Nathan's is red-hot for growth, serves up diversity with new brands By Paul Frumkin 

By Paul Frumkin

Westbury, NY - After concentrating on one highly recognizable product for nearly 85 years, hot dog heavyweight Nathan's Famous is putting more brands into its pot.

The company that made "red hots"  as familiar to Coney Island and the roar of the roller coaster now is launching a multibrand push that potentially could power it across different dayparts and points of distribution.

Pivotal to the new direction of Nathan's Famous are its recent acquisitions of two Fort Lauderdale, Fla.-based quick-serve chains, Kenny Rogers Roasters, with 40 domestic and 50 foreign-based units, and 176 branch Miami Subs Grill. The latter purchase also gave Nathan's the exclusive co- branding rights to seafood operator Arthur Treacher's Fish and Chips.

Nathan's ambitious growth strategy calls for the expansion of its trio of wholly owned chains through three channels: company and franchised unit growth; branded product programs targeting nontraditional venues; and licensing agreements that will place its lines of signature products on supermarket and club store shelves.

At the same time Nathan's is exploring co-branding synergies and multiple menu opportunities for all four chains, including Arthur Treacher's and the 180 unit Nathan's system, which includes 160 franchised locations. The strategy would offer an individual host restaurant the ability to add branded menu items from any or all of the other chains. Nathan's executives also are mulling the eventual deployment of an  "umbrella"  prototype that would encompass all four brands and potentially operate under a different name.

To date, 60 Miami Subs Grills and 10 Nathan's outlets offer branded Arthur Treacher's menu items, while 16 Miami Subs units feature Nathan's selections.

"We're testing to see what works best,"  said Wayne Norbitz, Nathan's president and chief operating officer.  "So far the introductions have been very successful."

Since Arthur Treacher's products were introduced into Nathan's units four months ago, the quick-serve seafood items have accounted for anywhere from 8 percent to 20 percent of sales mix, at least a quarter of which reflects incremental growth, Norbitz said.

"Those are strong numbers for us," added Norbitz, whose flagship Nathan's chain had system wide sales of about $124 million last year and whose corporate revenues rose nearly 22.2 percent through the nine months ended Dec. 26, to $28.34 million.

Norbitz said he expects the mix-and match menu strategy to help strengthen the various brands, particularly within the dayparts they do not traditionally reach.

For example, one of the weaknesses of the Kenny Rogers Roasters chain, which Nathan's purchased out of Chapter 11 bankruptcy for $1.25 million last April, was that its sales were strong only at dinner.

Roger Lipton, president of Lipton Financial Services in New York, observed that Nathan's game plan "looks like a productive strategy ' particularly if they can combine dayparts. Kenny Rogers is certainly stronger at dinner than Nathan's, but Nathan's is traditionally stronger at lunch. It all seems to fit."

Characterizing Nathan's ' which was founded in 1916 by Murray Handwerker ' as being a historically conservative company, Lipton added, "They've been showing a much more aggressive attitude lately."

Norbitz said Nathan's is examining existing weakness in its new acquisitions with an eye toward making repairs. For instance, while Kenny Rogers' signature wood-fired rotisserie chicken always performed well in taste test comparisons against chief competitors KFC and Boston Market, its line of side dishes sometimes fell short.

To help gain first-hand knowledge of what works and what doesn't, NF Roasters Corp. ' a wholly owned subsidiary of Nathan's Famous created by Nathan's to operate the Kenny Rogers chain ' will have opened a pair of company-owned units on Long Island by the end of April. The two freestanding units will serve as a laboratory for future development.

Nathan's also has developed a two-tiered dual-branding program for Kenny Rogers's franchisees. Norbitz said it would cost franchisees $12,000 to retrofit existing units to offer Nathan's hot dogs and French fries. For those franchisees who are looking to offer a more extensive Nathan's selection ' hot dogs, French fries, hamburgers and other items ' the retrofit outlay will be $75,000.

The price tag for bringing Arthur Treacher's products into an existing outlet will be $22,000.

NF Roasters also plans to develop smaller prototypes for Kenny Rogers.

Once a powerhouse player in the home-meal-replacement category, Kenny Rogers Roasters had fallen on hard times before being bought out of bankruptcy by Nathan's. Whereas the chain had more than 300 locations in the mid-1990s, today that number has fallen to just 90 franchised restaurants ' 40 in the United States and 50 in other countries.' Norbitz estimated that average unit volumes ran about $800,000 in calendar 1999 and that systemwide sales for the period were approximately $70 million.

Steve Dubrinksy, a single-unit Kenny Rogers' franchisee in Hoover, Ala., concurs. "We were floating around with no leadership, no direction for close to three years,"  he said.  "There were no new products, no new marketing, no nothing. Manufacturers would stop production of items with no notice and no substitute items. Many franchisees were just hanging on."

Since Nathan's stepped in, however, the situation has begun to stabilize, Dubrinsky continued.  "We have the first new company-owned units opening in I don't how long.   We've got new products coming out, co-branding opportunities, a new look, a fresh approach. The franchisees I've talked to are all pumped up."

Nathan's also intends to make some alterations to Miami Subs Grill, which was acquired Oct. 1, 1999, in an exchange of stock valued at about $14 million and the assumption of about $5.3 million of existing debt.   Nathan's earlier had purchased a 30-percent stake in the broad-menu, quick-service chain from founder Gus Boulis for about $4.2 million.

Miami Subs had attempted earlier to merge with Arthur Treacher's although that deal collapsed. Even so, the two chains formed a dual-branding pact that allowed each to offer the other's products. At the time of the Nathan's acquisition, about 30 Miami Subs units offered Treacher's core menu items.

The Miami Subs system includes about 11 company-owned and 165 franchised units, which generate average unit volumes of about $700,000.   or the fiscal year ended May 31, 1999, the company reported profits of $547,000 on system wide sales of about $149 million.

Although Miami Subs had stumbled through several unfocused years in the mid '90s ' largely as a result of Management instability ' president Donald Perlyn said that by the time of the Nathan's acquisition,  "we had the company turned around."

Growth for the trio of chains is not expected to derive solely from co-branding in traditional restaurant locations.Both  Nathan's Famous and Miami Subs had been pursuing nontradional opportunities for several years. Both chains already had  entered the onsite arena through franchised units, and Nathan's rapidly has been expanding the reach of its core menu through its branded Products Program. Implemented in 1998, the  program now encompasses about 950 points of sale, which generate profits of $500,000 on revenues of $2.5 million.

Under the program on-site operators such as CA One and Sodexho Marriott are able to purchase frozen Nathan's products and offer the branded items in such nontraditional; venues as airports and highway toll plazas.

And following the direction already established by Nathan's, key menu items from the other concepts will be available to other operators in frozen form, Perlyn said.  

"For instance, we've been working with some core items like the Miami Subs' cheese steak, which should work well in convenience stores or even vending machines,"  he said. At the same time the newly acquired Roasters and Miami Subs are expected to follow the same retail route Nathan's has been pursuing.