Chain Profile: Penn Station East Coast Subs

Developing a footprint to maximize return on investment, this fast casual chain ensures that it can efficiently offer a distinctive menu that is freshly prepared in an open kitchen.

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As the sandwich sector grows in response to Americans' on-the-go lifestyles, finding a distinctive market strategy for a concept in this segment is crucial for success. Penn Station East Coast Subs' founder, Jeff Osterfeld, recognized this and the potential of the sandwich business while he was a student at Miami University in Oxford, Ohio. One of his management class projects centered on Bagel & Deli, a popular campus hangout. While researching his project, Osterfeld spent many hours in the restaurant eating and socializing. Since he spent so much time there, Osterfeld came to understand the benefits that could be realized from a well-run sandwich business.

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After graduating, Osterfeld opened Jeffrey's Delicatessen in 1983 in a Dayton, Ohio, mall. During a trip to Philadelphia to research the east coast version of the sub sandwich, Osterfeld realized the popularity of that city's renowned cheesesteak sandwiches.

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In 1985, Osterfeld opened the first Penn Station in Cincinnati with a menu consisting of four sandwiches, all prepared to order in front of the customer, fresh-cut French fries and hand-squeezed lemonade. Osterfeld's vision for an upscale, quick-serve dining experience featuring fresh ingredients and display cooking was formulated into a franchising program, which launched in 1987.

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In 1999, in order to fulfill a lifelong dream to design a golf course in Cincinnati, Osterfeld tapped Craig Dunaway to serve as Penn Station's president. Dunaway was no stranger to the Penn Station concept, having served as a franchisee since 1997 and participating on the chain's advisory council. Dunaway's professional experience also includes working as a Papa John's franchisee and serving as a partner at a large regional certified public accounting firm in Louisville, Ky. When Dunaway became president Penn

Station had 64 units. Today, the Penn Station network spans 12 states and contains 225 restaurants, only two of which are company-owned and operated.

"We'll continue to grow the franchise business," Dunaway says. "We don't want to serve two masters. Our team spends a majority of the time helping franchisees maximize their return on investment. We focus on helping the franchisees become successful as soon as they join us."

Over the years, Penn Station's menu has evolved and yet managed to stay rooted in the sandwich category. For example, Penn Station's sandwich offerings grew from four to 14. "We've positioned ourselves not to be all things to all people," Dunaway says. "The menu is focused and we won't be adding breakfast or alcohol. The moment we start adding a lot of complexity, we must add equipment, systems and personnel."

In 2003, Osterfeld and Dunaway began focusing on updating the concept's interior design. "The aesthetics didn't match what we were selling," Dunaway says. "Our customer focus groups told us we had a great product but we needed to upgrade our look."

New units also had to be configured to bring in the maximum return on investment. "In 2005 we began to implement a new prototype," says Kirk Durchholz, vice president of construction, who was hired as an independent contractor to build a Penn Station unit in 1990 and joined the company full time in 1996 when the 27th store was built.

The prototype features more copper in the hood coverings, soffits to contain the mechanical wiring, neutral wall coverings, flooring, tables and chairs, and dramatic lighting in the counter bordering the kitchen. In the dining room, a mixed selection of tables and chairs, booths, and seating counters provides a welcoming environment for various types of dine-in customers. In addition, all Penn Station restaurants have televisions to entertain guests while they are waiting for their orders.

An ongoing assessment is necessary to find the ideal footprint and equipment package for the restaurants to maximize efficiency while profitably delivering high-quality, made-to-order products and customer service. The typical Penn Station unit measures 1,725 square feet which includes an entrance and ordering area, a back-of-the-house production kitchen, and a 53-seat dining room, Durchholz says.

The concept is designed to allow staff and management to care for the guests throughout their time in the stores. Staff members engage customers and make sure their orders are exactly as they wish. While providing limited table service Penn Station crew members deliver the grilled subs and fresh-cut fries in baskets directly to the guests sitting at the tables. All products are made-to-order and served hot. It's not uncommon to see staff and management removing the baskets or bringing refills to guests. "This is management's way of verifying that the guests received exactly what was ordered and ensuring Penn Station exceeded their expectations," Dunaway says.

When customers enter Penn Station they see a menu with photos of all the sandwiches on a wall adjacent to the order counter. A staff member asks for and verifies customers' orders and directs them toward the cashier. Customers proceed past the 30-foot walkway bordered by a counter separating the front of the house from the kitchen. Shelving along the customer-side of the counter displays packaged ingredients used in the menu items. While customers move down the line to pay, the food is already being weighed and prepared for grilling. Cashiers at the end of the line take payment. The cashier verifies or changes the order on request and asks if customers would like to add cookies to their meal.

Customers find seats and wait for a staff member to bring their order to the table. Customers fill their own beverages unless they've ordered fresh-squeezed lemonade, which is dispensed by staff and served with the order. Durchholz says staff strive to place food in customers' hands within six minutes after they have ordered. On average, guests who dine in the restaurant spend about 20 to 25 minutes on premises.

When orders are placed, they're entered into the POS system and electronically transmitted simultaneously both to the weigh station and the cashier. At the grill station, a staff member places the appropriate meat or poultry on the grill and begins cooking the sub to the customer's exact specifications. The protein and fresh vegetables are cooked and placed on bread that has been previously baked in the conveyor oven. The sandwich is then run through the oven for "final" cooking and to ensure the bread is served consistently hot each time. The sandwich is then topped with the customer's selection of one or several cold vegetable ingredients, such as tomatoes, lettuce or other fresh items. Penn Station also offers a variety of cold subs, which are still served on hot oven-baked bread. "We've always been proud of producing the best cheesesteak sandwich outside of Philly," Dunaway says. "We use 100 percent USDA choice steak with provolone cheese, not Cheese Wiz like they do in Philly."

Meanwhile, the staff member calls out the customer's order for French fries so the crew member manning the fryer can place house-cut potatoes into the hot peanut oil. While the sandwich and fries are cooking another staff member merges the menu components.

In the back of the house, staff store food deliveries on dry storage shelving and in an upright refrigerator with a freezer section. Two or three times a day, food products are taken to undercounter refrigerators at various production stations.

The back of the house also contains a three-compartment sink, pre-rinse and compact faucets, a single compartment sink, water filtration system, and floor and wall shelving.

Closer to the front counter, staff also use a slicer to cut meats and a scale to weigh the proteins to produce consistent portions. A potato station includes a portable potato cart containing whole potatoes and a large potato cutter.

Staff work at a designated station to cut the bread to the proper length and place the condiments on the proprietary product, which is delivered par-baked to Penn Station's specifications and run through the conveyor oven before it is filled with meats, cheese and toppings held in a refrigerated rail.

Beverages are also a featured part of the menu. A lemonade station includes a lemon basket, lemon juicer and lemonade dispenser. Tea is also brewed regularly during the day.

As in all restaurants, the HVAC presents distinctive challenges due to the open display kitchen. Durchholz's solution is to "always explore new technologies available to make changes to equipment so it is more economical and ecologically efficient." The display kitchen generates exhaust that must be eliminated from the kitchen and front of the house. The low proximity hoods Durchholz selected hang as close to face level—the point of usage—as possible and he is working with the manufacturers to design systems that are even more efficient for Penn Station.

Durchholz works to reduce operating costs by controlling energy usage. He estimates that costs have dropped about four percent over the past five years and the exhaust systems are producing less noise, making the environment more comfortable. "We've also incorporated fluorescent lighting versus conventional incandescent lighting and we'll consider using LED lighting when the initial cost of the new technology becomes cost effective," Durchholz says.

In addition, interior and exterior illuminated signage is on timers: it goes on 10 minutes before opening and turns off 10 min after closing.

During the economic meltdown in 2008 and 2009, Penn Station slowed its growth strategy. It has once again become more assertive with internal projections calling for the opening of 25 restaurants in 2011, 35 in 2012 and 40 in 2013. The chain plans to have 325 restaurants system-wide by the end of 2013. Markets targeted for growth include Chicago, Detroit, Nashville and North and South Carolina, as well as a number of other existing markets.

Whatever the rate of growth, Dunaway insists the concept will continue to keep a simple menu mix and not try to be all things to all people. His formula for success will also continue to be to focus on efficiency in design and equipment selection, and produce a product in a timely manner to customers.

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