Spicy Pickle stays sweet in sour economy

The entrepreneurial spirit is alive and well in Colorado's Mile-High City. While the economic down-turn and credit crunch have snuffed growth plans for many small business owners and would-be owners across the nation, a small Denver-based franchisor of gourmet sandwich shops is thinking “growth.”

Spicy Pickle, which began franchising in 2003 and currently has 34 franchisees in 14 states, continues to add stores while adapting its menu to build sales from consumers who are gripping their purse strings more tightly.

Spicy Pickle is a fast casual restaurant that offers made-to-order panini, submarine-style sandwiches, pizzetti (Neapolitan thin crust pizza) and salads, prepared with freshly baked, scratch-made breads and high-quality ingredients.

As a fast casual restaurant, Spicy Pickle does not offer full table service but delivers meals to tables. Fast casual fills the space between fast-food where no table service is available and food is paid for and delivered to customers at registers, and casual dining with full table service.

The store menu includes a choice of seven signature submarine-style sandwiches, eight signature panini, six salads, six signature pizzetti and five soups, as well as combination meals consisting of a one-half sandwich and small soup or salad. Customers also may customize their salads, pizzetti and sandwiches, choosing from rosemary focaccia, and white and honey-wheat-with-oats ciabatta bread; 12 meats; eight cheeses; an unlimited number of 22 toppings and an unlimited number of 14 spreads.

“Our business philosophy includes making sandwiches you cannot make at home. Customers have more than 150,000 different combinations available to make,” says Kevin Morrison, co-founder and chief culinary officer. “This differentiates us from other concepts and helps build our name.”

Appreciation for high quality

Morrison, 43, and Tony Walker, 37, launched the first Spicy Pickle restaurant in 1999 in Denver. Both men had gained valuable experience working individually in upscale restaurants across the nation before working together in a Denver eatery.

They share a common value: an appreciation for high quality products. “We use high quality ingredients with no preservatives or monosodium glutamate, except the color in our yellow cheese,” Morrison explains. “This is part of our strategy to attract the growing number of health-conscious consumers to our restaurants.”

Using fresh-baked bread also underscores their commitment to quality. “It only makes sense to serve our sandwiches on fresh-baked, scratch-made bread,” he continues.

In January 2003, the company hired Marc Geman, former president of PretzelMaker, who had sold his company a few years earlier, as chief executive officer and opened its first franchised location later that year.

An associate of Geman assisted with the first round of raising capital. Since then Spicy Pickle has gone twice to the public markets to raise additional funds; the initial public offering in October 2007 generated nearly $2 million, and a later private offering raised close to $6 million, which enabled the company to open five corporate stores and purchase three franchised locations.

Spicy Pickle's target customers are 21 to 45 years old. The company says it intends to expand nationally by locating restaurants in and near downtown settings where daytime population is dense. Other locations include technical centers, government complexes, universities and medical centers, where large numbers of administrative and professional people are employed. Opportunities also exist in big box centers, each anchored by a large tenant, and in areas of both white collar workforce and high-income households, the firm says.

As the company has grown, Morrison says, “letting go was very difficult and still is for some things. But we will never compromise on important aspects, such as ingredient quality.

“When some companies grow, their food quality diminishes. But, as we have grown, we actually have increased food quality. I deal with purchasing, so I can stay on top of it.”

All the while, consumers developed a perception that Spicy Pickle “is the sub shop that's a bit more expensive. But, you get what you pay for,” Morrison says. “In our initial three stores, customers responded well, and we saw a lot of repeat business. They are willing to pay for high quality.”

Built central bakery

Until last December, Spicy Pickle corporate and franchised stores in Colorado received fresh-baked focaccia and ciabatta daily from a quality-minded Denver wholesale bakery. Spicy Pickle opened a 1,200-sq.-ft. bakery, Crumb Rustic Bakery, adjacent to a company-owned store near the University of Denver.

The company needed better control of distributing the bread to the stores and the ability to allow operators greater flexibility to submit orders and changes to orders, Morrison says. He also wanted it for conducting product research, as well as for training franchisees of out-of-state stores.

Morrison notes that the first six months were difficult, particularly in achieving top product quality. For example, he mixed test batches in 10- to 20-lb. quantities, ran them through a mechanical dough divider, scaled the pieces by hand and then baked them in a reach-in convection oven. The finished product was superb, Morrison recalls.

They baked larger production batches in a double-rack rotary oven. “We experienced shrinkage and could not explain it,” Morrison says. “After two weeks, we realized the divider was beating up the dough.”

They tried to compensate by mixing larger batches, but that threw ingredient costs out of whack with the increasing costs of flour and other ingredients. In addition, the divider required some 45 minutes change-over time.

Because bread production is limited to 2,000 lbs. a day, Morrison chose to divide the dough by hand, eliminating the mechanical divider and gaining the desired loaf size and interior texture.

Production runs from 8 p.m. to 6 a.m. daily. The bakery manager arrives at 8 p.m. to check franchisees' e-mailed orders and to write a production schedule. The bakery accepts orders or changes until 8 p.m., just before production begins.

At 8:30 p.m., he begins mixing bread and cookie doughs. Each day he prepares a sufficient amount of cookie dough to maintain at least a day's production in the refrigerator, about 120 lbs.

Customized production

The bench crew arrives from 9 p.m. to 10 p.m. to set up proofing boards, scale and make-up the breads and to scoop and deposit cookie dough pulled from the refrigerator. The crew is cross-trained to handle baking duties.

The bakery produces rosemary focaccia in ¼-sheet pans fitted with extenders, and white and honey-wheat-with-oats ciabatta varieties in 28-oz. loaves. The focaccia is prepared from a straight dough, while the bakers use biga starter to make ciabatta bread.

Each evening, the bakery manager prepares about 400 lbs. of biga starter, which he uses the next evening to make ciabatta dough. “Biga is durable and easy to work with,” Morrison observes. “It gives us as much as a 36-hour shelf life and imparts the flavor we want.”

Using a ratio of 30 percent biga and 70 percent dough ingredients, he prepares 230-lb. batches, mixing five minutes at first speed on a two-speed spiral mixer and then 10 minutes at second speed.

The formula calls for 75 percent hydration, compared with a traditional 80 percent hydration. “This creates a slightly tighter cell structure, which is important for making our sandwiches. The spreads don't seep through the bread,” Morrison says, “and the sandwiches are less messy for our customers.”

The bakers hand divide the batches into 12- to 14-lb. pieces, which rest about 90 minutes. They then cut and hand shape the pieces into 28-oz. loaves and 5-oz. rolls. Shaped items proof for some 30 minutes at 80°F, 80 percent humidity. In a rack oven set at 450°F, white ciabatta rolls bake for 18 minutes, including an initial five minutes with steam and the last three minutes venting the steam. Loaves bake at 510°F for 21 minutes with similar steam and venting procedures.

Distribution drivers arrive at 4:30 a.m. to check the loads against their orders, and then load their cargo vans. Twenty of the 22 Spicy Pickle stores in Colorado purchase bread and cookies from Crumb Rustic Bakery.

One route services stores north through Denver to near Fort Collins, while a second goes south through Denver to Colorado Springs. The drivers make their last deliveries by 10 a.m.

“Our trucks are on the road seven days a week to the Denver-area stores,” Morrison says. “But, having our own production allowed us to cut deliveries to Colorado Springs and Fort Collins from seven days a week to five, even three for some stores.”

Bread prices increase

Spicy Pickle only recently began to address increasing wholesale bread prices to Colorado store operators. Morrison says that when the bakery opened last December, bakery ingredient costs ran about 20 percent of sales and by March reached 33 percent.

“Flour prices have eased almost to the levels before the big run-up earlier this year,” he says. “But, the other costs-paper goods and food, for example-continue to rise.” As a result, the bakery was scheduled to increase prices this October.

One of the two Fort Collins stores produces bread and cookies for both locations. The bakery set-up is similar to those in out-of-state Spicy Pickle stores.

C.O.O. Walker notes that none of the markets outside of Denver currently is large enough to support a central bakery. “We'll see that need later, maybe within five years,” he says. “Until then, we'll continue to support single-store baking packages.” Each includes a reach-in convection oven, which can handle needs for two stores. One or two rack ovens would be required to handle the needs for three to six stores, Walker adds.

Each out-of-state store uses the same formulas and procedures as those at Crumb Rustic Bakery to make focaccia, ciabatta and cookies. The company deliberately maintains a limited bakery line.

Bringing the central bakery on line also has enabled Spicy Pickle to adapt promptly to changing customer purchasing patterns. Walker says the stores have experienced a slip in foot traffic this year because of the weakened economy.

“Customers who stopped in once a week now may come in every two weeks. Fortunately, we are still small enough that we can react fairly quickly,” he says. To respond, the company developed a value-driven menu that includes six varieties of smaller sandwiches. It is based on the popular notion of a convenient combination meal to spur sales, and drawing business from quick serve stores to remain competitive and encourage repeat business.

The sandwiches are prepared with 2-oz. ciabatta rolls, down from the standard 5-oz. size. With a combination meal, customers will choose two varieties of smaller sandwiches, potato chips, pickle and a fountain drink for $5.99, compared with one large sandwich for $6.95, or a large sandwich, chips, pickle and drink for nearly $10. At this writing, tests in four stores were encouraging, Morrison says. Plans called for continued pilot testing in seven more stores and a systemwide roll-out in the first quarter of 2009.

Having the central bakery enabled Spicy Pickle to develop the new rolls quickly. “We talked in the morning about what we wanted; that afternoon, we produced the rolls,” he says.

Crumb Rustic Bakery and the adjacent corporate store also serve as a training facility for franchisees and as a test market for the company.

Franchise owners and their managers receive four weeks' training at the Denver headquarters and in the bakery and store. Baking training runs an intensive three days. Franchisees and their managers shadow the bakers, and then get their hands into production. “They not only learn the ‘how’ to make the bread and cookies, but they learn the ‘why’ of baking,” Morrison says. For example, they learn the elements of proper fermentation, including the factors that influence fermentation, such as water temperature, air temperature, and humidity; the many effects that salt has on products, and so on.

“They understand why our bread with its starter dough and long fermentation is so much better than the two-minute breads used by larger chains,” Morrison says. To date, three training groups have completed the program. “In every case, the people completed their training successfully, making bread to our standards,” he adds.

Quality key to success

Though officials expected to see inconsistency in bread across the country, they say reports from their field personal have been favorable. “As long as the bakers follow our formula to a T, which accounts for changes in temperatures and humidity, they will make good bread,” Morrison says. To help ensure high product quality, the Spicy Pickle equipment package includes a water conditioning system, which also minimizes mineral deposits in the proofer and oven.

Walker says the experience gained with operating company-owned stores has become invaluable for working with franchisees. As a result, the company plans to maintain a blend of 20 percent corporate stores and 80 percent franchised.

Given the slowdown in the economy, Walker says forecasting store growth is difficult. “Maybe a combination of 10 corporate and franchised stores, but that will depend on raising capital,” he observes. “Certainly, franchisees, like other small business owners, will have difficulty in arranging financing.”

As Spicy Pickle Franchising works through the challenges of a weakened economy and tight credit, the company remains committed to offering customers high quality products at fair prices. That approach to conducting business served successful bakery operators well during the three major recessions of the last 30 years. If history repeats itself, Spicy Pickle's focus on quality will help the company get through the downturn.

Spicy Pickle
…at a glance

Headquarters: Denver

Founded: first Spicy Pickle store opened 1999; franchising began 2003; Bread Garden acquired October 2008

Web site: www.spicypickle.com

Stock symbol: SPKL, listed on Over the Counter Bulletin Board

Bakery management: Marc Geman, chief executive officer; Tony Walker, co-founder and chief operating officer; Kevin Morrison, co-founder and chief culinary officer; José Giles, central bakery manager

Number of stores: Spicy Pickle, 41 (company-owned, 8); Bread Garden, 11

Market served: Spicy Pickle-14 states with 22 stores in Denver, Colorado Springs and Fort Collins, Colo.; Bread Garden, Vancouver, B.C., Canada

Number of Spicy Pickle bakeries: one central bakery supplies Colorado stores; out-of-state stores bake on premise

Average Spicy Pickle store size: 2,000 sq. ft. with seating for 30 to 50 customers

Spicy Pickle menu: sandwiches, retailing for $6.45 to $7.25 each, served on freshly baked, scratch-made focaccia or ciabatta bread; salads; soups, and scratch-made oatmeal raisin and chocolate chip cookies, or “chippers,” made with chocolate chips, granola, walnuts and almonds

Central bakery size/number of employees: 1,200 sq. ft./full time, five; part time, two

Major baking equipment: Central bakery-vertical and spiral mixers, roll-in proofer, rotary rack ovens, walk-in refrigerator; stores-water conditioning system, spiral mixer, roll-in proofer, reach-in convection oven

Central bakery daily throughput: 2,000 lbs. bread dough; nearly 100 lbs. cookie dough

Plans: introduce smaller, value-added combinations meals to build foot traffic; emphasize catering program; complete overhauling training program for more emphasis on business procedures; add five franchised locations by the end of January

Bakery supply distributors: U.S. Foodservice, Shamrock Foods, Dawn Distributors of America

Spicy Pickle
…a sampling of prices
at Denver company-owned stores

Adobe panini (mesquite turkey, fresh mozzarella, green peppers, corn relish, chipotle mayonnaise on rosemary focaccia)	$6.95
Wise Guy sub sandwich (capocolla, mortadella, hard salami, lettuce, tomatoes, red onions, roasted red peppers, pepperoncini peppers, provolone, basil mayonnaise on white ciabatta)	$6.95
Chocolate chip cookie with granola, walnuts, almonds, 4 ozs.	$0.85
Oatmeal raisin cookie, 4 ozs.	$0.85

Spicy Pickle acquires Bread Garden

Spicy Pickle Franchising expanded its fast casual dining operations in October by acquiring Bread Garden Franchising, Vancouver, B.C., Canada, which franchises Bread Garden Urban Cafés.

Eleven locations operate in metropolitan Vancouver, where the company has been in business 30 years. Bread Garden cafés serve coffee, pastries and breakfast items, as well as lunch and dinner and a wide variety of desserts.

Marc Geman, Spicy Pickle C.E.O., says the acquisition will broaden his company's geographical footprint to western Canada, which has not suffered from credit issues as much as the United States. Also, Spicy Pickle has an opportunity to apply Bread Garden's successful coffee, breakfast, pastry and dessert program to Spicy Pickle's model.

Spicy Pickle says it has no current plans to convert Bread Garden stores to the Spicy Pickle brand.