Project Assignment #4:

The Case
MANA 4395 Strategic Management
Taylor Clark, Noemi Bravo, Zachary Bourne, Clayton Fitzgerald, Fabio Chavez, and Damian
Delgado
Project Team #1
Einstein Bros. Bagels: Is it Really Your Neighborhood Bagel Shop?

Einstein Bros. Bagels proudly proclaimed themselves to be Your Neighborhood Bagel Shop.
However, when looking for community initiatives or programs within their business model, you
may have a difficult time finding any. How does this affect them in todays market? How do they
compare to their competitors in the fast-casual restaurant industry?

The bustling community of Tyler, Texas continues to see growth in important industries that
support the local economy. One of those industries, which gained popularity nation-wide, was
the fast-casual restaurant industry. The building of this hybrid dining experience, which
combines the convenience and affordable pricing of fast food restaurants with a higher quality
food offering and a more enjoyable atmosphere, came about as a means to target the upcoming
Millennial generation. This demographic has a substantially different set of needs when it comes
to eating out than the generations which came before it.

Environmental awareness and community involvement were increasingly more important factors
in younger customers minds when it came to deciding where to go for lunch, than whether or
not the restaurant was cheap and convenient. This was crucial information to be aware of,
particularly if youre a local or fast-casual restaurant operating in a college town, such as Tyler,
1
Texas. The University of Texas at Tyler alone has a student population of close to 10,000 . Tyler
Junior College brings an additional 11,000 students to the Tyler area during fall and spring
2
semesters . In response to this demand for greater corporate social responsibility, these
fast-casual chains rose to the occasion by integrating environmental sustainability practices,
community involvement initiatives, and earth-friendly marketing messages into their businesses.
Some of the examples of fast-casual chains which adapted to this change in customer demand
were Panera Bread, The Corner Bakery Caf, and Starbucks.

Panera Bread was very passionate about giving back to the community, especially in a way that
helps feed those in need. Panera Bread created the Day-End Dough-Nation program in which
Panera bakery cafs donated their unsold goods to organizations that provided hunger relief in
their communities. In 2014 Panera bakery cafs donated over $100 million worth of unsold
3
baked goods to those in need . In addition, Panera Bread also received the Panera Cares
Community Breadbox which collected donations from customers. Half of the donations were
used to provide the same soup served at Panera Bread to local food banks. The other half were
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donated in cash to Feeding America in support of their effort to provide quality, nutritious food .
1
The University of Texas at Tyler (2016). Enrollment. Retrieved from :
http://www.uttyler.edu/about/facts.php

2
Tyler Junior College (2017). About TJC. Retrieved from:
https://www.tjc.edu/info/20007/about_tjc

3
2014 Responsibility Report. (2015). Retrieved from Panera Bread:
https://www.panerabread.com/panerabread/documents/press/2015/PaneraBread_CSR_2014.pdf

4
2014 Responsibility Report. (2015). Retrieved from Panera Bread:
https://www.panerabread.com/panerabread/documents/press/2015/PaneraBread_CSR_2014.pdf
A portion of cash donations made by customers could have been matched by Panera. In 2014
donations raised through Community Breadbox provided 1.7 million meals to clients served by
Feeding America food banks. Panera bread also held fundraising nights. An organization
arranged a time when their supporters would come in for dinner. Panera donated 10 to 20 percent
of the total tab to the organization. More than 1900 fundraising nights were held in 2014,
5
yielding more than $187,000 in funds donated back to the organizations . It is clear that Panera
fulfilled corporate social responsibility by taking steps to fight hunger in local communities.

Corner Bakery also found ways to increase their Social Corporate Responsibility. In 2014, it was
awarded the annual Environmental Sustainability Award for its commitment to energy
efficiency. They have improved the recyclable content in their packaging and updated their
lighting sources in an effort to reduce their carbon footprint. Each energy efficient Corner
6
Bakery reduced its carbon footprint by more than 88,000 pounds of CO2 a year . In addition,
Corner Bakery raised funds for Share Our Strength since 2008 for their No Kid Hungry
7
campaign to help end childhood hunger in America .

Starbucks was very ambitious with their corporate social responsibility goals. In 2008, 75% of
their coffee was ethically sourced and in 2015 99% of their coffee met that criteria. When
military service members were struggling to find jobs post 9/11, Starbucks launched a new
8
veterans hiring initiative . Starbucks also had a College Achievement Plan with Arizona State
University, which offered full tuition reimbursement to eligible employees. Starbucks also
displayed their concern for the environment by increasing their purchasing of renewable energy
to 100% from 20% in 2008. They have also reduced their consumption of water from 24 gallons
9
per square foot of retail space to fewer than 18 gallons .

5
2014 Responsibility Report. (2015). Retrieved from Panera Bread:
https://www.panerabread.com/panerabread/documents/press/2015/PaneraBread_CSR_2014.pdf

6
Corner Bakery Cafe Wins Environmental Sustainability Award For Commitment To Energy Efficiency. (2014,
October 9). Retrieved from PR Newswire:
http://www.prnewswire.com/news-releases/corner-bakery-cafe-wins-environmental-sustainability-award
-for-commitment-to-energy-efficiency-278626641.html

7
Corner Bakery Cafe Surpasses $1 Million in Total Contributions to Share Our Strength. (2013, November 21).
Retrieved from PR Newswire:
http://www.prnewswire.com/news-releases/corner-bakery-cafe-surpasses-1-million-in-total-contribution
s-to-share-our-strength-232843941.html

8
Kelly, John. (2016). Global Responsibility Report. Retrieved from Starbucks:
https://globalassets.starbucks.com/assets/ee8121c1a6554399b554d126228d52ed.pdf

9
Kelly, John. (2016). Global Responsibility Report. Retrieved from Starbucks:
https://globalassets.starbucks.com/assets/ee8121c1a6554399b554d126228d52ed.pdf
However, one name you didnt see mentioned above is Einstein Bros. Bagels, a fast-casual bagel
shop that competes head-to-head with these other similar chains with their unique offering of
fresh bagels and coffee in a laid-back environment. Theyve specifically targeted Millennials, in
fact, by being partnered with colleges to offer students a snack combination that rivals even that
of Starbucks. How was it, then, that this company doesnt offer more than one certified
ethically-sourced coffee, or wasnt actively engaged in its local communities? Should they have
been worried about matching their competitors on environmental initiatives?

History and Expansion

Einsteins prided themselves on being a local neighborhood bagel market for their customers.
Todays chain of Einstein Brothers Bagels was created by converting any previously existing
bagel shops. Expansion was a very big focus early on, which was challenging given financial
struggles. Between 1996 and 1997 there was an influx of cash via stock purchases, which
10
allowed great expansion and financial fluidity. There was a strong push for improvement
around 1998, and this lead to a broader menu listing and the Bagel Box. This was the top bagel
company stepping into the 2000s. They have very strong brand recognition and have been able
11
to associate bagels with Einsteins.
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They had about 127 stores spread across the entire United States. They were in the business of
a neighborhood style experience of bagels, coffee, and other breakfast/lunch food items. Its
primary customers are the typical breakfast eater or the bagel enthusiast. They provided special
coffee brews that differentiated them from typical coffee establishments. Their suppliers were
more along the lines of investors, but they were companies like Boston Chicken, New World
Coffee, and Einsteins is currently held by JAB Holding Company and BDT Capital Partners.

The Business Model

Einstein Bros. Bagels is a franchise and licensing corporation that was increasingly becoming a
capital light business model. The company was pushing to earn the greater portion of its profits
from royalty streams, which are fees paid by the franchising and licensing businesses. There
were also company-owned stores, but the franchised and licensed stores were whats driving the
growth of the company. Each franchise business paid $35,000 upfront and 5% of revenue
13
annually. Einsteins goal was to grow the franchise business by 30% each year .
10
International Directory of Company Histories, Vol. 29. St. James Press, 1999. Retrieved from:
http://www.fundinguniverse.com/company-histories/einstein-noah-bagel-corporation-history/
11
Alden, W. (2014, September 29). Bagel Maker Einstein Noah Sold to German Firm for $374 Million. The New York
Times. Retrieved from:
https://dealbook.nytimes.com/2014/09/29/joh-a-benckiser-to-buy-bagel-maker-einstein-noah-for-374-million/?_r
=1
12
International Directory of Company Histories, Vol. 29. St. James Press, 1999. Retrieved from:
http://www.fundinguniverse.com/company-histories/einstein-noah-bagel-corporation-history/
13
Currie, S. (2013, January 27). Einstein Noah Restaurant Group: Unlocking Value Through The Franchise Model.
Another source of revenue for Einstein Bros. Bagels was their licensing business. The company
licenses out locations in universities, airports, hospitals, and military bases to some major food
service companies such as Aramark and Sodexo. The upfront fee for a licensed store was
$12,500 and 6% of annual sales. Normally the opening year earns the company $40,000 per store
and about $30,000 for the following years. The licensed stores turned out to be fairly successful,
14
especially the ones in airports. The growth goal for the licensing business was 20% . Their
capital light model allows Einstein Bagels to generate revenues without incurring significantly
additional expenses. They also avoided other risks that came with opening new company-owned
restaurants.

Einsteins culture was quick, casual, and high quality with a friendly atmosphere. It was all about
food thats fast but doesnt taste fast. The company promotes their food as fresh-baked goods,
made-to-order sandwiches, crisp salads, and gourmet coffee, all made with a smile. The cozy
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atmosphere in each restaurant is created with soft lighting, comfy chairs, and community tables .
To adhere to the promised freshness of their food, Einstein Bros. Bagels was a strong believer in
controlling the development, sourcing, manufacturing, and distribution of their key products. To
support this strategy, the company developed proprietary recipes, invested in processing
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technology and manufacturing capacity, and carefully chose their suppliers .

The first Einstein Bros. Bagels location in Tyler, Texas, was opened back in 2009, by an
entrepreneurial couple who already had some experience in running local franchise operations.
Matt and Allison McKinney owned four Smoothie King locations in the East Texas area, before
they decided to bring a taste of bagels and coffee to Tyler, by implementing what was meant to
be one of three Einstein Bros. Bagels units to be opened in the city17. Their vision for the bagel
shop across from the mall was as owner Matt McKinney put it when interviewed back in 2009,
We want to offer the best in quick casual bakery fare to Tyler residents through a brand that has
built a great name and strong popularity in cities throughout the country."

The Industry and Where Einsteins Stands

Retrieved from Seeing Alpha:

http://seekingalpha.com/article/1523782-einstein-noah-restaurant-group-unlocking-value-through-the-franchise-
model
14
Currie, S. (2013, January 27). Einstein Noah Restaurant Group: Unlocking Value Through The Franchise Model.
Retrieved from Seeing Alpha:
http://seekingalpha.com/article/1523782-einstein-noah-restaurant-group-unlocking-value-through-the-franchise-
model
15
Einstein Noah Restaurant Group (BAGL). (2007, July 23). Retrieved from Investors Hub:
http://investorshub.advfn.com/Einstein-Noah-Restaurant-Group-BAGL-9888/
16
Einstein Noah Restaurant Group, Inc 10K Form. (2013, January 1). Retrieved from U.S. Securities and Exchange
Commission:
https://www.sec.gov/Archives/edgar/data/949373/000119312513085036/d445565d10k.htm#toc445565_2
17
PR Newswire (September 4, 2009). Einstein Noah Restaurant Group and Local Entrepreneurial Couple Open
Einstein Bros. Bagels Franchise Location. Retrieved from:
http://www.prnewswire.com/news-releases/einstein-noah-restaurant-group-and-local-entrepreneurial-c
ouple-open-einstein-bros-bagels-franchise-location-62081762.html
The primary industry which Einstein Bros. Bagels operated under in East Texas was the fast
casual food and coffee industry. By definition a fast casual restaurant offers the ease and
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convenience of fast food, but with a more inviting sit-down atmosphere. Characteristics such as
premium ingredients, healthier alternatives, and overall aesthetics, contributed to the fast casual
feel. The list goes on with criteria such as limited-service or self-service format, made-to-order
food with more complex flavors than fast food restaurants, and upscale, unique, or highly
developed dcor. Einstein Noah Restaurant Group, Inc. was the parent company of Einstein
Bros. Bagels. The primary NAICS code for Einstein Noah Restaurant Group, Inc. was
445291baked goods stores. The primary SIC code for the Restaurant Group is 5461retail
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bakeries.

Einsteins offered a duo of premium bagels and quality coffee. The bagels alone are enough to
entice anyone wanting a quick bite to eat without having to compromise ones diet. Offered in
several flavors ranging from plain, to blueberry, to jalapeo, and everything in between, the
scrumptious bagels are accompanied by a motley of smears. The coffee quality does not pale in
comparison. Einsteins has teamed up with Caribou Coffee, a company that not only delivers
some of the finest coffee across the planet, but is also a certified member of the Rainforest
Alliance. Einsteins serves the East Texas community as a fast casual bakery that meets the
desires of those looking for a quick and tasty solution. From the early morning commuters, the
brunch gatherers, or simply for those on the run, Einsteins had something for everybody. This
industry caters more specifically to the average Millennial. While other competitors in the
industry offer similar combinations, Einsteins truly pioneered everything that encompasses the
needs of a Millennial. Fast, premium, ethical, and reasonably priced, all fall under the fast casual
food and coffee umbrella that met the needs of those in East Texas.

The Changing Competitive Environment

Participants of the fast casual coffee and food industry in Tyler, Texas compete on the basis of
brand awareness, advertising effectiveness, franchise location, the atmosphere of the facilities,
the geniality of the service staff, the quality and speed of service, and the price and value of the
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products offered. There were multiple large brand-name chains carrying a similar coffee and
snack combination as Einstein Bros. Bagels. Einsteins competed with brands such as Starbucks,
an organization with over 24,000 locations in 70 different countries. And in all of those markets,
both domestic and international, the symbol of the siren, colored in green and white, stands out
so much so that Starbucks has done away with their name on product packaging, because simply
the distinctive round logo is recognizable on its own.

One of the reasons that companies in this industry competed on qualities such as brand
awareness and advertising effectiveness is because the market is fully saturated with direct and

18
Lorrie Mealey (January 15, 2017). What is a Fast Casual Dining Concept? Retrieved from
https://www.thebalance.com/what-is-fast-casual-dining-2888308
19
Einstein Noah Restaurant Group Inc. (n.d.). Retrieved from
http://siccode.com/en/business/einstein-noah-restaurant-group-inc
20
Einstein Noah Restaurant, Inc. (February 28, 2014). Annual 10k Report, 2014. Retrieved from
http://www.wikinvest.com/stock/Einstein_Noah_Restaurant_(BAGL)/Filing/10-K/2014/F115760270
indirect competition. In Tyler alone, there were dozens of local coffee shops, breakfast dives, and
even big-name brand chains which sold the same type of food and/or beverage options. If a firm
wanted to survive in this industry, wherein customers have a plethora of alternatives to choose
from, the company must strive to stand out and become a top-of-mind brand.

A growing segment of the customer base for coffee beverages in the U.S. is Generation Y, better
known as Millennials. This customer segment was more concerned with the quality and value of
the products they buy, than the physical uniqueness of the items. They were particularly
concerned about the method by which their products were sourced. These younger customers
were more willing to pay a higher price for Fair Trade certified coffee, and show a preference for
21
companies that offer it. These customers wanted to use their purchasing power to make a
difference.

The main competitors within the Tyler, Texas market, offered a fast, casual food and coffee
service included not only Starbucks, but also chain locations such as Panera Bread, Corner
Bakery Caf, and Dunkin Donuts. In comparison to Einstein Bros. Bagels, Panera Bread alone
focused much more on corporate social responsibility, dedicating an entire subsection of their
website to articles, videos, and reports of their success in initiating responsible practices. They
concentrated particularly on becoming a transparent company in terms of using only fresh
22
ingredients, antibiotic-free, in the products they serve. Corner Bakery Caf, a brand that
marketed itself as a neighborhood, artisan-crafted, fast casual restaurant, has involved itself in
the community through raising funds for events, and has partnered with No Kid Hungry since
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2008. Even Dunkin Donuts, with their cheaper alternative of coffee and sugary snacks,
outlines their corporate social responsibility practices into Our Guests, Our Planet, Our
People, and Our Neighborhoods, emphasizing their dedication not only to customers, but also
to the environment, employees, and their local communities. Dunkin Donuts also publishes
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biannual corporate social responsibility reports, available on their website.

The Introduction of Corporate Social Responsibility

The lack of CSR impacted the company itself. Not only did it miss out on the opportunity to give
back to the communities who support it with their business, but it also didnt enjoy any of the
benefits that come with being socially responsible. These benefits included winning new
business, increasing customer retention, improving your brand reputation, attracting and
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retaining a happy workforce, and providing access to investment and funding opportunities.
There is little information on implementation of CSR by the Einstein Noah Restaurant Group
21
Andr Cabrera (April 6, 2015). Staying Relevant: Meeting Consumer Demands in Changing Times. Retrieved from
http://scaa.org/chronicle/2015/04/06/staying-relevant-meeting-consumer-demands-in-changing-times/
22
Panera Bread (n.d.) Our Food Policy: Positive Impact. Retrieved from
https://www.panerabread.com/en-us/our-beliefs/our-food-policy/positive-impact.html
23
Corner Bakery Caf (n.d.) About Us Giving Back. Retrieved from http://www.cornerbakerycafe.com/about-us
24
Dunkin Donuts (n.d.) Dunkin Brands Commitment to Corporate Social Responsibility. Retrieved from
http://www.dunkinbrands.com/responsibility
25
Benefits of Corporate Social Responsibility. (2016, December 09). Retrieved February 14, 2017, from
https://us.sunpower.com/benefits-corporate-social-responsibility/
Inc. (owner of Einstein Bros. Bagels). The most prominent example of this would have to be
back in 2008 when they sold their bagels for $.99 to encourage customers to donate what they
saved to the Make-A-Wish Foundation. This company would be considered to be on the third
26
level of the CSR pyramid which is comprised of ethical responsibilities. To reach the highest
level on the pyramid (Philanthropic), the Einstein Noah Restaurant Inc. would have to partake in
more projects that promote general welfare.

In the modern-day business, CSR has cemented itself as a core part of a growing corporation. As
mentioned above, there are countless benefits that came with being socially responsible. From a
financial standpoint, investors not only wanted to make a profit, but also benefited society with
their investments. With social media being a big part of our everyday lives, it was important,
now more than ever, to keep a clean brand image and take part in CSR to help keep up that
image. This was also a good way to attract new consumers as they also wanted to impact society
with their purchasing power. From an organizational viewpoint, there has been many studies
suggesting that workers want to work for organizations where they can make an impact. This
contributed to keeping employees motivated, which created a better work environment, and
ultimately provides better customer service. Many companies have increase in growth and profits
after implementing CSR initiatives. Simply put, doing good is good for business.

Einstein Bros Bagels has, in the past, introduced itself to the public as a highly participating
industry leader in corporate social responsibility with its efforts for the Make-a-Wish Foundation
back in 2008. They lowered their prices for a regularly priced bagel and Schmear from $2.49 to
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$.99 to encourage customers to donate the $1.50 saved to Make-a-Wish . The implementation of
this idea brought extra business through its doors, and these customers saw Einsteins as an
outlet to outreach. Since then, Einstein Bros. has been out of the spotlight and its CSR rating on
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CSR Hub has since decreased to 61 out of 100 . The whole idea of CSR is an opportunity for the
industry to gain a higher advantage of customer loyalty by stimulating the drive for change and
influence on the world around them. Customers saw industries as a place of power to create
change. Companies like Toms, AT&T, and GM all have customer loyalty by the amount of CSR
incorporated. This is an opportunity for Einsteins to gain customer loyalty and grow their
market share through implementing stronger corporate social responsibility policies.

In the past, Toms has had a huge advantage in its market by having its motto of One for One,
meaning every pair of shoes is sent to help those in need. This sparked numerous customers to
buy the brand just to promote charity. CSR has been a tool used by other companies in the
Einstein Bros. Bagel industry, such as Starbucks and its CSR initiatives in late 2015. Since
26
Pyramid of Corporate Social Responsibility. (n.d.). Retrieved February 14, 2017, from
https://www.growyourgiving.org/giving-blog/pyramid-corporate-social-responsibility
27
Einstein Noah Restaurant Group. (2008, June 04). Einstein Bros., Noah's Offer 99-Cent Bagel & Shmear to Raise
$500,000 for the Make-A-Wish Foundation. Retrieved from PR Newswire:
http://www.prnewswire.com/news-releases/einstein-bros-noahs-offer-99-cent-bagel--shmear-to-raise-500000-for
-the-make-a-wish-foundation-57373237.html
28
Einstein Noah Restaurant Group. (2008, June 04). Einstein Bros., Noah's Offer 99-Cent Bagel & Shmear to Raise
$500,000 for the Make-A-Wish Foundation. Retrieved from PR Newswire:
http://www.prnewswire.com/news-releases/einstein-bros-noahs-offer-99-cent-bagel--shmear-to-raise-500000-for
-the-make-a-wish-foundation-57373237.html
implementing their agendas in 2008 the company has seen a skyrocket of sales and publicity
since the initiatives started. They included three pillars: community, ethical sourcing, and
environment. They set up stores that sanctioned as community stores which donated $.05 to $.15
29
per transaction to local charities and have insights to hire at least 10,000 veterans by 2018 .
They also vowed to only use ethically produced and purchased inputs for products, as in tea and
coffee that is produced by farmers ethically and with the planet in mind. Einstein Bros. Bagels
has implemented a parallel initiative in its industry by sourcing only cage-free eggs by 2020,
resulting in a partnership with the American Humane Association to use inputs of eggs only
taken from chickens raised outside of cages. This is Einsteins latest attempt in gaining
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popularity again in the market due to CSR as of this announcement in 2015 .

The Future of Einsteins

Einsteins has become a popular fast-casual chain among the young college residents of Tyler,
Texas. Its presence on the campus of the University of Texas at Tyler has only increased
awareness among the students who attend of the great bagels and coffee it has to offer. However,
while Einstein Bros. Bagels has been gaining the attention of Millennial customers, so has its
competitors, such as Panera Bread, the Corner Bakery Cafe, Dunkin Donuts, and Starbucks. The
majority of customers lining the entrance to your local Starbucks location are college students,
not necessarily because Starbucks offers the worlds best cup of coffee, but because Starbucks
understands the needs of its customers. In 2016, Starbucks held a 38.9% share of the U.S. coffee
shop market, and the only other chain which came close to matching it was Dunkin Donuts,
with a 21.9% share31.

The question which the executive leaders of Einsteins will have to ask in the coming year is,
To see growth, should we continue doing business the same way weve been doing it? Or is it
time for a change, with a greater focus on corporate social responsibility in our local
communities? Customers want to dedicate their time and money into businesses that they can
trust. Can customers trust a brand which sells itself as a neighborhood bagel shop, but may not
live up to that slogan?

29
Vandeveld, K. (2015, September 24). Corporate Social Responsibility How Starbucks Making an Impact. Retrieved
from Why Whisper Collective:
http://www.whywhisper.co/the-blog/2015/9/24/corporate-social-responsibility-how-starbucks-is-making-an-impa
ct
30
Einstein Bros. Bagels. (2015, December 14). Einstein Bros. Bagels Commits to Sourcing Only Cage-Free Eggs by
2020. Retrieved from Market Wired:
http://www.marketwired.com/press-release/einstein-brosr-bagels-commits-to-sourcing-only-cage-free-eggs-by-20
20-2081740.html

31
Statista (2016). Market share of the leading coffee chains in the United States in 2016. Retrieved from:
https://www.statista.com/statistics/250166/market-share-of-major-us-coffee-shops/