Value Added: The Cookie Diet Hits The Web
Here's Tom Heath's latest column on Washington's entrepreneurial set:
One of my favorite movie lines comes out of Citizen Kane, when Everett Sloane tells Joseph Cotton, "it's no trick to make a lot of money... if what you want to do is make a lot of money."
Matthew Siegal made me think of that line when he told me how easy it was to expand his father's diet cookie business, which could earn Matt millions if everything goes right.
Siegal, 43, has taken his father's Florida-based weight-control medical practice and, from a tiny Tysons Corner office, is masterminding an international retail and online diet cookie campaign that will earn $3.9 million this year on $11 million-plus in revenues.
He just opened a kiosk Aug. 1 at Tysons Corner Center mall.
"It hasn't been tough," said Siegal, a University of Maryland dropout. "It's been a lot of fun. My father is quite famous throughout the country. He has such a reputation. It's very easy to get media."
His father is Dr. Sanford Siegal, 79, who has three thriving clinics - and two bakeries - in South Florida, where he bakes his weight-control cookies and sells them to obese patients and to other doctors, who then sell them to other patients. He has been doing this for 32 years, licensing his name and practice under Dr. Siegal's Cookie Diet.
Madonna recently complained that her husband liked the cookies more than her. Kathie Lee Gifford munched some on the Today Show.
The cookies sell for $62 a box, which includes a one-week's supply of 42 cookies. You eat six a day. Skip breakfast and lunch, and then eat a calorie-smart dinner. Pick any flavor: chocolate, oatmeal, blueberry, banana and coconut. Pharmacies, spas and 200 physicians had sold the goods until Matt came along.
"My father invented this in 1975 when he was writing a book about hunger control."
Once a week, Dr. Siegal (he is an osteopath), throws the staff out of his Miami bakeries. He locks the door behind him and mixes up his secret cookie formula. I am not making this up. I have no idea if this works. Ask your doctor.
Matt, who lives in Arlington, is a software geek who saw the Internet possibilities for the cookies. His business experience includes technology used in public relations, having co-founded several companies that comprise Lanham, Md.-based Vocus Inc., which is a publicly-traded software service firm with a market capitalization of $700 million. Siegal and his family received about $4 million in cash and stock when they sold their interests to Vocus. That stock is now worth nearly $10 million.
He has kept most of his stock in Vocus, but used some of the earnings to buy homes in Arlington and one in D.C.
Bored with the software business, Matt Siegal figured he could expand on the 500,000 patients his father had helped lose weight over his long career. He pitched his father on the idea of selling cookies online.
"I told him I know what I am doing when it comes to the Internet and e-commerce. I said, 'If you can treat half a million patients in South Florida, you can open this up to the whole world if we use e-commerce.' He didn't think people would buy the cookies on the Internet, but I told him to give it a try."
Matt formed several retail ventures for the online and retail components, all of which are under one umbrella known as CookieDiet.com. Matt owns 40 percent and his father owns 60 percent. They used $100,000 cash, so there is no debt in the company. No outsiders own equity - yet.
Matt hired an artist he knew from his software days to help design the cookie packaging. He Googled Web consultants and asked some people for pitches. He built an Internet site in a few weeks for $10,000. The cookies went for sale online on May 14, 2007.
The Siegals opened their first retail outlet a few months later and now have eight locations, three of which are in South Florida malls and three of which are in Phoenix malls. There is also a kiosk in Cherry Hill, N.J., where the Cookie Doctor has a loyal following from licensing his weight control practice. A cart in a Boca Raton mall is the busiest location, grossing $1.2 million in 50-square-feet. Tysons Corner Center is too new to gauge. A Los Angeles store near Rodeo Drive, the first actual storefront, will open next month.
The cookies are hot sellers in upscale locations, where they appeal to their ideal demographic: affluent woman, 25 to 54. That explains Tysons Corner, Cherry Hill, Scottsdale, which is near Phoenix, and Rodeo Drive. About 20 percent of CookieDiet.com eaters remain long-term customers, using them for low-calorie snacks. That's a business person's dream: repeat customers.
"It's no accident we chose Rodeo Drive as our first store," Matt said, adding that the store is perfectly placed around plastic surgeons' offices to get as much of the upscale demographic as they can reach. He estimates that about a third of customers are male, but even many of them could be buying for their wives and girlfriends.
CookieDiet.com, which represents only the retail and online side of the cookie business, now has 49,462 online registered users and grossed $5.6 million through the first half of this year, including the live retail outlets. At a 34 percent margin, the profit is close to $2 million. Matt takes a salary of just under $100,000. Everything else is rolled back into the business.
Matt Siegal buys the cookies from his father's bakery and then sells them online or retail. Matt has nothing to do with the bakery side. That's an entirely separate business run by his father.
For a company expected to gross $12 million this year, Matt has only six employees in the corporate office. The headquarters' rent is around $9,000 a month for 1,500 square feet. Accounting and other back office operations are outsourced. Orders received by the Web site are electronically sent to a third party, who makes sure they are delivered to the buyer.
"We run an incredibly lean operation," said Matt, adding that the big profit margins are from the online operation.
But even with a close eye on the bottom line, there are some big expenses. The Boca Raton rent is nearly $18,000 a month for a measly 50 square feet, but it also happens to be the busiest retail location in the growing enterprise. Rodeo Drive will run close to $100,000 to open. The only promotional expense is around $300,000 a year to (surprise!) Google. They pay the search giant $1.50 every time someone clicks on an add for CookieDiet.com.
Lean, mean. Matt is thinking big. He is on a media offensive. He wants to franchise CookieDiet.com kiosks around the country, opening 100 in the first 12 months in the U.S. and Canada.
"When we get revenues to $20 million, we are probably worth $60 million. Then it's time to look around. We aren't looking for short-term gains. We want to build this up and see where it leads."
That means entertaining offers from venture capital firms, private equity or going public. Valued at $60 million, Matt's 40 percent share would net him $24 million, pretax.
The trick to making a lot of money? Getting someone else to buy your company.
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