CoreLife Eatery— A Brand on the Move
Roger is an investment professional with decades of experience specializing in chain restaurants and retailers, as well as macro-economic monetary developments. He turns his background, as restaurant operator and board member of growing brands, into strategic counsel for operators and perspective for investors.
An archive of his past articles can be found at RogerLipton.com.
CoreLife Eatery, based in Binghamton, New York, is building a lifestyle brand from the inside out. CoreLife embodies an intersection between “we are what we eat” and “find what works for you.” The company further describes its objective: “Food determines how you feel, how you look, and most importantly, how you perform.”
While every food company would embrace these values, we’ve seen no other restaurant company that has created a menu of so many “good for you” items that also have eye and taste appeal. No doubt former chief concept officer of Panera, Scott Davis, was instrumental in creating Panera’s “clean food” emphasis, but he has in comparison, far outdone himself with CoreLife’s approach.
CoreLife takes a back seat to no one. The ingredients, the suggested combinations, the photography, the service approach, and the overall price/value perception seem uniquely appealing to diners that are increasingly interested in taking care of themselves, especially if it can be done without sacrifice. This fast-casual concept provides assembly line style build-your-own bowls and plates. There are small bowls, popular for lunch, larger greens & grains bowls, broth bowls, and entrée plates. 60% of volume is at lunch with 40% at dinner. 60% of sales are to women.
Larry Wilson, Chairman and CEO, has a background in retail and restaurants, as a concept creator, franchisee, and franchisor. Several decades ago, Wilson co-founded Video King, building it into a regional chain of 36 locations. He became a franchisee of Moe’s Southwest Grill in 2005 (growing to 21 Moe’s today), and was named “Rookie Franchisee of the Year” and then “Franchisee of the Year” in 2014. Wilson also owns and operates 11 Hoopla Frozen Yogurt stores in New York and Pennsylvania.
Wilson and “co-founder” Todd Mansfield conceived a healthy eating concept that could compete outside the major urban centers and bring clean and healthy food to more communities across the country. In 2016 they were joined by Jeffery Coghlan (chief administrative officer), and Scott Davis (president and chief concept officer).
Davis had been chief concept officer for Panera Bread for 20 years from inception, overseeing all menu development, restaurant design and sustainability efforts. A case can be made that there was no single individual more responsible for the evolution and success of Panera than Davis.
Mansfield has a 30-year long background in creative approaches to wellness, nutrition, physical therapy, and development of corporate culture that supports success in these areas, as well as community and philanthropic involvement. Mansfield has also been a franchisee of Moe’s and Hoopla.
Administrative control has been led, since inception in early 2016, by Jeffrey Coghlan (chief administrative officer), with 46 years of experience within the restaurant industry. Coghlan became a Wendy’s franchisee in 1969 and is now a Moe’s franchisee and a Harley Davidson dealer. His involvement in ministry, philanthropy and community involvement complements the similar dedication of Wilson, Davis and Mansfield.
Mr. Coghlan has been supported, since inception, by the company’s chief financial officer, Christopher Heiermann, who also serves as CFO for Southwest Grill of New York, Moe’s franchisee.
2016 – Company units went from 0— 8 units, there were no franchised locations opened.
2017 – Company units went from 8—18, there were five franchised units opened, from eight to 23 in total.
2018 – Company units went from 18—27, franchised units from 5—22, 23—49 in total.
2019 – There are currently around 57 locations in total. The largest states are: NY (17), OH (10), IL (5), IN (5), MI (5), PA (5) and UT (4). The company estimates that there will be approximately 63 locations at 12/31/19.
The average store size started at nearly 4,000 square feet, but has been reduced to approximately 3,000-3,500 square feet. The cost of developing a location ranges from $770,000 to $1,059,000, including working capital of $25,000 to $60,000, pre-opening advertising of $28,000-$30,000, training of $15,000-$20,000, and a franchise fee of $30,000 to $50,000. The ongoing royalty is 5% of sales plus up to 3.5% (currently at 2%) of sales in the “brand fund” which covers marketing expenses. Multiple unit development franchise deals have a variety of modifications to single unit arrangements, not including any diminution of the 5% royalty or advertising requirement.
Considering the rapid growth of units as described above, no doubt combined with concept evolution and opening inefficiencies, we consider the cost controls as described below as fairly impressive. The company makes no representations in this regard but we wouldn’t be surprised if both COGS and labor can be reduced at least modestly as a percentage of sales. We also consider it impressive that only 2% of sales has been spent on advertising at company stores, so word of mouth has clearly been a source of sales strength.
According to the Franchise Disclosure Document, the eight company stores that were opened for two full calendar years ending 12/31/2018 had average unit volumes of $1,699,927. Cost of goods was 33.7% and labor cost was 26.5%. The eighteen company stores that were open for a full calendar year in 2018 averaged $1,480,701 and had cost of goods of 33.5% and labor expense of 27.6%. Comp sales are not quoted since so few locations have an 18 month history.
In terms of return on investment for company stores, based on about 60% spent on prime costs, we estimate that at least 15% of sales are being generated as store level EBITDA. If we use the $1.7M as a “working” sales target, a 15% EBITDA would be $255,000, or 27.9% on an average cash investment of $914,000. Franchisees would obviously, after royalties, be generating less, but, considering how young this concept is, how much operating efficiency has yet to be gained, how much contribution has yet to be generated from delivery, mobile app and loyalty program, CoreLife is off to a more than promising start. It is not surprising that there is substantial interest from potential franchisees.
CoreLife has grown quickly from 2016 through 2018, and 2019 is no exception. At the same time, management is experienced and well aware of the pitfalls of rapid growth. They do not seem driven by the need to beat the competition to this market or that. The concept seems to us to be “leading edge” relative to the fast casual segment. It is “defensible,” in that it is complex enough to be difficult to copy (as was Panera) yet (apparently) “simple” enough to be franchiseable and that seems to be validated by the initial franchise partners.