By Gary Stern
More than 108 years ago, in 1916, Nathan’s Famous (NASDAQ-NATH) opened in Coney Island in the heart of Brooklyn, NY. Almost everyone in New York City is familiar with Nathan’s hot dogs, but Nathan’s Famous is now a national and global brand with robust growth prospects, according to restaurant consultants.
It’s capitalized at $295 million, while its stock price in 2023 swung between $61 and $83 and is currently $72. Revenue has been rising, growing from $114.8 million in 2022 to $130.7 million in 2023, an increase of 13.8%.
Nathan’s growth has stemmed from multiple revenue streams. For example, franchising is critical since it owns 232 franchised locations with only four company-owned shops. It also has 297 virtual kitchens, and sells its products in over 79,000 supermarkets, including Wal-Mart and Kroger’s, and via 14,000 food service locations. It also signed a licensing agreement with Smithfield Food for its packaged goods, which in 2023 created $28.7 million in revenue, a 2.8% jump from the previous year.
Hence CEO Eric Gatoff in the company’s 2023 annual report noted that Nathan’s Famous products are ubiquitous and sold at convenience stores, ballparks, casinos, hospitals, and college campuses. It has also gone global and now operates 74 restaurants in 13 countries.
Though it’s known as a hot-dog specialist, Nathan’s restaurant menu includes hamburgers, cheesesteaks, onion rings, meatball heroes, grilled chicken sandwiches, and milkshakes. Its crinkle-cut French fries are another crowd pleaser, and available frozen in the grocery aisle.
Like many companies, it has repurchased over 5.2 millions of its shares and also offers an annual dividend of $2 per share.
Franchise growth has been steady. In 2023, it opened 11 new franchised locations. Franchisees pay a one-time $30,000 fee and pay 5.5% of restaurant sales. It also co-brands with Arthur Treacher’s Fish-n-Chips, which are in seven Nathan’s locations.
Jason Kaplan, CEO of JK Consulting, a New York City-based full-service restaurant consulting group and a graduate of Johnson & Wales culinary school, noted that Nathan’s is the “quintessential New York hot dog. It’s an all-beef frank, and it’s the seasoning that makes it.”
What has enabled Nathan’s Famous to do well is its diversified revenue model and ability to adjust to new economic conditions, Kaplan said. First, he pointed to the restaurants where they’ve done “a hard push with the franchise model, being in shopping malls and with small restaurant operators,” he noted. And he pointed to various revenue streams:
- Being located at many highway truck stops
- Their licensing agreements with Smithfield Foods
- Selling hot dogs, French fries and mustard in supermarkets.
Showing how they can adapt to changing economics, during the pandemic, when their franchisees were facing tough times, they introduced more ghost and virtual kitchens, Kaplan explained. They contracted with larger ghost kitchen companies, which reduced their risk. “It’s their ability to put out quality food as well as the technology involved that contributed to the virtual kitchen’s success,” he added.
But their stock price in 2023 was volatile, fluctuating as much as 20% down and then rising again, when the stock market on the whole was up about 24%. Why so mercurial? Inflation damaged Nathan’s revenue, Kaplan replied. “The prices of their licensed goods were too expensive,” he noted, and that stymied revenue growth.
With their restaurant franchise model, they again operated with ingenuity. They offered existing restaurant brands of competitors a healthy discount if they changed over to Nathan’s Famous, Kaplan said. “They wanted to create an atmosphere where they were attracting better-qualified franchisees,” Kaplan noted.
But now that the pandemic has faded, and many consumers are still facing higher prices, Kaplan expects that Nathan’s Famous will continue to rebound and expand its clientele.
“It all goes back to price points. When you have hard economic times, people look for consistency and quality of product,” which should lure customers to Nathan’s, Kaplan suggested.
A dinner of a hot dog, fries and a beverage is “still cheaper than the average fast-food meal or a salad at Sweetgreen‘s,” Kaplan noted. “Nathan’s succeeds so well because they appeal to the masses.”
Most working-class and middle-class people, who frequent fast-food places like Nathan’s are seeking “more affordable options. Simplicity sells in tough times,” Kaplan said.
As a result, Kaplan sees a bright future for Nathan’s Famous as customers keep coming back for their tasty hot dogs and crispy French fries with an affordable check.
