Westbury, N.y. - 15 December, 2005 -

Nathan’s Famous is running full speed ahead with conversion plans for its stalled Miami Subs Grill chain that will give the 12-year old quick serve concept a new identity and a strategically branded menu. Resurfacing as Miami Subs Plus, much of the 145-unit sandwich chain is being modified to showcase signature selections from co-branding partners Nathan’s Famous, Kenny Rogers Roasters and Arthur Treacher’s Fish and Chips. About 40 restaurants in the core south Florida market have been converted over the last three months to the Miami Subs Plus format, and another 50 expected to be completed by the end of June, said Wayne Norbitz, President and Chief Operating Office of parent Nathan’s Famous, Inc. Nathan’s Famous purchased the Miami Subs and Kenny Rogers Roasters chains in 1999. At the time Miami Subs growth had foundered, largely because of management instability, while Kenny Rogers was undergoing a Chapter 11 bankruptcy reorganization. The Miami Subs acquisition also gave Nathan’s the exclusive co-branding rights to fast-food seafood operator Arthur Treacher’s. The stepped-up conversion of Miami Subs is only one aspect of the 85 year-old Nathan’s ongoing strategy to expand its brands through multiple channels. The company is pursuing company and franchised growth here and abroad; co-branding synergies within its individual restaurant systems; branded programs in non-traditional or “captive” venues; and licensing agreements that will position its signature products in supermarkets and club stores. “How does a smaller quick service restaurant company grow and expand in a saturated market?” Norbitz asked. “For us, the answer is through means of distribution and cross-utilization of brands.” For the most recent nine-month period ended Dec. 24, Nathan’s Famous, Inc. more than doubled its net earnings, to $1.82 million vs. $858,000 for the year ago period. Year-to-date systemwide sales of the 420 unit group, including supermarket sales from its hot-dog licensee, jumped 47 percent, to $220.8 million from $150.2 million last year. Revenue - including sales from company-owned stores, royalties and licensing fees from franchisees, branded product sales, and Nathan’s supermarket program - rose 32 percent, to $37.5 million, from $28.3 million. Norbitz estimated that revenues for the year ended March 25, 2001, would hit about $50 million. Last year’s period was impacted by a $566,000 charge taken on notes receivable and expenses of $222,000 connected to losses at Miami Subs before Nathan’s bought it. On a fully diluted basis, earnings per share rose 10 cents, to 26 cents over last year’s results. “The company seems to have a strong balance sheet, and it looks like it has made some good moves forward,” said Roger Lipton, president of Lipton Financial Services Inc. in New York. Lipton also pointed out that a number of insiders - including Robert Eide, a board director - have been buying additional stock. “When you have some of the largest shareholders increasing their positions, it has to be construed as a positive sign,” he noted. Since completing the acquisition of Miami Subs Corp. on Sept. 30, 1999, for about $14 million, Nathan’s has moved ahead rapidly with changes that its executives believe will relaunch the concept. “Over the last 18 months we have significantly reduced the liabilities of Miami Subs,” Norbitz said. In the last 12 months, Nathan’s closed more than 20 underperforming stores, extricating itself from some costly leases. “And while we’re pleased with the process so far, we still have a few more to walk away from yet,” Norbitz said. At the same time the company has moved forward with the new Miami Subs prototype. The centerpiece of the revamped concept is its multibrand menu, which features signature items from all four concepts. Selections include Nathan’s hot dogs, french fries, toppings and chili dogs; Kenny Rogers’ grilled chicken sandwiches and chicken platters featuring a quarter or half chicken with Nathan’s fries and coleslaw; and Arthur Treacher’s fillet of fish, shrimp and clams in combination with Nathan’s fries and coleslaw. While a number of earlier Miami Subs items have been removed, the Plus menu features chicken and gyro pita sandwiches; chicken wings; Philly cheesesteak and cold submarine sandwiches. The new menu, drive-thru and preview boards feature the Miami Subs Plus logo, while all items are highlighted with individual brand logos. Conversion costs range from $20,000 to $50,000 per store, Norbitz said. In the converted operations the per-person check average has risen to $5.55, while food costs have declined by 2.5 percent, Norbitz said. “Nathan’s and Treacher’s run lower food costs than Miami Subs,” he added. While the new conversions have been operating only for about three months, Norbitz said the new menu so far has increased incremental sales by about 25 percent without any accompanying marketing push. Labor costs remained steady. Average unit volumes for the Miami Subs chain are running about $896,000, vs. $770,000 for the three-year period. Norbitz attributed the increase to a combination of store closings and the strong initial performance of the new Miami Subs outlets. “I think we’ve learned the formula,” Norbitz said. “We view our co-branding efforts as being quite successful so far.” Some industry observers point out, however, that co-branding is not necessarily a silver bullet for every concept. “The results are very mixed on dual-branding,” observed Ron Paul, president of Technomic, Inc., the Chicago-based marketing and research-consulting firm. “We’re finding that there are some natural combinations that seem to work well and some that don’t work so well.” One of the keys to a successful dual-branding effort is the daypart fit, he continued. “The other is that you have to have a strong brand to begin with. Nathan’s obviously is strong. But Miami Subs hasn’t been a particularly successful chain, and Kenny Rogers has just about disappeared. Arthur Treacher’s hasn’t really gone anywhere, either.” Nevertheless, Paul added: “Nathan’s works at lunch, and chicken and fish and chips could work well at dinner. At least there seems to be a good daypart fit. I would think they have a good chance of success.” Norbitz concurs about making the dayparts work. “You must use brands that complement one another,” he said. “Nathan’s has a strong lunch daypart, and Kenny Rogers and Arthur Treacher’s are weighted towards dinner.” The company is not putting all its eggs in one basket, though. It is pursuing the multi-pronged push that has been effective for the Nathan’s brand. For example, the company signed a deal to put Miami Subs products in a Godfather’s Pizza outlet in Alabama. “That unit will open within four months,” Norbitz said. “We are trying to leverage the assets of all the brands.” Nathan’s also is in talks with unnamed casual-dining chains to place its signature items potentially on their menus, he added. “The product doesn’t’ necessarily have to be in QSR,” he said. Norbitz said Nathan’s also has made a substantial investment in two new smaller Kenny Rogers Roasters prototypes: one that is geared for “captive” markets like airports, colleges and universities and the other that is designed for more traditional placement. The company is also accelerating its international expansion. Current plans call for the franchised expansion of Kenny Rogers in the Middle East and the introduction of Nathan’s units into Kenny Rogers stores already operating in Asia. Nathan’s also expects to open outlets in China and Japan in the coming year. At the same time Nathan’s products will be added to several Kenny Rogers units in the Philippines. Domestically, the company plans to add Nathan’s and Miami Subs units opportunistically in their respective core markets of New York and South Florida as well as in captive markets. And eventual plans call for the expansion of branded supermarket programs that would include the remaining brands.

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