Wall Street Deli, Inc.

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Wall Street Deli, Inc.

One Independence Plaza, Suite 100
Birmingham, Alabama 35209
U.S.A.
Telephone: (205) 870-0020
Fax: (205) 868-0860
Web site: Web site: http://www.wallstreetdeli.com

Public Company
Incorporated: 1966 as Sandwich Chef, Inc.
Employees: 779
Sales: $58.3 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: WSDI
NAIC: 722211 Limited-Service Restaurants

Wall Street Deli, Inc. operates a chain of 118 delicatessen-style restaurants under the Wall Street Deli banner. The company’s delis are located in office buildings, serving a variety of made-to-order sandwiches, soups, and salads. A majority of the locations also serve breakfast items, including bagels, muffins, and fresh fruit. The restaurants range in size from 800 square feet to 5,000 square feet, with the smaller units—called Express—offering the same menu as the larger units but without salad bars. Franchisees operate 17 Wall Street Delis.

1960s Origins

Wall Street Deli was founded in 1966 in Birmingham, Alabama, as Sandwich Chef, Inc., the entrepreneurial creation of Alan V. Kaufman. In his late 20s when he started Sandwich Chef, Kaufman set out to build a chain of delis for a specific market niche. He focused expansion in suburban markets, specifically targeting office buildings ranging in size between 150,000 square feet and 200,000 square feet. Sandwich Chef outlets were established in the lobbies of such buildings, drawing their business from the office workers working in the floors above. Benefiting from what amounted to a captive customer base, the Sandwich Chef concept flourished during its first decade of business. Kaufman established outlets throughout the Gulf states and beyond, building a chain of mid-scale delis that stretched from the East Coast to the Rockies. After 15 years of steady, aggressive expansion, Sandwich Chef units were located in Houston, Dallas, New Orleans, Denver, Memphis, Birmingham, Chicago, and Washington, D.C., enabling the chain to collect in excess of $20 million in sales by the early 1980s. The 212 outlets composing the chain in 1982, however, represented the company’s peak strength, a high point followed by a protracted downward spiral. The effort to restore the company’s lost vitality and to again reach the halcyon heights of 1982 ultimately led to the emergence of Wall Street Deli, Inc.

Kaufman, who had watched Sandwich Chef flourish during the 1970s, had to endure the chain’s sputtering performance during the 1980s. Although it likely provided little solace, the abrupt change in the company’s fortunes was chiefly caused by forces out of Kaufman’s control. Sandwich Chef maintained a strong presence in oil-producing areas such as Houston, Dallas, New Orleans, and Denver, which felt the brunt of the damage caused by the oil crunch of the early 1980s. As markets economically dependent on oil-related industries suffered, so did Sandwich Chef. In many of the office buildings where the company’s delis were located, occupancy plummeted, stripping Sandwich Chef units of their customer base. The recessive economic conditions significantly reduced sales at some Sandwich Chef units and forced others to close, leading to depressed financial results for the company and to the reduction of its store count. In 1982—the company’s benchmark year—Sandwich Chef earned $857,000 from its 212 stores. For years later, with 203 stores under its control, the company netted $655,000, posting a loss of $617,000 the following year because of store closures. By the end of the 1980s, the number of outlets composing the chain had fallen to 189.

Aside from the dour economic conditions during the 1980s, other factors contributed to the languid performance of Sandwich Chef. Generally, the stores were out-of-date and many were in poor condition. The decor was painfully mid-1970s, featuring brown and orange color schemes, vinyl wall coverings, and Formica counter tops, all illuminated by flat fluorescent ceiling lighting. To address these cosmetic problems and the more pernicious, fundamental flaws exposed by the oil crisis, Kaufman and his corporate lieutenant, Robert G. Barrow, a Sandwich Chef director since 1967, developed two new concepts.

First Wall Street Deli Opens in 1987

The first, introduced in July 1985, was R.C. Cooper Deli, a more upscale version of the Sandwich Chef concept. Like the Sandwich Chef stores, R.C. Cooper Deli was created for office building lobbies, but the R.C. Cooper Deli units were developed for much larger buildings than the company’s flagship chain. R.C. Cooper Deli stores were targeted for buildings of at least 500,000 square feet. The company’s second concept represented a more radical departure for Kaufman and Barrow, moving them away for the first time from the familiarity of office buildings. Wall Street Deli was launched in 1987, appearing at first in food courts within shopping malls, where the company hoped the new concept would benefit from the high volume of pedestrian traffic. Featuring a more expensive menu than R.C. Cooper Deli, Wall Street Deli initially received less of the resources devoted to expansion than R.C. Cooper Deli enjoyed, but both figured prominently in Kaufman’s plans to steer Sandwich Chef out of the doldrums. Cosmetically, both of the new concepts demonstrated a fresh, revamped approach to deli stores. Vinyl and Formica were replaced with ceramic walls, quarry tile floors, and numerous mirrors. Wall Street Deli units contained mahogany wood trim, brass light fixtures, and vintage pictures of Wall Street and New York City, as well as sandwiches named after the five boroughs of New York City.

Aside from the much-needed changes in decor, other important alterations distinguished the Sandwich Chef units from their 1980s counterparts. Both of the newer concepts were considerably larger than Sandwich Chef, ranging in size from 2,500 square feet to 3,000 square feet, compared to the 1,500-square-feet Sandwich Chef outlets. Additionally, the sandwiches were larger at the new restaurants, five ounces compared to three ounces. Further, Wall Street Deli and R.C. Cooper Deli stores offered expanded menus, including pasta bars, a broader range of soups, and salad bars that were roughly twice the size of those found in Sandwich Chefs. Both Wall Street Deli and R.C. Cooper Deli also featured ovens in the front window, enabling the stores to prepare a greater amount of food on premises, including breads, muffins, and biscuits.

The expansion of the two new concepts occupied much of the company’s attention during the latter half of the 1980s. Barrow, in a January 15, 1990 interview with Nation’s Restaurant News, remembered the anxious years spent trying steer Sandwich Chef in a new direction, saying, “We were certainly scrambling and trying to get our affairs in order.” R.C. Cooper Deli, the first of the new concepts to make its debut, was treated as the primary expansion vehicle, quickly nearing the same store count as its 20-year-old sister chain, Sandwich Chef. Less attention was given to the expansion of the Wall Street Deli concept, but by the end of the 1980s the mahogany-wood, upscale deli concept would factor heavily into Kaufman’s plans for the 1990s.

The end of the 1980s represented a crossroads for Sandwich Chef, Inc. The company exited the decade with a handful of store banners operating under its corporate umbrella, no longer the homogenous deli operator that had entered the 1980s. In 1989, there were 61 Sandwich Chef stores in operation, a total nearly matched by the fast-growing R.C. Cooper Deli, which had grown to 59 stores in four years. Rounding out the company’s roster of retail outlets were 12 Wall Street Deli units, all situated in shopping malls, as well as ten stores operating under the Fast Stop and LaPrima banners, neither of which would prove integral to the company’s future.

Leading the company’s resurgence were the Wall Street Deli and R.C. Cooper stores, which were delivering encouraging financial results. Each were located in denser traffic areas than Sandwich Chefs—R.C. Cooper Delis in larger office buildings and Wall Street Delis in shopping malls—and, accordingly, were posting greater sales averages. In 1989, a Sandwich Chef unit averaged $146,500 in sales a year, a total that fell well short of the $304,000 averaged by R.C. Cooper Delis and the $404,000 averaged by Wall Street Delis. The sales figures, underpinned by greater profit margins, convinced Kaufman and Barrow that it was time to shelve the Sandwich Chef concept in favor of the two new concepts. In January 1990, the company announced that during the ensuing 18 months all Sandwich Chefs would be converted to Wall Street Delis or R.C. Cooper Delis or would be sold or closed. “Our image is changed,” Barrow proclaimed in the January 15, 1990 issue of Nation’s Restaurant News. “We just decided not to use it [Sandwich Chef] as a trade name anymore,” he noted, adding, “We decided a lot of these Sandwich Chefs were run down and shabby looking, and we decided to help ourselves by using a brand new name.”

Although Barrow never specified in early 1990 which deli concept—R.C. Cooper Deli or Wall Street Deli—the company would latch onto as its primary expansion vehicle, expansion plans for the immediate future pointed to one concept in particular. The company intended to open 20 to 25 new stores in 1990, 18 of which were to be Wall Street Delis. Significantly, concurrent with the decision to abandon the Sandwich Chef chain, Kaufman and Barrow decided to forego establishing Wall Street Delis in shopping malls, choosing instead to erect the stores in metropolitan-based office buildings, the traditional market for Sandwich Chef Inc. The 18 new Wall Street Delis and the remaining R.C. Cooper Delis included within 1990’s expansion plans were expected to penetrate two new markets, Atlanta and southern Florida, as well as strengthen the company’s presence in its existing eight-city operating territory.

Company Perspectives:

The Market Starts On Wall Street. Taste Starts At The Deli … The Wall Street Deli.

Name Change in 1992

As Kaufman and Barrow pushed ahead with the transition, execution trailed expectations. Originally projecting an 18-month period to strip away the vestiges of the past, the company’s senior management found the process more cumbersome than expected. Although the company remained profitable during the early 1990s, 34 months after announcing the program to convert, sell, or close all Sandwich Chef stores, there were still 12 such units in operation. In October 1992, however, the company renewed its commitment to the changeover by changing its corporate title from Sandwich Chef, Inc. to Wall Street Deli, Inc. The name change reflected the company’s concerted push into a higher-end segment of the retail market and it reflected the altered composition of the company. As of June 1992, there were three LaPrima stores, all scheduled to be sold in 1993,12 Sandwich Chefs, 64 R.C. Cooper Delis, and 43 Wall Street Delis, the size of the eponymous chain having more than tripled in two years.

Wall Street Delis had proven to be the company’s strongest performer, with individual units grossing between $600,000 and $1 million in annual sales. Consequently, the successful chain served not only as the company’s namesake but also figured as the exclusive focus of Kaufman’s expansion plans. Looking ahead to 1993, the company planned to widen its operating territory to a 13-state region, with 15 new locations targeted for Wall Street Deli outlets. “It took us a long time,” Kaufman remarked in a October 19,1992 interview with Nation’s Restaurant News, “but we’ve finally got this thing going.”

As Kaufman shuttered the last dozen Sandwich Chefs and geared for the expansion of the Wall Street Deli concept, the newly-named Wall Street Deli, Inc. exited the early 1990s and the recessive economic conditions that permeated the period. Despite an upturn in the national economy and Kaufman’s perception that his company had “finally got this thing going,” the years immediately following the name change proved difficult. Kaufman suffered a heart attack in early 1995, which forced him to relinquish some of his control over the day-to-day operation of the company. Midway through 1995, when the company reported its financial results for fiscal 1995, a disappointing loss compounded the concern touched off by Kaufman’s health problems. The company reported a $921,000 loss for the year, despite a ten percent increase in revenues to $68.2 million. The net loss was attributable to the closure of 11 underperforming stores and the elimination of the company’s commissary system, which led to a $3.2 million charge against earnings. A week after announcing the financial loss, Kaufman relinquished his titles as president and chief executive officer, passing day-to-day control to Barrow. Kaufman remained chairman of Wall Street Deli, Inc.

Fitful Progress during the Late 1990s

Conditions were slow to improve during the next several years, as the company continued to struggle through an elongated period of transition. Closing the commissary system and turning to a vendor for distribution caused problems, as did the lackluster performance of particular stores, particularly the company’s ten-store operation in Memphis, which was sold in late 1996. Amid modest expansion, which generally was offset by the closure of stores that did not meet the company’s performance goals, Wall Street Deli, Inc. reported a series of worrisome financial results. In 1997, the company’s net income amounted to a mere $63,000, which was followed by $3.8 million net loss the following year and a $2.3 million loss in 1999. As the company’s profitability waned, its annual sales totals slid downward. Wall Street Deli, Inc. recorded $65.5 million in revenue in 1997, $63.8 million in 1998, and $58.3 million in 1999.

To cure the company’s anemic financial performance several programs were begun, their implementation presided over by a new leader. At the end of the company’s fiscal 1998 year in June 1998, Jeffrey V. Kaufman, Alan Kaufman’s son, was named president and chief executive officer. Kaufman, who had joined his father’s company in 1985, inherited 112 Wall Street Deli stores. In the year prior to his appointment, the company had launched a national franchise program for the Wall Street Deli concept as a means to improve financial performance. Additionally, the company introduced what it called the “Street Wraps” program, a tortilla-wrapped sandwich that debuted in 80 stores between mid-1997 and mid-1998. Although both the franchise program and the Street Wraps program were in their early stages of development at the end of the 1990s, management anticipated that eventually the programs would invigorate the company’s overall financial performance.

As Wall Street Deli, Inc. exited the 1990s, its efforts to kindle a meaningful surge in revenue and profit growth were diverted by a proposed buyout of the company. Time-consuming discussions were held with two parties throughout the company’s fiscal 1999 year, but both proposals were terminated, with the last round of deliberations ending in July 1999. Company officials attributed much of Wall Street Deli, Inc.’s operational and management difficulties during the year to time and effort spent analyzing the proposed buyouts. Following the end of such discussions, management hoped a clear focus on the company’s operation would produce encouraging results, but more discouraging news followed. The company reported a $201,228 loss for its fiscal 2000 first quarter and a 15.7 percent decline in revenues. The results, announced in December 1999, marked the end of a troublesome decade for the company, spurring efforts to find a remedy. Kaufman hired a new vice-president of operations and a new chief financial officer to help ameliorate the company’s performance, but as the company entered the 21st century there were few signs that its problems were entirely a thing of the past.

Principal Subsidiaries

Sandwich Chef of Alabama, Inc.; Downtown Food Service, Inc.; Sandwich Chef of Colorado, Inc.; Sandwich Chef of Texas, Inc. Sandwich Chef of D.C., Inc.; Sandwich Chef of Illinois, Inc.; Sandwich Chef of Louisiana, Inc.

Key Dates:

1966:: Company’s predecessor, Sandwich Chef, Inc., is founded in Birmingham, Alabama
1982:: Sandwich Chef chain peaks at 212 units.
1985:: Company opens its first R.C. Cooper Deli.
1987:: First Wall Street Deli opens.
1992:: Sandwich Chef, Inc. changes its name to Wall Street Deli, Inc.

Principal Competitors

The Quizno’s Corporation; Blimpie International, Inc.; Wendy’s International, Inc.; Subway; Burger King Corporation; Schlotzsky’s, Inc.; McDonald’s Corporation.