Specialty's sandwiches hungry for Seattle scene

Running headlong into Starbucks Nation, Specialty's Cafe & Bakery is executing an expansion strategy of finding high-profile store locations and offering Internet ordering to attract customers to its fresh fare.

The company opened its fifth store in the Puget Sound region last month in downtown Seattle at Fifth Avenue and Union Street. It plans to open a store in University Village in early July, and a second Bellevue location is likely by the end of the year.

Growth here is now gaining on its San Francisco base, where there are eight stores, said founder and President Craig Saxton.

"The Seattle area has been very kind to us. It's a great marketplace," said Mark Schuyler, Specialty's vice president for development.

The new cafe at the corner of Fifth and Union occupies the former flagship store of the Briazz sandwich-cafe chain. Briazz went bankrupt and was bought out last year by Organic To Go, based in Issaquah. Organic To Go occupied the space for about six months until the lease expired, said company Chief Executive Jason Brown.

Any restaurant in that prominent of a locale needs to plan for the high cost of rent, Brown cautioned. Real estate in high-traffic downtown locations that rely on weekday business is expensive, and in Brown's opinion is more suited for the profit margins of a high-end jewelry or accessory store than a restaurant.

Brown said: "Briazz proved to us that even though it was a good concept, it went bankrupt because of the challenge of producing proper profit margins in real estate that is primarily high-traffic Monday to Friday."

Saxton said Briazz's failure wasn't due to high rents, but its concept of selling pre-packaged cold sandwiches. He believes his model of providing fresh, "made-from-scratch" on site sandwiches and soups will attract repeat customers.

"The whole idea behind Specialty's is to duplicate my wife's kitchen," Saxton said.

The model differs from competitor Panera Bread, which makes dough and soups at its Redmond store, then trucks it to the other stores to be baked and heated.

Considered the leader in the fast-casual restaurant business, Panera Bread has more than 900 stores and plans to add 25 company-run stores in the Northwest in the next three years.

In the last six months, it has opened three stores in Redmond, Lynnwood and Issaquah, representing its first entry into the state. It is also in Lacey, Thurston County, and one store is expected in Lakewood.

"The Northwest, from a culinary standpoint, is a more sophisticated market; there's an appreciation for high-quality products," said Panera spokesman Mark Crowley. "I think we can hold our own in that sense."

The Northwest was "virtually an untapped market," Crowley said, making it a key area for expansion. The company targets suburban neighborhoods and provides large seating areas and free wireless Internet access.

Specialty's Cafe & Bakery is also hoping to tap into the suburban and Internet markets with its planned stores in University Village and Bellevue, which will stay open later and on the weekends.

The area's large online community is another reason for expansion. There are 30,000 registered users who order sandwiches on the Web in San Francisco. While Seattle has 10,000 users, Saxton expects that number to grow with the new stores.

Nearly 30 percent of the company's undisclosed revenues comes from its catering operations, where many customers do online ordering, he said.

Three years ago, the company purchased an Australian Web company for its food-ordering technology. Customers can go to Specialty's Web site and build a custom sandwich, pay, then pick it up at the store, bypassing the order line.

The company is privately held by Saxton, his wife, Dawn, and 40 investors. The couple had worked in the restaurant industry in various capacities.

Craig Saxton spent six years at Paradise Bakery in San Francisco before the couple decided to follow their dream of opening Specialty's in 1987 with help from a couple of friends.

By 1988, they had founded their first restaurant in San Francisco with a $100,000 small-business loan, $30,000 in credit-card debt and a contractor's bill of $40,000 to 60,000. All their debt was paid off in a little more than a year, they said.

That first year, they grossed $1 million in their 800-square-foot location. Since then, the company has never been in debt, Saxton said.

Last year, the company raised $1 million and it plans another fundraising round this year to raise between $1 million and $1.5 million.

The Saxtons are the majority owners, selling off less than 10 percent of the company in the first round, with plans to sell the same amount in the second round.

While any food establishment is competition, Specialty's focal point is baked goods and sandwiches. The company likens itself more to Seattle's Essential Baking Company, Schuyler said.

"People like variety so much," he said. "We won't phase out the small cafe or bakery; we haven't harmed them yet."

Essential Baking representatives agree, saying their organic local ingredients, award-winning chefs and focus on baked-good sales differentiate them from others, said Anna Li, Essential's director of marketing.

For the customers lined up at Specialty's Cafe & Bakery at Fifth and Union, the meals were well worth the short wait.

Software engineer Burt Bielicki ordered The Chairman — oven-roasted turkey, Swiss cheese, avocado, cucumbers and alfalfa sprouts on herb bread. He said he liked the prices and the quality.

"The bread definitely has more flavor than fast-foodish bread," said Bielicki, 23. "I thought it was quite good."

Lisa Chiu: 206-464-3347 or lchiu@seattletimes.com