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NOVEMBER 4, 2011

W. EARL SASSER, JR. RACHEL SHELTON

WrapItUp: Developing a New Compensation Plan
Introduction
Martha Reyes needed some fresh air. The 46-year old human resources executive locked her computer display, left her third-floor office, and took the stairs down to the lobby. She crossed the street to a park where she observed workers from the area’s offices as they enjoyed their lunches on a sunny afternoon near San Francisco. She smiled as she saw several people carrying bags bearing the logo of WrapItUp, her employer. When Reyes was recruited to lead HR at the restaurant chain in early 2010, she found that WrapItUp employee turnover was relatively high, customer satisfaction was suffering, and revenue growth was flat. It was her immediate mission to get to the bottom of the HR issue—turnover—but she thought that all of the chain’s challenges probably were related and that solving the turnover issue might take steps toward solving the others. With the help of an external consulting firm, Reyes developed the ShareIt program, a profit-sharing plan intended to make store manager compensation more competitive and to motivate managers to maximize individual store profits. In late July 2011, the ShareIt program had just finished a six-month pilot in two carefully selected outlets. Reyes had received the final report from the consulting firm and needed to decide what to recommend to WrapItUp’s two founders, who still served as co-CEOs. WrapItUp could roll out the program to all stores, run a larger trial, put the program on hiatus while they modified it, or abandon it altogether.

Background
Shawn Jackson and Simon Sethi, self-proclaimed picky eaters, founded WrapItUp in Northern California in 2002 while still in graduate school. Frustrated with the fat-laden choices offered by oncampus dining, they started making and selling customized wraps out of the kitchen of their oncampus apartment, using fresh, healthy ingredients. Before long, the line stretched out the apartment door and around the block. They used their idea to win a university-sponsored business plan competition and, with the capital it provided, built it into a full-time business after graduation.
________________________________________________________________________________________________________________
HBS Professor W. Earl Sasser, Jr., and writer Rachel Shelton prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. Copyright © 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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4362 | WrapItUp: Developing a New Compensation Plan

The initial restaurant opened near campus the following year, and the business expanded quickly, well ahead of an increasing overall consumer preference for quick meal alternatives perceived as healthy. A 2011 restaurant industry study indicated that 70% of restaurant consumers were trying to eat healthier and that two-thirds of restaurant operators noticed guests ordering healthier choices and inquiring about the nutritional value of menu items. By mid-2011, WrapItUp operated 30 restaurants in Northern and Southern California, and the Seattle (WA), Portland (OR), and Phoenix (AZ) metro areas. Many, but not all, of its restaurants operated near universities. The founders imagined that they would eventually expand to other geographic areas, but doing so was not on their immediate strategic agenda. All stores were still company-owned, and the company did not currently have plans to franchise. “There’s a right size for us, and it’s not to have one on every corner of every street in every city,” said Sethi. “We want to keep our company at a manageable level to ensure consistency.” The firm was privately held with the co-founders as majority shareholders. The standardized WrapItUp menu included a variety of made-to-order wrap sandwiches and salads and a multitude of options to accommodate special diets, such as vegan, gluten-free, and lactose-free, in addition to “raw food” options and fresh fruit for dessert. Although the executives had discussed expanding the menu, they wanted to avoid the operational challenges involved in baking activities. The chain further differentiated itself through a visible commitment to local sourcing. Since its founding, WrapItUp had purchased ingredients from local farms whenever possible. “During our startup period,” Jackson remembered, “we grew some of the produce in the backyard of our apartment building, and customers loved it. We can’t do that at this stage, but it taught us the value of emphasizing ingredients that are fresh and local.” This approach again placed WrapItUp ahead of a trend: In 2011 the restaurant industry named local sourcing as one of its top five trends and gluten-free and allergy-conscious foods a top-10 trend. The freshness of WrapItUp’s ingredients and its accommodation of special diets meant that its prices were somewhat higher than its competitors. The average sandwich sold for around $10, so it operated primarily in high-income areas where consumers were willing and able to pay a premium for quality and choice. To maintain freshness and to reflect the chain’s strong community orientation, at the end of each day store managers donated outdated ingredients to local food banks and homeless shelters. Almost 10 years after founding the chain, Jackson and Sethi’s passion for delivering fresh, quality food had not wavered. They had always shared the CEO role and had remained hands-on leaders, maintaining ultimate approval on all menu changes as well as hiring for store managers, who came to WrapItUp from a wide variety of backgrounds and were generally experienced in the food or restaurant industry. Some had attended culinary or hospitality school; some studied other subjects and broke into the industry through part-time jobs. Several of the managers had minimal formal education and had worked their way up through the fast-food industry. Jackson and Sethi made sure that everyone on the team shared their passion and vision.

Challenges
Jackson and Sethi’s hands-on leadership style worked well when the business was small and they could be on-site at all the stores, sharing their enthusiasm and knowledge firsthand with store managers. With expansion, the co-CEOs struggled to disengage from daily operations and decision making. They still had tight relationships with some long-term employees. “I’ve known Shawn since grad school and feel comfortable going straight to him whenever I have a question or need

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WrapItUp: Developing a New Compensation Plan | 4362

anything,” said the manager of a San Francisco restaurant. “He always takes care of me right away— no waiting around for an answer.” To maintain a consistent brand image, the founders had prohibited individual restaurants from engaging in their own marketing activities. In particular, all social media activities were centralized. In 2009 one of the Seattle outlets launched its own Facebook page and Twitter feed; the founders found out about it when the store manager friended them. Jackson and Sethi had both local efforts taken down immediately for “failure to conform to brand standards.” WrapItUp also had experienced growing pains in the area of human resources. Turnover was high; recruiting was disorganized. “We do our best to make WrapItUp an amazing place to work— especially for people who share our passion—so we can’t understand why we keep losing good managers,” said Sethi. “We can’t keep going like this. Last year we burned through our entire annual recruiting budget in the first quarter just by trying to keep up with the hiring.” Recognizing the need for expert help, in early 2010 Jackson and Sethi recruited HR executive Martha Reyes to the firm from an upscale restaurant chain. An industry veteran, Reyes started her restaurant career in high school by working the drive-thru lane at a fast-food outlet. After college, she steadily worked her way up through a variety of managerial and HR positions at multiple firms in the industry. The dilemma she faced at WrapItUp was both familiar and unique. WrapItUp faced some common challenges in the hospitality industry. It was difficult for the company to attract and retain top talent, especially at the store manager level. The fast-paced atmosphere in the restaurant meant that any position could not stay vacant for long, so hiring had been more a rushed scramble than a thoughtful exercise to find the right person. Managers were sometimes promoted from within and sometimes hired externally—whichever route could fill the position the quickest. Since 2006, WrapItUp’s turnover rates for both salaried (managerial) and hourly employees had consistently exceeded industry averages (see Exhibit 1) and were a constant source of frustration at all levels of the company. “Low compensation” was the top reason that managers offered for their resignations in exit interviews conducted by the HR generalist. WrapItUp’s modest HR department had not kept pace with the firm’s growth. The founders had put in place only basic and, arguably, rudimentary HR policies. Paychecks were issued on time, and timesheets were tracked, but the approach was not strategic, especially when it came to compensation. Pay for store managers consisted of a weekly salary plus a volume adjustment based on the average weekly sales of the restaurant. These sales levels were grouped into five bands, and managers of all stores in each category received the same adjustment whether they just barely made it into the band or were at the top of the range. The adjustment was calculated every February 1 using average weekly sales from the prior fiscal year, and the payment amount was guaranteed for an entire year (a restaurant could not move between bands until the following year). “The current plan wasn’t really incentive-based,” said Reyes. “I noticed that a number of stores did just enough to make it over the threshold, and the one-year recalculation period meant there wasn’t much of a connection between the managers’ results and their paychecks.” Exit interview comments from two former store managers were typical: “I’m vegan and totally bought into the mission of WrapItUp, but I couldn’t feed my kids on what they paid me. I’ll make a lot more at my new job at a larger chain,” said one associate manager from Oregon. “I ran the most profitable store in my region, but my paycheck sure didn’t get any larger because my store was also the smallest one and just couldn’t make enough sales to qualify for much of a volume adjustment— whatever that meant,” commented a former manager from a Northern California store. Reyes personally followed up on several of these exit interviews.

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Reyes herself had been a WrapItUp customer for some time, and she sensed problems even before she accepted her new position: the manager in the outlet closest to her home had changed twice in the 18 months before she took the job. As soon as she had arrived at the company, she sought out data that might reveal underlying issues. She learned that for over two years the marketing department had been conducting Internet-based customer satisfaction surveys. The data showed that customers loved the dietary accommodations and community involvement but mentioned long lines, “tired” menus, and poor overall value. “I am gluten-free so it’s hard to eat anywhere else, but I’m tired of ordering the same old thing,” commented one customer in Phoenix. The data also showed that regular customers, who were often those with dietary concerns, wanted to feel appreciated. With over two-thirds of customers taking their food out, the restaurants were complicated, noisy mazes of customer comings and goings making it difficult to form relationships. Manager turnover was also an obstacle to forming long-term relationships with customers. “I eat there at least twice a week, and it seems like every time a different person takes my order. Portland is a pretty small place, and it would be nice to feel like the restaurant wanted to be part of the community,” said another customer. The survey also indicated that WrapItUp’s customers valued the commitment to local sourcing. Although a cornerstone of the chain’s strategic advantage, it caused constant operational challenges by requiring frequent vendor deliveries; it also put individual restaurants at the mercy of local weather events—one hard freeze and several restaurants could be stuck for weeks without avocados, jeopardizing multiple menu items. Store managers typically addressed these issues on an as-needed basis, leading to inconsistency in menus and service. Jackson and Sethi frowned on menu variations, regardless of the cause. Said Jackson: “At the store in Berkeley, the manager literally ran out of lettuce at 2:00 p.m., so he substituted spinach. I liked his creativity, but you just can’t allow the product to be played with that way. It dilutes the brand.” Instead, managers were instructed to remove the affected item from the menu until the missing ingredient was back in stock.

Pinpointing the Problem and Researching a Solution
Based on the results of the marketing surveys and the exit interviews, Reyes concluded that high turnover caused a lot of the issues and that the motivation and compensation issues caused the turnover. Said Reyes, “The biggest problem at the store level was the acquisition, development, and retention of good talent. I think most of the managers could succeed and even shine if they were better motivated and more strategically compensated. We can’t recruit people based on passion alone—we have to pay them at least as much as our competition does and then give them some freedom.” Reyes felt that an outside opinion was important, so she recommended engaging an external consulting firm to benchmark their current compensation system and to help them develop a solution. It would be the first time that the company had conducted such a study. Although hesitant, Jackson and Sethi agreed to support the project, which took several months and showed that WrapItUp’s compensation was indeed below industry average (see data from two typical outlets vs. industry averages in Exhibit 2). Although the percentage of total compensation delivered as base salary was similar at WrapItUp and the industry benchmark, the variable component differed both in amount and in what was required to achieve it. The consultants and Reyes developed a solution that they hoped would address the problems. Instead of revenues, profits would be the performance metric. They proposed a quarterly profitsharing program (called “ShareIt”) in which store management compensation would be directly correlated to restaurant profits—not volume as in the old plan. The store managers would receive 35% of the store’s incremental profits (defined as the store’s net controllable profit minus a lease payment). Associate managers would receive 15% of profits; the remaining 50% would be paid to WrapItUp corporate. To encourage retention, the payments would be held in a separate account and
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WrapItUp: Developing a New Compensation Plan | 4362

paid one month after the end of the quarter in which they were earned. Any employee leaving before the payout date would forfeit that period’s payment. In exchange for the increased risk they were assuming, managers would have more freedom to innovate—they could, within limits, customize menus and even try out their own promotional ideas. Since the plan was a tremendous change, the consultants recommended first trying it in a pilot before launching it firmwide. ShareIt did not require a change in working hours for the management team, but Reyes planned to monitor their “before” and “after” working hours and to collect regular feedback from the initial participants. Guest satisfaction would continue to be monitored through the Internet-based surveys with the addition of mystery shoppers; results for the two pilot restaurants would be followed very closely. Jackson and Sethi agreed to a six-month pilot of the plan in two medium-sized restaurants in Southern California—one in Santa Monica and one in Costa Mesa. They selected these restaurants because they were relatively close to corporate headquarters but not so close that the store managers might fear corporate micromanaging. In addition, those two store managers were seen as flexible and high-potential.

Pilot Program
The Santa Monica restaurant, located near that city’s famous leisure pier, was the first Southern California outlet, having opened in 2004. The manager, Erika Whitfield, was named associate manager after she graduated college in 2008 and was promoted to store manager in 2010. Whitfield had a degree in digital marketing, but she had paid her way through college by working at WrapItUp, which she frequented because most of the menu items fit with the diet she needed to manage her food allergies. When the recession made it difficult to find a job in marketing, she accepted a promotion and stayed where she was while she thought about applying to graduate school. Her associate manager was Carlos Colón, who recently finished a two-year culinary program. He completed a semester-long internship at a food-related cable television network. The Costa Mesa restaurant was newer and one of the chain’s only outlets located inside a shopping mall. Restaurant veteran Ronald Locke joined WrapItUp from a competitor and had run the Costa Mesa restaurant since its doors opened in 2007. Although not a college graduate, the 37-year old had taken night classes in accounting and business at a community college. His associate manager had recently left to return to school; he had just hired Lisa Tiller as his second-in-command. Tiller had run a small natural foods store in her native Colorado and relocated to California when her husband, a Marine sergeant, was transferred. She had two young children, both with food allergies. Reyes traveled to Southern California from corporate headquarters in San Francisco to explain the program in person. In a two-hour meeting in Santa Monica with Whitfield, Colón, Locke, and Tiller, she reviewed the plan, answered questions, explained why they were selected, and offered the teams the opportunity to opt out of the pilot. The managers’ reaction was mixed—they expressed optimism about the increased compensation potential and the freedom to innovate but were somewhat nervous about the extra work that might result. “I’ve been here a while and know just how to manage my volume to make Band 4. This plan looks pretty complicated, but if it can make my paycheck bigger, I’ll give it a shot,” said Ron Locke. Nonetheless, both teams elected to participate. They had two weeks before the pilot launched, and they used the time to develop their approaches to growing profits. Santa Monica’s Erika Whitfield immediately set up a Facebook page and Twitter account for her restaurant and invited customers to “like” or “follow” them for special offers and promotions and
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menu updates. She also set up a frequent customer program called RepeatIt and tried to expand her store’s catering business by visiting area offices around lunchtime, offering discount coupons to administrative assistants and event planners. To reduce customers’ wait time, she initiated ordering by text message. She started to design an online ordering system but soon realized that initiative was too complex for just one store. Carlos Colón used his connections to persuade two well-known TV chefs to do special appearances, including book signings, at his store; he also designed three unique menu items, including a Dungeness crab salad, which could be offered for a short time at a premium price. Whitfield’s new social networking strategies would be the promotion vehicle for these special events. With his recent accounting courses and extensive restaurant experience, Ron Locke of Costa Mesa felt that raising his profitability depended on cost containment. He re-negotiated purchase terms with two local suppliers. To lower his work crew’s hourly labor and benefit costs, he scratched a planned hiring to fill an opening; to fill in coverage gaps on key shifts, he and Lisa Tiller at times made sandwiches, took orders, and washed equipment. To reduce waste, he distributed utensils and condiments from the service counter rather than placing them in the dining area for customer selfservice. Tiller used her knowledge of natural foods to find less expensive substitute ingredients for certain menu items—kimchee in place of seaweed in a salmon wrap, for example. During the pilot, both managerial teams found themselves working much longer hours than they had before. In their first de-brief session with Martha Reyes, Santa Monica’s Whitfield said, “I’m working at least 70 hours a week compared to 50 before, but I don’t mind. I’m much more engaged because I have more freedom to build our business, and we’re seeing results—profits last month were up over 4% from last year.” Costa Mesa’s Tiller reported a similar increase in work hours but struggled with it a bit: “I haven’t been home before 8 p.m. since this pilot started. My husband is deployed, so my childcare costs have gone up substantially. I can’t do this forever. But I’m willing to stick it out to see if it’s worth it.” Although the managers agreed that the plan would discourage turnover at their level, they doubted whether it would help reduce crew turnover. “We still can’t pay them enough to keep them. If we do, our margins go down – and so do our paychecks,” said Ron Locke. During the six-month trial, both stores increased their profits consistently as shown in Exhibits 3a and 3b. That improved performance meant that all the managers’ total compensation went up substantially as well (see Exhibit 2). Customer survey results were mixed (see Exhibit 4). The managers held a final debrief with Reyes in July 2011, just as the six-month ShareIt trial was about to conclude. The four store managers were positive about the increases in their paychecks but wondered if they could sustain the innovation and long hours after the trial ended. Reyes was grateful for the feedback and shared their concerns. She recognized that these two managerial teams had been chosen because of their strength and wondered if all of WrapItUp’s managers would adapt so well to this new combination of freedom and pressure.

Final Decision Points
Martha Reyes returned to her office from the park and turned back to the task at hand—preparing a detailed set of recommendations for co-CEOs Jackson and Sethi. She knew that much was at stake, from the financial well-being of individual managers to her own reputation as a new executive. Although Jackson and Sethi would make the ultimate decision, she wanted to offer a sound and thorough rationale for her suggestion.

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She saw that the program had achieved its stated goals: restaurant profitability increased, and so did the managers’ compensation. But she wasn’t yet convinced that the ShareIt was solely responsible for the results. Might those two restaurants have improved even without the program? Customer service scores were mixed. She wondered if ShareIt encouraged the right mix of behaviors and whether it would work with all the chain’s managers, or just a select group of the entrepreneurially minded. Reyes again reviewed her alternatives: keep the program exactly as it was and roll it out to all the stores, obtain additional data by running a larger trial, temporarily stop the program and modify it, or abandon it and try something else. This would not be an easy recommendation to make.

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Exhibit 1

Restaurant Industry Turnover Rates
2006 Salaried Hourly 2008 Salaried Hourly 37% 50% 33% 50% 33% 33% 33% – 44% 89% 91% 88% 89% 113% 141% 94% 82% 150% 2010 Salaried Hourly 33% 33% 27% 25% 33% 33% 27% 25% 41% 71% 92% 67% 69% 71% 92% 67% 69% 90%

Full-Service Restaurants (All) Full-Service Restaurants (Company-Owned) Full-Service Restaurants (Private Corporation) Full-Service Restaurants (Average Check $10–$14.99) Limited Service Restaurants (All) Limited Service Restaurants (Company-Owned) Limited Service Restaurants (Private Corporation) Limited Service Restaurants (Average Check $6.50/7.50+) WrapItUp
Source: National Restaurant Association and Deloitte

40% 55% 50% 40% 52% 50% – – 54%

92% 80% 91% 91% 107% 75% 99% 94% 102%

Exhibit 2

WrapItUp Manager Compensation (1,500 square foot store) vs. Industry Average
Guaranteed Weekly Base Salary Additional Weekly Paya $225 $1,013 $878 $275 $169 $440 $325 $213 Total Weekly Pay $900 $1,688 $1,553 $1,100 $675 $940 $825 $851 Total Annual Pay $46,800 $87,776 $80,756 $57,200 $35,100 $48,880 $42,900 $44,252

Store Manager, Both Stores (Pre ShareIt) Store Manager, Santa Monica (During ShareIt) Store Manager, Costa Mesa (During ShareIt) Industry Benchmark Associate Manager, Both Stores (Pre ShareIt) Associate Manager, Santa Monica (During ShareIt) Associate Manager, Costa Mesa (During ShareIt) Industry Benchmark

$675 $675 $675 $825 $506 $500 $500 $638

a Pre-ShareIt, WrapItUp weekly variable pay was guaranteed and based on volume; the industry benchmark was an incentive-based payment

based on quantified metrics. Post-ShareIt, this amount is the profit distribution.

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Exhibit 3a
Pre-Share It Income

Common-Sized Income Statement—Santa Monica Store
Month 1 Retail Sales 100 9.1 15.1 2.6 26.8 29.4 1.8 1.5 1.9 34.6 38.6 3.4 9.3 12.7 25.9 Month 1 100.0 1.0 101.0 9.1 15.4 2.7 27.2 31.8 1.9 4.0 2.1 39.7 34.2 3.4 9.5 12.9 21.3 Month 2 100 9.8 14.3 3.0 27.1 30.1 1.2 1.4 2.8 35.5 37.4 3.6 9.5 13.1 24.3 Month 2 104.0 2.4 106.4 9.6 14.6 3.1 27.3 31.9 1.2 4.2 3.1 40.4 38.7 3.5 9.6 13.1 25.6 Month 3 100 11.7 14.9 2.9 29.5 31.1 1.4 1.1 2.3 35.9 34.6 3.5 9.6 13.1 21.5 Month 3 106.0 2.8 108.8 11.1 15.2 3.0 29.3 33.3 1.5 3.5 2.5 40.8 38.8 3.5 9.6 13.1 25.6 Month 4 100 11.4 13.8 4.1 29.3 30.0 1.2 2.0 2.3 35.5 35.2 3.4 9.5 12.9 22.3 Month 4 108.0 3.4 111.4 10.7 14.1 4.2 29.0 32.4 1.2 3.6 2.5 39.8 42.6 3.2 9.3 12.5 30.1 Month 5 100 7.8 14.1 3.1 25.0 30.5 2.0 2.1 1.8 36.4 38.6 3.0 12.3 15.3 23.3 Month 5 110.0 5.8 115.8 7.3 14.4 3.2 24.8 32.3 2.1 4.2 2.0 40.6 50.4 2.9 12.1 15.0 35.4 Month 6 100 9.0 14.4 1.6 25.0 30.2 1.4 1.8 2.1 35.5 39.5 3.1 10.3 13.4 26.1 Month 6 111.0 7.0 118.0 8.5 14.7 1.6 24.8 31.7 1.5 4.2 2.3 39.7 53.5 2.9 10.1 13.1 40.5

Expenses Manager Salaries Crew Salaries Benefits Total Labor Expenses Ingredients Cutlery/Paper Controllables (incl. Marketing) Utilities Total Variable Expenses Controllable Profit Fixed Expenses Occupancy Total Fixed Expenses Store Profit During Share It (vs. same period prior year ago) Income Retail Sales Wholesale Sales (Catering) Total Revenues Expenses Manager Salaries Crew Salaries Benefits Total Labor Expenses Ingredients Cutlery/Paper Controllables (incl. Marketing) Utilities Total Variable Expenses Controllable Profit Fixed Expenses Occupancy Total Fixed Expenses Store Profit

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Exhibit 3b
Pre-Share It Income

Common-Sized Income Statement—Costa Mesa Store
Month 1 Sales 100 9.1 15.1 2.6 26.8 29.4 1.8 1.5 1.9 34.6 38.6 3.4 9.3 12.7 25.9 Month 1 99.7 8.9 13.6 2.3 24.8 27.6 1.7 1.5 2.1 32.9 42.0 3.3 9.1 12.4 29.6 Month 2 100 9.8 14.3 3.0 27.1 30.1 1.2 1.4 2.8 35.5 37.4 3.6 9.5 13.1 24.3 Month 2 99.4 9.5 12.7 2.6 24.8 27.1 1.6 1.4 3.0 33.1 41.5 3.5 9.4 12.9 28.6 Month 3 100 11.7 14.9 2.9 29.5 31.1 1.4 1.1 2.3 35.9 34.6 3.5 9.6 13.1 21.5 Month 3 98.5 11.1 13.0 2.5 26.5 27.1 1.5 1.1 2.5 32.1 39.9 3.4 9.7 13.1 26.8 Month 4 100 11.4 13.8 4.1 29.3 30.0 1.2 2.0 2.3 35.5 35.2 3.4 9.5 12.9 22.3 Month 4 97.3 10.7 11.9 3.4 26.0 26.4 1.5 1.9 2.5 32.3 39.0 3.3 9.1 12.4 26.6 Month 5 100 7.8 14.1 3.1 25.0 30.5 2.0 2.1 1.8 36.4 38.6 3.0 12.3 15.3 23.3 Month 5 97.9 6.9 11.8 2.5 21.3 26.2 1.5 2.0 1.9 31.6 45.0 2.9 12.2 15.1 29.9 Month 6 100 9.0 14.4 1.6 25.0 30.2 1.4 1.8 2.1 35.5 39.5 3.1 10.3 13.4 26.1 Month 6 98.5 8.2 11.5 1.2 20.9 26.3 1.5 1.7 2.3 31.8 45.8 3.0 9.7 12.7 33.1

Expenses Manager Salaries Crew Salaries Benefits Total Labor Expenses Ingredients Cutlery/Paper Controllables (incl Marketing) Utilities Total Variable Expenses Controllable Profit Fixed Expenses Occupancy Total Fixed Expenses Store Profit During Share It (vs. same period prior year ago) Income Sales Expenses Manager Salaries Crew Salaries Benefits Total Labor Expenses Ingredients Cutlery/Paper Controllables (incl Marketing) Utilities Total Variable Expenses Controllable Profit Fixed Expenses Occupancy Total Fixed Expenses Store Profit

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Exhibit 4 excellent)

Results from Internet-based Customer Surveys (answers on a scale of 1–5, with one being poor and five,
Santa Monica, CA Store July 2009 July 2010 July 2011 Costa Mesa, CA Store July 2009 July 2010 July 2011 4.2 4.8 4.1 3.5 3.7 4.4 4.4 4.1 4.3 4.2 4.1 4.6 4.2 3.2 3.5 4.3 4.5 3.8 4.2 3.9 3.6 4.1 3.9 2.8 3.2 4.6 4.4 3.1 3.9 3.5

Promptness of greeting Freshness of food Variety of menu choices Feeling valued as a customer Value for the money Commitment to the environment A good addition to our community Wait time for food Likely to return Likely to recommend

4.3 4.6 4.1 3.4 3.9 4.3 4.4 4.2 4.4 4.3

4.1 4.4 3.8 3.2 3.7 3.8 4.6 3.9 4.1 4.1

4.1 4.7 4.6 4.7 3.2 4.1 4.7 3.5 4.7 4.6

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