HDOS Enterprises

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HDOS Enterprises

5601 Palmer Way
Carlsbad, California 92008
U.S.A.
Telephone: (760) 930-0456
Toll Free: (800) 321-8400
Fax: (760) 930-0420
Web site: http://www.hotdogonastick.com

Private Company
Founded: 1946
Employees: 1,300 (est.)
Sales: $45 million (2003)
NAIC: 722210 Limited-Service Eating Places

HDOS Enterprises operates the Hot Dog on a Stick chain of more than 100 company-owned units, located mostly in regional shopping malls in 15 states, and several international franchised operations. The Carlsbad, California-based company is a quick serve restaurant chain that is completely owned by employees. In addition to its signature batter-dipped turkey hot dog on a stick, the chain sells batter-dipped cheese on a stick, French fries, and freshly made lemonade. A few locations serve all-beef hot dogs on a bun. The chain is known for the brightly colored uniforms and handmade caps worn by its service personnel. This signature outfit has proved so popular that employees are forbidden to lend them out as costumes.

Beginnings

HDOS was founded by Dave Barham, born in Dexter, Missouri, in 1913. During the Depression years of the 1930s, he moved to Detroit with the dream of one day heading General Motors. Instead, he became a window washer, and like many Midwesterners at the time began to dream of moving to California, lying on a beach, and watching palm trees swaying in the ocean breeze. In 1939, he convinced his wife to move to Southern California, where he found work testing radar and radio equipment at Lockheed Aircraft and at every opportunity visited Santa Monica's Muscle Beach. A small concession selling cotton candy, ice cream, and snow cones caught his eye, and he began badgering the owner to sell the business to him, which is what eventually transpired. Borrowing $400 from his older brother Hugh, Barham bought the business in 1946, renaming it Party Puffs. Instead of selling cotton candy, ice cream, and snow cones, he developed his hot dog on a stick that could be eaten while strolling the beach. For the batter, he modified his mother's cornbread recipe, then fried the batter-covered hot dogs in cooking oil. Always the promoter, Barham claimed the stick performed three functions: it acted as a "handy handle," provided hickory smoke flavoring, and could serve as a toothpick after the hot dog was eaten. Barham also sold lemonade, attempting to make it with honey to eliminate the need for sugar. Ironically, for someone who would become known as the hot dog king, Barham was a bit of a health nut, a runner long before jogging became popular, a man who seldom ate meat and was conscientious about his diet. His honey-sweetened lemonade, however, tended to congeal, forcing him to rely on sugar. Because Muscle Beach was experiencing problems with broken glass in the sand, he served his lemonade in a green paper cup, which also became a signature element of the business. He liked to boast at the time, "We wash our dishes with a match." Barham would always buy his hot dogs from Oscar Mayer (before he turned to all-turkey dogs in the late 1980s) and relied on one grower in Ventura County for his lemons.

With his Muscle Beach concession a success, helped to some extent by a giant slide he built on the beach, Barham turned his attention to the fair business. In 1948, he first began selling hot dogs on a stick and lemonade at the Los Angeles County Fair, establishing a relationship that would last for the rest of his life. For the next 35 years, he operated trailers at a dozen fairs, the profits of which were instrumental in supporting the growth of the Hot Dog on a Stick chain. He also tried to sell his Hot Dog on a Stick idea to other fair concessionaires, traveling the fair circuit around the country with little more than a bowl, some ingredients, and a whip to make the batter. However, vendors were able to concoct their own batters to make "corn dogs," and while the item became a staple around the country Barham failed to profit from the fair business beyond the trailers he ran.

Expansion and Inspiration in the 1950s and 1960s

In the early 1950s, Barham began opening Hot Dog on a Stick stands on other California beaches. Customers never did understand why the operations were called Party Puffs, which was perhaps an allusion to the hot dog batter, which Barham always called Party Batter, and so around 1960 he dropped the name in favor of Hot Dog on a Stick. Later in the 1960s, Barham paid a visit to Las Vegas, where he was inspired to develop the chain's classic uniform. He noticed how the Las Vegas show girls wore the same elaborate costumes and headdresses, so that they not only stood out but also appeared interchangeable. More importantly to Barham, they appeared familiar. His idea was to outfit his people in a brightly colored uniform to offer something of a show to his customers, while also creating the impression that the same person was waiting on them, turning each Hot Dog on a Stick stand into a familiar place. He used a sleeveless top with vertical stripes of red, white, blue, and yellow, along with then popular hot pants. The origin of the famous cap worn by employees of Hot Dog on a Stick was a visit Barham made to a horse show, where he admired the caps the riders wore, which he made taller in the fashion of a Las Vegas showgirl headdress. The uniform made its debut at the Indo Fair Grounds near Palm Springs, California. It replaced an earlier polka-dot design uniform and would undergo periodic changes, mostly to the cap, which grew taller with time. To further accentuate the height of the employees, Barham would also install platforms behind the counter so that his gaily colored workers stood out even more.

Moving in Malls in the 1970s

Realizing that beach locations were limited, Barham began looking for other places where potential customers could be found. In the early 1970s, he directed his attention to shopping malls, which were quickly growing in popularity. His first venture in this channel was in a neighborhood mall, the Old Town Mall, where a Hot Dog on a Stick stand opened in October 1972, but already his sights were set on the larger enclosed regional malls. He approached San Diego-based Ernie Hahn, a pioneer mall developer, about opening a Hot Dog on a Stick location in one of his properties. It was a radical idea at a time before the advent of food courts when enclosed malls did not even allow food and drink inside the doors, due primarily to clothing retailers' fears that customers might stain the merchandise. Never a man to take no for an answer, he pestered Hahn until he finally relented. However, Barham was given a location as far away from Hahn as possible—the Fashion Place Mall in Murray, Utah, outside of Salt Lake City. As had been the case on the beach, speedy friendly service, the portability of a hot dog on a stick, and a lemonade in a paper cup proved to be a winning concept. The new outlet, which opened in November 1973, also sold deep-fried cheese on a stick, a new menu item introduced around this time.

Once Barham gained entry into one mall, he found it easier to convince other mall landlords to allow him into their properties, since they now had a chance to see how the concept worked in practice. Moreover, by keeping his food costs to a minimum, Barham was willing to pay a higher rent than other tenants. The profits from the fair business would now prove instrumental in the chain's expansion drive, as Hot Dog on a Stick became increasingly dedicated to its mall locations. A few units would be franchised operations, but the vast majority were company-owned, which offered a greater payoff. By 1980, the chain had 23 stores doing about $3 million a year in business.

Over the course of the 1980s, Barham added approximately 50 units. In late 1989, he began to develop a succession plan. In order to reward his loyal employees, he decided to set up an Employee Stock Ownership Plan (ESOP) to enable them to take over the chain, choosing this option because he believed it allowed his employees the best opportunity to buy the company with pre-tax dollars. He split off the fair concession business, which was turned over to his children: Dan, Gary, and Diane. (Gary eventually bought out his siblings.) In addition to creating a trust that gave the employees an option to purchase the company, Barham also handpicked a nine-person management committee to run the business.

Employees Buy Company in the 1990s

In March 1991, Dave Barham died from pneumonia and lung complications at the age of 77, just before the chain he founded was about to open its 90th store in a shopping mall. The new management team, in order to exercise the option to purchase HDOS Enterprises, first had to establish the value of the company through an independent valuation firm. The price turned out to be much higher than anyone anticipated, and although the employees had some cash at their disposal and could take advantage of a key man life insurance policy, they fell well short of the amount needed. Because the chain was a leased operation and lacked collateral, management had no choice but to back any loan with their personal assets. Outside consultants recommended that the management committee concentrate ownership of the company in their hands, arguing that younger workers would not be interested in staying long enough to become vested and draw the retirement benefits of gaining an equity stake. The management committee rejected the advise, however, electing instead to remain true to the vision Dave Barham had laid out for the company after his departure.

HDOS started a new chapter in its history $9 million in debt and uncertain of what the future held. Fortunately, the economy was strong during most of the 1990s, malls were expanding, and the chain, supported by an experienced and motivated work force, was able to see its way through a transitional period and continue to grow. In 1997, the company was able to pay off the ESOP loan.

Company Perspectives:

An icon since 1946, Hot Dog on a Stick is 100% owned and operated by its employees. What began as an entrepreneurial dream on the beaches of Southern California has flourished into an organization where everyone has a stake in the outcome.

During the six years following the death of Dave Barham, Hot Dog on a Stick essentially followed the path already laid out by its founder, the only real change being the 1994 addition of French fries to the menu. Then, in 1998, management began instituting some significant changes. A design agency was hired to help the company pursue a re-branding effort after 30 years of relying on the same logo and packaging designs. As a result, the company decided to brand its popular lemonade. For decades it was simply called Original Lemonade, but it now became Muscle Beach Lemonade. The company even decided to take a fresh look at its iconic uniform, much to the concern of employees who were devoted to it. In the end, the only alteration was the addition of a cap sleeve.

As part of a diversification effort in the late 1990s and early 2000s, HDOS launched a concept built around its popular lemonade called Muscle Beach Lemonade & Hot Dogs. The company also entered into a co-branding arrangement with a pretzel chain. A more ambitious expansion move was the purchase of the Juicy Lucy's hamburger chain in 2000. HDOS also looked to develop frozen corn dogs and frozen lemonade products for sale in grocery stores. However, with the downturn in the economy, and stretched thin by the expenditures of its diversification efforts, HDOS abandoned the Muscle Beach concept and returned to focusing on its core hot dog on a stick business. In addition, the Juicy Lucy's hamburger chain, which had proved difficult to run, was sold to Ultimate Franchise Systems Inc. in 2004.

In 2001, Fredrica Thode took over as president. She had been hired by Barham in 1980 as a receptionist. She took on an increasing amount of responsibility and at various times was involved in every aspect of the company's operations. HDOS began to pay down debt and rebuild value in the company as same store sales climbed and the chain resumed its growth pattern. This was accomplished by following the basic formula established by its founder, who believed in keeping things simple: offer a limited menu but do it well and make it entertaining. It was a formula that worked for more than half a century and promised to succeed for many years to come.