Einstein Noah reinvesting in food quality

by Monica Watrous
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Einstein Noah is aiming to improve sales during its lunch day part with new menu items, including the All American Bagel Dog.

LAKEWOOD, Colo. — Thicker bacon and premium eggs are among investments Einstein Noah Restaurant Group Inc. is making as part of brand revitalization efforts. The operator of Einstein Bros. Bagels, Noah’s New York Bagels and Manhattan Bagel brands said it has improved the quality of some of its ingredients at no additional cost for the consumer.

“We took quality out for quite some time, and we certainly are putting it back,” said Michael Arthur, interim CEO, during a July 31 call with financial analysts to discuss second-quarter earnings. “We’re not raising prices, and the important thing is over time for the customers to understand what we’re doing as they come into our stores.”

Improvements in guest interaction, order accuracy and store condition have helped the company increase traffic and raise guest satisfaction scores.

“Our improved store maintenance program has now evolved into major remodel work, [and] we plan to refresh 75 stores across the system this fiscal year,” Arthur said. “We tested remodels earlier in the year in Orlando and have seen favorable return that more than covers our cost of capital.”

Another traffic driver is catering, which accounts for nearly 10 percent of the company’s sales and is expected to grow to nearly 15 percent.

“Our typical catering order can feed 30 plus people, which is a great outreach from our stores to a captive audience,” Arthur said. “Although an order only counts as a single transaction in our measure of traffic, it provides great sales leverage.”

But the bagel chains remain challenged by lagging afternoon business, as competition pressures transactions during the day part.

“Lunch is a challenge for us,” Arthur said. “We make no bones about it. The bagel dog is a good start. Two sandwiches we are introducing at the end of August, a chicken with brie and fig jam and the other one with chicken and beer cheese, our two winners, and that’s only the beginning. It’s tough business but we only need a small percentage of the lunch business to gain traction.”

As Einstein Noah focuses on recovering its pm platform, the company said it won’t turn its back on breakfast, which represents two-thirds of its business.

“Lunch is not going to be in the short term a major impact because of all the competition, but we just want a piece and we are going to feel our way into it,” Arthur said. “We’re not going to give up on the promotion on breakfast, at lunch. We did that once before, and it didn’t work. And it’s to pace ourselves as we move forward on both entities.”

During the second quarter ended July 1, net income fell 24 percent to $2,545,000, equal to 14 cents per share on the common stock, from $3,332,000, or 19 cents per share, in the prior-year period.

Total revenues increased by 4 percent to a record second-quarter $112,448,000 from $108,037,000.
System-wide comparable restaurant sales rose 1.6 percent, reflecting an increase in average check that was offset by a decrease in transactions. The rise in average check was driven by a reduction in discounting, moderate price increases and favorable mix for continuing catering growth.

Brand revitalization efforts were coupled with cost savings initiatives, which included a nearly 10 percent reduction of its support staff. Meanwhile, the company continues to search for a chief executive officer and expects to announce its new leader within the next few months.

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