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Woks Get Hotter the Fast-Casual and QSR Asian Segment Heats up As Contenders Old and New Expand

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Woks Get Hotter the Fast-Casual and QSR Asian Segment Heats up As Contenders Old and New Expand Vol. 4, No. 28 July 28, 2008 Woks Get Hotter The fast-casual and QSR Asian segment heats up as contenders old and new expand. Yoshinoya aims to open another 13 by year’s end and 15 to 20 annually after that. With more 1,300-units worldwide, Yoshinoya will make a push into the U.S. while ramping up its franchising program introduced last year. Samurai Sam’s new fast casual spin-off Samurai Sam’s Asian Fusion is open in Los Angeles and another is in the works for Phoenix this year. Parent company Kahala carefully tweaks the concept to be more versatile for expansion. The leader of the U.S. fast-Asian segment Panda Restaurant Group Inc. is on track to open 160 Panda Express units this year, so expect another 90 or before 2009. SoCal Brand City Wok will open two units by year’s end in the Denver market. Yoshinoya, Samurai Sam’s, Panda and City Wok all target similar inline and end cap real estate with low square footage. Increasing vacancies create a plethora of opportunities for these brands as retail developers report a vacancy rates climbing toward 8% nationwide. Yoshinoya is in R&D for a slimmer prototype to shave a little square footage off its standard 1,800 s.f. to 2,200 s.f. model that would allow it to fit into those vacancies. However, the company is cautious to keep 30 to 40 seats. Samurai Sam’s Brand President Sean Wieting believes the prototype could be shaved down as low as 1,200 s.f. to pass savings onto franchisees. The smaller units’ look and ambiance could be altered slightly as the brand hones in on a perfect ambiance to investment ratio. City Wok’s franchisees hope to cash in on the vacancies and will move with haste to close deals. The other aspect that makes these brands appealing is that they provide variety and international flare. Asian concepts are a welcomed change from typical fast casual and QSR burger, pizza, sandwich and Mexican concepts because they offer international flavors and more variety than the usual American standards. Yoshinoya plans to end 2008 with 93 units in the U.S., mainly in the Southwest and SoCal. Watch for six stores in Las Vegas, three for Arizona, two in NoCal and a couple more in Los Angeles. The company is in talks with several area develops for Hawaii and other California markets. Yoshinoya makes the claim of being the first to introduce the beef bowl to Japan in the late 1800s. Since then, the company built its menu around that signature item but expanded the menu to include chicken, shrimp and salads. Yoshinoya is careful to keep food natural and not use process meats to maintain healthier products. The company targets inline, end cap and freestanding units and likes strip centers in a sea of rooftops. Ideal real estate includes mixed-use, power and grocery-anchored centers. VP of Franchise Development and Sales Scot Hobert prefers multi-unit franchisees with retail or restaurant experience. Yoshinoya requires franchisees to sign on for a minimum of three units. An average initial investment to open one unit ranges $700K to $1.4M, which includes three months of working capital. Franchisees often work with Nara Bank and SBA loans for financing needs. An average check is $7.75. Samurai Sam’s targets the Southeast for growth with its new Asian Fusion concept. The company looks for area developers to help speed up growth in its new region, which includes Florida, The Carolinas and For use of original recipient only. It is illegal to forward or otherwise distribute without permission. Georgia. Samurai Sam’s also directs expansion to existing markets in the West including California, Arizona, Utah and Colorado. An ideal unit would work well in newer strip centers and lifestyle centers alike. End caps with patios and great visibility are preferred. Samurai Sam’s aims to raise AUVs from $300K to $550K, which will also increase its sales-to-investment ratio to 2-to- 1. With buildout already very low at only $175K to $200K, the company needs to increase guest counts. The Asian Fusion Grill will feature a Pan-Asian menu to include Japanese, Chinese, Thai, Vietnamese and Korean cuisine — compared to the QSR units that only offer Japanese. An average check is intended to be about a dollar more than the $8.25 check of the QSR model. Continued on Next Page Quotation not permitted. Material may not be reproduced in whole or in part in any form whatsoever. Copyright © 2008 Crittenden Research Inc. Page 2 Crittenden’s Restaurant Insider™ Woks Get Hotter… Continued from Page 1 Niche leader Panda Express, with more than 1,100 units, jumps into Jacksonville, Fla., and is on a pace to hits its goal of 160 openings this year, with 74 already up and running. Because Panda doesn’t franchise, AUVs at $1.1M can aid growth more directly. The vast majority of units are end caps or freestanding pads with drive thrus. The remaining 15% to 20% accounts for enclosed malls and nontraditional locations like airports, universities and casinos. VP of Real Estate David Landsberg likes Wal-Mart, Target, Lowe’s and The Home Depot as neighbors. An average check is about $9. City Wok expects to capitalize on the soft economy and seize favorable lease deals due to the increase in vacancies. CEO Stuart Davis is bullish on new units and feels the brand is well positioned in the market due to its high quality and low price points. Watch for the SoCal brand to head into Florida next year. Ideal units range 2,000 s.f. to 2,500 s.f. Inline spots in grocery-anchored and daily need strip centers work best. City Wok looks for high traffic patterns, high visibility, good ingress/egress and a favorable tenant mix. An average check is $12 and AUVs range $1.8M to $2.3M at newer units. The company is also aggressively looking for corporate units as well. A Winning Trifecta Unique Pizza & Subs Corp. (UPZS) and A.H.C./Zero’s Subs cash in on multiple cuisine drivers to fuel expansion. Watch for UPZS to open up to 25 units this year including a mix of new stores, conversions and mobile kitchens. The 13-unit company concentrates on California, Las Vegas, Michigan and Atlanta as new markets. Zero’s Subs inks its sixth Western region franchisee on its way to 10 units this year and 20 the next. The economy gets tougher and tougher so restaurant brands need to be sure they are maximizing revenue potential to keep guests counts up. By selling pizza, wings and subs, UPZS and Zero’s hit on three sales drivers to maximize their concepts’ consumer appeal. Segment leaders like Wingstop, Domino’s and Subway hone in on their signature cuisine and have shown obvious success with hundreds to thousands of units. UPZS and Zero’s, growing concepts both, drive sales as one-stop shops for pizza, wings and subs. One-stop shops are becoming more important with rising gas prices and time becoming a luxury for many. Technomic reported that the sandwich category grew sales by 5.7% in 2007, while it grew units by 1.6% and the entire pizza category’s sales grew by 1.6% and units grew by 0.9% in 2007. Add the growing strength of the wing niche and UPZS and Zero’s can ride all three niches’ development success. Expect UPZS units in Detroit, Atlanta and California this year. The 13-unit company builds new units and converts existing mom-and-pop pizza restaurants. President and CEO Jim Vowler spent 10 years honing this model by opening units in a variety of different real estate types with whatever existing equipment the mom-and-pop units contained. UPZS is now primed for national growth. Vowler likes end caps and freestanding units that can be a mix of service levels and sizes. UPZS can open units as small as 600 s.f. to 700 s.f. that are DTO all the way up to a full-service sports bar. An average transaction is about $16.90 in its home market of Pittsburgh and $2 to $3 higher out West. UPZS will also launch a mobile kitchen model. An 18-ft truck will set up in parking lots of retail centers while a store is under construction. The mobile kitchens can also be moved to cash in on busy dayparts at different locations. For example, the mobile unit might be near train and subway stations during the day and be moved to busier entertainment and bar districts at night. Watch for Zero’s top open in Yuma, Ariz., Olancha, Calif., and several locations in Los Angeles by year’s For use of original recipient only. It is illegal to forward or otherwise distribute without permission. end. The 60-plus-unit company will target the Southwest for immediate growth. Zero’s is primed for traditional and non-traditional locations alike. Franchisee Ranjit Singh takes advantage of non-traditional locations and opens his first unit in his Mobil gas station. The location is on the heavily traveled route between Los Angeles and Mammoth Lakes, Calif. Singh believes Zero’s will complement his existing convenience store and gas station by providing more choices to travelers. The concept features subs, pizza, wraps, salads, fries and even wings. Everything is baked and no fryers are onsite, keeping equipment and insurance costs low but also offering a health value to consumers.
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