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Nathan’s Famous Franchises: Worth Investing $851K?

This article was updated with the 2023 Franchise Disclosure Document

A popular franchise brand for US diner-style food, Nathan’s Famous has over 250 restaurants in the US today. Yet if you’re considering buying a Nathan’s Famous franchise, look at the financials first.

Indeed, although Nathan’s Famous is affordable: it only costs $851,000 upfront( for a freestanding restaurant) vs. $1.6 million for similar restaurant franchises on average), its profits may not justify the costs.

How much profits can you really make with a Nathan’s Famous restaurant? How much does it really costs? In this article we’ll answer all these questions by looking at the latest Franchise Disclosure Document. Let’s find out!

Key stats

Franchise fee$30,000
Royalty fee5.50%
Marketing fee2.00%
Investment (mid-point)$480,000
Average sales$725,000
Sales to investment ratio4.0x
Payback period[franchise_value_investment_payback]
Minimum net worth$1,000,000
Minimum liquid capital$500,000
Source: Franchise Disclosure Document 2023

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About Nathan’s Famous

Nathan’s Famous Inc. is an American fast-food restaurant company headquartered in One Jericho Plaza, Jericho, New York City. 

The fast food restaurant was launched in 1916 in Brooklyn, New York City, by a Jewish-Polish immigrant, Nathan Handwerker. 

It prides itself on serving New York’s best flavors, including hot dogs, onion rings, meatball heroes, milkshakes, chicken, hamburgers, sandwiches, French fries, and cheesesteaks. 

The Handwerker family paved the way for a successful franchising model in 1987 after selling all the business locations to private investors. 

Today, the restaurant chain has become an iconic name in America’s fast food industry with 250 units spread across the country.

Nathan’s Famous franchise pros and cons

Pros

  • Simple business model: Nathan’s Famous franchise offers a flexible and highly adaptable business model that fits any footprint. From custom-made stores to food trucks, trailers, and mobile solutions, franchisees can choose the most suitable concept depending on their preferences. 
  • Extensive training: Nathan’s Famous provides comprehensive training to aspiring restaurant owners. This includes 39-67 hours of on-the-job training and 48-51 hours of classroom training to prepare franchisees for the new adventure.
  • Offers territory protection: Nathan’s Famous provides a fixed area to start and operate your franchise business. The franchise agreement protects restaurant owners from competition against similar units within the same territory. 
  • Allows absentee ownership: franchisees can operate their restaurants passively. Unlike other franchisors, pursuing other business interests is easy if you own Nathan’s Famous franchise. 
  • Management support: restaurant owners are guaranteed extensive support from site selection to pre-opening, menu development, and supply chain management if they partner with this franchisor. 

Cons

  • Minimum employee requirement: at least 14 employees are required to start and run Nathan’s Famous franchise. 
  • No financial assistance: the franchisor isn’t responsible for providing any funding to restaurant owners. Neither does it provide direct or indirect financing to restaurant owners. 
  • Fierce competition with American casual and diner-style food franchises like Huddle House, Perkins, Applebee’s or Denny’s

How much does a Nathan’s Famous franchise cost?

You would have to invest on average $851,000 to open a new Nathan’s Famous franchise restaurant. Note that this is the investment for a freestanding restaurant.

Indeed, there are 4 kinds of restaurant formats you can choose from:

  • Freestanding Restaurant: $851,000
  • Food court restaurant: $533,830
  • Kiosk Restaurant: $165,046
  • Mobile Restaurant: $183,150

The investment presented above is an average. Indeed, it varies based on many factors, such as the location of your restaurant, its size, etc.

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Here’s the full breakdown of costs per restaurant format:

Nathan’s famous startup costs (Freestanding)

Type of ExpenditureLowHigh
Initial franchise fee$30,000$30,000
Restaurant construction $205,000$550,000
Grand opening$2,500$2,500
Additional Fund$10,000$25,000
Others$254,133$593,860
Total$501,633$1,201,360
Source: 2023 FDD

Nathan’s famous startup costs (Food court restaurant)

Type of ExpenditureLowHigh
Initial franchise fee$30,000$30,000
Leasehold improvements $120,000$330,000
Furniture, fixtures and equipment$90,000$180,000
Additional Funds 3 Months$7,500$18,000
Others$78,550$183,610
Total$326,050$741,610
Source: 2023 FDD

Nathan’s famous startup costs (Kiosk)

Type of ExpenditureLowHigh
Initial franchise fee$15,000$15,000
Restaurant construction $34,500$81,000
Grand opening$2,500$2,500
Additional Fund$3,500$6,000
Others$42,092$128,000
Total$97,592$232,500
Source: 2023 FDD

Nathan’s famous startup costs (Mobile restaurant)

Type of ExpenditureLowHigh
Initial franchise fee$15,000$15,000
Truck, chassis & cab and sign$50,000$220,000
Professional fees$1,000$2,000
Additional Fund$3,500$6,000
Others$12,700$41,100
Total$82,200$284,100
Source: 2023 FDD

How much turnover does a Nathan’s Famous restaurant make?

On average, a Nathan’s Famous franchise makes $725,000 in sales per year. This is the average sales per restaurant in 2022.

Note that we estimated this number as Nathan Famous doesn’t provide detailed information about its franchise restaurants financial performance in its Franchise Disclosure Document. Instead, we obtained this number by dividing the total revenue of all the franchises ($58 million) by the number of franchise-owned restaurants at the time (81 as of 2020). 

How profitable is a Nathan’s Famous franchise?

We estimate that a Nathan’s Famous franchise makes $127,000 in profits per year on average. This corresponds to a 18% EBITDA margin.

Note that Nathan’s Famous doesn’t provide any detailed information about the financial performance of its franchises in its latest Franchise Disclosure Document. Instead we had to make assumptions which we have summarized below.

Profit and lossAmount% Sales
Sales$724,579100%
COGS$(181,145)25%
Gross Profit$543,43475%
Labor$(210,128)29%
Marketing and royalty costs$(54,343)8%
Occupancy$(65,212)9%
Other OpEx$(86,949)12%
EBITDA$126,80118%
Source: Franchise Disclosure Document 2023

Is Nathan’s Famous a good investment?

Now, is it worth investing the initial investment to open a new Nathan’s Famous restaurant? Are the profits worth the costs?

We estimate that it takes 8 years on average for a Nathan’s Famous restaurant profits to recoup the initial investment. It’s a good payback in line with the industry (most restaurant franchises have 7-8 years payback periods).

Note that we calculated this payback using the freestanding investment of $851,000.

Yet, do note that the decision to buy a franchise should not only rely on financials: instead you should also consider also pros and cons as discussed in this article earlier (training, territory protection, brandname, competition, etc.).

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Disclaimer

Disclaimer: This content has been made for informational and educational purposes only. We do not make any representation or warranties with respect to the accuracy, applicability, fitness, or completeness of the information presented in the article. You should not construe any such information or other material as legal, tax, investment, financial, or other professional advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, advertisement, or offer to buy or sell any franchises, securities, or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the franchise and/or securities laws of such jurisdiction.

All content in this article is information of a general nature and does not address the detailed circumstances of any particular individual or entity. Nothing in the article constitutes professional and/or financial and/or legal advice, nor does any information in the article constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this article before making any decisions based on such information or other content.

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