Nathan’s Famous Inc. weathered the worst of the pandemic on the strength of its iconic high-quality beef hot dogs and the diversity of the company’s business lines, both driving its performance in fiscal 2022 and providing a firm foundation for the company in the future.

Market research firm IRI reported that “… the hot dog category spiked in volume during 2020 but has declined over 3% from the 2019 outlook. However, supply shortages from lead competitors have led to an increase in trial and demand for Nathan’s Famous, resulting in a 15% volume gain.”

“Looking forward, we recognize that consumers face tough choices in stretching their dollars during inflationary times due to the current economic environment,” the company said. “We have seen a higher increase in family pack and colossal franks – indicating that the consumers notice the quality difference Nathan’s Famous offers and are staying within our franchise but exploring different price points to meet their family needs.”

Licensing benefits

Nathan’s Famous licensing program proved to be a lifeline for the business during the difficult early days of the pandemic when foodservice closures and shelter-in-place orders temporarily halted life away from home in the United States and around the world.

“Clearly, this part of our business benefited during the pandemic as people were forced and/or chose to eat more at home,” Eric Gatoff, chief executive officer, said in a letter to shareholders in the company’s 2022 annual report.

Nathan’s licensing program consists primarily of the sale of Nathan’s Famous branded consumer packaged goods through supermarkets, club stores and mass merchandisers. It is the largest part of the company’s business, both from profit contribution and points of distribution. License royalties during fiscal 2022 increased 1.5% to $31.8 million, according to Nathan’s.

As of March 27, 2022, Nathan’s Famous consumer-packaged goods were sold through more than 65,000 locations in supermarket and grocery channels in the United States.

Smithfield Foods is Nathan’s most significant licensing partner. The program with Smithfield includes the sale of Nathan’s portfolio of consumer packaged and certain bulk packaged Nathan’s Famous hot dog products to US retailers. In fiscal 2022, royalties earned under this agreement increased by just 0.5% to $27.9 million, according to Nathan’s.

“This segment of our business sustained us during fiscal 2021 (which was the 12 months immediately following the worldwide outbreak of COVID-19),” Gatoff said. “As people ate at home due to lock-down orders and restaurant closures, sales of our products through supermarkets increased dramatically. At the outset of fiscal 2022, we expected to give back some of those gains as restaurants reopened and the world returned closer to ‘normalcy,’ but that did not happen.

“Achieving a small increase in license royalties during fiscal 2022 following a year of unprecedented increases due to the pandemic is a testament to the strength of the Nathan’s Famous brand and the work we have done over the last several years to build our product distribution businesses,” Gatoff added.

Branded product power

The pandemic reshaped multiple aspects of the foodservice industry including operations, sales and menus among other areas. And operators continue to face changing business conditions. Given these factors, more than half of restaurant operators said it would be a year or more before business conditions return to normal, according to the “2022 State of the Restaurant Industry” report published by the National Restaurant Association, Chicago. Back in 2020, Nathan’s Famous Restaurants were impacted by COVID-19, but not all were affected in the same way, leading the company to adopt a more personal approach to communicating Nathan’s re-opening strategy for franchises.

“Foodservice has begun to bounce back post-pandemic, experiencing double-digit growth for the second-straight year,” the company said. “The return to pre-COVID levels has been slower for foodservice with travel and occupancy restrictions early on and now due to inflation, but consumers continue to indicate a desire to dine outside of their homes, so steady growth is anticipated in coming years.”

Nathan’s Branded Product Program is the company’s foodservice sales program which features the bulk sale of Nathan’s Famous hot dogs to the foodservice industry. Under the branded program, products are sold through 14,000 points of distribution which includes several large national and regional restaurants, movie theater and convenience store chains, as well as thousands of other locations including ballparks, arenas, amusement parks, college campuses, hospitals, casinos, resorts and school systems.

“Through the Branded Product Program, we do business with all of the major foodservice distributors in the United States, including SYSCO, US Foodservice, PFG and McLane, as well as many regional distributors,” Gatoff said.

During fiscal 2022, most of the company’s customers in the branded product program reopened providing a much-needed jolt to the total volume of hot dogs sold in the program and exceeding pre-pandemic levels, according to Nathan’s. Driving the return to strong sales were the number of COVID-19 cases stabilizing due to widespread availability of approved vaccines and, as a result, loosening of regional restrictions while adhering to state and local guidelines.

On a year-over-year basis for fiscal 2022, Nathan’s Famous reported net sales of $66.3 million for the branded program, representing a 97.3% increase. Operating profit in the segment was $8.38 million, representing a 31.4% increase; and a 78.3% increase in the unit volume of products sold.

It's no accident that Nathan's Famous has evolved as an internationally recognized brand. Source: @TPUTMAN151 -STOCK.ADOBE.com

 

Expansion ambitions

Another piece of Nathan’s Famous profitability puzzle is a combination of master franchise agreements with overseas companies and virtual kitchens. Nathan’s Famous company owned and franchised units in operation consisted of 239 franchised units and four company owned units (including one seasonal unit) located in 18 states and 12 foreign countries. Virtual kitchens in operation consisted of 287 units located in 20 states and six foreign countries.

The company has continued a rigorous expansion plan which includes the Middle East, the United Kingdom and Ireland and Europe. To grow the brand abroad, Nathan’s began targeting restaurants, convenience stores, pubs and taverns to add Nathan’s Famous hot dogs to their menus, incentivizing with a Nathan’s Famous roller grill at cost.

Damhus, a German manufacturer of specialty sausages, partnered with Nathan’s Famous to expand distribution of Nathan’s Famous hot dogs to foodservice and retailers throughout Europe. The company also collaborated with Tommy’s Café to bring Nathan’s Famous hot dogs to France.

“Nathan’s Famous is known all over the world, which is why we’ve had success in recent years growing in France and the Middle East,” said James Walker, senior vice president, Restaurants. “With industry staffing and labor challenges, this Nathan’s Roller Grill Program is very easy on operators. Plug in the grill, add our world-famous hot dogs, and serve to the guests when ready.”

Nathan’s continues to target urban areas with its virtual kitchens, stating the concept “… makes delivery times faster and allows customers to easily secure their food as well.”

For example, foodservice operators with existing virtual kitchens in Canada were able to add the Nathan’s Famous menu as a virtual concept due to an agreement the company made with Branded Virtual Kitchens Canada Ltd. to offer the full Nathan’s menu. Branded Virtual Kitchens offers foodservice operators the Nathan’s Famous authentic menu, including the brand’s famous hot dogs and fries, New York Cheesesteak by Pat LaFrieda, angus beef burgers and hand-dipped chicken sandwiches, premium shakes and more.

In April of 2021, Nathan’s Famous and Ghost Kitchen Brands (GKB) formed a partnership to open 40 non-traditional locations in Canada by the end of 2021, with many of the new kitchens planned for inside Walmart stores with some seating, and all locations included in the deal offering carry-out and third-party delivery.

An added benefit of Nathan’s virtual concept is that it can be implemented without any investment from the foodservice operator, according to the company.

“We look forward to helping Nathan’s expand their Canadian footprint,” said Lewis Gelmon, president and CEO of Branded Virtual Kitchens, who became known for being Canada’s original master developer for Domino’s Pizza in the 1990s. “Our easy to launch operating system uses off-the-shelf technology, an exclusive agreement with Uber Eats and sourced products to deliver that authentic Nathan’s Famous taste to the Canadian consumer. We are so confident in the brand and our system that we’ll guarantee our kitchen partners will always make money which has shown to allow them to pay higher wages to solve staff shortages for their entire operation.”

Promoting quality

Like its business strategy, Nathan’s Famous promotions also utilize a multi-pronged approach that emphasizes geo-targeted, social media advertising to drive customers directly to online restaurant menus for ease of ordering for delivery or pick-up, the company said in a regulatory filing. These programs have proven successful for many other foodservice brands.

“The online effort is focused on platforms including Facebook, Instagram and Twitter,” Nathan’s said. “Our marketing strategy focuses on our premium food offerings and limited-time offerings to help drive sales and customer traffic.”