JOHN GALARDI : Top Dog of Wienerschnitzel : Frankfurter Meister Looks Back on 38 Years in Fast Food
When John Galardi began hustling his buns in 1961, it was in a single restaurant with four parking spaces. Since then, his chain--Wienerschnitzel International--has grown to become the No. 1 hot dog chain in the world.
Today, there are 276 Wienerschnitzel fast-food restaurants in 11 Western states. Of those, 200 are franchised, with the rest run under a limited-franchise program in which the company owns the land, building and equipment and subleases it to the operator.
Wienerschnitzel is dominant in California and a major factor in Arizona, New Mexico, Nevada and Texas. Sales for fiscal 1988, ended June 30, were $107.5 million, up 8.5% from $99 million the previous year. The company projects $116 million in sales for fiscal 1989.
But hot dogs aren’t the only business that Galardi has sunk his teeth into during his 38 years in the fast-food business.
Today, he is majority owner and head of the privately held Galardi Group, a Newport Beach-based company that has four divisions, including Wienerschnitzel.
The Galardi Group also has 56 Original Hamburger Stand restaurants--the original 49-cent burger outlet that began with one store in Garden Grove in 1983. Then there is Chelsea’s Choice, which serves frozen yogurt in two locations, and a lone Weldon’s, an upscale fast-food hamburger restaurant in Costa Mesa that features Mexican and Cajun items.
In a recent interview with Times staff writer Mary Ann Galante, Galardi discussed the development of Wienerschnitzel, as well as the fast-food industry and where it is headed.
Q. How long have you been in the fast-food industry?
A. Since I was 12. That would be 38 years. I was a soda jerk at King Cream. It was a soft ice cream place in the Midwest.
Q. How did you start Wienerschnitzel?
A. I moved out here when I was 20, and I was a manager for Glen Bell Jr., the founder and (former) owner of Taco Bell. I was one of Glen’s managers. Someone came to me and wanted to build (a competing taco stand to be run by Galardi). But his lot was right next to one of Glen Bell’s stores, so I couldn’t put in the Mexican menu, which is what I knew. So I came up with the hot dog concept because nobody else had been in it.
Q. When did you open your first Wienerschnitzel?
A. In 1961.
Q. You used to have Pup and Taco as a competitor. These days, other than Carl’s Jr. selling hot dogs, who is you competition?
A. We don’t have any. In the fast-food arena, there’s room for really one hot dog chain. We’re the biggest. Everybody thought the big threat as far as hot dogs was going to be 7-Eleven. . . . That’s no threat. That was a joke.
A. There’s one big thing that you need to make any food program work. That’s meal occasion. You need those meal occasions to move the product, to keep it fresh and to exist during the lean slow hours. With the whole convenience-market food program, there is no meal occasion and there are slow hours every day they’re open. The convenience-market position would gain credibility if they could get people in my office, for instance, to go to a 7-Eleven and sit down and have lunch or dinner. If you can’t do that, you’re in the snack business.
Q. Have you seen any dent in sales from convenience stores selling hot dogs?
A. No. They have no volume. If people don’t go there to eat lunch and you don’t have movement, then you don’t have freshness. And the only guy you’re getting is the guy who’s standing right there, and he’s a snacker.
Q. Why has Wienerschnitzel’s dominance grown on the West Coast?
A. When the industry started out, McDonald’s was in Chicago. Burger King was in Miami and Burger Chef was in Indianapolis. Each chain started in its region. In our case, we had the drive-through customer because we were one of the first drive-in companies.
Q. Why hasn’t the market for hot dogs grown as fast as, say, the market for Mexican fast food?
A. The biggest problem the hot dog has had to contend with in the fast-food arena is that for most of our lives, hot dogs were always a snack--a fun type of (food that goes with) ballparks, barbecues and beaches. Your mom would just fix you a quick snack at home. Hot dogs were never presented to a lot of people as a basic dinner meal. At home, your mother never said, ‘Oh boy! We’re going to have hot dogs tonight for dinner!’ You can never really change the minds of the consumer.
The average person eats 90 hot dogs a year. And our job is always to increase the eating occasions in the fast-food arena. That’s always been our uphill battle. Typically, if we would look at the volumes of our stores we would be equal with everybody at 2 o’clock in the afternoon because we’ve just went through the meal occasion of lunch. And hot dogs are a strong sandwich for a lunch meal.
But as we moved through dinner, chicken, fish, pizza and hamburgers take over. So the hamburger chains are the ones that have the big volumes because they’re a strong lunch (item) and the Americans (know) that it’s OK to have hamburgers for dinner.
Q. So somebody might take his kids to McDonald’s for lunch or dinner?
A. Correct. They won’t go to a chicken place for lunch. And they might take their kids to Wienerschnitzel for dinner. But the adults have a hard time getting a hot dog and a Coke for dinner. That’s the biggest battle we face.
Q. Do hot dogs have a significant price advantage in appealing to the consumer?
A. No. I believe our check average now is $3.40. And the industry average is between $3 and $4.
Q. How has the fast-food industry changed since you started in the business?
A. In the early days, the business was more personal. The founders would build five stores and they’d be on top of the business. They’d eat the products and they’d come up with all the concepts. What you have driving these companies now is the modern corporate executive. So in the fast-food industry, if the drive-through works, everybody has it. If Chicken McNuggets work, all of a sudden everybody has chicken tenders. The lead times now on creative ideas are so competitive (that it takes) six months to a year (for an idea to be adopted).
Q. When did you first come up with the drive-through concept?
A. In my first store, 27 years ago. . . . I started in the days when car clubs hung out. I had a little taco store. And car clubs were 99% of my problem but only 5% of my volume. I couldn’t keep them in their cars because they had to walk up to the front window.
In my first Wienerschnitzel, I built a little lot with only four parking places. Every night for a year I had to go down there in the middle of 600 kids and monitor these car clubs. I got sick of it and decided to build a building where they could drive up next to the building and get their food. And then they’d have to go hang out somewhere else.
I wasn’t the first. The first two that I was aware of were Jack-in-the-Box and In-N-Out Burgers.
Q. How has the fast-food industry grown since you started?
A. It has become a major industry. The last figures I saw showed that McDonald’s employs more employees than every airline in the world put together. . . . Their ad budget is bigger than every cola company in the world. So you know it’s a major industry.
Q. How many employees does the Galardi Group have now?
A. At corporate (headquarters), we have 80 employees. Companywide, including all the fast-food workers, we probably have 9,000. (They are employees of Wienerschnitzel’s franchisees and limited franchisees.) Now, we’re back on a growth mode. We’ve been able to adjust in the last three years.
Q. Can you tell me a little bit about the growth of Wienerschnitzel over the last few years? How much has the chain been growing?
A. I think we built six or seven stores last year. This year I think we’ll build 15. . . . Each year you build five or six even if you’re not growing.
Q. In general, how is the fast-food industry doing right now?
A. The industry right now on the whole cannot grow. . . . It’s a maturing market. And there are so many big players with so many dollars. Years ago, you could build a unit and get your 10,000 to 15,000 customer counts each month and maybe you didn’t have to get it out of the other guy.
But now, let’s say you go to a town like El Paso and someone is sitting there with a big ad budget and 20 stores. If you’re not there with your 20 stores, you have to bite the bullet and lose money until you get up to 20 stores and go on TV and take those customers away from the other guys.
In the easy days, we just keep building more of our own stores. But that’s come to a halt because land costs, profit margins and marketing costs to enter a new market are so high. If you own a public fast-food company and you don’t have the ability to build your units, you’d better be looking for acquisitions if you want to keep that public arena going.
Q. Wendy’s and Burger King are said to not be doing that well. Taco Bell has reported earnings that are down for the last three quarters. Why the seeming difficult times for some in the fast-food industry?
A. The customer base is shrinking. Initially, the industry was fueled by war babies. They’re maturing and their habits are going to change. As you get older, you may tend to eat less in fast food. The baby boomers as a group were heavy fast-food users during their early years. And to my knowledge, (the baby boomers) are about 40 now. They’re eating at home more and they’re not partying as much. They’re drinking less. There’s a whole life style change coming up.
Q. Where is the fast-food industry now?
A. The biggest change I’ve seen in 10 years is that the big players with the deep pockets got in the industry. If I want to remodel one of my stores, and I can do one store a week, 350 stores will take seven years. If a cash-rich company (like Pepsi or Pillsbury) makes that commitment, they just staff up 20 people and get it done in 12 months. So the impact on the street is immediate to the customer base, and the returns are immediate.
The other thing is that (big companies) stepped up the pace in marketing. They realized that the consumer perceives image in two places: on the street and on the tube. So the first thing they did was clean up the image, and the most obvious example is Taco Bell. They’re cleaning up that little funky Mexican adobe building that Taco Bell’s had for years. Those buildings are going to be history in about five years.
Q. California seems to be a haven for fast food. Why is this where a lot of the industry trends seem to develop? What is it about California and Californians that makes fast food so appealing to people here?
A. The weather is good 12 months a year and people are on the go all the time. And there’s a lot of creativity in California from fashion to Hollywood. There are just creative vibes.
Q. How has the change in California’s minimum wage law affected fast food? (Effective July 1, the California Industrial Welfare Commission raised the minimum wage in the state from $3.35 to $4.25.)
A. It just makes us bump our prices. Since the beginning of time, if our cost goes up, our price goes up. People can’t exist in business without profit. If everybody’s labor (cost) goes up, and everybody bumps the price of drinks by 50 cents, then that’s the new cost base.
Q. Are we actually talking about a nickel on each item?
A. Yes. All people in business don’t want to raise their prices. It’s a struggle because there is a reaction in the consumers. Everybody has margins. If costs go up, their pricing structure and their product mix is to protect those margins.
Q. What’s the most difficult part of the fast-food business.
A. The (employee) turnover. It’s 100% a year.
Q. There has been a trend for fast-food chains to tackle the breakfast market. Wienerschnitzel has done that. Has it been successful for the chain?
A. No, it hasn’t. Breakfast only really works when there’s a natural breakfast location. We have breakfast in about 50 stores. To go above that, you need a big ad budget and a continuous education to tell consumers that you’re open for breakfast.
McDonald’s is there with the mostest and the firstest and they pumped away. They do well now. And they’ve spent so much money that McDonald’s owns it. But that doesn’t mean anybody else could own it.
Q. Wienerschnitzel serves hamburgers. Do you see the chain diversifying its menu even more?
A. We’re the hot dog leader. We’re going to stick with hot dogs.
Q. There seems to be a move toward healthier foods--turkey and chicken dogs, for instance. Do you see Wienerschnitzel coming out with a turkey dog?
A. Sure, in the future. In the past, if we had come up with a turkey dog--10, 15 years ago--nobody would have bought it. But that’s not that way now. You go to the grocery store and you can see the trends. And the turkey and chicken dogs are like the diet Cokes in the Coke area. They’re moving substantially. . . . We (could) sell one in addition to our menu.
Q. Why are certain items outrageously popular these days--chicken fajitas is one, chicken McNuggets is another--or anything chicken in fast food. Why do some items like that just catch on and go and go?
A. One of the shifts in the trend is less beef and more chicken because it’s better for you. So you’ve got a whole bunch of people walking into Mexican restaurants asking for chicken tacos and chicken burritos. With the chicken McNuggets, McDonald’s played with chicken for 14 years and couldn’t make it work. And the chicken McNuggets was a product they made work.
Americans aren’t health nuts. For a guy to go to fast food because it’s healthy is like for me to go to a vitamin store and ask for french fries. That won’t happen. What’s happening is that Americans will not suffer. So they’ve all got it in their minds that if I can just skimp a little bit, then I’m OK and I did well. I’ll give you an example: If I go and eat a Mexican dinner, I’ll order a diet Coke.
What you do every meal occasion is look for that item that has less calories, so if you do it three times a day, you feel good about yourself--that you watched it. But you still basically ate what you wanted to eat. What you won’t do is go in there and order a cottage cheese and water.
So the healthy, trend group--with the grass and bean sprouts and all of that--is not even a factor. That’s not where the menu design and the movement in the industry is. It is to give you that diet Coke and that turkey dog and something where you can modify your eating just a little and feel you did the right thing.
Q. What are the big trends in the fast-food industry these days?
A. I think the biggest trend is going back to the basics. The only move that money can’t buy in a labor-intensive business is servicing the people. So the guys that get back to basics--the guys that have good crews at night, the guys that give the extra service and the guys that have the cleanest stores--I think all those basics are going to be the variable.