Tubby's, Inc. History

Address:

43191 Dalcoma Drive, Suite 6
Clinton Township, Michigan 48038
U.S.A.

Telephone: (586) 416-1900
Toll Free: 800-752-0644
Fax: (586) 416-1639

Private Company
Incorporated: 1968
Employees: 68
Sales: $10 million (2002 est.)
NAIC: 53311 Lessors of Nonfinancial Intangible Assets (Except Copyrighted Works); 722211 Limited-Service Restaurants

Company Perspectives:

The Founders, Officers, and Employees of Tubby's Inc. are committed to the development of innovative, high quality, restaurant concepts which offer franchisees excellent products and proven business opportunities and strategies in attractive, lucrative markets. Tubby's pledge to offer only the highest quality food and courteous, prompt service. We pledge to conduct our business with honesty, integrity, and respect for our customers and the communities which we serve.

Key Dates:

1968:: Richard Paganes opens a sandwich shop in St. Clair Shores, Michigan.
1972:: Tubby's, with four locations, introduces a new logo.
1978:: The company begins franchising restaurants.
1986:: Tubby's goes public and acquires Ricky's Dairy Bar & Luxury Grill.
1990:: Tubby's merges with Stuff Your Face, Inc., and the company's moves to the NASDAQ.
1991:: New CEO Alexander Bardy begins to lay plans for expansion.
1994:: Bardy is removed by Tubby's board; mounting losses lead to restructuring.
1995:: Healthy menu options are introduced and an updated ad campaign is launched.
1996:: New outlets begin opening that will extend the franchise into Ohio, Florida, Arizona, Missouri, Indiana, and Canada.
1998:: SUBperior Distribution Systems, Inc. is formed to service franchisees; Tubby's logo is revised.
2000:: The company returns to private ownership after Interfoods merger falls through.
2002:: Tubby's refocuses on Michigan and begins running TV ads seeking franchisees.

Company History:

Tubby's, Inc. operates a chain of more than 100 submarine sandwich restaurants in Michigan, Florida, and Iowa, all but three of which are owned by franchisees. The firm's outlets, which range from small takeout-only locations to larger dine-in sites, feature a menu of more than 20 sandwiches that are served grilled. Among the most popular choices are steak and cheese and the Tubby's classic, a blend of different meats and cheese. Some Tubby's restaurants also serve premium ice cream and pizza. The company is controlled by the family of its founder, Richard Paganes, and is headquartered near its stronghold of Detroit.

Beginnings

The first Tubby's restaurant was opened in the winter of 1968 in St. Clair Shores, Michigan, a suburb of Detroit. The company's founder, 21-year old Richard Paganes, had learned the restaurant business while working at a place called Dan's Giant Subs, where he began to dream about opening his own shop. On Christmas Eve, 1967, his car had a flat tire in front of a building that was for rent. Inspired by the location, he decided to take the plunge and scraped together $8,000 to buy equipment and supplies.

Early the next year, Paganes opened his 600-square foot restaurant for business, selling carry-out food only. He offered a menu of 25 different submarine sandwiches, which ranged in price from 75 cents to $1.45. Among the choices were a steak and cheese sub and the "Tubby's Famous" variety, made with three different meats and cheese. What made Paganes' shop different was the fact that the submarines were grilled rather than served cold.

The restaurant was a success, and over the next several years three more locations were opened. To help run the operation, Paganes enlisted the help of several of his siblings, including his brother Robert, who helped formulate many of the company's sandwich recipes. In 1972, Tubby's began using a distinctive logo, which was based on a popular cartoon character.

Growth continued throughout the early 1970s, with a total of 12 shops in operation by 1977. December of that year saw the firm incorporate as Tubby's Sub Shops, Inc. and shortly afterwards begin to franchise its restaurant concept. The first franchised site was opened in Madison Heights, Michigan. Over the next several years more were added, including a number of dine-in restaurants, as well as the chain's first drive-through, located in Westland, Michigan. Tubby's also began to sell franchises outside of the state during this period.

Initial Public Offering in 1986

In March of 1986, the growing Tubby's began selling its stock publicly on the over-the-counter market. By this time, 50 sub shops were in business, none of which were owned by the corporation itself. All but two were located in southeastern Michigan. Tubby's still utilized a menu of 25 different sandwiches, and some restaurants now offered made-on-the-premises ice cream. Ten stores were also experimenting with home delivery service.

In the summer of 1986, Tubby's bought Ricky's Dairy Bar and Luxury Grill Ltd., which had two 1950s-style hot dog and ice cream restaurants in the Detroit area. The company began to franchise the Ricky's concept, and a number of new locations were opened over the next four years.

In 1990, Tubby's merged with a NASDAQ-traded corporation, Stuff Your Face, Inc., which had three restaurants in New Jersey that featured the sub-like Stromboli sandwich. After the merger, the reconfigured company took the name Tubby's, Inc. Richard Paganes was named chairman and CEO, while his brother J. Thomas Paganes was named president. Brothers P. Terrance Paganes and Robert M. Paganes were also given executive positions with the firm and made board members.

In 1991, Tubby's brought in a new president and CEO, Alexander Bardy. Over the next several years he laid ambitious plans for growth, including the development of new store concept, called Tubby's/Cafe Express, that would be located at Sears stores in shopping malls. The first experimental outlets were all company-owned. The venture was financed by a $250,000 private stock placement.

1994: Bardy Ousted and Restructuring Follows

Bardy's efforts to develop new initiatives were consuming large amounts of cash, however, and the company soon began to suffer from growing quarterly losses. In August of 1994, the Tubby's board ousted Bardy and appointed Robert Paganes as his replacement. The move was swiftly followed by implementation of an austerity program that included layoffs of seven corporate-headquarters employees, pay cuts of 20 to 40 percent for those at the top, and abandonment of the Tubby's/Cafe Express concept. Bardy was also sued by the company over a stock option worth 1.325 million shares, though he quickly countersued. Losses for 1994 totaled $920,000 on sales of $3.7 million. It was the third consecutive year of red ink.

In early 1995, a group of disgruntled stockholders and franchisees held an "alternative shareholders meeting," which resulted in a demand that two of the Paganes brothers return 1 million shares of stock which each had purchased at half-price during the winter. The company defended the sales, claiming they had kept the firm from being delisted by the NASDAQ exchange. Tubby's meanwhile had launched a health-conscious menu and a new advertising campaign that were credited with boosting sales. The company was also buying sites and building new stores itself, then selling them to franchisees, which cut the time needed to open a new store by several months. The cost of opening a Tubby's was estimated at $110,000 to $115,000, which included equipment, an initial marketing budget, and the $15,000 franchise fee that was paid to Tubby's, Inc. Franchisees also paid the firm a royalty of 4 percent of gross sales and an additional 3.5 percent to help cover advertising costs.

The company's new austerity measures were proving a success, and during the mid-1990s Tubby's returned to profitability. In 1996, the firm announced plans for national expansion. Development agreements were reached during the year to open stores in Arizona, Florida, and Ohio. Experiments were also under way to locate scaled-down Tubby's shops in service stations and at other non-traditional sites. CEO Robert Paganes stated that the company's goal was "to be the third largest submarine chain in the world."

In early 1997, Tubby's opened a shop in Edmonton, Alberta, Canada, the first of 30 restaurants planned for that country over the next five years. In 1998, as it celebrated three decades in business, the company unveiled a new logo and launched a subsidiary, SUBperior Distribution Systems, Inc., to wholesale supplies to franchisees. A reverse stock split was effected to raise the share price, which was in the 25 to 30 cent range, below the newly instituted NASDAQ minimum of $1. The one to ten split reduced the number of outstanding shares from 26 million to 2.6 million. The year 1998 also saw stores opened in St. Louis, Missouri, and Indianapolis, Indiana, and the settlement of a lawsuit by a former investor and board member for $265,000. Revenues for the year reached $7.4 million, double the figure of just four years earlier.

Return to Private Ownership

At the end of 1998, Tubby's hired an investment relations firm to boost its image on Wall Street. Plans to merge with Interfoods of America, Inc. of Florida were announced soon afterwards, but the deal fell through in the spring of 1999 when Interfoods decided to seek a different method of getting a NASDAQ listing, its primary motivation for the deal. After the merger fell apart, Tubby's management decided to go private by buying back 2 million outstanding shares. Robert and Peter Paganes and company secretary Vincent Tatone, who each owned 150,000 shares, retained their stakes and took control of the firm. The $2.3 million buyback, financed by Comerica Bank, was completed in early 2000. By this time the chain had grown to 94 stores in Michigan, Florida, and Nebraska. Development agreements for Arizona, Texas, Pennsylvania, Ohio, Indiana, and Canada had been terminated due to failure to meet agreed-upon schedules for opening restaurants. After taking Tubby's private, the firm's management announced it would no longer seek national penetration and would concentrate on building business within Michigan.

During 2000, and into 2001, the company worked on developing the Tubby's brand to fight off new competition from Quizno's Corporation of Denver and Panera Bread Company of Missouri, both of which had recently doubled their presence in the Detroit area. Tubby's 100th store, opened in Macomb Township, Michigan, sported a new design that featured high ceilings and a colorful interior. The restaurant also offered pizza, a first for the chain. Forty percent of Tubby's sales came in the evening, and the company hoped the new menu choice would increase sales during this time period. The declining price of pizza-making equipment made the option attractive to franchisees, and if the pizza experiment proved successful it was expected to be added chain-wide.

In early 2002, Tubby's announced it was seeking to open up to three dozen new stores throughout Michigan. Advertisements run on television in March and April seeking new franchisees drew a strong response, and more spots were planned for later in the year.

After some 35 years, the submarine sandwich shops of Tubby's, Inc. remained popular in the company's home base of southeastern Michigan. Several attempts at national expansion and a period of public ownership had proven less than successful, but Tubby's appeared to be back on track with a renewed focus on regional development.

Principal Subsidiaries: Tubby's Sub Shop Advertising, Inc.; The SubLine Company, Inc.; Tubby's Company Stores, Inc.; Tubby's Sub Shops, Inc.; SUBperior Distribution Systems, Inc.

Principal Competitors: Doctor's Associates, Inc. (Subway); The Quizno Corporation; Blimpie International, Inc.; Panera Bread Co.

Tubby's, Inc. History

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Key Dates:

Company History:

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