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Dog Days

Wienerschnitzel hopes that taking a long look back will move the hot dog chain forward after a rugged two years that saw an expansion in the Inland Empire turn into a drag on sales and profits.

“Last year was a disaster, and the first part of this year was tough,” said Dennis Tase, president and chief operating officer of Irvine-based Galardi Group, Wienerschnitzel’s privately held parent.

The chain includes about 350 Wienerschnitzel restaurants, mostly franchises, in 10 Western states and Guam. Galardi Group also operates Tastee-Freez LLC, both as freestanding restaurants on the East Coast and within Wienerschnitzels.

Galardi has an estimated $35 million in annual revenue, made up of fees from franchisees and sales from company-owned restaurants.

The hot dog chain’s sales have stabilized in recent months. Now it’s pinning hopes on a 50th anniversary that will be a marketing focus for 2011.

Workers are set to don white dress shirts, black ties and traditional paper vendor hats. An old “DW” logo is slated to make a comeback as well.

TV, radio and print ads are planned to back up the promotion as the chain seeks to revive growth.

The struggles of the past two years can be tracked to the Inland Empire, where unemployment is near 15% compared to 9.6% in Orange County and 12.4% statewide.

Wienerschnitzel focused on the Inland Empire during the hot housing market a few years ago. Two-thirds of the 40 restaurants opened from 2003 to 2007 were in the region.

“We have a lot of stores out there, and the high unemployment is hurting them,” said Tom Amberger, vice president of marketing.

The chain initially benefited from the economic downturn as diners turned to Wienerschnitzel’s relatively inexpensive menu at the onset of the downturn. Sales tapered off as the slump deepened and layoffs and foreclosures hit the Inland Empire particularly hard.

Hispanic Hit

The downturn put a crimp in what Tase said is one of the chain’s strong points: popularity among Latinos.

Anecdotal indicators point to Latino immigrants cutting spending because they had lost jobs or decided to send more money to Mexico or Central American countries amid fear of stepped up immigration enforcement.

“With the job losses and issues on immigration, we saw an immediate and prolonged hit in business,” Tase said.

Recent improvements in sales and more generous comparisons to a bad 2009 point to a break-even 2010 and hope for a happy anniversary in 2011.

“This January was one of the worst we have ever seen, but we have seen some great progress in the past five or six months,” Tase said. “We’re expecting by the end of the year we’ll be flat.”

The retro uniforms and logos will start appearing at Wienerschnitzels in January. Advertising is expected to ramp up after the chain’s national franchisee seminar in mid-March.

“Starting in April you’ll be seeing the real thrust of it for the remainder of the year,” Amberger said.

John Galardi founded Wienerschnitzel with a single hot dog stand in Los Angeles County and eventually expanded throughout Southern California and beyond.

The recent troubled tied to the Inland Empire hasn’t spelled an end to expansion But it has led Wienerschnitzel to shy away from its home base. The chain has opened up about 15 restaurants this year, a majority outside California.

“Texas and New Mexico—those markets are doing really well for us,” Tase said.

The chain’s 2011 expansion now is tilted toward Texas, where a relatively strong economy has made it the latest battleground for restaurant chains.

“We opened a store in McAllen, Texas, and it blew the doors off in sales,” Tase said. “It’s a great market for our chain.”

The company also is seeing some strength in Northern California, where it opened a restaurant in Sacramento last month.

That “has given us hope for other markets in the region,” Amberger said.

The chain faces a key challenge on financing for franchisees.

“There is virtually no financing out there,” Tase said. “You used to be able to borrow 90% of whatever you needed, whereas now if you’re lucky with A-plus credit you might get 50% of what you need. It’s made it challenging for franchisees.”

For now, the chain will focus on giving franchisees help instead of putting money into company-owned restaurants.

“Once we get through this period, we have the money to build but it doesn’t make a lot of sense right now,” Tase said. “We’re working with our franchise partners to help them weather this environment.”

Wienerschnitzel also is trying new and cheaper concepts. It opened its first kiosk in the Sana Anita Shopping Mall in Arcadia this summer. It’s the chain’s first entry into an indoor mall.

“We foresee this restaurant style being very successful and have plans to open similar Wienerschnitzel locations in Southern California,” said Bob Mathews, vice president of development and general counsel.

The kiosks offer a limited menu including hot dogs, chili dogs, corn dogs and fries as well as Tastee-Freez desserts. It also requires some new management skills for a company that has traditionally stuck with free-standing restaurants, Tase said.

“You have to do the deal with certain mall owners,” he said. “We’re working to get our heads wrapped around that kind of philosophy.”

Niche

The pared-back expansion plans and kiosks fit with the chain’s post-downturn ambitions.

“We want to be at the level of some of the bigger chains, but we’re a niche,” Tase said. “We have done well over 50 years and we have done very well with the niche. It’s not a huge niche, but it’s a nice niche.”

Nice enough to lead Carl’s Jr., part of Carpinteria-based CKE Restaurants Inc., to try to get back in the hot dog game.

Wienerschnitzel has had a rough stretch, but remains confident about its territory.

“We own the niche,” Tase said. “With burgers, it’s a boarder market, and certain burger chains can own those niches. But we have the niche on hot dogs.”

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