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8-K - FORM 8-K - UFood Restaurant Group, Inc. | c93119e8vk.htm |
Exhibit 99.1
REPRINTED FROM NOVEMBER 23, 2009
UFood Restaurant Group, Inc. (UFFC.OB)
GEORGE NADDAFF developed Boston Chicken/Boston Market into a national franchise brand and in 1992
sold it to a group of Blockbuster Video executives. In 1993 he shared in its record-setting IPO,
with a 143% first-day increase. Mr. Naddaff has founded and/or been significantly involved with
several other successful concepts, including Mulberry Child Care Centers, which had over 90
company-owned childcare centers when it was sold to KinderCare; Sylvan Learning Centers, the
nations leading after-school learning facilities; Ranch*1, a New York-based chain of grilled
chicken sandwich restaurants; Living and Learning Schools, which operated more than 50 upscale
childcare facilities and was sold to KinderCare; VR Business Brokers, the nations largest business
brokerage franchise with over 350 offices and which was acquired in 1986 by Christies, London. Mr.
Naddaff began his career in food service when he co-founded International Foods, which operated 19
KFC franchises in the Boston area and was sold in 1970.
SECTOR RESTAURANTS
TWST: Would you begin with a brief historical sketch of the company and a picture of the
things you are doing at the present time?
Mr. Naddaff: We started about five years ago, after taking over an existing chain at that time
that was called Low Fat No Fat terrible name. It was one unit in a little town called Watertown,
and it was built by three body builders that had a unique little spot in between three gyms. It was
really quite fascinating to me, and I decided after watching it for three months that perhaps it
might be a franchisable concept. What was unique about it was that on their menu, right up in front
of everything was the nutritional values under each and every menu item, so that the customer knew
in advance what they were ordering and what they were putting in their body. That was a good four
and a half years ago, before the recent campaign of no trans fats began to hit the scene. Well,
this company that I acquired had been trans fat-free for five years before I found it, so really
for a total of nine years. Youre now hearing a lot about menu labeling, a new movement where
anyone that has 15 units has to do exactly what this company has been doing for a total of nine
years, informing the consumer in advance what the calories were, what the fat content is, the
protein, etc., so that people are informed. Now the unique part of all of this business is, yes,
everybody is trying to get people to think about what they are putting in their body. People talk
health, but they dont walk the talk. And most of the restaurants will tell you that since theyve
made some of these menu changes, the consumer is not that hip, there is a small segment of our
society that really cares about what they put in their body on a daily basis. But who are they?
They are the people that are the Celiacs, the gluten-free people, the vegans, I would say the Jenny
Craigs, the Weight Watchers, certainly the gym rats, certainly the guys that run on a daily basis.
But the truth of the matter is, we have discovered that if you take 100 people that you and I would
know, and you ask them the question, What is their version of healthy? you will get 100 different
answers because everybody has their own idea of what healthy means to them. Now try to put a menu
together that would satisfy the needs of that mass of humanity. It will be almost impossible. We
learned that early on, when I first started rolling out these concepts because I tried to
satisfy everybody, and you cant have a menu that is so broad that it becomes overwhelming if you
cant nail things down in a way that you understand what youre putting across in terms of food
cost, what it takes to put the food together. We had to go through this learning curve to
understand that it can get too dangerous to try to satisfy the entire population. So the learning
curve for us over the past four and a half years was to narrow down the total menu, get it to a
point where we still attract what I would call the healthy group. And as I say, there is a wide
variety of those people. But believe it or not, 80% of the consumers that come to UFood are just
plain people that want to have a better-tasting meal. And if it happens to be healthy, its a
benefit, not the prime reason. So weve gotten to that stage.
COMPANY INTERVIEW UFOOD RESTAURANT GROUP, INC.
Then we learned something else along the journey: We opened some units in suburban markets,
and we found very quickly over a period of a year or two that there isnt enough walk-by traffic.
There are a lot of cars going by, but unless there is foot traffic, it didnt really mean anything.
Where do we succeed the most? We succeed the most in downtown markets, where there are people
walking in the streets for lunch and for dinner. Recently, about a good year and a half ago, we
opened a unit in Logan Airport. We were asked by the Massport authorities. We had a couple of units
in the Boston area downtown. They saw the units, they loved the fact that they were healthy,
better-for-you food, and they said, Weve got a space in Terminal B, American Airlines, its only
800 feet wed like to put in one of your units there. We had never done a nontraditional site
before, but it was at a time where the recession was out there. Airports, as you know, are busy
throughout the day, and there is a mass of humanity in terms of foot traffic. So we took a chance
and opened up a unit, and before you know it, we became the number-one entity in the food court
and that meant surpassing McDonalds in sales. That said to us, Wow, weve got something here.
Lets watch this.
We
won the best food and concession award in the airport throughout the
United States... This was several months ago. Well, that awakened all
of the concessionaires who deal with airports.
So we reached the point where the pilots, the stewardesses and the workers at the airport
absolutely were enthralled with being able to pick up a healthy meal. And if they are going to
travel across the country, at least theyve got something good as opposed to whats been offered in
airports for the past quarter of a century. Well, as fate would have it, Airport Revenue News
which determines what the best operations are, what the best food operations are does have a
convention every year. And believe it or not, we were nominated along with 18 national chains. Mind
you, we are not national by any stretched imagination, but we were nominated along with 18 major
chains to go down to Orlando for their convention and see if we would win.
Now being at age 79, I dont like to travel, jump around airplanes too much, especially where
they dont land on time and all that nice stuff. So I sent down my Vice President. I said, Look,
there is not a shot in hell that we can win this, but at least for the nominators we should be
there at this event. We won the award. We won the best food and concession award in the airport
throughout the United States. Would you believe it? They sent us this beautiful trophy. This was
several months ago. Well, that awakened all of the concessionaires who deal with airports. There
are many, many concessionaires that have seven, eight, 10 different concepts in each airport, and
these concessionaires look for the next best and brightest. Most of them are looking for a
healthier concept, and there was really nothing out there to speak of. The next thing you know, we
have a woman whose name is Gina Puente-Brancato, who runs 14 different restaurant concessions at
Dallas/Fort Worth Airport. Shes passing through Logan Airport, she sees our unit, she tells me,
and she orders $50 worth of food. She doesnt eat all of it, she just tastes everything on the menu
and calls me up and says, I want this for Dallas/Fort Worth. The next thing you know, she opens
up at Dallas/Fort Worth. She is hearing great, wonderful comments from pilots; she gives a 10%
discount to the employees at the airport, people love her.
One day, Parkland Memorial Hospital administrators are going through the Dallas/Fort Worth
airport. Parkland is like the seventh largest hospital in United States. They see the nutritional
values on our menu, and they say, Wow, this food tastes great, we should have this at Parkland
Memorial. It was at the time they were making a decision to extend you are going to love this
McDonalds 20-year contract. They kicked McDonalds out and put UFood Grill in. That unit is now
under construction and will be open some time in December. What does this mean to us? It means that
we put our foot into the nontraditional space. Now what does that mean? Nontraditional to us means
airports, hospitals, colleges, casinos, travel plazas, places that weve never thought of because
our traditional route has always been what I was doing at Boston Chicken/Boston Market. We always
went into the communities, and we never worked what I would call the nontraditional space.
So suddenly, we are now under construction in Oakland, were talking to the Cleveland airport,
Hopkins. We have seven other airports that we made applications for, and we will soon be operating
in hospitals. We are now under construction at Terminal C Logan Airport JetBlue, United
Airlines. So while the world is in a little bit of chaos, especially in the restaurant space, weve
discovered that these nontraditional places work for us. Its like somebody working on the cure for
cancer, and they go through years and years and years perfecting, raising money, hoping that you
can get this cure so that you can do something for humanity.
Weve gone through a period of four
and a half years trying to get a niche, trying to get America to hear about us: Hey, were UFood
Grill. Feel Great Eat Smart, where nutritious meets delicious. Now this message is being delivered
across the country in airports, and its great because airports like in Terminal B Logan 6
million people who go through that terminal, they see our brand and, I wont say the majority of
them will, but many of them will eat our food. In Dallas/Fort Worth, its about 13 million people
going through there, and many of them will see the unit, many will try our food, and many of them
will start saying, Why arent you in our town?
So something unique has happened here, and Ill tell you exactly what it is: I am branding the
UFood unlike the traditional way. The traditional way would be to open up in communities and get
the name out there. Were getting into airports, where there are literally millions of travelers
that will see the brand and begin recognizing the brand as they travel from airport to airport.
When we open up in December at Parkland Memorial, were ready for a full-scale onslaught to
hospitals that have 700 beds across America. Were talking to Duke University, where there are
39,000 students. Parents want their kids to eat healthy when they are in these schools. We believe
that for the time being, until the SBA starts financing franchises again, that our route is to work
with these concessionaires who have the finances, who have the locations in place to take on our
concept. We are now beginning to put a plan together where were going to try to raise another
tranche of capital for company-owned airport locations.
So weve worked something quite by accident, to be honest with you. But thats the way
lightning strikes. So the brand has been perfected to the point where we have a great menu, we know
what our food and labor costs are, we know what our construction costs are, and we have the staff
on board to launch this brand across United States. We will be opening in the airport in January.
We have approval in New York, New Jersey. Were going to get into Reagan, were going to get into
BWI. Now if you begin multiplying the amount of humanity that goes through these airports, were
going to be dealing with 300-400 million people, God willing, between 2009 and 2010 that will see
the brand. And maybe, just maybe, the economy will recover, and financing will be
COMPANY INTERVIEW UFOOD RESTAURANT GROUP, INC.
available again for franchise prospects in communities again. We will go right back to selling
franchises in foot-traffic areas. We will not go very quickly into what we call the suburban
pockets. Our present strategy is to focus on non-traditional sites,
drawing the attention of concessionaires of casinos, travel plazas
and airports around the globe. So theres just the
slightest possibility that we found a niche here and thats our focus.
TWST: Are the nontraditional locations a big part of the longer-term plan?
Mr. Naddaff: Absolutely. You see, airports for example, have a process. You cant just walk
into them. You have to do an RFP, as youre going against other competitors. But mind you, Im
working through concessionaires who are already in the airports, who have the relationship with the
airport authorities, and that is tremendous. Where the young startup would have a difficult time
getting their foot in the door, we just happened to fall into it in Boston because they were
looking for a healthier concept at that particular terminal, and that was our gift. Then of course
getting the ARN award just was a spark that ignited the whole thing.
I knew when the recession hit that it was going to be tough for sites. But there are also
opportunities; because when 900 units become available after Starbucks walks away, 900 new opportunities can go into those spaces.
TWST: Whats the competitive landscape like and what advantages do you feel you have?
Mr. Naddaff: Well, clearly the fact that we have venue that has been tried and proven for a
total of nine and a half years. When we talk about healthy you say healthy to most people,
theyll tell you its going to taste like tofu and salads, or taste like cardboard. We have taken
this menu with our chefs and nutritionists, and perfected the menu so the food tastes great, and
thats the key to our concept. There are others who will try getting in this space, but theyll
have to go through the same learning curve that weve gone through. And we think that we perfected
a menu that, from a cost point of view, we can deliver the food cost under 27%; we can deliver our
labor under 25% that is quite unique. And I think that just doesnt happen overnight. Weve had
to perfect it. But in the end, the food has to taste great because you know, you can brag about it
being good for you, but if it tastes like cardboard, youre not going to get repeat business. I
dont care how healthy Jenny Craig wants you to be or Weight Watchers, or the Celiacs or the
glutens, or the vegans. I mean, you know, theyre a small percentage of the population; theyre not
the masses.
TWST: It sounds like the economic environment has pushed you to make some fundamental changes.
Mr. Naddaff: Big time. And you know, either do that or youre out of business. I mean, youve
seen big chains go bankrupt. Starbucks closes what, 900 units? Dominos closes seven units in
Phoenix. People are getting to the point where theyve got to recognize something just happened out
there, people that are looking for a deal have now a wide array look at Burger King, a buck for
double cheeseburger. Have you ever heard of that? I mean, McDonalds on tax day said, If you buy a
burger today, we will give you another one free. How the hell can you compete with that? Now mind
you, that doesnt mean they avoid paying for the food. They still have to buy the food product;
they still have to prepare the product and have the labor. Where does that come out of? So while
everybody is out there trying to cling to the customer base, I think we struck a chord where people
who visit the airport will look at the other concepts around us and make a decision, Hey, if this
tastes as good as they say it does, and Im going to travel across the country, what should I have
in my body? Which decision would give you the least cause of concern? So I think, as you say, yes,
were going to stick with the nontraditional.
TWST: Your press materials say youre looking to grow the concept nationwide through
franchising. So youre focusing almost entirely on that niche?
Mr. Naddaff: No, if somebody comes in over the transom that has a food background I wont
take anybody thats not in the food business Im not going to sit here trying to educate.
Putting a healthy menu together is not like selling a burger or a pizza, or a piece of chicken.
This product, youve got to be very aware of the ingredients because you have a responsibility to
the consumer. So if people are in the food business, they come in for three weeks of training. And
when they finish the three weeks of training, we will then send a team for their grand opening
four people for two weeks. Putting a menu like this together is not an easy thing to pull off.
Anyone that tries to do it is going to get in trouble. Its not like something McDonalds can say,
Were going to put apples and yogurt on the menu, not a problem. But when you start talking about
the kind of products we have, a chicken tomato fresco, a bison burger, which is very lean with lean cheese that still tastes great. We have a
chicken chipotle sandwich, we have the Mighty Chicken Sandwich with almonds. I mean, weve gone
through the extremes of trying to make this product taste great. If it tastes great and it is
better for you, were going to get that customer.
TWST: So at the moment you have eight locations and three about to open?
Mr. Naddaff: Three about to open and about seven to eight more, hopefully early part of 2010.
TWST: And those seven to eight are all fitting into this nontraditional model?
Mr. Naddaff: Correct. We intend to keep on pushing. We got applications in for 21 other
airports. The game is lets stay focused, lets hope the economy picks up. I dont know how you see
this stock market. Everybody has got an opinion on this whole issue, whether were in recession,
whether we are coming out of it or not. But when the market can dive 200 points in a day, it scares
the hell out of you.
TWST: A lot of people know about you from Boston Chicken/Boston Market. How does that
experience carry over to this current concept?
Mr. Naddaff: I am not a kid, Ive been in the game, I dont panic. I knew when the recession
hit that it was going to be tough for sites. But there are also
opportunities: because when 900
units become available after Starbucks walks away, 900 new opportunities can go into
those spaces. So while that is bad, there is also some good. But my background, I have been a
Kentucky Fried Chicken franchisee. I know what it is like to be a franchisee. I know what I
expected from the franchisor when I was a franchisee. So when Im dealing with franchisees, I
understand their needs. And the startup goes through a trial-and-error period; thats why they call
them startups. And you know what the failure rates are on startups? It is 50% to 60%. In the
restaurant business, it is not unusual to see 50% to 60% fail within the first year alone. So you
start a journey. You encounter the problems. No business, no problems. No problems, no business.
You can quote that. I
COMPANY INTERVIEW UFOOD RESTAURANT GROUP, INC.
was quoted in Inc. magazine with that quote. So now I officially own it. No business, no
problems. No problems, no business.
TWST: Would you share a bit about the backgrounds of some of the key members of your team on
this project?
Mr. Naddaff: The President of my company is the former President of Boston Chicken, which he
launched. He was the guy who was on my team when I created the concept, and he is here today. Our
Director of Training was formerly with Atlanta Bread, similar to Panera, and our V.P. of Franchise
Operations was with Metromedia. We have a person that has been with Chipotle, our marketing woman.
We have over 248 years of food experience. We are not a bunch of young studs, God bless. We are a
bunch of old fogies that understand the game. And you know, when something bad happens, we dont
panic. We recognize that as a learning experience, and we take that learning experience and fix it.
So I am proud of our staff. Its positive for all the right reasons. These are the times that try
mens souls, as you are well aware of. And I think we have got a formula that in the long run we
hope to be there.
TWST: You started with at least one site that offered nutritional supplements and vitamins. Is
that a big part of the plan?
Mr. Naddaff: It doesnt work. It worked in the one store because of the bodybuilders. But when
you got out into the suburban markets and women began looking at those whey and protein shakes, the
guy behind that counter looking like Arnold Schwarzenegger, it scared the living hell out of her.
So while the idea was infectious in the first place, it did not bode well because our customer
base, by the way, is 65% women. Also about 70% of our business is takeout, grab and go. Why the
airport works well people at an airport dont want to sit down and have a leisurely meal.
TWST: In your business update over the summer, you talked about your Chicago franchisee
terminating three restaurants there.
Mr. Naddaff: What was that all about? He had about 12 other food concepts with one chain. And
he had obligations that began to overpower him. And he couldnt stay with it, pure and simple.
TWST: How is business at the traditional locations?
Mr. Naddaff: Well, our downtown Boston is still the highest volume. And the one at Fenway
Park, it is right next to a Regal 24 movie screen. Thats near four colleges, and thats still a
great unit. So our traditional units that are company-owned are still doing well.
TWST: Whats the ownership structure of the ones in the airports and colleges?
Mr. Naddaff: Well, the one at Boston, the initial one, Logan, thats company owned. The second
unit is owned by a company called Midfield Concessions. The unit in Dallas, Texas, at the airport
is a franchise unit. She is also the one thats opening up at Parkland Memorial Hospital. The unit
in Oakland is a franchise unit at the airport.
TWST: So you have all three possibilities going forward?
Mr. Naddaff: That is correct.
TWST: Do you give a lot of attention to investor relations?
Mr. Naddaff: Yes, we do. And anytime we have an opportunity to get our voice out there, we do.
We have a full-time PR person here.
TWST: What might be some year-by-year milestones or indicators that investors should be
looking for?
Mr. Naddaff: All I can say, being as old as I am, is that is a dangerous, dangerous question.
I will open one successful unit at a time. And thats the way Im going to handle that question for
the time being.
TWST: What would be the two or three best reasons for a long-term investor to look closely at
UFood?
Mr. Naddaff: If he believes in our nontraditional approach, of finding the concept by exposing
it to millions and eventually backing into communities, then he should think that maybe this might
be an opportunity for him. Thats really the game Im playing here because I dont have to spend
money to advertise in airports. People are there because they are traveling. And once I get them to
see us, that is a sale that just happens. So I think that is a good reason and people say to me
that I am on the right track. People call me, our investors, and they say, We understand, we think
youre on the right track. Now I wish I had more traditional units that were out there, but right
now my strategy is to focus on whats getting us the action.
TWST: Would you like to use the nontraditional market to build up and get back out into the
traditional when the time comes?
Mr. Naddaff: For all the right reasons.
TWST: What do you tell investors when they get a chance to talk to you?
Mr. Naddaff: What I tell them? I am very frank with them. I say, Look, weve gone through a
tough learning curve. By the way, many of them ask us if George Foreman is still with us.
TWST: Is he?
Mr. Naddaff: Absolutely. He is our spokesman. We understand as well the economic terrain that
continues, we have several issues that we have to constantly be aware of. Pricing making sure
that people are aware that our food costs more than the traditional food costs. To give you an
example: a hunk of straight cheese, American cheese, 14 cents; a hunk of sliced lean cheese, 26
cents. So theres a game that you have to play if youre going to put the signature of better food
on the menu. Our focus in the near future will continue on the expansion of our presence in many
major airports and other nontraditional venues across the country as possible. And thats what I
say to people. But like many companies across America, and in particular the restaurant segment,
the unprecedented depth of the economic slowdown has taken a heavy toll. However, I can assure them
that our professional staff of industry veterans is working very hard in this very tough and
competitive environment to make this company a success. And that said, we will continue that effort
and do our very best on behalf of these shareholders for all the right reasons.
TWST: With this niche concept, do you feel like you have turned a real corner?
Mr. Naddaff: I cant say from a profit point of view that we expect to become profitable soon.
But at the direction were heading in, I think its very close.
TWST: Anything else you want to cover?
Mr. Naddaff: You know, it is tough when you have a stock that is selling for about $0.10, its
not like people are aware of you. But look, General Electric went down to four bucks. I am not
going to sit here and apologize other than its just a fact of life. And up until the time we
really start making some strong noise in this nontraditional segment, I think people will not be
jumping all over the stock, but I think theyll be aware of whats happening.
TWST: Thank you. (MJW)
GEORGE NADDAFF
Chairman & CEO
UFood Restaurant Group
255 Washington Street
Suite 100
Newton, MA 02458
(617) 787-6000
www.ufoodgrill.com
Chairman & CEO
UFood Restaurant Group
255 Washington Street
Suite 100
Newton, MA 02458
(617) 787-6000
www.ufoodgrill.com
©
2009 The Wall Street Transcript, 48 West 37th Street, NYC 10018
Tel: (212) 952-7400 Fax: (212) 668-9842 Website: www.twst.com
Tel: (212) 952-7400 Fax: (212) 668-9842 Website: www.twst.com