Elmer’s Restaurants, Inc.

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Elmer’s Restaurants, Inc.

11802 SE Stark Street
Portland, Oregon 97216
U.S.A.
Telephone: (503) 252-1485
Fax: (503) 257-7448
Web site: http://www.elmers-restaurants.com

Public Company
Incorporated: 1983
Employees: 532
Sales: $25.85 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: ELMS
NAIC: 72211 Full-Service Restaurants, 53311 Owners and Lessors of Other Non-Financial Assets

Founded in 1960, Elmer’s Restaurants, Inc. is a franchiser and operator of full-service, family oriented restaurants under the names “Elmer’s Pancake & Steak House” and “Elmer’s Breakfast • Lunch • Dinner” and an operator of delicatessen restaurants under the names “Ashley’s Café” and “Richard’s Deli and Pub.” The company considers itself the Cadillac of coffeehouses and is noted in the industry for its customer loyalty.

From Family Business to Regional Chain: 1960s–70s

In 1939, at the end of the Great Depression, Walter Elmer borrowed $2,000 on his house and bought what was to become Elmer’s Milky Way in Portland. There, he worked 16 hours a day, selling malts and hamburgers and turning a profit. His wife, Dorothy, baked the restaurant’s pies and cakes. Elmer, whose father had been born in Elm, Switzerland, had grown up in Troutlake, Washington, where he worked for the U.S. Forest Service for five years before moving to Portland and working there for the Roseway Dairy. Seven years after starting Elmer’s Milky Way, Elmer sold his malt shop and bought the coffee shop in the city’s Medical Arts Building in 1946. The coffee shop did so well that Elmer was able to acquire a second coffee shop, called the Polly Ann Grill, in the Terminal Sales Building.

Finally, in 1960, against the advice of several restaurateurs, Elmer started Elmer’s Colonial Pancake House on Portland’s northeast side. The restaurant’s menu was devoted almost entirely to pancakes, including nearly 30 different varieties of the favorite breakfast food, which it served all day. The original recipe for pancake batter came from “a fellow in Seattle,” according to Walter Elmer in a 1971 Oregon Journal article. He paid $1,000 to acquire it.

Elmer’s Pancake & Steak House employed Elmer’s wife, brothers, sons, and daughters-in-law. It grew slowly, adding a second restaurant in neighboring Vancouver, Washington, in 1962. Eventually, it became Elmer’s Pancake & Steak House. In 1966, it expanded its menu, adding more lunch and dinner items, and granted its first franchise. Between 1968 and 1979, it expanded rapidly, adding additional franchises throughout Oregon and in Idaho, California, Montana, and Washington. Elmer attributed his company’s success above all to atmosphere and personnel. Throughout the early 1980s, expansion continued with more franchises, including several in Arizona, until the company totaled 29 establishments, two in Portland and 27 others in six Western states. In 1980, the Elmers sold the original Elmer’s Pancake & Steak House in Portland to a local team of two brothers named Danna Bros.

New Ownership: 1980s

In 1984, Elmer’s earned $92,000 on revenues of almost $3 million. Early that same year, a group of private investors led by Herman Goldberg, a 60-year-old business consultant and investment manager, purchased the company. Members of the Elmer family participated in the purchase and planned to remain active in the company, though Goldberg would become the new chairman and CEO. The Elmers, who owned and operated two of the company’s 29 restaurants at that time, had approached Goldberg in 1983 to see whether he would buy their restaurant chain. At first Goldberg, who was familiar with the chain because his secretary’s husband owned three franchises, bought just one unit in order to gain industry experience. By 1985, however, Goldberg had paved the way for an initial public offering of the chain, now 30 units strong. At the same time, the company’s name was changed to Elmer’s Restaurant, Inc., with Elmer’s Pancake and Steak House, Inc. operating as a subsidiary.

The second half of the 1980s was a time of updating for Elmer’s. While retaining touches of its traditional décor, such as stone fireplaces, flowers on every table, and decorative plates on the walls, Elmer’s began to leave behind its colonial image. It expanded its menu of made-from-scratch food to include a “Seniors Pleasers” section of smaller portions and a “Home Town Favorites” section of local market specialties. It also adopted a new slogan: “Come home to Elmer’s, Homestyle Cooking Since 1960.” The company that boasted “breakfast—morning, noon, and night” began to sell its own line of syrups, jams, preserves, and coffee in its establishments under the label “Elmer’s Gourmet Choice.”

The company launched a new franchise program, which it called The Elmer’s Connection, in 1987. The plan offered investors the chance to put their money to work while leaving the day-to-day management of the franchise to the parent company. Under the agreement, investors put up a minimum of $250,000 for start-up expenses and another $300,000 for land and building costs. They then paid Elmer’s an annual management fee of 2 percent of gross revenues for running the restaurant. According to Goldberg in a 1987 Restaurants and Institutions article, the plan was a response to the fact that “[t]he mom-and-pop phase of the restaurant business is over…. It’s become very capital intensive.”

Goldberg was nothing if not an innovator. In 1990, in an unconventional move, Goldberg diverted $180,000—80 percent—of Elmer’s annual advertising budget for a hard-hitting multimedia campaign against drug use, directed at children and their parents, and purchased anti-drug spots for local radio and television. A 30-minute videotape of stories of drug abuse by kids was distributed to school counselors, the news media, and interested companies. The campaign brought Elmer’s tremendous positive publicity: glowing features in the Wall Street Journal, the Seattle Post-Intelligencer, and a mention in Nation’s Business .

Six years later, the campaign still drew attention. When Goldberg died at age 71 in 1996, the Oregon Liquor Commission, the Congressional Record, and President Bush all recognized Goldberg’s work in dissuading school-age children from using drugs. Walter Elmer died the following year at age 91. Following Goldberg’s death, his wife, Anita, succeeded him as president, CEO, and principal shareholder of the 30-restaurant chain. Two years later, Anita Goldberg sold her 53.8 percent of the company’s common stock to an investor group led by restaurant industry veterans for more than $4.5 million, a nearly 60 percent premium over what Elmer’s shares then traded for. Elmer’s then had sales of $16 million a year, although its “colonial” breakfast still cost only $5.75.

New Growth Phase Under New Management: Late 1990s

CBW Inc., the Oregon-based entity that acquired Elmer’s, was led by Cordy Jensen, along with William Service and Bruce Davis, partners and operators of 14 delicatessen-style restaurants in Oregon, and Tom Connor and Donald Woolley, local real estate investors. Jensen was president and owner of several restaurants in Oregon and California and a founder, major shareholder, and director of Centennial Bancorp, Oregon’s largest independent bank.

William Service became Elmer’s chief executive officer and Bruce Davis its president. The two had been friends since sixth grade and still lived in their native Eugene, Oregon. Service had attended Stanford University’s graduate school of business and Davis, the Yale School of Management. In 1993, the two had formed Jasper’s Food Management, which ran Jasper’s Delis where patrons could play video poker and the Oregon Lottery. In 1995, Davis and Service teamed up with Jensen to form CBW Inc. Almost immediately upon assuming control of Elmer’s, the two introduced video poker to the 38-year-old pancake chain that still featured endless coffee refills. The significance of this move extended beyond Elmer’s: bringing video poker to the mainstream chain moved some of Portland’s gambling scene away from the small taverns and delicatessens that had dominated this niche since its legalization in Oregon in 1991. To lure the morning crowd back in the evening, the new management expanded a seafood and steak menu and added alcohol service.

There had been little growth at Elmer’s since the early 1980s. The company had added only four new restaurants since 1985, the most recent ones in 1994. It had continued, however, to be profitable, with an average increase in revenue of 5.5 percent each year between 1991 and 1998 and profits that more than tripled to $530,000. However, franchisees had begun to grumble that the management did little to help them grow. Profits were used to buy back and retire shares. According to one Portland-based franchisee, quoted in the Register Guard in 1999, Elmer’s had become “almost like a collection agency…. They didn’t have much to do operationally—they left the franchises pretty much alone.”

Company Perspectives:

Starting any new business is a big step. Before opening the first Elmer’s in 1960, Walter Elmer spent more than 20 years operating successful restaurants. Along the way, he decided his love of people and good food meant that his own restaurant would be more than a business venture. While Walt’s first Elmer’s was a labor of love, it also was an immediate success. The second Elmer’s opened just two years later. And in 1966 the Elmer family began offering franchises .

Today, Elmer’s is a Northwest family tradition. Systems have been streamlined and new services have been expanded for franchises. One thing that will never change is Walt Elmer’s vision and commitment to bringing people together in a warm, friendly atmosphere and offering a family oriented menu of good food, using only the finest ingredients .

To address this problem and reposition itself as a three-meal, family-style eatery, Elmer’s began phasing out the “Elmer’s Pancake & Steak House” signs in 1999, replacing them with “Elmer’s Breakfast • Lunch • Dinner” when a survey showed that many customers did not even know that Elmer’s was open for dinner. The company also dropped a third of its least popular items and introduced a redesigned menu. For the first time, all franchisees began to use the same menu.

In 1999, Elmer’s acquired CBW Inc. and combined the management teams of the two firms, assuming $4 million of the debt the latter had assumed to finance the 1998 purchase of Elmer’s. With the transaction, Davis and Service became the two largest Elmer’s shareholders.

By 2000, the company was experiencing steady growth under its new management. In addition to the almost 29 Elmer’s in six states, the company owned ten delis operating in Oregon as Ashley’s or Richard’s. In August 2000, it purchased its first new restaurant in six years, reducing real estate costs by converting an existing restaurant to its concept rather than building a new one. In December, it purchased the Mitzel’s American Kitchen chain of seven Puget Sound family restaurants.

For fiscal 2001, the company reported record revenues and net income of $25.85 million and $956,000, respectively. In 2000, the company had earned $939,000 on revenues of $22.2 million. The Business Journal named it the second fastest growing company in Oregon for the second year in a row. The company, eager to pick up investors, doled out its second dividend, having paid out the first in its history in 1999. Although recognizing that competition for new locations would be costly in the years to come, Elmer’s nonetheless had plans for continued growth.

Principal Subsidiaries

Elmer’s Pancake & Steak House, Inc.; CBW Food Company, LLC; Grass Valley Ltd., Inc.

Principal Competitors

IHOP Corp.; Vip’s; Denny’s Restaurants Inc.; Shari’s; VICORP Restaurants, Inc.

Key Dates:

1960:: Walker and Dorothy Elmer open Elmer’s Colonial Pancake House.
1966:: The Elmer family grants its first franchise.
1980:: Danna Bros, purchases franchise of the original Elmer’s.
1984:: Herman Goldberg buys the Elmer’s franchise rights.
1985:: Goldberg takes the company public as Elmer’s Restaurants, Inc. and becomes president and chief executive officer.
1996:: Herman Goldberg dies and is succeeded by his wife, Anita Goldberg.
1997:: Walter Elmer dies.
1998:: CBW Inc., comprised of a group of professional restaurant managers, purchases a controlling interest in Elmer’s; Bruce Davis becomes president and William Service becomes chief executive.
2000:: The company acquires Mitzel’s American Kitchen.