Cinnabon Inc.

936 North 34th Avenue
Seattle, Washington 98103
U.S.A.
(206) 634-2355
Fax: (206) 634-2355
Web site: http://www.cinnabon.com

Private Company
Incorporated: 1985
Employees: 1,500
Sales: $135 million (1996 est.)
SICs: 5461 Retail Bakeries

One of the fastest-growing companies in the United States, Cinnabon Inc. is the operator of Cinnabon World Famous Cinnamon Rolls, a chain of specialty cinnamon roll outlets scattered throughout North America. Originally a division of Seattle, Washington–based Restaurants Unlimited, Inc., Cinnabon outgrew its parent company and became a separate business in 1996. During the late 1990s the company operated approximately 400 Cinnabon units in the United States, Canada, and Mexico.

Thriving Restaurant Chain Launches Cinnabon

In 1985 Richard Komen and a handful of Restaurants Unlimited executives gathered around a table to discuss the possibilities of entering a sideline business. Their decision gave birth to the Cinnabon chain of specialty cinnamon roll bakeries. Komen, who presided at the table during the pivotal meeting, was midway through a decade that would establish him as one of the most successful restaurateurs in the United States. His company, Restaurants Unlimited, operated a collection of variously named dining establishments that were performing admirably, attracting crowds of patrons, and growing in number with each passing year. It was a particularly gratifying achievement for Komen, who five years earlier was at a loss for what to do with Restaurants Unlimited. His company, founded in 1969, grew vigorously throughout much of the 1970s by opening a series of theme restaurants featuring prime rib, lobster and a dark, wood-paneled decor reminiscent of Edwardian English pubs. However, by the end of the 1970s the concept had grown stale, and his company was struggling. Komen needed a new approach for the 1980s, and found one in 1981 when he replaced the dark wood paneling and rich, butter-based sauces of Restaurants Unlimited’s Clinkerdag-ger restaurants with a new breed of dining establishments featuring lightly colored, weathered wood, large glass windows, and an eclectic, multinational menu offering pasta, chicken, seafood, salads, and vegetables. The transformation saved the company and rekindled optimism at Restaurants Unlimited’s corporate offices in Seattle, Washington, setting the stage for the genesis of the Cinnabon concept.

Seated at the table with Komen and other executives in 1985 was Dennis Waldron, a Restaurants Unlimited officer and investor who had experienced the roller-coaster ride during the 1970s and 1980s. Although Komen, who was ultimately in charge of Restaurants Unlimited, was responsible for creating the Cinnabon chain, it was Waldron who was chiefly responsible for developing the concept into the resounding success that it became. Waldron initially set out to be a doctor, graduating from Seattle University with a bachelor of science degree in the pre-medical curriculum, but his years spent working in restaurants to pay for his education ultimately prevailed as the inspiration for his professional career. Waldron began working in restaurants during his high school years in the 1960s and continued during his years at Seattle University. When he was a senior preparing to enter the next level of his medical education, he was offered a job managing a 250-seat cafeteria. “I ran it for about four years,” Waldron remembered, “and I was hooked.” From there, Waldron went on to manage a Seattle waterfront restaurant named Windjammer for several years, then, at age 27, he set out on his own and opened an Irish-themed restaurant featuring singing waiters. His restaurant did well but exhibited little potential for expansion, so he sold it. It was at this juncture in his career that he met Komen and became part of Restaurants Unlimited.

Waldron joined Restaurants Unlimited in 1974 when expansion was underway with the company’s signature Clinkerdagger concept. A decade later, after the chain of Clinkerdaggers had been replaced with a collection of restaurants operating variously as Cutter’s Bay house, Ryan’s, Skates on the Bay, and Stepps on the Court, Waldron, Komen, and several other executives were plotting their next move. Expansion of the company’s multimillion-dollar restaurants was in full swing; 16 restaurants, with more to come, were generating roughly $40 million a year in revenue. With this primary objective achieved, the executives turned to secondary goals. “We were looking for something simpler to operate with a limited menu that would give us a small niche segment for a low capital investment,” Waldron recalled. The executives settled on a specialty cinnamon roll concept, drawing their inspiration from several cinnamon roll chains that were emerging at the time.

Komen liked the idea because of the low start-up costs involved and because of the high profit margins recorded by successful cinnamon roll chains in operation in 1985, both of which matched the criteria established for Restaurants Unlimited’s sideline venture. Moreover, the creation of a cinnamon roll chain would accomplish two strategic objectives for Restaurants Unlimited, giving the company a presence in shopping malls, where the first Cinnabon units were to be located, and adding a division that could grow through franchising. Aside from achieving these goals, Komen, Waldron, and the other executives had modest expectations for the new venture. “We first thought the entire system might grow to 40 or 50 units over time,” Waldron confided. “And that looked like a really big number for the concept, which we didn’t think could get much larger than that.” To their surprise, the Cinnabon concept proved to be an enormous hit, creating a division that in a decade’s time would eclipse the stature of its parent company.

First Cinnabon Established in 1985

The first Cinnabon opened in December 1985 in a shopping mall near the Seattle-Tacoma International Airport, followed by another unit in a Las Vegas mall and a third in a Chicago mall. Each of the units, decorated with Italian marble and cobalt-blue and white tile, featured a bakery in open view that allowed customers to watch the rolls being made by hand. Initially, Restaurants Unlimited planned on opening these three units and gradually expanding, but the concept demonstrated surprising strength, prompting accelerated expansion plans. By the end of its first year, the Cinnabon concept had quickly developed into a chain comprising 15 units, despite being treated as a sideline venture. It was at this point that Restaurants Unlimited began to take the Cinnabon concept more seriously. “It became clear,” Waldron noted, “that if we were really going to pursue the growth of Cinnabon, we needed our own culture, separate from the full-service restaurant group, and we went into our own offices.” Selected by Komen to head Cinnabon’s corporate offices was Waldron, who would guide the chain toward exponential growth.

After its first year of existence, the Cinnabon chain stretched from Hawaii to Illinois, its expansion progressing with huge geographic leaps that mirrored the company’s initial deployment of Cinnabon units in Seattle, Las Vegas, and Chicago. “That was one of our early mistakes,” Waldron recalled. “We had no geographic focus.” Skipping over regions to establish a Cinnabon in isolated markets, however, did not check the unbridled success of the chain. The burgeoning chain was registering growing sales and high profits, and additional bakeries established during the late 1980s fleshed out the scattered Cinnabon units into a blanket that quickly covered much of the nation. During the division’s second year of business in 1987, 16 more units were opened that filled in some of the geographic gaps. By the beginning of the 1990s, the number of Cinnabon units, all located in shopping malls, had grown to 72, well above the highest figure Waldron had expected the chain to reach when plans were first discussed five years earlier. By this point, what had started as a sideline business for Restaurants Unlimited had matured into a powerful revenue-generating engine for the full-service restaurant operator. In 1990 Restaurants Unlimited collected $100 million in sales; Cinnabon generated 25 percent of that total.

Early 1990s Expansion

Cinnabon entered the 1990s growing by leaps and bounds, thriving as a simple concept that offered one product to customers: cinnamon rolls. Demand for that one product was rabid, fueling the expansion of additional Cinnabon units. By 1992 there were over 180 Cinnabon units in the United States and Canada, more than twice the number in operation two years earlier, which translated into an average of more than one store opening each week. Much of the expansion had been achieved through franchising, which made Cinnabon’s contribution to Restaurants Unlimited’s revenue volume only a portion of the concept’s total might. All told, the Cinnabon chain by 1992 was an estimated $65 million enterprise, although the division only accounted for 25 percent of Restaurants Unlimited’s 1992 sales of $105 million. Two years later, the Cinnabon chain totaled more than 260 units and had developed into a $100 million enterprise itself, far exceeding the growth rate recorded by its parent company. Individual Cinnabon locations by this point were averaging $250,000 in annual sales.

Company Perspectives:

The Cinnabon experience includes World Famous Cinnamon Rolls which delight guests with swirls of light, moist dough, filled with lots of thick brown sugar and Makara cinnamon, then topped with freshly made cream cheese frosting. The rolls are served within 30 minutes of the oven. Cinnabon’s “guest-first” culture, born out of the company’s roots in the restaurant industry, make attentive and cheerful service a standard at each bakery. In fact, the company credits its success to the uniqueness of its products and dedication to guest service.

Cinnabon, organized as a wholly owned subsidiary named “Cinnabon World Famous Cinnamon Rolls,” began breaking new ground during the mid-1990s, implementing the first significant changes to the concept since its creation in 1985. For years, all Cinnabon bakeries were established in malls, but by 1994 there were 40 units established in test locations that included variety stores, supermarkets, airports, and one unit located in Seattle’s Woodland Park Zoo. Supermarkets and airports would turn out to be the most successful of these initial test locations, but Waldron was by no means abandoning future expansion in shopping malls, where the vast majority of Cinnabon outlets were located and where the concept had risen to its illustrious heights. In 1994 Waldron envisioned great opportunities for growth, stating there were another 200 viable sites in shopping malls that he had identified. Coupled with this figure, Waldron’s statement that there were more than 20 airports slated as potential sites for Cinnabon units and an even greater number of supermarket locations augured extremely well for the division. The division, even after a decade of fast-paced expansion, appeared to be on the brink of explosive growth. Provoked by the optimism created by this realization, Cinnabon officials predicted there were would be 700 Cinnabon locations in operation by the end of the 1990s. The road ahead looked more promising than it ever had before.

Mid-1990s: Independence and Expansion

By 1995 more than 300 Cinnabons were in operation, with expansion extending the company’s geographic presence from the United States and Canada into Mexico. Waldron, who had been asked to superintend the development of a promising division less than a decade earlier, was presiding over a facet of Restaurants Unlimited’s business that physically and financially was greater than his parent company’s full-service restaurant business, itself a rising star in the food service industry. In 1995 Restaurants Unlimited collected $196 million in sales, nearly five times the total generated a decade earlier, but Cinnabon accounted for $120 million of the company’s 1995 total, having developed into Restaurants Unlimited’s primary revenue-generating business. Cinnabon’s increasingly integral role within the Restaurants Unlimited enterprise appeared to be destined for an even greater importance. As Waldron scanned the horizon in 1995, he was planning to open at least one new Cinnabon per week in malls, airports, supermarkets, and other urban locations throughout North America by tapping into Cinnabons’ virtually boundless potential. In the midst of this heady optimism, Cinnabon officials began declaring enormous projections for the concept’s future growth, with some announcements targeting the number of Cinnabons at 1,500 by the end of the 1990s, or more than twice the number projected in 1994.

Considering that Cinnabon accounted for the bulk of Restaurants Unlimited’s annual sales total, maintained a far greater geographic presence, and appeared destined for continued explosive growth, the officials of Restaurants Unlimited could have more appropriately named their company “Cinnabon Inc.” by the mid-1990s. Restaurants Unlimited officials recognized as much, but instead of swapping names for their enterprise, they decided to spin off Cinnabon into a separate company to be independently owned and operated. The separation was made in April 1996, when Cinnabon was generating $77 million in sales through roughly 225 company-owned units, franchise fees, and royalties. Systemwide, annual sales stood at $136 million. The spin-off was made in anticipation of an initial public offering (IPO) of stock in Cinnabon, slated to occur later in the year. Piper Jaffray was hired as the investment banker to prepare for the IPO, but the conversion to public ownership did not take place as scheduled. Although the IPO would have raised substantial capital for expansion, Cinnabon’s vitality did not appear to suffer much from the shelved IPO. Ray Lindstrom, Restaurants Unlimited’s chief executive officer and long-time company executive moved over from Restaurants Unlimited’s offices to help lead the company with Waldron, who, along with the Thomas H. Lee Company and Union Bank of Switzerland retained ownership in the chain he had nurtured nearly from its inception.

In the wake of its separation from its parent company, Cinnabon continued to display remarkable progress, with individual stores averaging $425,000 in annual sales and the best performers generating between $2 million and $3 million each year. By the beginning of 1997, when there were 350 Cinnabons operating in North America, the company was collecting roughly $140 million in sales, having secured an entrenched position in many major markets. With plans to add 60 more units in 1997, the company was also experimenting with expanding its menu for the first time in its history. New baked goods, including bagels, muffins, and croissants, were added to the familiar refrain of over-sized cinnamon rolls, and some units began offering cream cheese.

As Cinnabon headed into the late 1990s and prepared for the future, expectations for future growth and profitability were as strong as ever. Although projections for expansion by the end of the 1990s had been reduced to 500 units, the reduction was perhaps attributable to the common occurrence of wild-eyed optimism settling into reality. The late 1990s and the beginning of the 21st century promised to see a different type of Cinnabon as plans were being developed in late 1997. In June 1997 the company began testing a much larger baking and coffeehouse concept, experimenting with two units in New York City that served as the proving ground for the company’s attempt to develop into a more complex retail operation. In addition to the transformation into a broader concept, Waldron ordered the renovation of some units, touching off the gradual process of changing Cinnabon’s decor. Warm-colored wood and copper were slated to replace the familiar blue and white tile, while a new logo, new graphics, and new packaging were in the offing. With these changes set to be implemented as the 1990s drew to a close, Cinnabon embarked on its second decade of existence, firmly situated as a market leader in its industry.