For $5.49, you can buy a panini sandwich at Schlotzsky's Deli. Or, for the
same price, you can buy nine shares of the company's stock.
After 33 years, the Austin-based company declared bankruptcy this week. How
could a once profitable company (one with such delicious sandwiches) sink from
an all-time high of $23.38 per share in 1998 to 2.6 percent of that today? By
moving too far, too fast.
Last month, Schlotzsky's board of directors voted overwhelmingly to fire CEO
John Wooley and his brother, Senior Vice President Jeff Wooley. It also cut 15
corporate staff positions and shut down 15 unprofitable company-owned stores,
leaving 21 remaining. In 2003, the company reported a net loss of $11.7 million
after a $199,000 loss the previous year. Faced with $24.6 million in loans,
leases and lawsuits, the company's best option was to file for Chapter 11
bankruptcy.
"Unfortunately, the situation in which we found ourselves made it impossible to go forward without a formal reorganization," said Sam Coats, Schlotzsky's new CEO. "We believe that by taking this action, we can restructure our financial resources, and emerge from this proceeding as a stronger company." Schlotzsky's started in 1971 with a small shop on South Congress Avenue that sold only one kind of sandwich. Still served, "The Original" is a collection of Italian cold cuts and vegetables on delicious sourdough bread. But as the chain expanded, it forgot the message of its founder: Do one thing, and do it well.
Now it offers roasted wraps, pizza, salads, soups, and paninis and other gourmet sandwiches with ingredients such as feta cheese, prosciutto, portobello mushrooms and aged cheddar. While its food is still delicious, these new selections make Schlotzsky's more expensive than most other fast food restaurants. It costs $4.49 for most sandwiches, and $2.49 just for a kid's cheese sandwich. That's not including chips or a drink.
Across the river from its original location, the Schlotzsky's at Sixth Street and Congress Avenue shows how hard the chain tried for trendiness. This newer location has high ceilings, studio lights, brick walls, paintings and hardwood floors. It looks more like an immaculately decorated apartment than a fast food restaurant, which could explain why each new Schlotzsky's location costs more than $2 million to open. This one, like others in Austin, has free wireless Internet and new Mac computer terminals lining one wall, soft jazz playing in the background, and a "Bread Alone" cafe serving "green-tea-based smoothies" and "raspberry rhapsody lattes." Not even Starbucks has those.
One problem with catering to hip culture is having to observe diet and food trends. While Schlotzsky's has advertised Atkins-friendly options, the bottom line is that sandwiches aren't low in carbs. Trying to keep up has led the chain to have a sizable menu, making it both more expensive to operate and pricier, and that's hurt business.
Though making sandwiches is fairly low-tech, Schlotzsky's tumultuous corporate ride is comparable to the dot-com economic boom of the late 1990s. While Schlotzsky's started small, it was franchising outside of Texas by 1976. It now operates 537 stores in 37 states and six countries, down from 759 stores in 1998.
In the process of expanding its menu and franchise, Schlotzsky's forgot its humble Austin roots and what made it successful in the first place. It may yet return to success by doing the one thing it always did well: making an excellent sandwich.