Winston Pies - Delicious pies, but less delicious business model?

Americas - USA West Los Angeles
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I thought many of you would find this interesting. Winston Pies is currently crowdfunding, primarily to fund expansion, but also a bit of continuing operations. I only bring this up because as part of the crowdfund solicitation, they shared their last two years of financial statements, and it’s a fascinating look into a normally opaque industry. They are NOT profitable yet and at the moment are dependent on continued cash injection into the business. However, they have been smart in the sense that every penny they have raised has been equity, so their debt service is nonexistent (aside from an auto loan). I wish they had more granular data on things like same store sales, as it’s hard to tell whether their unprofitability is more attributable to their recent (and planned) expansion, or to the fundamentals of the business (rent/labor/ingredients). I know some of you on this board work in or adjacent to the foodservice industry, so I would love to hear more nuanced thoughts on their financials.

Here’s the crowdfund page:

And here’s a direct link to their 2022 & 2023 financials:

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Created this new topic as there was no general LA pie discussion.

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In 2022, their rent and salaries/wages almost equal their gross profit. Between 2021 and 2022 you can see inflation bite into the gross profit margin as their revenue declines, but cost of good goes up squeezing their gross profit. Rent goes up significantly, possibly from expansion? However salary/wages stays pretty flat which suggests they aren’t running with more people, although their PPP loan may mean they could keep on a lot of staff that they wouldn’t need otherwise. I’d be skeptical when their business plan is kinda… open another store and profit??? “We are not currently profitable, but we believe we can be with the opening of one additional store. We anticipate needing to raise approximately $500,000 in order to open another store and reach profitability.” They would benefit from answering the question of: how would a new store change the current dynamics of the business and lead to profitability?

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I was thinking the same thing. If the unit economics don’t work, then opening another store won’t help. It’s not like there’s tons of back office staff whose headcount can remain constant and whose payroll can now be spread over additional stores. What amazes me is how they can’t seem to make this work even with how expensive their pies are. Did they not increase prices enough to combat inflation? Are they paying management too much? Or are they simply opening in too high of rent locations that make it impossible to be profitable? Opening in affluent/high income - and thus to a large extent high rent locations, seems to be their strategy. I can’t see an easy path to profitability here, unless their actual goal is not profitability but expansion and then acquisition. But in any market, though especially this market, I don’t know that anyone is looking to acquire an unprofitable pie business that is growth limited (there are only so many high income areas).

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Are Winston Pies’ pies any good? Or is it yet another online marketing-only venture that considers success if they can sucker enough people to buy one pie? I’m really interested to know. If they make good pies, I apologize in advance.

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They make really fantastic pies in my humble opinion. Best fruit pies I have ever had.

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Maybe they need a certain number of retail outlets to use their central kitchen’s full capacity.

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The quality of the pies definitely ain’t the issue. Every pie I’ve had from them has been good.

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They stumbled badly in Santa Monica retail launch. Chose super expensive & tough “cursed” location south of pier now home to Sweet Maple- another SF based entity. hmmm… coincidence?

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I spoke with some employees about the Santa Monica location. According to them, it was always intended to be a short term lease while the landlord looked for a more permanent tenant, and rent was dirt cheap because of that. The employees could have been told false information by management to save face, as it does sound a tad iffy, but that’s what they told me.

Do you have concrete information that you would like to share?

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no info here, just a puzzled neighbor watching that space on my regular walks.

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Uh…this is interesting. The “Syndicate Lead” for the fundraising round is one George Molsbarger.

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A quick Google search brings up this article. The article includes photos, and it sure looks like the same George Molsbarger (though I can’t be 100% positive).

“The story of Pinnacle Sports is a case study in how bookmaking sites, illegal in the United States, manage to operate on American soil.”

“The company’s senior operatives included a flamboyant Californian, George Molsbarger, who lists himself as a Pinnacle co-founder.”

“In May 2012, undercover agents watched Mr. Molsbarger enter a California restaurant with a brown suitcase. It was heavy enough that he was pulling it on rollers, and no wonder: The suitcase held $1.5 million in cash. Mr. Molsbarger handed it to a man named Scott, who put it in the trunk of his car. Local deputies stopped the car in Pico Rivera and confiscated the cash.”

“Mr. Molsbarger’s case is sealed; one of his lawyers said Mr. Molsbarger had pleaded guilty to the equivalent of a disorderly conduct charge and did not contest the seizure of the $1.5 million.”

https://archives.fbi.gov/archives/newyork/press-releases/2012/twenty-five-individuals-indicted-in-multi-million-dollar-illegal-nationwide-sports-betting-ring

“George Molsbarger, 66, of 603 Ocean Avenue in Santa Monica, California, is charged with enterprise corruption; fourth- third-, second-, and first-degree money laundering; and fifth-degree conspiracy. Molsbarger is an owner of Pinnacle Sports, an online sports gambling website.”

I don’t think we should permanently condemn someone who ran a sports betting operation. Sports betting should be legal IMO (and in many states now is). It also doesn’t seem like he was accused of stealing customer/client money or anything like that. But is it a good look to have someone with previous federal charges pertaining to money/finances leading a fundraising round?

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Looking at their Wefunder page, they want to be a national brand, so their shirt-term goal is developing the basis for growth rather than profitability.

It doesn’t look like typical crowdfunding to me, more like self-service VC investment.

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Certainly. These terms are favorable to Winston Pies. And SAFE investments were created by and are mainly used in the VC world. They’re looking to raise cheap capital to later raise institutional money, to eventually provide an exit for the founders/investors. I just don’t see the end game as particularly plausible. They charge $59 for a pie. How many markets can you expand to where people will pay that? Not enough to justify the potential exit that could generate the kind of returns I would want to invest in something like this. Then again, I presume most people are investing because they want the social cache that comes with being able to say they invested in Winston Pies, not because they ran the numbers and it seems like a smart financial decision.

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They also have slices for $8.50 and 5-inch pies for $12.

Not that I’m investing, but Costco has an apple pie for $60 so …

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Costco has one very specific pie that’s $60. Their main Kirkland Signature apple pie is $14.99 last I checked. Costco has a number of very expensive products, but those are certainly not their high volume items.

My point remains - they can open Winston Pies in super high income markets and plausibly do well, but in 99% of the country a $60 pie or $8.50 slice would be a nonstarter.

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If Costco sells something, the market’s surely bigger than 1% of the country’s 330 million people.

Berkeley Bowl’s clientele is not mostly super-high income and they have a bunch of single-serving pastries priced similarly to Winston Pies’. I think their market is probably most anyplace with a Whole Foods or Trader Joe’s.

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It’s certainly a cursed storefront. I used to live a block away so perhaps we walked past each other at some point. Have you been to Sweet Maple - any good?

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No have not gone nor have I heard anything either.