The issue I have with trying to maximize ancillary revenues first is that the potential for it to backfire is too great, compared to the potential immediate return.
Currently, pretty much anyone outside of Los Angeles has never heard of Giggles n Hugs -- even with the national media exposure, if there isn't a location in someone's neighborhood they'll watch the Extra special and a day or two later forget about it.
In time with enough locations, Giggles can become a nationally recognized brand on par with Chuck E Cheese, Gymboree (back when it was a play area), etc.
This would be the appropriate time to then venture into merchandise, frozen food, etc. How much money would be spent on creating frozen meals that will a) probably be priced at the higher end, and b) will have lots of competition in the grocery store, and c) might be passed up by shoppers because they've never heard of Giggles n Hugs? While it's true that going into supermarkets first might create some brand awareness, the Giggles model is high concept enough to sell itself without ancillary marketing.
Here's the issue: Parsi, etc, don't have much experience with frozen food, etc so they'd need to hire a third party. That's more money being diverted from opening new locations and building the brand. And in a worst case scenario, what happens if the frozen food isn't well received by the public, for whatever reason -- what if there's a recall or something to that extend, or it's just overpriced or it doesn't taste as good as freshly cooked, or whatever -- what happens then is you've potentially lost a lot of customers who will associate the restaurant with the frozen food, and will not spend their time or money visiting those new locations.
Alternatively, you do the Trader Joes model where you slowly roll out locations, build demand via word of mouth, create something of a cult following, and these people will be less apt to judge the food for what it is -- because they are already in love with the Giggles ecosystem. They'll buy the clothes regardless of the quality, they'll buy the frozen food regardless of the cost, and they'll be less likely to complain if something isn't right because of the positive experiences they've had in the restaurants themselves.
Most of the restaurants-turned-frozen food companies have adopted this similar model: CPK, PF Changs, Jamba Juice, Marie Callenders -- heck, even Stouffer's was once a popular restaurant in Philly before it became synonymous with TV dinners.
There is absolutely a time and a place for ancillary revenues, but I think the best time to deploy this part of the business model is after the majority of the country either knows about Giggles, or has the ability to visit one nearby. Otherwise, Giggles risks spending a lot of time and money on something that's a bit of a risky venture when considering how many options are in the crowded grocery stores. The ancillary businesses have the potential to be far more valuable in the long term than even the restaurants themselves, but an experience CEO must also know that timing is equally important as you only get one crack at these ancillary revenue streams...
Would love to hear any dissenting opinions though if someone things I have it all wrong?
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