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Papa John’s Schnatter provides savvy, financing for upstart Calistoga cafes

Papa John’s Schnatter provides savvy, financing for upstart Calistoga cafes

LOUISVILLE Ky. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Schnatter, who founded Papa John’s Pizza in 1985 and grew it to more 3,100 units in 30 countries before changing his title to nonemployee chairman-founder last year, bought an undisclosed stake in Calistoga Bakery Cafe in 2007 after befriending its founder, real estate veteran Mark Bates. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Bates opened the chain’s first unit in 2004 in Naples, Fla., where Schnatter owns vacation property. After launching three Florida outlets, Calistoga debuted in Lexington, Ky., and last month was opening two Louisville branches. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Schnatter, the personification of Papa John’s “better ingredients, better pizza” marketing mantra, was impressed by Calistoga’s high-quality products and market position and was intrigued by Bates’ request for insight on how to grow the company in a market segment dominated by Panera Bread and other big bakery-cafe brands. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

“I knew Mark had something good when I started going there,” said Schnatter, who also remains Papa John’s advertising pitchman. “[Bates] didn’t know the restaurant business that well when I met him, and I wanted to help.” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Schnatter said he has helped improve operations at Calistoga’s Florida locations—two in Naples, one in Fort Myers—and personally invested $7 million in the company. Much of that has gone toward opening the Kentucky market expansion. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

So far this year, Schnatter has sold $12.5 million worth of his Papa John’s shares, leading some to wonder if he’ll begin pouring his pizza fortune into the young bakery-cafe concept. He denied he would, saying that Calistoga is one part of his long-term portfolio diversification. For years, he had held between 20 percent and 30 percent of Papa John’s outstanding shares. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Still, Schnatter is heavily involved in “tweaking and tinkering” with Calistoga, and those efforts will be most visible in the Louisville stores, which bear the new name Calistoga Artisan Sandwiches. In the past year the company also expanded its breakfast menu and got a new logo. The new identity, Schnatter said, better reflects the brand’s unique positioning in the bakery-cafe segment. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

“The way I see it, Panera Bread is more about bread and Danish, and Calistoga is more artisan sandwiches; ours have more meat and higher-quality bread,” he said. “I’d say the same thing about Atlanta Bread, too.… But don’t get me wrong: Both are good competitors. Plus, they’re established and we’re not.” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

That Calistoga will face stiff competition from 1,200-unit Panera and smaller chains like Corner Bakery Cafe doesn’t bother Schnatter. He’s not only confident the bakery-cafe portion of the fast-casual segment has room to grow, he sees opposition making all challengers better. Evidence of his confidence is the opening of one of the new Louisville locations just a third of a mile from a Panera Bread branch. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

“Let’s be honest, though; the competition can’t be any harder than pizza was when I got started,” Schnatter said. “There were 50,000 independents out there when I started. It was brutal.” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Darren Tristano, executive vice president of Technomic Information Services in Chicago, also believes the bakery-cafe segment can expand, but similar competitors aren’t the only challengers Calistoga will face. Starbucks Coffee’s revised breakfast menu, particularly its oatmeal offering, is selling well, and sales of Dunkin Donuts’ breakfast sandwiches are solid, he points out. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

The bakery-cafe cafe segment “is still somewhat underdeveloped, and some companies are stumbling,” Tristano said. “But with competition coming from a lot of different places, I think it’s going to be more difficult to grow and succeed.” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Tristano said bakery-cafe players could struggle if they’re not clearly differentiated from each other. With an average check of $10 at Calistoga, its siren song had better be distinct and attractive if it’s going to pull diners from Panera, whose guests pay about $8 per meal, he said. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

“You can claim your product is better, but that’s not enough anymore,” Tristano said. “Product quality is already high in this segment, so the question becomes what they’re going to do that makes customers say, ‘Oh, I’ll try that.’” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

As with most bakery-cafes, lunch sales are strongest at Calistoga. But Schnatter says this year’s menu additions of made-to-order omelets, $6.99 to $7.99, and hot breakfast sandwiches, $5.99 to $6.39, spiked morning sales to the point that “breakfast is really gaining on lunch.” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Calistoga’s competitors also have a leg up in the catering department. Boston-based Au Bon Pain credited catering with helping same-store sales rise 5 percent for fiscal 2007, and Tristano cited a similar performance by Panera. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

“It appears [catering] has helped overall sales a lot,” he said. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Schnatter said anyone expecting to see Calistoga grow like Papa John’s shouldn’t hold his or her breath. Not only did it take eight years for Papa John’s to reach 100 stores, those were easier-to-operate, less-costly restaurants to build compared to Calistoga. A Calistoga unit costs $800,000 to $1 million to open, and for solid profitability it needs to generate $1.5 million to $2 million in annual sales. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

By comparison, 108-unit Corner Bakery Cafe averages $2.3 million annually per unit, while Panera units do about $2.1 million. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Schnatter said six units spread over multiple geographic markets would be a good number of Calistoga stores from which to extract reliable data he can apply to future growth plans. At this point, he said, “I can keep testing and tweaking until I figure which buttons to push to drive the right product mix that produces the margins we want.” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

He declined to share specifics on planned growth or unit profitability, saying only, “We don’t have the unit-economics piece perfected yet, but we’re gaining on it.” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Two Calistoga units are attaining their sales goals, while the southwestern Florida stores have surprised by posting profits even in August and September, “when the [tourists] are gone,” Schnatter said. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

“When I heard that, I was like, ‘Wow! We’re doing something right,’” he said. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

That “something” must extend to food costs, and particularly the price of flour, which has slashed into bakery-cafe profits for more than a year. For 2008, reports of global wheat harvests are far more positive than for the prior two years, and Schnatter believes that Calistoga’s relationships with Papa John’s suppliers ultimately will benefit the upstart chain. Still, managing production and limiting waste at the unit level is most crucial. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

“We measure everything we do, and we track our business on 15-minute intervals,” Schnatter said, harkening back to lessons learned growing Papa John’s. “We train our staffs to know how to read a P&L.” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Though franchising carried Papa John’s to its current size, Schnatter isn’t keen on that approach yet for Calistoga. He likes the control afforded by corporate-only development and says conventional franchising can be financially stressful for franchisees during a brand’s early phases of growth. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

Still, he and Bates aren’t afraid to dream big about Calistoga; Schnatter’s traveled the Wall Street route before, and he’ll consider it again if the market is right. —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

“My mind is not on our sales or commodities costs today or even in the next quarter; it’s four years out when we have 40 or 50 stores, the place where we might want to go public,” he said. “We’ll be able to say to Wall Street that we built this thing in the middle of a recession, and that we’ve proved we can get through adversity and stressful times.” —Despite the commodity inflation that has challenged dough- and bread-centered restaurant concepts, six-unit Calistoga Bakery Cafe has attracted the backing of pizza chain mogul John Schnatter as it expands here from its Florida base, revamps its brand name, and plans new openings “slowly and methodically.”

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