Sunday, June 25, 2006

Good business ideas everywhere.

Success, no bun necessary

Hot Dog On A Stick keeps growing, with $40 million in sales last year

By Frank Green


April 8, 2006

Sixty years on, Hot Dog On A Stick is still cutting the mustard.

The employee-owned, grab-and-go chain had $40 million in sales last year using the same stripped-down menu its late founder created just after World War II at a Venice Beach food stand in Los Angeles:

Harpooned frankfurters dipped in cornbread batter and deep-fried, and fresh-squeezed lemonade.

Add to that cheese-on-a-stick and french fries, and it makes for one of the most compact menu boards in the fast-food industry.

“We keep it simple with four distinct items,” said Fredrica Thode, the Carlsbad-based company's president and chief executive officer.

Analysts say Hot Dog On A Stick is an anomaly in the quick-serve business for reasons other than its elemental offerings.

The company's 100-plus stores – seven of which are in San Diego County – average nearly $400,000 in annual sales, comparable to the typical Subway sandwich shop, but with far lower overhead costs, analysts noted.

Virtually all of the outlets – each of which covers only about 500 square feet of retail space – are tucked away in shopping malls where customers want to get a meal or snack on the run.

Because Hot Dog On A Stick doesn't use such fast-food amenities as drive-through lanes, large dining rooms and wide menus, it can “minimize its labor requirements, typically employing no more than three workers at a time,” said Stuart Morris, president of QSR Consulting Group in Coronado.

DON KOHLBAUER / Union-Tribune
Hot Dog On A Stick lured a customer at Carlsbad's Westfield Shoppingtown Plaza Camino Real.
The company “has taken a few low-cost menu items and elevated them to extremely crave-able meal and snack-time revenues,” Morris said.

Most stores in the chain are branded under the corporate moniker, although some outlets in more upscale malls, including Fashion Valley, carry the company's Muscle Beach logo.

Some landlords have been “snobby” about Hot Dog On A Stick's name, considering it “reminiscent of carnivals and the circus,” said Thode in explaining the logo variation.

At the Hot Dog On A Stick in Carlsbad's Plaza Camino Real mall the other day, customers said they wanted food they could easily chew while walking down the aisles in nearby stores.

The outlet – which stands out among other stores with its somewhat gaudy red, yellow and blue color pattern – looks like a scrubbed-up version of a county fair food concession.

Moreover, employees wear distinctive striped uniforms in clashing colors that give them the look of airline stewardesses from the 1960s.

Hot Dog On A Stick's primary audience includes young mothers with children who walk the mallways looking for a quick snack or meal. Other prime customers include young teens, as well as older parents whose own parents took them to Hot Dog On A Stick when they were kids.

“We start to lose the teenagers once they get cars” and shy away from the mall, Thode said.

Hot Dog On A Stick was founded by Dave Barham in 1946 at a small stand at Venice Beach.

Barham, who had been working at a Lockheed plant, wanted to run a small business that would give him time for surfing along the fabled Los Angeles shores.

After borrowing $400, Barham bought a cotton candy stand on the beach and began selling deep-fried hot dogs using a family cornbread recipe.

From 1949 to 1972, most of Barham's business was conducted at county fairs in the region, including the Del Mar Fair. But one day, Barham had a surplus of hot dogs, batter and lemonade left over from the Ventura County Fair.

He transported the goods to his just-opened store in Torrance's Old Towne Mall and quickly sold out.

From that point on, Hot Dog On A Stick expanded rapidly by concentrating on niche locations in shopping centers. The company grew to 22 such stores by 1980.

Barham moved the company to Solana Beach in 1980 so the business would be close to his condominium at the Del Mar Beach Club. The firm relocated again in 1999 to Carlsbad.

Thode said one key to Hot Dog On A Stick's ongoing success has been the ownership of the company by its more than 1,500 employees, a concept Barham embraced when he made plans before his death in 1991 to turn over the business to his workers.

“Dave trusted his employees and treated them as if they were the owners” of the company, said Thode, who was hired as a receptionist at the company in 1990.

Under specifications in Barham's trust, Hot Dog On A Stick employees bought the firm for $10 million upon his death, paying off the purchase price over the next six years using company profits.

Employees become vested in the program after seven years, when they begin to “amass value” based on salary and an independent valuation of the company's assets.

Workers – who don't have a say about operations at the corporate level – can cash in their stake when they quit or retire.

“We have very low turnover because of employee ownership,” said Thode, noting that all 30 employees at the company's headquarters have been in place for at least three years.

Hot Dog On A Stick is growing at a rate of between five and 10 new outlets a year.

Thode said the company is also looking at the possibility of franchising some outlets to employees who opt to leave the company and start their own businesses.

Of course, all will be located in neighborhood malls.

“When you sell (hot dogs) at $2.50 apiece, you have to be where a lot of people are,” Thode said.

© Copyright 2006 Union-Tribune Publishing Co. • A Copley Newspaper Site


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