Cincinnati Business Article

Penn Station, with plans to move into new markets, has beefed up its sandwich menu.

When asked how business is going at his chain of Penn Station restaurants, Jeff Osterfeld looked around and picked a metaphor right off the cutting board: "We're at the bottom of the mushroom," he said, "and about to explode."

The chief executive officer is overseeing expansion into new markets and different types of food. He is weaning himself from the spatula and apron and the need to micromanage, in favor of adopting a big-picture approach.

Osterfeld said he has used the last half of his 15-year career in "quick casual, not fast food" restaurants to position Penn Station for rapid growth. With a new management team and expanded menu, he is ready to take on the world -- or at least the piece of it that falls within a few hundred miles of Cincinnati.

"I'm a dreamer," he said, sitting behind a desk at the chain's Anderson Township headquarters. "But it can happen. The concept has proven that it has legs. We haven't had any failures. We've moved some stores, but none of them have closed."

There are 73 Penn Station stores in the Queen City, Dayton, Louisville, Lexington, Cleveland and St. Louis, with plans to open soon in Columbus. Seventy of the stores are franchises; three are company-owned. And Osterfeld plans to have a total of 100 Penn Stations open by next year. He declined to disclose revenues.

Preparing for growth means some things have changed, but the basics remain the same. Penn Station is still focused on its two-hands-on, mouth-wide-open Philadelphia cheese steak sandwiches with all the trimmings. There always will be paper buckets overflowing with french fries.

But the stores are adopting an expanded menu with chicken, turkey, tuna and other lighter sandwich fare; a sign of growth into new markets, where competition in the hot sub area is more fierce.

Osterfeld has received enough fan mail and feedback to believe his Penn Station subs have joined the ranks of Queen City classics that natives crave when they stray too far from the Ohio River. But that only carries so far.

"We're not going from what we were to being a whole light, health-food chain," Osterfeld said. "We just felt that as we expand beyond Cincinnati, most of our competition had more than just four sandwiches. We needed enough on our menu to compete."

But there are some things he just won't do.

Osterfeld will not open Penn Station stores inside shopping malls, airports or other enclosed spaces. He doesn't want to give up one iota of control or pay the higher rent such places demand.

With freestanding and strip-mall stores, "we can decide when to open and close, what to put on the menu and take off the menu. And we pay about half of the rent," Osterfeld said. "I think our food is good enough that we don't have to -- we don't need the captive audience."

And as the chain expands, Osterfeld will not change his policy that all stores be run by either an owner or a general manager with an equity stake; and that they be reviewed every month by a corporate area representative. The latter requirement has meant that Penn Stations have to be located within a day's drive of headquarters, where area reps are based.

But that is about to change. Mike Partusch, director of operations, is moving corporate representatives to Cleveland, St. Louis, and Frankfort, Ky. Following standard Penn Station procedure, he is promoting from within.

"The opportunities here are fabulous," said Partusch, 46, who started at the bottom rung of the company in 1988 and now is an executive with three stores of his own.

He agrees with Osterfeld's guiding principle: An owner or manager with a share in the profits will run a much more successful store than a salaried employee.

A Penn Station general manager earns a base salary plus 50 percent of store profits and an annual bonus of up to $10,000 based on corporate reviews. Most made more than $50,000 last year, Osterfeld said, compared to the fast food industry average of less than $35,000. Almost all were promoted within the chain.

Cory Osburne, 23, is general manager of the Anderson Township store that sits right in front of the corporate headquarters. He started out as a 16-year-old hourly employee with no definite career plans. Now, he feels responsible for setting the standard for the chain.

"Advancements can be made here just by working hard," he said. "How I run this store directly affects how I get paid. I control my own destiny, and that's a huge motivation."

Osterfeld is expanding in concentric circles from Cincinnati, in order to make the most of his established supply chain. But eventually, he would like to be able to pull in to Penn Stations nationwide.

To further that goal, he recently hired Craig Dunaway as president. Osterfeld is ceding some control in order to focus on overall strategy -- a move that has not come easy.

"It's to rid myself of some of the day-to-day minutia," he said. "Ten years ago, I used to run the show. I did everything. But now I've got everything in place, that whole corporate structure. We're ready to go."