New World Coffee's new name means new game

Nation's Restaurant News, August 25, 1997 by Milford Prewitt

NEW YORK -- Attempting to distinguish itself from the herd of bagel chain operators and the ubiquitous Starbucks, New World Coffee has effected a name change and a new marketing strategy in launching a prototype that blends bagels and coffee in an all-day format.

Ramin Kamfar, the 33-year-old president and chief executive of the 38-unit system, said both developments are designed to create a niche within a niche whereby New World Coffee & Bagels, the chain's new name, secures all-day business while broadening its opportunities for co-branding and for franchising the concept.

"Coffee and bagels go naturally together," Kamfar said. "But if you look at the trends, Starbucks enjoys most of its traffic in the morning, while Manhattan Bagels and the rest of them have strong morning and lunch but shut down between 3 p.m. and 6 p.m.

"We're looking to be a neighborhood gathering place with three dayparts built on great coffee, good bagels, bagel sandwiches and pastries."

New World 20 varieties of coffees and special-blended javas, mostly from Africa, South America and Indonesia, hence, the "world" in its same.

The company offers 17 different types of bagels and a variety of breads and sandwiches and pastries. Muffins, scones and croissants are also on the menu.

Kamfar said that based on the early results of its two prototypes, the company's decision is bearing out, prompting a systemwide retrofit of all existing units to reflect the new menu strategy.

Included as part of that shift is a $50,000 investment in each unit to convert the kitchen with new baking ovens refrigeration and venting -- to accommodate the new marketing strategy. Thus far, one unit has been converted.

Up until now, New World reported that 35 percent of its sales mix was food. As part of the repositioning, the company will abandon its Italian panini bread sandwiches at lunch-time n favor of fresh-baked bagel sandwiches.

"Here's Starbucks with 90 percent of its sales in coffee and 10 percent in food, while the sales mix among the bagel guys is roughly 85-percent bagels and 15-percent coffee.

"At our new units we're doing 50-percent coffee and 50-percent bagels. I think from a consumer point of view that establishes our credibility and establishes our ability to capture three dayparts."

While consumers may appreciate the change, investors have not had a lot to cheer about New World.

The company, which went public in February 1996, has not reported a profitable quarter since going public, but Kamfar said that will change in the third quarter.

The stock closed recently at $1.25, close to its 52-week low of 90 cents. The year-high has been $3.75. In its first day of trading the stock came out at $5.50.

Kamfar, a former investment banker who graduated with an M.B.A. from the Wharton School of Business, said the softness in the stock price primarily is related to the lack of institutional interest in the company.

"I used to be an investment banker," he said. "I know how those guys on Wall Street think. Unless you are doing $30 million a year, they are not interested in you.

"Because we are relatively small, we are off everyone's radar screen. But we expect that to change in the next six to eight months."

For the 12 months ended December, New World -- which had been in an aggressive acquisition mode -- reported losses of $700,000 on revenues of $13 million. In the second quarter ended June, the company narrowed its losses to $200,000 on revenues of $4.1 million.

Kamfar said he is projecting 1997 volume at $16.1 million.

He stressed that the company would report a profit in the third quarter, which ends in September.

Kamfar added that another reason the stock price is low is that New World chooses to plow its profits back into the company.

"Although the stores are very profitable, we have taken our profits and put them back into the infrastructure and building the company's management team," he said. "This quarter will be a profitable one, and it should have a positive impact on the stock.

"Labor costs have risen because we need a baker," Kamfar said. "But labor costs, as a percent of sales, are about the same or decline because our sales per unit are going up. Plus,we are adding a new daypart."

To underscore Kamfar's point Jerry Novak, chief executive, said same-store sales at the remodeled unit are up 25 percent since the new market repositioning. Comparable monthly sales at one of the "hybird" stores are up 71 percent, with comparable food sales up110 percent.

Kamfar said New World has some of the highest sales per square foot in the segment, even before the adoption of the bagel program. The key reason, he suggested, was that New World was already deriving 35 percent of its sales mix from food.

"We tended to a average about $550,000 a unit on less than a thousand square feet," he reported. "But we're doing about $710 a square foot. The New World Coffee & Bagel units should do about $750,000 a unit, and that number should increase as we build larger stores."

Unlike many of the specialty coffee players, Kamfar said New World is a genuine cafe, modeled after London and Paris-style coffeehouses where guests sit, as opposed to the Italian-West Coast orientation of Starbucks, where guests stand of tend to leave.