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Noble Roman's CEO Paul Mobley was asked to present at the recent MicroCapClub Invitational because the company's "ROI is unheard of in the restaurant industry," according to investor Sean Marconi, who introduced the brand's leader.
Specifically, Noble Roman's Inc. has 35 percent operating margins at an inflection point of growth. The Indiana-based company's momentum is buoyed by three verticals — nontraditional units, grocery take-and-bake and standalone take-and-bake — all of which are positioned for future growth.
Noble Roman's standalone take-and-bake model made its debut in late October 2012. The concept, dubbed "Noble Roman's Take-n-Bake P'za," leverages the fastest-growing segment in the pizza industry, with Papa Murphy's being the only other national take-and-bake brand amidst a handful of smaller regional and local concepts.
According to the company, the first Noble Roman's standalone TNB franchise generated an operating profit margin of 26.5 percent within the first month, even after the added labor cost involved in initial training was factored in. There are now three standalone units open and six more under development.
At the MicroCapClub Invitational, Mobley said the company has strategically positioned itself in the take-and-bake space because it remains largely underpenetrated and is quickly growing for a number of reasons. Namely, carryout concepts are in step with consumers' time-pressed and convenience demands, startup costs are lower than traditional units, and take-and-bake concepts can accept food stamps, which are currently used by about 47 million Americans.
"One out of every seven Americans is on food stamps; unfortunately, but it's a big market and we're trying to service it," Mobley said.
Low start-up costs, established supply chain are other advantages
A major advantage to the standalone footprint is its lower entry cost compared to traditional units. Mobley estimates the total investment to be between $60,000 and $90,000. Labor costs are also low, with two people typically filling most shifts. Also, there are minimal equipment requirements — refrigeration and display — because the crusts are premade and there is no in-store dough prepping.
"In contrast, Papa Murphy's entry level is about $150,000 to $180,000 because they are making their dough in-store and that requires air conditioning units, more space and more equipment," Mobley said.
He expects Noble Roman's standalone take-and-bake concepts to generate gross revenues of $400,000 to $600,000 per unit per year. This estimate would result in about $48,000 to $72,000 in royalties per location per year going back to corporate.
Having a solidified supply chain in place is another advantage Noble Roman's has as it grows its standalone footprint. The brand has been in business since 1972 and has a presence in 48 states.
"A hurdle to growth which normally occurs in a new start-up system has been eliminated because we already have that (supply chain in place)," Mobley said.
The company is targeting 12 states throughout the country for its initial standalone expansion. And, besides Papa Murphy's and other smaller players, competition is expected to remain small in the take-and-bake space for the foreseeable future. Mobley says it's very unlikely that any of the "Big 4" (Domino's, Pizza Hut, Papa John's and Little Caesars) jump into the space because it would compromise their signature products.
"Their product would have to be reformulated for take-and-bake because right now they all use fresh dough with yeast, which reacts to the sauce and turns it bitter. The quality deteriorates if it's not baked immediately, so the formulation isn't conducive to do take-and-bake for them," Mobley said. "Also, they have delivery operations and take-and-bake would cause them to be in competition with themselves."
Finally, Mobley noted that Noble Roman's main focuses are on revenue expansion, research and development and outreach. The company is shrinking its full-service model significantly, while adding to its take-and-bake and nontraditional models. Specifically, take-and-bake growth, both via grocery stores and standalone units, is expected to be "quite large."
Until its recent introduction of the standalone model, Noble Roman's growth emphasis has been through its grocery distributors across the country. The company originally began marketing the option at independent grocery stores and small chains, and has since moved into bigger chains and is currently available in about 10,000 grocery stores.
"Take-and-bake is a phenomenal opportunity. There is such rapid growth throughout the marketplace," Mobley said. "We're into a number of grocery store chains right now and that will continue, and starting the standalone concept is just as exciting. We're in trend with the market and each new unit represents more income for Noble Roman's."
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