investment and promising to work for a $1 salary.

Stutz is no apologist for the restaurants, where she believes waits are too long, the menu is too complicated and operations need improvement. She’s trimming the menu, simplifying the ordering process and looking for a new chef to make the menu more innovative.

“A lot of times, somebody sits in this office and creates things for the restaurant and they don’t think about the implication that it has,” she said. “That’s why, when I got here, the first thing I did was, I came in, I met the team and I said I’ll see you in five weeks — because I wanted to go learn the business.”

Darren Tristano, executive vice president of Technomic, a Chicago-based restaurant industry consulting and research firm, described Cosi as “really far behind” competition like Panera Bread, Corner Bakery Cafe, Au Bon Pain and even Bruegger’s.

Growth in the fast-casual segment — where there is generally no table service but where prices are higher, food is prepared to order and decor is more upscale than at traditional fast-food restaurants — has been outpacing the overall restaurant industry. In 2011, the sales in fast casual increased 5.2 percent, to $17.5 billion, while total restaurant industry sales increased 2.5 percent, to $370 billion.

Tristano pointed to other “first-generation” fast-casual players that “continue to fail,” like Boston Market and Fuddruckers.

“You could consider those to be first-generation fast-causal concepts that peaked and then declined and lost relevance,” he said. “Cosi appears to be headed in that direction.”

Cosi reported first-quarter earnings last month, narrowing its net loss by nearly half, to $1.13 million from $2.14 million the year before.

“This is a great little company, and you know, yes, you always wish it was in different circumstances,” Stutz said. “But this is the hand I’ve been dealt, and we’re figuring it out.”

William Koziel, Cosi’s chief financial officer, who has been with the company since 2004, described his new boss as “a breath of fresh air.”

“What she’s brought for us has been a renewed focus on the business,” he said. “She clearly has a sense of urgency.”

RJ Dourney, Cosi’s Franchisee of the Year with 13 locations primarily in the Boston area, said the chain’s franchise community has a number of reasons to “feel very confident having Carin at the helm.”

“The first is, she’s an accomplished operator,” he said. “I appreciate people that have great ideas and philosophies; it’s a lot of fun, but at the end of the day, execution is critical.”

Dourney, who worked with Stutz at Applebee’s about a decade ago, said he has seen what she is capable of and “she gets it.” He said she knows how to build teams and “focuses on the things that cause guests to come back.”

“In my family, we never had a new car,” she said, “and I kept thinking, ‘That must be the greatest job.'”

Stutz was less impressed with their methods, which included shouting, “Come on girls, come on, let’s go!”

“I kept thinking, ‘Seriously?'” she said. “He’s got a new car, and I know I could do that job better.”

She said she looked forward to being in a position of authority, when she could treat lower-level employees better, communicate with them directly and demonstrate some understanding of their career goals.

Looking back, Stutz thinks her future in restaurants was cemented while counting the drawer atMcDonald’s.

“I remember one Saturday night I called my dad and said, ‘You’re not going to believe this, but I have $10,000 in my hand right now!'” she said. “I always look back at that moment and think that was when I told Mom and Dad that I really wanted to be in the restaurant industry, and they were like, ‘I think that’s OK!'”

Stutz and her twin were the first members in the family to attend college. Her father, Don Horne, worked in sales, doing everything “from railroads to advertising.” Mother Gloria started work on the sly, Stutz said, walking from Aurora to Batavia after Don left for work and returning before he did.

Gloria eventually made her way to Farmers insurance, starting in the mailroom and retiring 30 years later as an underwriter. In addition to working and raising three children, Gloria ran what Stutz refers to as “Horne’s Hospitality House,” caring for family members and disabled friends.

Stutz earned a bachelor of science degree from Western Illinois University with an emphasis on food, nutrition and business. She later earned a master’s in business administration from MidAmerica Nazarene University in Kansas.

Stutz’s early career was an uphill climb. When working at Wendy’s in west suburban Westmont, she had been waiting for promotion to director of operations but watched six other people beat her to it over a five-year period.

One morning, her boss called her into his office, saying he had great news. He introduced her to Howard, a man she was expected to train so that he could be her new boss.

“That’s one of those key moments in your life when you’ve got that opportunity to make a great first impression on this person who’s going to be your boss in front of your boss’ boss,” she said. Instead, she said: “Are you kidding me? When is it going to be my turn?”

Apparently, no one in the company knew that the mother of two young boys was interested in advancing.

“That’s when it hit me that I had to be an advocate for myself,” she said. “I didn’t know that people talked to their bosses about the next job.”

Stutz was fortunate in finding mentors. Gayle Bartlett, a human resources executive at Wendy’s, took an interest in Stutz in 1984. Bartlett offered to review Stutz’s materials before presentations and even took her shopping to select appropriate office attire, things Stutz hadn’t learned working in restaurants.

“I realized how important it was for other women to reach down to other women and help pull them up in the organization,” Stutz said. She still has an orange Jones New York suit purchased during the mid-1980s shopping trip. She got her promotion to director of operations in 1985.

Stutz, her husband, and sons Rodger IV and David, left Aurora for Chesapeake, Va., in 1988. Rodger, who had worked as a police officer in Aurora focusing on gangs and burglaries, eventually took over day-to-day child-rearing.

Finding fifth gear

Stutz’s jobs in operations at Wendy’s took her to the areas of Philadelphia, Boston, Kansas City, Mo., and Portland, Ore. She ultimately became vice president of the chain’s Pacific division.

Stutz’s younger son, David, said that while moving around as a child, he developed an outgoing nature that has led him to a career in sales. David, a manager with the Golfsmith retail chain, recently completed his MBA at Avila University in Kansas City, Mo.

Of his mother’s success in business, he said: “She’s a real person,” and “she doesn’t sugarcoat anything.”

Luckily, he added, “she knows what she’s doing, so it doesn’t hurt, and so people usually listen to her because she’s got a proven track record.”

In late 1999, Stutz moved the family back to Kansas City, where she had been named executive vice president of operations for Applebee’s. She remembers being enticed not only by the opportunity to work at a company headquarters for the first time, but to move to “a job where people use you for your mind, not just your hands.”

And after decades of carrying out someone else’s plans, Stutz was eager to craft her own.

“At some point in your career, you sit there and look at a program and think, ‘Who thought of this? Did they ever work in a restaurant?'” she said. “(That’s) probably why I drive myself to spend as much time in the restaurants and get as much feedback as I can from our operators and ask, ‘Does this make sense?'”

Stutz left Applebee’s in 2007 when the company was sold, and a noncompete agreement kept her on the sideline for a year. She traveled with her husband and volunteered full time with Women’s Foodservice Forum, a networking organization aimed at elevating more women to executive roles in the food industry.

In 2009, Stutz was named chief operating officer of global business development for Dallas-basedBrinker International, which owns Chili’s and Maggiano’s Little Italy, which was founded by Chicago-based Lettuce Entertain You Enterprises. She was later named president of global business development.

The Brinker job offered “a lot of opportunities to grow and learn in my career,” Stutz said. She enjoyed being part of a big, stable company and working on a growing area of the business.

Eventually, she started thinking it was time to try and land a CEO job. She began to look around and had two offers within eight weeks. She chose Cosi because she said she believed in the product and was excited by the opportunity.

“I’ve never run from anything thinking, ‘I’m never going to move up here,'” Stutz said. “It was always more like, ‘I’m giving it everything I have and there’s nothing else. I really want to try the next position.'”

A side benefit, she said, has been the healthier fare.

Whenever she starts a job, Stutz said, “I eat my way through the menu,” during which time she expects to gain 10 pounds. At Cosi, because of lower-calorie items and living downtown, where more walking is required, Stutz said she has lost 16 pounds.

Living a ‘dream’

Having worked her way up through operations, a traditionally male-dominated segment of the restaurant industry, Stutz believed she had arrived when she earned her first CEO job.

But news coverage at the time focused on Brad Blum, a restaurant industry veteran known as a turnaround specialist who had bought a sizable stake in the company and had been agitating for the CEO job. Blum has led Olive Garden Italian Restaurant, Burger King and Romano’s Macaroni Grill and Italian Restaurant.

Stutz said she was surprised at the level of media attention surrounding her arrival, until she discerned the most frequently asked question: “What are you going to do about Brad Blum?”

“I realized the story was more about him,” she said. “There were all kinds of comments out there, like, ‘Why in the world did they give it to Carin, who’s an operator, when her predecessor was an operator and you could have given it to Brad Blum, who’s been a CEO three times?'”

In an interview, Blum said Stutz was “a good choice” for the job. He is working for the company nearly full time on an open-ended consulting project focusing on marketing, branding and menu innovation.

In her first months on the job, he said, she has been “focused on positive change.”

“She’s interested in increasing guest satisfaction and increasing interest in the brand, and I think making good headway,” he said.

Stutz and her husband have been enjoying life back in the Chicago area, having purchased a condominium in the Loop that offers a view of the Art Institute and Lake Michigan.

Despite his wife’s newly elevated status, Rodger said she remains down to earth, avoiding the trappings afforded many highly paid executives, like car service to the airport.

Before Memorial Day weekend, Rodger said, he walked his wife to the Thompson Center before 4 a.m. so she could catch the Orange Line to Midway Airport for a trip to New York. He then walked to the Blue Line to catch a train toO’Hare International Airport. He was off to visit their sons in Kansas City, and his wife would be meeting them for the weekend.

“She’s tried to stay humble,” he said.

Stutz put it another way.

“I say I’m living the American dream,” she said. “Sometimes you’ve got to pinch yourself.”


Top 50 foodservice bakeries: Redefining foodservice

January 18, 2012

Top 50

Top 50 foodservice bakeries: Redefining foodservice

Consumers continue to explore casual dining options at different dayparts, indicated by the continued expansion of the bakery café segment over recent years. The sluggish economy hasn’t deterred consumers from allowing themselves small treats, which is evolving to include specialty beverages.

The health food trend shows no sign of abating, which noticeably impacted donut shops, although Canton, Mass.-based Dunkin’ Donuts answered by expanding its menu offerings to maintain the number one spot. And a cupcake bakery jumped to number 38 on Modern Baking’s Top 50 Foodservice Bakeries list, demonstrating the trend’s staying power.

Bakery cafés stay strong

The bakery café segment, which accounts for $5 billion in annual sales and more than 3,600 units nationwide, continues to thrive in a persistently flat economy. According to Chicago-based research firm Technomic, the number of bakery cafés operating in the United States climbed 4.2 percent during the past three years, while sales at those units rose 12 percent, outpacing the overall foodservice industry during the same period.

A survey of more than 1,500 consumers by Technomic this fall found that 71 percent have visited a bakery café, with nearly 75 percent saying they visit one at least once a month. One-third of the survey respondents haven’t visited a bakery café, mainly because of inconvenient location and unfamiliarity.

“This is a segment that continues to grow and steal business from full service,” says Darren Tristano, executive vice president of Technomic, adding that breakfast will become increasingly important for the category in the coming years. “Breakfast is a very underpenetrated daypart because people skip it or eat at home. But younger generations have a higher frequency of dining out, and as they grow up, we will see greater frequency, more penetration at breakfast and greater sales growth.”

The success of the bakery café format can be seen in segment-leading Panera Bread, Richmond Heights, Mo., which has opened 73 locations in the past year to reach 1,453 units. The company has 110 additional outposts planned for 2012. According to the Technomic survey, consumers continue to frequent Panera the most, as seven in 10 purchase food from the chain at least occasionally, with 69 percent of that subset going at least once a month.

The segment’s growth hasn’t translated to expansion for everybody, however. Although Atlanta Bread Co., Smyrna, Ga., was one of the fastest-growing franchises in the late 1990s, it has shuttered more than half its locations in the past year.

“It has been a strategic initiative to let stores close,” says CEO Jerry Couvaras, adding that same-store sales have been positive the past 24 months. “We had a choice some time ago and made a strategic decision that we would rather be strong and smaller rather than have a dirty little café on every street corner. Unfortunately, it affects the brand because you are culling the system slowly. But it looks like you are on a shutdown path.” He attributes the wave of closures mainly to real estate and operator issues.

A recent Atlanta Journal-Constitution article found that half of the 66 U.S. Small Business Administration-backed loans (worth a total of $32.8 million) made to Atlanta Bread franchisees since 2001 have failed.

“We have spent a lot of time reimaging, and a lot of time on real estate. We’ve opened our own stores and taken over some from other operators. We are a lot more possessive over who operates stores now, having made a concerted effort to look at what it takes,” Couvaras adds. “The coming year will be a miniscule amount–maybe one or two stores closing. We will open six to nine locations in different parts of the country next year. We’ll be doing a lot of company stores. And we have franchise locations that are being sold.”

Revamping the consumer experience

Atlanta Bread is one of many bakery café chains looking to reconcept its store layout to improve efficiency and overall customer experience. Chains also are adding menu items that emphasize artisan bread, locally sourced ingredients and wholesome items.

“We brought in banquette seating, curved walls, high and low seating,” Couvaras says. “If you walk into one of our 4,000-sq.-ft. stores, there is a lot of demarcation. We wanted to make it cool, funky and eclectic, where people could spend more time, rather than tables from one wall to the other.”

Atlanta Bread implemented an all-day menu, adding items like a turkey lingonberry sandwich on focaccia, pizza (made from its focaccia dough) and made-to-order omelets and upgrading its muffin formula, with plans for additional whole grain varieties.

“In the old days, lunch was huge and breakfast was good. Dinner was nonexistent,” Couvaras says. “Today we have stretched the day. Cafés have introduced continuous service where people feel comfortable in the morning having soup or an omelet of the afternoon. We serve our entire menu all day to make people feel comfortable.”

Cinnabon has increased its focus on portable treats with products like Center of the Roll, which was originated by a franchisee.
Boston-based Au Bon Pain in June launched a chain-wide café remodeling to make shopping more efficient and freshen the store’s look. The soup bar was moved further away from the sandwich station to relieve lunchtime congestion.

“The genesis of that was refreshing the café to try to bring a new energy into our place but also to improve guest flow,” says Ed Frechette, senior vice president of marketing. “Unlike quick serve, in our concept you pay on the way out so you shop the floor. The exercise with refreshing cafés was to reevaluate flow.”

Additionally, Au Bon Pain is expanding bakery and made-to-order sandwiches to remain distinctive in the increasingly crowded market.

“We are looking to update products and innovate, and we are really innovating in bakery,” Frechette says. Last year, the chain upgraded its croissant formula and introduced cupcakes including French vanilla, red velvet and double chocolate. It also launched toursades, 1-in. strips of its croissant dough sandwiched with French cream, twisted together and rolled in sugar. Chocolate mocha and chai spice whoopie pies also joined the bakery offerings. The chain is expanding its savory offerings as well, with a grilled chicken avocado sandwich and Cobb salad with avocado being added this year.

“Our top two categories are baked goods and sandwiches,” Frechette says. “We have evolved over time, but baked goods are still core to the brand. Since the health trend is here to stay, our chef is looking to reduce the sodium level of the bread. We also want to offer more vegan and vegetarian options in the coming year.”

Atlanta-baesd Cinnabon, traditionally known for its cinnamon rolls, also has found success in the burgeoning bakery café segment. Locations are either 600-sq.-ft. full bakery cafés or 200-sq.-ft. Cinnabon Express units. According to president Kat Cole, the company plans to open more than 20 full bakery café locations and 200 express units in 2012, with plans for remodeling all the stores for a more contemporary look.

In response to consumers’ growing concerns about healthful eating, the company has taken a long, hard look at its core product: the 800-calorie classic Cinnabon.

“Strategically we had a decision to make. Do we go down this path of trying to make a light Cinnabon?” Cole says. “There is only one way to take calories out of fresh baked product and that is to add something not natural. I could make a 400-calorie Cinnabon but it would be riddled with preservatives. Where we are headed is keeping the same high quality ingredients but get at it through portion size and allow people to enjoy it responsibly. This allows them to keep nutrition goals but still treat themselves with a best-in-class treat.”

The chain is looking to make its products more portable with launches like its Center of the Roll chopped in a cup and Cinnabon Bites, pastry dough rolled in cinnamon sugar. It is using the Cinnabon dough as the base for egg, ham and turkey sandwiches. Additionally, it is looking to expand the number of ambient products for the pastry case such as Danish, which has a longer shelf life and is less sweet than the cinnamon roll.

Coffees, teas and coolattas

Foodservice bakeries across the board are focusing more attention than ever on specialty beverages and coffee.

“While older consumers tend to go for standard coffee, the younger generations are looking for more gourmet, specialty coffee, which means a higher price point and more sales to that area,” Technomic’s Tristano says.

“Starbucks has trained the consumer to consider coffee treats with a straw as a snack,” Cole says. “Our line of beverages–the Mochalatta Chills and Chillatas–has a renewed popularity. And while we’re not going to try to be Starbucks, we are working toward a better quality and consistently offered cup of coffee and line of drinks so people don’t have to go elsewhere for their coffee drink, which goes so well with our pastry. I think the coffee program is a big part of where we are going.”

Dunkin’ Donuts has moved beyond its signature coffee to offer blended coffee and fruit Coolattas, along with cappuccinos, espressos and hot and iced lattes.

Atlanta Bread now offers flavored coffee beverages, and this year inked an agreement with Lavazza to carry its coffees in all of its stores. The company also recently converted all its stores to Mighty Leaf Teas. “Our tea and coffee sales are through the roof,” Couvaras says.

Economy, health trend tough on donuts

The past few years haven’t been especially kind to the donut category. According to data from IBISWorld, Los Angeles, donut stores experienced a significant slowdown in business due to both the lingering recession and changing consumer tastes. The trend toward healthful eating has seen consumers becoming more aware of the detrimental effects of eating fatty, sugary foods.

To combat slumping sales major operators, such as Dunkin’ Donuts and Krispy Kreme, have launched lower-calorie, more substantial items like breakfast sandwiches. In 2008, Dunkin’ introduced two flatbread sandwiches made with egg whites. This year, the chain introduced a limited-edition Smokehouse Sausage breakfast sandwich, featuring a toasted English muffin stacked with egg, melted American cheese and split sausage; and the Big ‘N Toasty breakfast sandwich, which comprises two peppered fried eggs, four slices of bacon and melted American cheese on Texas toast.

“We realize that people on the go at times crave heartier foods to start their day,” said John Costello, chief global customer and marketing officer at Dunkin’ Donuts, in a press release. “With the Big ‘N Toasty breakfast sandwich, Dunkin’ Donuts can satisfy even the biggest appetites with a fulfilling, portable breakfast at an affordable price.”

Dunkin’ Donuts continues to grow, with sales topping $6 billion in 2011 and aggressive expansion efforts planned in Washington, D.C., and Louisiana through 2020.

The year of the cupcake…again

The cupcake craze continues to surprise even the most hardened of skeptics (some Modern Baking editors included), as consumer demand showed no sign of slowing this year. According to a report from IBISWorld, specialty cupcakes have been a significant growth segment for the cake industry, helping it achieve consistent revenue growth over the past five years.

And the cupcake proved to be fairly recession-proof, according to IBISWorld. During 2008 and 2009, industry revenue climbed 6.4 percent and 2.4 percent, respectively, as consumers continued to buy inexpensive, small serving luxuries like cupcakes, while larger items like wedding cakes were on the decline.

The country’s largest cupcake chain, New York-based Crumbs Bake Shop, reached $8.9 million in sales this year. The chain aims to reach 200 stores by the end of 2014 and already is set to open in two new markets in 2012–Philadelphia and Boston–and has a second confirmed location planned for Chicago. Crumbs went public early this year through a $66 million merger with 57th Street General Acquisition Corp. to help finance its ambitious expansion plans.

Crumbs appeared on the scene in 2003, about the same time a wave of cupcake shops were popping up all over the country, including New York-based Magnolia Bakery (credited with launching the craze), Los Angeles-based Sprinkles and Washington, D.C.’s Georgetown Cupcake. Market share concentration is expected to increase over the next five years, as cupcake-only stores expand to less saturated regions, according to IBISWorld. Sprinkles, for one, already has plans to open locations in Las Vegas, Boston and Seattle. And despite persistent rumors of the “bursting of the cupcake bubble,” Crumbs maintains that cupcakes are more just than a fad, as owner Jason Bauer insisted to the New York Times around the time of the 57th Street merger.

“I’ve been in this business for eight years, and we’ve grown it every year,” he said. “If I had a nickel for every time someone asked me if cupcakes were a fad, I wouldn’t need to do this deal.”

Technomic’s Tristano says the lines dividing the various foodservice bakery segments will continue to blur as categories offer more variety and lengthen the day to steal business from full service.

“If you were to take a look at coffee, snack (Dunkin’ Donuts and Krispy Kreme) and bakery cafés, we are starting to see them merge into one category I would almost call cafés.” MB

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