Spicy Pickle Franchising, Inc. (SPKL.OB-OTC: BB)
June 5, 2009 Issue
The Most Powerful Name In Corporate News and Information
With Continued Expansion Of Its Spicy Pickle Premium Sandwich Shops In The United States And The Acquisition Of Bread Garden Urban Cafes In Vancouver, Spicy Pickle Franchising Has Been Able To Combat The Economic Downturn And Offset The Franchising Slowdown
Founded in 1999, Spicy Pickle Franchising, Inc. (OTC BB:SPKL.OB - News) serves high quality meats and fine artisan breads, baked fresh daily, along with a wide choice of eight different cheeses, twenty-two different toppings, and fourteen proprietary spreads to create healthy and delicious panini and sub sandwiches with flavors from around the world. As a leading "fast-casual" concept, Spicy Pickle offers menu items that are far beyond traditional fast food but without the price point of casual dining. The hallmark of a Spicy Pickle restaurant is quality, service and an enjoyable atmosphere. The company is headquartered in Denver, Colorado, with restaurants open across 12 states and more in development nationwide. Spicy Pickle Franchising, Inc. also operates as franchisor for Bread Garden Urban Cafés, a concept with restaurants in the metropolitan Vancouver, Canada area. Bread Garden Urban Cafés serve coffee, pastries and breakfast items as well as lunch and dinner along with a wide variety of desserts.
Mr. Geman is the President/CEO and a Member of the Board of Directors of SPF. From 1994 to 1998, he was President of PretzelMaker a national franchisor of soft pretzels that he built from a handful to over 240 stores and sold to Mrs. Fields Cookies, Inc. in November 1998. Prior to SPF Mr. Geman was an officer, and director of both Bayview Technology Group a company that developed energy efficient products, and in the early 90’s of Portfolio Management Consultants, Inc., an investment advisory firm managing assets for high net worth individuals. Mr. Geman has been a licensed attorney since 1973.
Interview conducted by: Lynn
Fosse, Senior Editor, CEOCFOinterviews.com, Published – June 5, 2009
Mr. Geman: “The company, like many of our fast food and other restaurant companies, has recognized that there has been a slow-down in franchising activity, and a dip in store sales. I think it is consumer pullback and concerns. The good news about that is that the trends are starting to move the other away now. Consumers are coming back to the stores, and the store sales are coming back up, which is a very good sign. However, the financial and credit end of the market still hasn’t loosened up significantly. So, franchise sales are still slow, but we just recently completed a couple of sales and have some new units slated for opening soon. We are hoping we are moving forward, but obviously any plans we had a year and a half ago about where we thought we would be today are certainly not coming to pass at the moment. We are at thirty nine stores in twelve states and we own a subsidiary chain called Bread Garden Urban Cafes, in Vancouver that currently has twelve stores, with six more slated for opening between now and the coming of the 2010 winter Olympics in Vancouver. So we are still pretty active.”
CEOCFO: Will you tell us more about Spicy Pickle and the Bread Garden?
Mr. Geman: “Spicy Pickle is an upscale sandwich shop. We serve all of our meats and cheeses with no MSG, no preservatives, no fillers, extenders, artificial colors, or flavors. We bake our own bread from scratch, literally using flour and other ingredients everyday in all the stores. Therefore, all of our ciabatta and focaccia breads are fresh-baked that day. All of our toppings and spreads are fresh and the spreads are proprietary with special ingredients and recipes that were created by Tony Walker and Kevin Morrison the founders, who are also chefs. So all of our basil mayos and so forth are mixed everyday in the stores. Essentially people are coming to our restaurants for a premium sandwich and premium food experience. The same is true of our salads. Our spicy tuna salad is a wonderful dish. The panini and sub sandwiches and the salads that are in Spicy Pickle primarily cater to a white collar lunch business, catering business and that kind of business. Some of the Spicy Pickles have a thin crusty Neapolitan style pizza, which is made with the same type of interesting flavor profiles that our sandwiches are made with. However, they don ‘t exist in all of the stores; just in those that would have more of a house-hold demographic for dinner business. The Bread Garden Urban Cafés have been around Vancouver since the late 1970’s and were actually started as one of the original fast casual bakery/café concepts anywhere. They have a full coffee program, with some breakfast sandwiches, a whole line of muffins, scones, and coffee cakes. They also have a very famous item they call a CinaKnot, which is a Cinnabon, but rather than have a white or vanilla coating on it, it has crushed nuts and a caramel coating on it. It is a popular item throughout Vancouver and British Columbia. They serve what they call savory dishes, which we might call comfort foods. These are things like potpies, lasagnas, and meat loafs. They have a fairly wide menu and serve a much larger day part than our Spicy Pickle stores.”
CEOCFO: When did you bring the Bread Garden Urban Cafes into the fold?
Mr. Geman: “This goes back to our original question and answer. We began looking at the Bread Garden Urban Cafes, sometime in late 2007-early 2008. It became apparent to us that things were in a slow-down mode. Therefore, we thought one of the ways that we could help support this great infrastructure we put together was to look at some other concepts that maybe we could acquire and operate that were similar enough to what we do to make it feasible. We looked for quite a while throughout 2008, but one of the things that came to our attention very early on was the Bread Garden Urban Cafés. This was because it was owned by a family in Vancouver that they themselves were looking around for a company that had a good infrastructure and a significant business experience in the franchise food business to help them. So we kind of found each other in early 2008 and spent about nine months in due diligence back and forth, the usual legal and other matters involved, and got the transaction closed now on October 1st of 2008. So we have owned it now for about six months and we are just starting to put some of our food items from Spicy Pickle into the Bread Garden Urban Cafes and likewise. We are using some of the Bread Garden coffee in other programs to see how that works in some of our Spicy Pickle restaurants.”
CEOCFO: Do you find much difference between US business and Canadian business in the casual dining area?
Mr. Geman: “Yes, there is actually, quite a bit of difference. I had another concept before this called PretzelMaker and we had 32 stores in Canada. Even back then, which was the early 1990’s, it was clear to me that other than fast-food companies like McDonald’s and Burger King that seemed to do well on both sides of the border, it has been very difficult either way for Canadian companies to come here or US companies to go there. It doesn’t seem like it should be a problem for you to go there, but it is. One of the big gaps that is clearly not there, at least not in the BC Vancouver market, is what I would call fast-casual concepts such as ours. There are tons of coffee shops, such as Starbuck’s, because it is a typical West coast coffee environment. Once you move out of that environment, the next thing you go to is casual dining, where you have the sit-down, full service restaurants. Therefore, that leaves a whole area in between which we define as fast casual. Bread Garden Urban Cafes fits that niche. It is really one of the only, if not the only Canadian chain that does. I don’t know why more fast casual concepts haven’t originated out of Canada or those from the US have not gone into Canada. It just seems that that border is harder to cross when it comes to food than for other purposes.”
CEOCFO: You mentioned the Vancouver Olympics; how are you planning for this opportunity?
Mr. Geman: “The Olympics is a highly visible event. The host city has a lot of money poured into it from visitors and from the government in preparation. So we went after a lot of locations that we knew would be very visible worldwide. For example, one is in the new concourse at the Vancouver airport, which is the Air Canada terminal. We are right in the middle of that terminal, which means that a lot of people are going to be seeing Bread Garden Urban Cafes for the first time. In addition to that, we just are concluding a lease agreement right now on Whistler Mountain, which is outside of Vancouver, but is obviously, where all the downhill and other ski races will be held. Between those two and a couple of downtown locations in the big hotels we are going to get a lot of exposure as Bread Garden. So what we are trying to do is dot all the i’s and cross all the t’s. We are making sure that all the food items and distribution and methodology and quality is in place in those locations as we get into the fall, so that we will be ready to show something.”
CEOCFO: Is the economy affecting your ability to ensure quality?
Mr. Geman: “If people are trying to cut corners or make do with less, I suppose there is some of that. However, we are finding that the quality and the ability for us to produce the same quality level of food that we had even prior to the recession hasn’t changed at all. The pricing on our commodities has come down a little bit, so that is favorable. We have had to react much more on the consumer price level than we have at the vendor level, or supplier level. That seems to be very consistent to me and operating just as it did, but obviously consumers are much more price conscious today than they were even a year ago.”
CEOCFO: What is your most popular item?
Mr. Geman: “The most popular items are the turkey based sandwiches, which includes both the panini and the sub sandwiches. We have names for all of our sandwiches. The two turkey panini sandwiches go by the name of the Gobbler and the Sausalito Bandito, and they are clearly the most popular paninis. We also have a chicken sub sandwich, but they are followed closely by a couple of other items. All in all I think turkey is the favorite.”
CEOCFO: Looking at your website I see that you have 150,000 possible combinations?
Mr. Geman: “We are trying to do better math actually. That number is actually real because if you take the different kinds of breads that we offer and take that, times the different types of meats, cheeses, spreads and toppings in a build-your-own kind of context, you come up with an enormous mathematical number of possible combinations. Up until quite recently we actually offered an unlimited build-your-own menu where you could pick a meat, pick a cheese, and unlimited toppings. We have 21 toppings including exotic roasted red peppers, banana peppers, Kalamata olives, corn relish, and things of that nature. These are not your typical toppings, like lettuce, tomatoes and red onions. In light of these economic times, we have been building a price conscious menu called Picklenomics where you can now, for under six dollars, choose from several toppings and a couple of spreads and meats and cheeses and wind up with a very hardy sandwich.”
CEOCFO: Are you addressing nutritional value?
Mr. Geman: “You can find the caloric count and the nutritional information about all of our sandwiches, all of our salads, and so forth right on our website. What you find is that people who are concerned with it know how to build around it. For example, I will most often have a turkey sandwich with maybe Swiss cheese, but I will rarely put any spread on it, even if it is a light mayo spread. I might put some mustard and lettuce and tomatoes and that sandwich caloric-wise is very low and nutritionally is fine. The same thing is true with salads. If you have them without the dressing or the dressing on the side, there is nothing shocking about the caloric count or the nutritional numbers in terms of fat content. I think people want to be conscious about that and I am all in favor of that. They will find plenty at Spicy Pickle that they can eat without concern. There are other people who obviously will like balsamic vinaigrettes or basil mayos, but when you start putting that on you will start hitting other kinds of numbers on the charts.”
CEOCFO: How is business in the catering side of Spicy Pickle?
Mr. Geman: “That has been a very big emphasis for us over the last year and it is really starting to show its numbers. We have the start of the development of tools, which is the marketing materials, to go out and generate the catering orders and then the packaging to deliver the catering orders. That also includes the register key system to take the catering orders, monitor it and follow it, so that we can see how it is succeeding. It took a while to get all that done frankly, but we have and we are finding a lot of success. We have stores where 15% to 18% of their business is now catering. That is healthy, and we like people making more.”
CEOCFO: What is the financial picture of the company today?
Mr. Geman: “It is tight, would be a good description. We are minding our Ps and Qs, and are hunkered down or whatever the saying of the day is. A lot of people tell me these days that if you are maintaining the same as two years ago, you are in explosive growth. The answer is we are maintaining. We cut personnel down, because obviously, if we are not building 20 stores a year, we do not need construction and project management people. We are a public company, but we put no money into our investor relations right now. We just feel that we should put our time and effort into making Spicy Pickle and Bread Garden the best that they can be, and the success of those to concepts will be the success of the stock eventually.”
Final thoughts, why should potential investors pay attention to Spicy
“We are at thirty nine stores in twelve states and we own a subsidiary chain called Bread Garden Urban Cafes, in Vancouver that currently has twelve stores, with six more slated for opening between now and the coming of the 2010 winter Olympics in Vancouver. So we are still pretty active.” - Marc N. Geman
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