FOOD FOCUS: Breakfast-only operations enjoy a number of practical advantages.
EGG-ONOMICS: Low food costs make breakfast a profitable proposition.
It's the crack of dawn. People are hungry. If you're not serving breakfast already, are you missing out on an opportunity? Mom may have told you that breakfast is the most important meal of the day, but many operators have realized that it's a profitable meal as well. In fact, many have discovered that they can get up early, cash in on some pancakes, eggs and waffles, and then close up shop for the day. How? We've profiled what J.D. Powers identifies as the three best breakfast chains in the U.S. The surveyors found that these three chains—Le Peep, First Watch and The Original Pancake House—had the highest consumer satisfaction ratings of U.S. breakfast chains, so there are lessons to be learned from these operations. How are these folks getting it so right? And how are they making money when they've limited their business to just one thin daypart?
Actually, the breakfast-only business model has several advantages. One, explains Jon Liss, general counsel and corporate chef for The Original Pancake House, is that running a one-shift operation avoids the need to hire a B-team, cutting your labor problems in half. Plus, the cook in your kitchen is always your best, he adds, which helps avoid sloppy hand-offs between shifts.
Secondly, operating just one early daypart helps operators retain employees. First Watch, for example, reports that its turnover rate is consistently 10 to 20 percent lower than the industry average. "Our managers and our hourly staff find that you can be in the restaurant business and be home at night for your kids' soccer games," says Ken Pendery, president and CEO. Le Peep VP Amanda Rhoads concurs. "The hours put us at such a great advantage when it comes to finding and retaining good employees. There are no nights, which both managers and hourly employees love. We have busboys who have been here 10 and 15 years," she says.
Another advantage to breakfast-only operations, Liss says, is that great execution is easier. "Seven or eight hours is the perfect amount of time to keep food fresh," he points out. "The batter we make at 5:00 a.m. is still fresh at noon, but it would-n't be at 8:00 that evening." Plus, more down time leaves time to give the dining room a good daily cleaning.
But having a seven-or eight-hour window, especially if you're not serving alcohol through it, poses one huge challenge: How do you make enough money to turn a profit in such a short time? Again, the three best breakfast chains offer some lessons.
Quality control, good products and precise execution are common themes among these operators, and all of them say such ideals demand controlled growth. The Original Pancake House's Liss says careful franchising has been essential. By design, most of the Portland, OR-based company's franchisees have just a handful of units. While the company once granted franchisees rights to entire states, its franchise areas are much smaller now, pushing the proprietors to be more hands-on in the day-to-day operation and quality control of their restaurants. "We're not interested in adding 10 units per year," Liss says. "We get thousands of calls from prospective franchisees and we end up signing on one or two each year— those who have the right site and who share the passion we have for our food."
Another way these operators are making it work is by taking advantage of the naturally lower food costs of breakfast items.
Getting the best contracts and managing costs carefully, they say, help to make up for short hours of operation. Also in breakfast operators' favor are other lower overhead costs, such as equipment and labor expenses. Ken Pendery says keeping First Watch's combined food and labor under 60 percent of gross revenue ensures a healthy profit. Alternate revenue sources are another way breakfast chains boost the bottom line. Le Peep builds sales with catering, offered both during and after normal business hours.
Perhaps the biggest key to breakfast success is simply squeezing more business into less time. That is, the quicker tables are turned, the higher the daily take, so breakfast operations are built for speed. "At dinner, you can do fewer covers if you're doing 40 bucks a head," Pendery says. "But at breakfast, where your price point is below $7, you have to stay busy." And they do. The average visit lasts 30 minutes, 45 if a meeting is taking place or if the guest brings along a newspaper. Similarly, at Le Peep, Rhoads says the average stay is 45 minutes or less because "We take the order quickly and get the food out right away."
A basic requirement for staying busy and pumping up the volume is selecting exactly the right locations—areas with dense residential populations (to ensure heavy weekend traffic) and a substantial number of businesses (to attract the breakfast meeting crowd). The Original Pancake House's Liss says creating repeat business with great ingredients and good execution is the key to creating volume. "By serving unique food with the highest-quality, finest ingredients, we turn our weekend customers into weekday repeat business—Moms with kids stopping for breakfast, and people who come in before or during work."
Great ingredients, controlled growth, attention to quality and high volumes are the cores of success for the country's best breakfast chains. Despite the challenges of cramming a full day's revenues into one or two dayparts, the breakfast business model has substantial advantages—not the least of which include afternoons on the golf course and evenings with the kids.
Le Peep Invites Guests "Home"
Founded in Vail, CO, in 1982 by a self-proclaimed ski bum who wanted to have his afternoons free to hit the slopes, Le Peep's philosophy is to offer the type of breakfast guests would make themselves if they had the time and the inclination. "What sets us apart from typical breakfast competitors, larger chains like IHOP, is our scratch preparation and fresh ingredients. We rarely use mixes," explains VP Amanda Rhoads.
"Also, most of our dishes were created by our founders. Our image is nicer than that of the typical family chain restaurant." The best sellers are the skillet dishes—potatoes, eggs, breakfast meats, vegetables, cheeses and other ingredients—fried and served in an iron skillet.
Today, 73 Le Peeps are scattered across 14 states. Most of them are owned by private licensees. The company believes one way to maintain quality is to require unit managers to have a stake in their operations, as determined by the individual proprietors. Whether it's an investment in the business or rights to a percentage of the profits, Le Peep believes its philosophy of requiring some type of management ownership keeps the operation running in top form.
The licensing program, versus a traditional franchise system, offers more flexibility and freedom for the operator. Proprietors have more independence when it comes to decisions like building design and decoration (though most opt for the company standard—dark greens with white lattice touches and white tablecloths), as well as the freedom to purchase from suppliers of their choice. Moreover, the licensees can add items to the menu as they please, and the startup costs and fees are lower than those of a typical restaurant franchise agreement.
Like the First Watch and The Original Pancake House concepts, Le Peep's target market is broad: middle class, families, the after-church crowd and business breakfast and lunch customers. Checks average $14.50, yielding about $750,000 in average unit volume. Le Peep makes up for lost later dayparts with a busy catering business, which accounts for up to 15 percent of revenues at some units.
Where do they go from here? LePeep's goal is to gain about five new restaurants per year, owned by carefully selected licensees, says Rhoads. These partners, she says, must be dedicated to the company's goal of creating a restaurant that gives guests a warm place to get a home-style breakfast.
"We try to make a difference for our guests. We don't want to be a cookie cutter chain or a greasy spoon. We want guests to feel like they're visiting a family member for a hearty breakfast."
The Original Pancake House: 50 Years of Consistency
"We don't do any studies, we don't worry about our niche, we don't conduct any analyses," says Jon Liss, The Original Pancake House's general counsel and corporate chef. Liss, who married into the family business after falling in love with the food at the flag-ship restaurant in Portland—and then with one of the women who ran the place—is passionate about pancakes, omelets and waffles.
"We've been around 50 years, and that's because we don't worry about the fad of the moment. We don't try to be hip. What we do is two things: We focus on our unique recipes, and we make them fresh daily with the best ingredients we can buy. We see fads come and go, and we just keep on doing what we do so well."
What they do well is traditional breakfasts: Pancakes, waffles, crepes, omelets and oven-baked specialty items, all in hearty portions, all like grandma used to make. Best sellers include Apple Pancakes; the Dutch Baby, an oven-baked pancake; and Swedish Pancakes. Prices range regionally—a stack of buttermilk pancakes fetches $7 in Portland, $3.50 in Savannah.
Each restaurant has a few common characteristics, such as the core menu and the size of the dining room (110-120 seats). But from there, the restaurants diverge at the whims of the franchisees. Some operators favor the feel of the Portland original, decking the dining rooms in knotty pine paneling, wood tables and other down-home touches. Others, such as the operator who runs The Original Pancake House at the Green Valley Casino in Las Vegas, opt for a sleeker, modern feel.
But none of that is important, Liss says. What matters is the execution: that franchisees stick to the recipes and the quality standards set forth by the company (though they're free to add menu items, and a few even offer lunch and dinner items like spinach or seafood crepes) and that they keep the fires in their bellies. "What sets us apart from our competitors?" asks Liss. "I think it's the sense of urgency we have, that what we made could be lost in a day if we don't do it right, if we don't execute with a sense of military precision. It's okay to be scared that you could lose it all if you're not careful."
While the highest concentration of the 97 Original Pancake House units is in Southern Florida and greater Chicago, Liss says there is no specific geographical plan. Nor does the company have specific goals in terms of the number of new franchise agreements they hope to sign. "Our concern is finding prospects who are dedicated to the food and who have a site that can work," he says, adding that the company anticipates bringing in between two and five new stores per year over then next few years. "The biggest factor in our success is the personal relationships we have with our franchisees and our ability to entice prospects who believe in the quality of the food. Almost all of them were loving, loyal customers first."
First Watch Ready for Growth
Founded by a Le Peep chain franchisee, the First Watch concept spun off on its own 1983. The company's president and CEO says that in the brand's early years, there were no plans for aggressive growth. Rather, says Ken Pendery, the objective was simply to build a few new restaurants each year with successful management and zero debt.
But, he explains, as key upper managers grew in their jobs, so did First Watch's growth model. "We didn't want to open new units just to be big and bad. We wanted to grow behind a successful culture of good management and operations," says Pendery. "Now, 20 years later, with such a strong base of management, operations and loyal customers, we see our ability to build in many, many more markets."
First Watch's menu is divided into three segments—breakfast, lunch and brunch. This, Pendery explains, is because the concept revolves around three different dayparts: weekday breakfast, weekday lunch and weekend brunch. Traditional breakfast items include expected combos, such as bacon and eggs and sausage and eggs, as well as omelets, pancakes and French toast. The brunch menu, also available during the other dayparts, is hugely popular, serving up traditional breakfast items as well as crepes, frittatas and skillet dishes. When serving hours were extended to 2 P.M., standard lunch items such as soups, salads and sandwiches were added. Pendery says items are traditional, though they emphasize fresh, creative tweaks, such as avocado slices on the club sandwiches. In fact, freshness is an important strategy across the menu. First Watch boasts that most items, such as pancake batter, are made onsite from scratch, and rarely are convenience items or packaged mixes used.
The restaurants themselves feature interiors that are homey, simple and filled with natural light. They're comfortable, without being too cushy, to encourage quick table turns.
With its low price points, First Watch's target market is broad—from the high chair set to seniors, who account for a substantial portion of the chain's customer base, especially at its Florida locations.
As for growth, the eight-state, 52-unit chain is launching new units at the rate of 12 to 18 per year. Most recently, new First Watch restaurants have popped up in Orlando, Tampa and along Florida's west coast, and in the Midwest—St. Louis, Kansas City, Columbus and Cincinnati. Upcoming growth includes the east coast of Florida and further infiltration into the Midwest—Northeast Ohio and Southern Michigan, and eventually, large East Coast areas such as Baltimore and Philadelphia.
But no matter how big the chain becomes, Pendery says First Watch is committed to sticking within its niche. "A lot of very fine establishments do breakfast, lunch and dinner—Bob Evans and Cracker Barrel to name a couple—but we specialize in breakfast and lunch, and that sets us apart," says Pendery. "We would dilute ourselves to some degree if we tried to do three meals. Starbucks specializes in coffee; they're not trying to serve steaks. It works for us, like it works for them."