An Irvine-based group of investors is betting that a lot of people are willing to trade in their Egg McMuffins and Breakfast Jacks for fast-but-fancy omelets.
PJL Restaurant Corp. has the exclusive right to open 150 Le Peep restaurants in six western states and a territory in New England. The cost of that exclusive franchise was $1.5 million.
So far, PJL has three Le Peeps--opened at a cost of about $285,000 each--in Orange, Fountain Valley and La Palma. The fourth is scheduled to open today in Scottsdale, Ariz.
In addition to the $285,000 cost of building and equipping each new restaurant, PJL pays Denver-based Le Peep Restaurants Inc. a $30,000-per-unit franchise fee plus 5% of gross monthly sales.
The concept behind Le Peep Restaurants is that a sizable number of well-off diners between the ages of 25 and 40 will be interested in a large selection of upscale breakfast and brunch food served quickly.
Whether the idea will work remains to be seen, but it was attractive enough to persuade two New York-based venture capitalists--investor Eli S. Jacobs and Peter G. Peterson, former chairman of Lehman Brothers Kuhn Loeb, who resigned under pressure in 1983--to put up the $1.5 million "development" fee in 1985.
Jacobs and Peterson, who has retired from active involvement in PJL but remains on its board, recruited Vincent A. Lambiase as president of their firm. In turn, the former chief executive for Winchell's Donut House brought in Jeffrey F. Hitz, another ex-Winchell's executive, to serve as PJL's vice president of operations.
Employs 115 People
The 14-month-old company now employs 115 people and is betting millions of dollars that the Le Peep concept can crack the breakfast market.
Of the 150 restaurants PJL plans to build over the next decade, 15 are slated for Orange County because of the area's young, relatively affluent population.
"We've targeted people who are not necessarily blue-collar (workers), who want something quick but can afford something better," Lambiase said.
The rest will be scattered throughout California and in five other Western states and parts of New England.
Once inside, the guidelines state, hungry yuppies should be served within eight minutes. Checks average $5.25 per meal for such fare as gourmet omelets, frittatas and granola pancakes.
The casually decorated, 3,300-square-foot restaurants are so committed to the breakfast market that they are open only from 6:30 a.m. to 2 p.m.
Part of the reason that PJL believes the niche is there is because of the experience of McDonald's Corp.
The fast-food chain pioneered quick breakfasts in 1973 with the "Egg McMuffin" and now gets close to 20% of its business from breakfast, said William Trainer, a restaurant analyst for Merrill Lynch, Pierce Fenner & Smith.
And some restaurateurs believe that the industry has only scratched the surface of the breakfast market. The National Restaurant Assn. estimates that between 1977 and 1984 the number of diners eating dinner at restaurants rose 23% and the number of luncheon diners--already the largest group--went up 4.9%. But the number of people ordering breakfast jumped 57%.
Whether the booming breakfast trade turns out to be something for Le Peep to cackle about is a big question.
Analysts note that when McDonald's began serving early-morning meals, it already had a successful lunch and dinner business.
"I wouldn't be surprised if somewhere along the line, they (Le Peep restaurants) add an afternoon or evening meal," Trainer said.
"They have a big investment associated with real-estate costs that are fixed. . . . Ultimately, most restaurateurs find that it makes sense to (offer) as many portions as possible."
Donald Cassidy, a senior analyst with Boettcher & Co. Inc. in Denver, believes that the breakfast-and-brunch-only format can succeed if the costs of space and the food markups are right and if customers believe that their dollars buy good value.
"It will just take time to prove whether they're right. . . . It's still too early to say, 'Oh, yeah, it looks great,' " Cassidy said.
Lost $3.56 Million
Considering that Le Peep went public only five months ago, it is no surprise that the franchiser lost $3.56 million on revenues of $5.57 million in the nine months ended Sept 30.
But Lambiase estimates that each new Le Peep will post sales of $8,000 to $10,000 per week shortly after opening and that revenues will swell to from $12,000 to $14,000 per unit after about 18 months.
He predicted a 23% to 25% after-tax return on investment but declined to estimate the return on sales.
To finance the operation, PJL is negotiating a line of credit with a major bank and eventually hopes to raise more equity from private investors.