Papaya king looks to expand realm beyond New York's boroughs

Nation's Restaurant News, May 8, 2000 by Paul Frumkin

NEW YORK -- Papaya King, the hot-dog-and-fruit-drink cult favorite of New Yorkers for more than six decades, is about to test the appeal of its quirky combination beyond the familiar boundaries of the city's five boroughs.

Funded privately by Founders Equity, a Manhattan based venture-capitalist firm that purchased the rights and title to the company in 1997, Papaya King intends to open its third Manhattan outlet this month even as executives negotiate for future sites in Boston and Philadelphia.

"We think this can be a national or even international concept," said Dan Horan, president and chief executive of PK Enterprises, a subsidiary of Founders Equity. "Papaya King, first and foremost, is a great brand."

And in New York, at least, that 68-year-old brand possesses a highly bankable charm. The original 475-square-foot Papaya King unit on 86th Street and Third Avenue "can have as many as 2,000 customers in one day during the summer," Horan said. On an annual basis the tiny unit -- which offers no seating -- generates revenues in excess of $1.4 million on average perperson checks of about $4.

And while Horan projects that future outlets are not likely to produce that kind of traffic, he estimates average-unit volumes should run anywhere from $650,000 to $900,000, depending upon the location.

Papaya King has received the stamp of approval from a number of food writers and reviewers over the years. The most recent Zagat Restaurant Survey declares"[ldots]for a 'walking lunch' the king 'reigns supreme," while fine-dining doyenne Julia Child declared that it has the best hot dog in New York in a taste test. Not surprising, the New York-based media have taken notice of Papaya King. The chain's grilled hot dog was even the centerpiece of a Seinfeld episode in which it was revealed to be one of the addictions of the show's eccentric "Kramer" character.

"It really has a cultish following," Horan agreed. "It just crosses all economic strata and age groups."

The brand's popular appeal is rooted in a radically limited quick-serve menu that mainly features grilled hot dogs and freshly made tropical fruit drinks. First developed by founder Gus Poulos in the 1930s, the menu has been subjected to few changes over the years. Papaya, mango, banana and strawberry fruit drinks continue to be made fresh daily, and all-natural hickory-smoked hot dogs are prepared from beef seasoned with oregano, garlic and South American spices and stuffed in casings from Germany. Hot dogs are priced at $1.29 although a chili frank topped with cheddar cheese or onion and cheddar costs $1.79. Fruit drinks start at 94 cents for an 8-ounce serving but increase to $5.29 for a half gallon. Smoked sausage with grilled peppers and onions is also available. According to Horan, most customers purchase the $3.99 "Everyday Special" -- two hot dogs with sauerkraut, onions or relish with a 16-ounce tropical drink.

Horan said that the company is exploring ways to expand the menu although the only new food item that has been added since Papaya King was purchased is Cajun curly fries. A juice bar with such selections as carrot, celery, pear and orange drinks also has been added. "We're taking our time," he said. "The check average is important, but the experience must continue to be good."

Unit growth at Papaya King is expected to proceed at a measured pace. Horan said the company plans to open 10 to 12 new outlets over the next 18 months, targeting major urban centers and college markets in the Northeast initially. He also said the brand should work well in airports and big-box retailers, such as Costco and Home Depot. Franchising is not part of the plan, at least for the foreseeable future, he added.

In the meantime, Horan said, he is moving cautiously and continuing to develop an operating model for the chain. The company opened its second unit on 125th Street late last summer, and Horan has been monitoring operations at the 1,200-squarefoot site closely. He noted that new locations probably would be built in a smaller, 500- to 750 square-foot footprint. Unit development costs are expected to run between $300,000 and $400,000.

Because of the chain's limited menu, equipment requirements for future units are minimal, Horan explained. Basically, units are outfitted with two flat gas griddles, drink dispensers that both refrigerate and agitate the contents, and a fryer for the new Cajun french fries.

Papaya King's third unit is scheduled to open at the end of this month at 43rd Street and Eighth Avenue in a Building owned by Common Ground Community, a nonprofit at organization houses and provides training for the homeless. "We hope to get employees through them," Horan noted. "We want to be a part of the community." Common Ground also franchises a Ben & Jerry's unit nearby.

Horan says he is uncertain about future development in New York, however. "The real estate market is brutal in New York City," he observed. "It's a real challenge. On average, rents are about 50 percent over what they should be. We're bidding on other spaces in Manhattan, but the rents just don't fit into the model right now."