Nathan's Famous Turns 100! Board Director Wayne Norbitz Recalls History

At one hundred years old, Nathan's Famous is arguably America's oldest quick service restaurant chain that has franchised restaurants. On July 4th, it will be the gathering ground for the wiener world when Nathan's holds its annual Fourth of July hot dog eating contest.

Much has happened to New York City and America since Nathan's Famous was founded in 1916 by Polish immigrant Nathan Handwerker ""the Great Depression, World War II, Eisenhower's interstate highways, the subsequent franchise boom, 9/11, the Great Recession and Hurricane Sandy.

How did this iconic brand, a franchisor, get here? How did it survive so long?

Wayne Norbitz, a member of the board of directors for Nathan's Famous Inc [NASDAQ:NATH] and the company's president and COO from 1989 until 2015, reflects on the decades of plodding for Nathan's Famous and then its dash as quick service restaurants, franchising and multi-channel distribution management came of age in America.

Nathan's flagship restaurant still operates in the same location where Nathan Handwerker opened his small hot dog stand on Surf Avenue. There aren't many brands and companies capable of lasting a century. Nowadays, publicly traded Nathan's Famous sells more than 500 million hot dogs per year in 53,000 retail and foodservice locations, including almost 400 franchised and licensed outlets. The company's once meager beginnings""Handwerker paid $300 to open his hot dog stand in Coney Island""now has an ever growing adjusted EBITDA that has gone from $11.9 million in 2012 to $22.5 million last year.

DON SNIEGOWSKI: Tell me about the changes that you have seen at Nathan's Famous during the 41 years that you have been there.

WAYNE NORBITZ: Nathan's is a company that started out operating a quick service restaurant, then franchises. We really transformed the company from an operating fast-food company to a company that concentrates on implementing points-of-distribution strategy for our products.

SNIEGOWSKI: I cannot think of the beginnings of a modern restaurant franchise that predates the first Nathan's Famous of 1916. A&W came three years later and Howard Johnson's, founded in 1925, was almost a decade later. Nathan's Famous during the 1950s (photo from Nathan's)

NORBITZ: Our founder was Nathan Handwerker. He came to the United States as a very young boy. He worked in a series of different jobs, primarily in restaurants. He found himself working in the kitchen of a large restaurant in Coney Island as a roll cutter. At that time in Coney Island hot dogs were first being introduced. Hot dogs were being sold predominantly for ten cents. Nathan figured out that he could open up a hot dog stand and charge five cents for his hot dog.

He was befriended by a piano player and a singing waiter. Those two guys were Eddie Cantor and Jimmy Durante. They loaned Nathan his $300 to open up this nickel hot dog stand in Coney Island. That's how Nathan's got started.

Nathan was about to open when it occurred to him that because other people were charging ten cents, and he was charging five cents, maybe the public would think that his hot dogs were not high quality. What Nathan did to try to overcome that was to hire actors and dress them up as doctors. They wore white coats and stethoscopes around their necks. They would stand all day in front of his stand eating hot dogs. That was his way of showing the public that his hot dogs were high quality.

SNIEGOWSKI: How was Mr. Handwerker able to offer a five-cent dog when the competition could only come down to a ten-cent dog?

NORBITZ: Nathan had the idea that you should only sell the highest quality product possible. His original hot dogs were prime cut. They remain so. He was very particular on how the hot dog was processed. His wife, Ida, provided Nathan's with a recipe, a blend of spices, that was used in her family to make potted meats. That recipe produced a very garlicky flavor. That formulation has not changed in 100 years.

When people talk about what made Nathan's famous, I would say our two signature products, hot dogs and French fries, are the primary reasons that our company has lasted all these years.

SNIEGOWSKI: Mr. Handwerker set up a hot dog stand. What happened from there?

NORBITZ: He set up a stand that was 20 feet from left to right. He sold his hot dogs and signature crinkle-cut French fries right onto the street. He worked in that stand with his wife Ida for a good part of the 20th century. Every few decades they would buy a piece of real estate next door to them. They would make their stand larger. The menu grew. From 1916 to 1945, the hot dog stand went from a 20-foot, left to right, hot dog stand to a square New York City block. Nathan's began to sell a very wide variety of foods. That Nathan's, situated on Surf Avenue in Coney Island, became an iconic landmark in New York.

People from around the world would come to visit us. Foods would be shipped out of that location to other locations around the world. Nathan's became famous because of that one location.

 1916""Nathan & Ida Handwerker start Nathan's hot dog stand in Coney Island 1968""Nathan's goes public, son Murray Handwerker takes over as president 1971""Four company restaurants 1972""First Coney Island hot dog eating competition 1975""Franchising begins 1987""Private-equity firm buys Nathan's 1993""Second initial public offering (NASDAQ:NATH) launches aggressive expansion 2012""Hurricane Sandy floods Nathan's flagship store

SNIEGOWSKI: When did Nathan's go from one distribution point to many?

NORBITZ: Nathan's was a very small company. The object was not to be a strong regional or national franchise. It was to support a family. Nathan's opened up its second restaurant in 1956, its third restaurant in 1965 and its fourth restaurant in 1971. All were company owned.

It was in the mid- to late '70s that Nathan's started to expand for the first time by opening up franchised restaurants.

It wasn't until 1993 that Nathan's really started to expand in a big way. That's when Nathan's developed a different strategy, which was unique in the industry. That strategy has allowed Nathan's to grow exponentially and implement its dynamic points-of-distribution strategy.

SNIEGOWSKI: What brought Mr. Handwerk to decide that he wanted to sell franchised restaurants?

NORBITZ: When you are in the quick service restaurant business, especially in those years, there were really two things you could do""have company-owned stores or franchised stores. Handwerk grew by opening company-owned stores. Then I think he saw what was going on with the advent of McDonald's, Burger King and Wendy's, and he took a foray into franchising.

The growth was very small. Nathan's maybe opened up one or two [franchised] stores a year. It was nothing dynamic at all.

SNIEGOWSKI: Was the founder of Nathan's a stickler for control? Is that why he avoided franchising his quick service restaurant concept?

NORBITZ: Nathan and his son Murray Handwerker were very much concerned with quality. The reputation of Nathan's was built on the quality of the product. But I would also tell you that his wasn't a well-defined, sophisticated business strategy. The Handwerkers were people who wanted to open up one restaurant at a time because they thought it was all they were capable of doing. They had no desire to be a large regional or national chain. It was their way of growing slowly, controlling the name, and remaining in New York, where they lived.

In 1987 the company was purchased. A new ownership structure came in. I became the president in 1989. I was working with the Handwerker family before that. We took Nathan's public in 1993. We had a different vision for Nathan's. We recognized that Nathan's had this wonderful signature product and was developing these restaurants that had a unique appeal. What we did was downsize Nathan's dramatically. We went from 10,000-square-foot restaurants to opening up 300- to 500-square-foot restaurants. We placed these very, very small restaurants in captive markets throughout the United States.

In other words Nathan's stopped opening up large, traditional quick service restaurants like a McDonald's or Wendy's and instead opened up in captive markets. What I mean by a "captive market" is in an airport or highway travel plaza. We opened up Nathan's in universities, colleges and amusement parks. We extracted the heart out of the menu. That was hot dogs and French fries. We added a couple of products for variety and opened up these small Nathan's in high traffic areas.

That strategy proved very successful.

SNIEGOWSKI: What brought you to that strategy of strong expansion of little stores in captive markets?

NORBITZ: You know what brought me to that strategy? At that time I began to understand that you don't have to build a building to sell a hot dog. People used to call me up and say, "I love Nathan's. I grew up with Nathan's in New York. Now I live elsewhere and I cannot get a Nathan's hot dog. I know the brand. I love the product. But I cannot get it."

That is what led us to open up these very small restaurants.

What we found is that stores were very successful in captive markets. We could sell food very quickly in small spaces. It attracted the attention of big franchisees, companies that were much bigger than we were.

They became our franchisees and they expanded Nathan's. That is what happened on the restaurant side of the business. Simultaneously, we began to do something that at the time was unique for a company in our industry. We began to package Nathan's products and sell them at retail""in supermarkets and in club stores for take-home consumption. We began to take our signature products and sell them nationwide as we were developing small Nathan's restaurants across the country.

We then went into another mode of distribution, which was even more unique. We took our signature product, which is our hot dog, and we allowed other people in the foodservice industry to sell it. Consumers could go into a restaurant, and just as Coca-Cola could be seen on the menu, Nathan's Famous hot dogs would also be seen on their menu. Other restaurants would sell our product.

Nobody was doing that at all. Photo from Nathan's

SNIEGOWSKI: Why not?

NORBITZ: I think people thought that if they did that people wouldn't come to their own restaurants to get their products. They also couldn't deal with the distribution and quality issues of others selling their product. But with hot dogs and the way we designed our cooking procedures it was possible for us to do it.

So we did it.

To put this in perspective, I told you that in 1916 there was one Nathan's. In 1971 there were four. Today Nathan's is being sold in 53,000 locations. Last year we sold over 55 million Nathan's hot dogs. This all has to do with removing us from solely the restaurant industry and implementing this points-of-distribution strategy.

SNIEGOWSKI: Wouldn't your franchisees object to that strategy? Wouldn't they feel that they were losing walk-in customers to the other distribution points? How did you deal with that?

NORBITZ: We didn't have that complaint with our franchisees. What happened was everyone recognized that when we sold Nathan's products to supermarkets""as an example, packaged Nathan's hot dogs""it was a completely separate eating occasion. In other words, if someone was in an airport, they would decide, "Well, do I want to have Nathan's for lunch, or a slice of pizza? Do I want Nathan's or Kentucky Fried Chicken?"

That was their choice.

When they were in a supermarket, their choice was, "Do I want to buy Nathan's hot dogs and take them home and put them on my barbecue? Or do I want to take Oscar Meyer hot dogs home and put them on my barbecue?" You didn't get the cannibalization from one channel to the other. These were two separate eating occasions. Growing both segments allowed us to expose the brand to more people and to market in each segment. Hurricane Sandy hits mid- and northeastern U.S., Oct 28, 2012 (Photo/NASA)

That had a very positive effect, I think, for everybody.

SNIEGOWSKI: In the 21st century we think of brands like Starbucks or Dunkin' Donuts using multiple marketing channels to sell their coffee. But your point is that decades ago restaurant chains did not think like that.

NORBITZ: Exactly. We started that program in supermarkets about 1977. I think that has only become popular in the last 10 to 15 years with other brands. It still is not done with companies like McDonald's.

The giants don't do it.

SNIEGOWSKI: Fascinating. Come to think of it, that's right. McDonald's doesn't sell its main product, burgers, in supermarkets. If they sell a product in supermarkets, it is only some peripheral food, such as coffee, as they did in launching their McCafe coffee last year through Kraft.

To switch the topic: Tell me about Nathan's most difficult challenge in its century of existence and how the company dealt with it.

NORBITZ: Hurricane Sandy in New York was devastating. It affected our flagship store in Coney Island. For the first time in a century we had to close the restaurant, which never closed. It was open 365 days a year, every year. The hurricane just devastated the restaurant. It cost us a lot of money and a lot of time to rebuild the restaurant and as a matter of fact, to rebuild the whole area was a very difficult challenge.

I'm happy to say that last year, and this is only a few years after Hurricane Sandy, Nathan's had its best year in Coney Island in the last 50 years. That whole area is back. We are a beneficiary of that situation. That was really a devastating event, a one-time event. I remember going down to the restaurant the day after Hurricane Sandy. It's a huge restaurant with a huge kitchen. The whole kitchen was filled with six feet of water. I watched a gigantic ice machine floating in the kitchen.

It was surrealistic.

That was the first time we ever had an event like that [flooding]. Nathan's Famous hot dog eating contest happens every 4th of July on Coney Island (photo courtesy of Nathan's)

SNIEGOWSKI: What has your annual Coney Island 4th of July hot dog eating contest done for Nathan's Famous? By the way, I watch the competition every year.

NORBITZ: (Laughs.) It certainly is a crazy event, right? It is probably one of the most successful public relations ventures in our industry. We stage this event in Coney Island. Prior to the event, there are about 17 to 18 events held throughout the country in the spring and early summer. The winners of those contests travel to Coney Island. We have anywhere from 25,000 to 45,000 people in Coney Island watching the contest. Millions more watch it on ESPN. ESPN has covered the contest for the last ten years and will continue to do so. They replay the contest many, many times throughout the year. The exposure is just phenomenal. Wayne Norbitz

People are fascinated by it. I can't tell you why. If you asked me how does somebody eat 60 hot dogs in ten minutes, I have no idea. Joey Chestnut lost to a guy last year that's pretty thin, Matt Stonie. Now this year we are going to have a rematch between Joey Chestnut and Matt Stonie.

I stand behind these guys every year when the contest is going on. I don't know how they do it. I give them their prize at the end. Every year it just overwhelms me as to the impressions we get and the PR value that goes on with this contest.

I did my first contest in 1977. There were a handful of people that were eating about four or five hot dogs. The idea then was to get a picture in a newspaper. It has grown exponentially every year. I wish I could tell you that it was by this grand design I had but it wasn't. It just got bigger and bigger and bigger to what it is today.

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