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P.B.Loco gets gourmet with peanut butter

By Karen M. Kroll

Keri Barney, Ken Hall and Jodene Jensen were lawyer chums in Minneapolis who happened to have entrepreneurial tendencies. After considering several potential ventures, they decided to focus on a food item familiar to consumers and “take it to the next level,” according to Hall, who cites Cinnabon, Cold Stone Creamery and Starbucks as models.

Peanut butter fit the bill. “Peanut butter is something almost everyone eats,” he said, “but no one has really done anything new with it.”

Thus the origin of P.B.Loco, a chain of restaurants built around that childhood staple but featuring such flavors as European café mocha, and cinnamon and raisins. With five units currently up and running, in Appleton, Wis.; Bloomington, Minn.; Minneapolis; Scottsdale, Ariz.; Woodbridge, N.J.; Hall, Jensen and Barney hope to have about 20 by the end of the year.

They plan to expand via franchising. As they do, the P.B.Loco team will look for franchisees who not only are business savvy but also “get the brand and are excited about peanut butter and the concept,” according to Jensen.

P.B.Loco is one of a handful of innovative new food concepts capitalizing on nostalgia for classic foods, says Chris Stallman, senior marketing manager for Scottsdale (Ariz.) Fashion Square, an upscale regional center. A P.B.Loco opened at the center late last year. “You don’t see a lot of those these days.”

The three quit their jobs at Twin Cities law firms in the spring of 2003, and each took a few months to travel before joining forces to begin planning their new company. They opened the first P.B.Loco café in November at Mall of America, in Bloomington, Minn., and the second soon after near the University of Minnesota campus.

For expansion the team is looking at the East Coast, Southern California and Texas and says it prefers higher-end regional malls. As a new brand, the company benefits from the traffic of larger malls, says Hall. Down the road, he says, the chain may look more closely at lifestyle and grocery-anchored centers too.

Franchising expert Ken Hollowell, president of National Franchise Services, Los Angeles, says restaurants that become destination points are likely to succeed. If, on the other hand, advertising costs consume a large portion of a restaurant’s profits, failure is virtually assured. Although P.B.Loco is no more vulnerable than any other chain, the challenge is one many restaurant owners must address.)

The P.B.Loco team prefers in-line spaces rather than the food court. This way the stores can be large enough to create a café feeling; where customers actually enter the place, relax, eat and feel the ambience. P.B.Loco units tend to measure about 1,200 square feet. “We like our customers to come in and have the whole experience,” said Hall.

The company does sell over its Web site, but given the cost of shipping, that is unlikely to become a significant revenue stream, says Jensen. Still, P.B.Loco enjoys a broad target market, because peanut butter tends to attract both men and women, from every age group and conceivable occupation. “Most Americans eat peanut butter,” Jensen said. “It goes across the range.”

To be sure, many associate peanut butter with childhood, and children are certainly part of the target market. But the company has consciously tailored its stores for adults. “If we designed it for kids, we would get only kids,” said Jensen. Indeed, the stores sport a sophisticated look: wood counters, contemporary lights, granite tile floors, a khaki-and-burgundy color scheme. “It’s fun,” said Jensen, “but not kidsy.”

Customers can choose from about a dozen peanut butter sandwiches, as well as soups, wraps and smoothies. Garnishes range from apple slices to carrots to M&M candies. The sandwiches are grilled.

None of this is cheap. The 16-ounce jars of peanut butter cost $6 or $7, versus the couple of bucks a jar of Skippy costs at the corner grocery store. Sandwiches are about $5 apiece.

For true peanut butter aficionados, “price won’t matter,” according to Alyson Dutch, CEO of Brown & Dutch, a Malibu, Calif.-based public relations firm specializing in new product launches. Jensen says the sandwich prices are comparable to those at other restaurants. Anyway, she says, most customers have higher-than-average incomes, to judge by their zip codes.

So far the P.B.Loco team seems to have this gourmet peanut butter market pretty much to itself. Hall says he has seen one or two stores that offer flavored peanut butter, but they do not appear to be expanding. Beyond that, no direct competitors have emerged.

P.B.Loco has generated a fair amount of buzz. The chain has been featured on several shows on The Food Network cable channel and in some national magazines, including Entrepreneur and Country Living. It was a spot on the Food Network that brought P.B.Loco to the attention of Anthony Caruso and Keith Broxterman, owners of the store in Scottsdale. “We saw the story on the Food Network and thought it was a great idea,” said Caruso.

In fact, Caruso left a lucrative position as a project manager with JPMorgan Chase to push peanut butter. What he lacks in restaurant experience, he makes up for with plenty of business know-how, he says.

Finding franchisees with business smarts will be critical, says franchise expert Hollowell, because a restaurant is a very easy thing to mismanage. Overstaffing, understaffing and failure to manage food costs are among the most common mistakes.

In addition to a passion for peanut butter, franchisees need financial resources. The initial investment in a P.B.Loco franchise is somewhere between $120,000 and $400,000. That includes a franchise fee of $22,000 ($50,000 for three units) and the costs of a computer system and any leasehold improvements, among other expenses.

Franchisees also pay a royalty fee of 5 percent of gross sales to cover training, new product development and the right to use the P.B.Loco name. In addition, they pay a marketing fee of 1 percent and are required to spend the equivalent of 3 percent of sales for marketing and advertising.

Caruso declined to provide sales figures but says he is “definitely pleased with sales” so far. He and Broxterman have been featured in the local media, which has probably helped drive sales. The partners have signed up to open three stores in the Scottsdale area. They would like to open the other two sometime this year; one might not happen until 2007, depending on when they find suitable spaces.

Though the store in Scottsdale Fashion Square is too new to have definite sales figures available, Stallman says, it appears to be attracting customers.

The P.B.Loco crew does face some challenges. Jan Norman, author of What No One Ever Tells You About Franchising, wonders whether the team is spreading itself too thin with units all across the country. “They may be stretching their supply chain and management [talent],” Norman said. Further, the company needs to build relationships with companies that can supply its stores nationwide, according to Caruso. “It’s a major area of focus,” Caruso said. “We want to cut food costs.”

Above all, Hollowell says limited-menu restaurants like P.B.Loco tend to generate yearly revenue of about $350,000. With typical gross profit at about 25 percent, a franchisee would pocket about $75,000. For someone working long hours, seven days a week, that sum may not seem worth it.

There is always the chance consumers could see the products as a novelty and visit once but never again. Jensen says the company was concerned about that, so it offers a well-rounded menu — albeit centered around peanut butter. The chain offers an incentive, too: Buy 10 sandwiches, get one free.

Hall says the team prefers not to forecast too far out, though it would like to have more than 100 stores by 2010.

“We want to grow but not oversaturate the market,” Jensen said. “It’s all about aggressive, controlled growth.”