Richtree Inc

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Richtree Inc.

111 Richmond Street West, Suite 1600
Toronto, Ontario M5H 2G4
Canada
Telephone: (416) 366-8122
Fax: (416) 366-1934
Web site: http://www.movenpickcanada.com

Public Company
Incorporated: 1996
Employees: 2,400
Sales: CAD 53.83 million (2003)
Stock Exchanges: Toronto
Ticker Symbol: MOO.b
NAIC: 722110 Full-Service Restaurants; 311920 Coffee and Tea Manufacturing; 722410 Drinking Places (Alcoholic Beverages)

Richtree Inc. operates restaurants in Canada and the United States under licensing agreements with Movel Restaurants Holdings A.G., a subsidiary of Zurich, Switzerland-based Mövenpick Holdings. Richtree operates four Marché restaurants and six Marchélino restaurants. The company's Marché restaurants are designed as combination restaurants and markets with separate counters featuring made-to-order gourmet meals. Richtree operates two Marchés in Toronto, one unit in Montreal, and another restaurant in Boston, Massachusetts. Richtree's Marchélino restaurants are designed as smaller versions of the company's Marché format. There are six Marchelino restaurants in Canada: four in Toronto and one each in Ottawa and Montreal. Richtree also operates a Marchélino in Boston.

Origins

The Mövenpick organization traces its roots to 1948, when Ueli Prager opened his first Mövenpick restaurant in Zurich. The son of a Swiss banker, Prager spent the next four decades expanding upon the success of his first restaurant, whose name, in German, was meant to convey the image of a gull snatching a meal while in flight. The first restaurant's popularity—it touted itself as a provider of high-quality food to people in a hurry—led to a series of additional restaurant openings, as Mövenpick restaurants opened in Bern, Geneva, and Lugano. Propelled by the success of his Mövenpick concept, Prager began to build a conglomerate around his highly successful restaurant properties. He founded a purchasing and import company in 1960, launched a line of Mövenpick branded merchandise, and in 1970 opened a chain of wine cellars—called Caves Mövenpick—in Germany and Switzerland. In 1972, Prager began making Mövenpick Premium Ice Cream, and he opened his first two hotels. Meanwhile, Mövenpick restaurants had crossed Swiss borders for the first time in 1963, when Prager opened a unit in Munich. By the end of the following decade, Prager was focused on advancing the Mövenpick banner across the globe. He expanded his restaurant and hotel holdings into Africa, Asia, and North America. As part of this expansion, he laid the foundation for Richtree, opening the first Mövenpick restaurant in Canada in 1980.

The first Mövenpick restaurant opened in Toronto, offering its signature casual and fine dining experience to a North American audience for the first time. The restaurant was managed by the Canadian division of Swiss-based Mövenpick Holdings. In 1982, two years after it opened, the Toronto restaurant fell under the new management of Jörg and Marianne Reichert, the husband-and-wife team who later founded Richtree. Jörg Reichert, who held the titles of president and chief executive officer, had served the Mövenpick organization in Switzerland and Germany before being selected to head the holding company's Canadian operations. The Toronto restaurant thrived under the managerial control of the Reicherts, convincing the couple to commit their future to the promotion of the Mövenpick concept. In 1985, they took a stake in their success, purchasing a 25 percent interest in Mövenpick Holdings' Canadian operations.

Shortly before the Reicherts became equity owners, Prager unveiled a new Mövenpick format that would become one of the primary vehicles driving the growth of Richtree. In 1984, Mövenpick Holdings, through a subsidiary company named Movel Restaurant Holding A.G., opened a combination restaurant and market named Mövenpick Marché. The first Marché debuted in Stuttgart, a springboard for a spate of openings to follow. Marchés were designed to emulate open-air French markets, featuring separate counters, or stations, where customers selected ingredients to be prepared by chefs in open view. There were separate stations for meats, pasta, vegetables, soups, cakes and pastries, salads, desserts, coffee, and wine and alcohol, each featuring daily specials made with only fresh ingredients. Marchés never used canned or frozen food or ingredients containing additives and preservatives. The format proved to be an immediate success, prompting the expansion of Marchés to Hanover, Dusseldorf, Stuttgart, and West Berlin within four years of the Stuttgart debut.

Back in Canada, the Reicherts presided over the growth of Mövenpick's Canadian operations. A second Mövenpick restaurant was opened in Toronto during the second half of the 1980s. In 1991, Toronto gained another Mövenpick restaurant concept, when the first Marchélino restaurant opened. Marchélino, the fast-food version of Mövenpick Holdings' approach to the restaurant business, was described by a Mövenpick Holdings executive as the company's riposte to McDonald's. Featuring pasta, pizza, salad, sandwiches, muffins, and bagels, Marchélinos represented a scaled-down version of Marchés.

The early 1990s also witnessed the opening of the first Marché in North America, adding a powerful asset to the Reichert's operations in Canada. In May 1992, a 20,000-square-foot Marché opened in Toronto. Like its European counterparts, the Toronto Marché allowed station managers to operate independently, an arrangement that spread out the responsibility for purchasing and producing food and fostered beneficial competition among the various stations, much like the personal incentive driving vendors competing in a farmer's market. Unlike European-based Marchés, the Toronto store offered takeout sales to position itself as a specialty food store as well as a restaurant. Inside the store, the space was divided into a variety of separate stations, each vying for customers' business. The stalls operated as: Grill & Rotisserie, Seafood & Raw Bar, Salad & Produce Bar, Mamma's and Pap's Pasta, Pizzeria Angelo, Max and Moritz Bakerie, and Bistro de Vin, featuring a 450-bottle wine cellar. Once customers made their selections, receiving a stamp from each station visited, they had the option of five dining rooms, each designed with a particular theme: La Brasseries du Nord resembled a Parisian tavern; La Poterie aped a pottery-making cottage; L'Orangeries featured a gazebo; Café Pergoal emulated a coffee and espresso bar; and Place de la Fontaine was reminiscent of an indoor garden.

The Toronto Marché was enormously successful. The restaurant attracted between 3,000 and 4,000 customers a day, a parade of patrons who flocked to the restaurant between 7:30 a.m. and 2:00 a.m. Because of the store's high volume of business, Jörg Reichert was able to offer Mövenpick's gourmet food at reasonable prices, featuring, among a slew of other items, a half-dozen oysters for less than $6, a bowl of salmon pasta for $4.98, and green salads with freshly sautéed chicken for $1.99.

Formation of Richtree: 1996

While executives in Switzerland enjoyed the successful global expansion of the Mövenpick brand, the Reicherts decided to assume greater control over the success of their efforts in Canada. In December 1996, the couple acquired the exclusive rights in Canada and the United States for Mövenpick restaurants, Marché restaurants, and Marchélino restaurants, forming Richtree to take on a 100 percent equity position in Mövenpick Holdings' North American operations. In February 1997, the Reicherts executed Richtree's initial public offering on the Toronto Stock Exchange, raising sufficient capital to pay Movel Restaurant Holding A.G. for the licensing rights.

As the Reicherts accustomed themselves to their new roles as Richtree's owners, they could count on the revenue generated by a fourth Mövenpick restaurant concept. By the fall of 1997, there were four units of what the company called Take Me! Marchésin operation, restaurants that were positioned in the home-mealreplacement segment of the restaurant industry. The four Take Me! Units, serving as prototypes for further expansion, were located at the entrance of four supermarkets operated by Loblaws Cos., a leading supermarket chain in Canada. Ranging in size from 2,000 square feet to 3,000 square feet, the Take Me! Units featured chefs who prepared meals using ingredients selected by customers, offering a merchandise mix of seafood, soups, sandwiches, grilled vegetables, meats, pasta, salads, and breads and pastries. In November 1997, Richtree and Loblaw agreed to open two more Take Me! units by the end of the year, with plans calling for the establishment of several additional units in 1998.

By the end of 1997, Jörg Reichert was also hatching expansion plans far more ambitious than those involving the establishment of additional Marchélino units. The company announced it intended to open restaurants in five major North American markets by the end of 2000, an expansion plan that included the introduction of the Mövenpick brand of restaurants into the United States. As the company set out on its expansion campaign, it intended to focus on the Marché, Marchélino, and Take Me! concepts to actualize its plans. There were no plans to increase the number of its traditional, full-service Mövenpick restaurants.

Company Perspectives:

Richtree Inc. presently owns 14 restaurants and food service outlets in Canada, and operates and owns jointly with a major Canadian supermarket company, an additional 10 outlets. The Company has announced plans to expand through Canada and the United States with its innovative Marché and Marchélino concepts. The expansion plans call for the addition of flagship Marchés in Canada and the United States, as well as Marchélino Restaurants and Take Me! Marché (Canada only) outlets. The company's plans do not provide for franchising in the near future, but franchising will be an option to be considered once the Marché and Marchélino brands are established in the U.S.

By the beginning of 1998, Richtree had sites selected for expansion in New York City's World Trade Center and in Boston. The company's first steps outside the province of Ontario were taken in August 1998, when the company opened a Marché and Marchélino in Montreal, Quebec. The 33,000-square-foot Marché featured a separate wine caveau, a running stream, an operating water wheel, and seating for 825 diners. Near the Marché, located in Montreal's Place Ville Marie, the company's Marchélino occupied 3,000 square feet. The company's first location in the United States opened in Boston in November 1998, when a 2,800-square-foot Marchélino opened in Boston's Prudential Center. The following month, an 18,000-square-foot Marché opened in the Prudential Center, offering seating for 600 patrons. One level below the Marché, a 200-seat wine-bar, called Caveau, offered wines by the glass or by the bottle.

Richtree recorded more than CAD 50 million in sales in 1998, a total that promised to increase substantially in the coming years. The figure excluded the expansion completed in 1998 (the company's fiscal year ended in July) and it could not account for the growth expected to be realized by Richtree's expansion in 1999. The company announced plans to open its collection of restaurant formats in several U.S. cities, including New York, San Diego, and Chicago. Richtree's promise of further expansion did not materialize, however, with the repercussions from the aborted expansion plans delivering a serious blow to the company's finances.

Expansion Plans Scuttled in 1999

The suspension of Richtree's expansion plans marked the beginning of contentious times at the company's Toronto headquarters. The company was forced to halt its expansion efforts in New York, where it had secured a lease in late 1997, and in San Diego because it was not able to secure the necessary financing. As a result of abandoning these two expansion efforts, the company recorded write-down costs of CAD 9.9 million, and sought to reposition itself for an immediate future without further expansion. Jörg Reichert pointed the blame for Richtree's failure to expand directly at his former employer, Mövenpick Holdings, filing a lawsuit against the Swiss company in 2001. The complaint filed by Richtree cited Mövenpick's unlawful behavior resulting from breaches of contract, breaches of fiduciary duty, and breaches of good faith and fair dealing, among other accusations. Reichert, in a November 20, 2001 interview with Market News Publishing, chastised Mövenpick Holdings' management for its lack of support. "Mövenpick has done absolutely nothing to support Richtree in the United States since we entered into the franchise and license agreements with them," he said. "In fact, as our suit alleges, their failure to fulfill their obligations and their pattern of constant interference has damaged Richtree and our company's value very significantly."

Richtree was forced to rethink its strategy after failing to execute its expansion plans. Its partnership with Loblaws, which had produced 11 Take Me! units by the beginning of the decade, ended in May 2001 when the Take Me! units were integrated into Loblaws and placed under the full control of the supermarket company. Once the Take Me! units were removed from Richtree's operations, the company's assets comprised four Marché restaurants, six Marchélino restaurants, and three full-service Mövenpick restaurants. By mid-2002, the company had decided to concentrate exclusively on the Marché and Marchélino formats and discontinue operation of the full-service restaurants. In November 2002, Richtree closed the Mövenpick restaurant it operated on Yorkville Avenue in Toronto, which had opened during the 1980s. Meanwhile, the company continued to press its case in courts against Mövenpick Holdings.

As Richtree prepared for its future, the uncertainty of its future relationship with Mövenpick Holdings continued to be a cause for concern. In April 2003, Richtree filed another suit against its Swiss franchiser, seeking to recover between CAD 200 million and CAD 336 million in damages. The following month, Mövenpick Holdings filed a damage claim against Richtree, seeking damages of CAD 100 million. The resolution of the court cases promised to factor heavily in determining Richtree's future. Richtree's first decade of business was highlighted by encouraging success and pocked by a forced retreat from its growth strategy. In the years ahead, Reichert and his management team hoped to achieve greater consistency, as they sought to transform their company into a perennial success story.

Principal Subsidiaries

Richtree U.S. Inc; Richtree Markets Inc.

Key Dates:

1948:: The first Mövenpick restaurant opens in Zurich, Switzerland.
1980:: The first Canadian Mövenpick restaurant opens in Toronto.
1984:: The first Mövenpick Marché opens in Stuttgart, Germany.
1991:: The first Marchélino restaurant opens in Toronto.
1992:: The first Canadian Marché opens in Toronto.
1996:: Richtree Inc. is formed to acquire the Canadian operations of Mövenpick Holdings.
1998:: The first U.S. Marché opens, debuting in Boston.
1999:: Richtree halts expansion.
2003:: Richtree files a lawsuit against Mövenpick Holdings, seeking as much as CAD 336 million in damages.