Nathan’s Famous Franchises: Worth Investing $423K?

A popular franchise brand for US diner-style food, Nathan 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 $423,000 upfront 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!

Nathan’s Famous franchises: key figures

Franchise fee	$30,000
Royalty fee	5.5%
Marketing fee	2.0%
Investment (mid-point)	$424,000
Average sales	$421,000
Sales to investment ratio	1.0x
Payback period*	7 years
Minimum net worth	$1,000,000
Minimum liquid capital	$500,000

What is 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 franchises 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 $835,997 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: $835,997 investment
• In-Line Restaurant: $535,330
• Kiosk Restaurant: $150,546
• Mobile Restaurant: $173,150

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

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

Nathan’s famous startup costs (Freestanding)

Type of cost	Amount
Initial franchise fee	$30,000
Restaurant construction	$205,000-$540,000
Furniture, fixtures and equipment	$145,000-$225,000
Professional fees	$12,000-$25,000
Additional Funds 3 Months	$10,000-$25,000
Other	$99,633-$325,360
Total	$501,633-$1,170,360

Nathan’s famous startup costs (In-line restaurant)

Type of cost	Amount
Initial franchise fee	$30,000
Leasehold improvements	$120,000-$330,000
Furniture, fixtures and equipment	$90,000-$180,000
Professional fees	$12,000-$20,000
Additional Funds 3 Months	$7,500-$18,000
Other	$66,550-$166,610
Total	$326,050-$744,610

Nathan’s famous startup costs (Kiosk)

Type of cost	Amount
Initial franchise fee	$15,000
Construction	$32,000-$78,000
Equipment package	$15,000-$48,000
Professional fees	$1,000-$2,000
Additional Funds 3 Months	$3,500-$6,000
Other	$22,091-$63,500
Total	$88,592-$212,500

Nathan’s famous startup costs (Mobile restaurant)

Type of cost	Amount
Initial franchise fee	$15,000
Truck, chassis & cab and sign	$50,000-$200,000
Professional fees	$1,000-$2,000
Additional Funds 3 Months	$3,500-$6,000
Other	$12,700-$41,100
Total	$82,200-$264,100

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

On average, a Nathan’s Famous franchise makes $421,190 in sales per year. Note that this is the average sales per restaurant in 2019, as 2020 was significantly impacted by the pandemic (-53.7% year-on-year decrease vs. 2019).

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 ($41 million) by the number of franchise-owned restaurants at the time (213 as of 2020). 

How profitable is a Nathan’s Famous franchise?

On average, a Nathan’s Famous franchise makes $118,044 profits per year. This corresponds to a 28% profit margin (adjusted EBITDA margin).

Nathan Famous is a profitable franchise. Indeed, we found that the 28% profit margin is higher than the average for similar restaurant franchises (25-27%). 

We calculated this number using the information available in the Franchise Disclosure Document 2020. Unfortunately, Nathan Famous has not provided detailed information on the cost of goods sold (COGS), and labor costs. Therefore, we used 25% and 29% of sales respectively, as per industry benchmarks.

Profit and loss	Amount	% sales
Sales	$421,190	100%
COGS	($105,297)	25.0%*
Labor	($122,145)	29.0%*
Rent	($44,114)	10.0%
Royalty + marketing fees	($31,589)	7.5%
Adjusted EBITDA	$118,044	28.0%

Is owning a Nathan’s Famous franchise a good investment?

Now, is it worth investing the initial $423,756 to open a new Nathan’s Famous restaurant? Are the profits worth the costs?

We found that it takes 6.7 years on average for a Nathan’s Famous restaurant profits to recoup the initial investment. Even though not necessarily bad, it’s not the best payback period for a restaurant franchise either.

Indeed, we found that a payback period of 5-6 years was good, and beyond 7 years is mediocre. Think about it: you would have to wait almost 7 years in this case for the profits to finally reimburse the initial costs and finally reap the profits.

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.).

How does it compare vs. other franchises?