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Miami Subs and Pitbull team up to revive the restaurant chain

Miami Subs had 200 stores before things blew up. It now has 40 and a high-profile investor as it tries to make a comeback.

At a party in 2012 at the Shelborne Hotel on South Beach, Richard Chwatt, CEO of the New Miami Subs Grill, announced a new equity partner for the brand: Homegrown Miami superstar entertainer Armando Christian Pérez. Call him Armando, or by his initial stage name of Pitbull, or by its evolution to Mr. 305, as in the Miami area code, or by the latest, Mr. Worldwide. Just don’t call him a pitchman.

“We’re not here to endorse,” Pérez, dressed in a dark sport coat and light slacks, told the glittering club audience. (Miami Subs recorded the scene, complete with a Pitbull soundtrack, and posted it on You- Tube.) “We’re partners. Miami Subs executives go out of their way to say Pérez isn’t a pitchman. “He’s a real equity partner. You’ll never see him with a hamburger in his hand hawking our food,” Chwatt says in an interview.

Pitbull’s investment — the size of which hasn’t been disclosed — may pay off with publicity, but Miami Subs will need all the help it can get as it tries to restart a chain down to 40 stores from 200 at its peak.

The chain was started under the legendary Konstantinos “Gus” Boulis, a Greek immigrant who launched the chain in 1988. A pioneer among fast-casual restaurants, Miami Subs had a long and eclectic menu and an atmosphere that radiated Miami. It had a tropical neon color scheme, pink flamingo murals, was open late and sold beer and $100 bottles of Dom Perignon. As Pérez says in one video, “Every time I walked in there, it made me feel like I was in a ‘Miami Vice’ episode.”

Boulis’ story certainly ended like a “Miami Vice” episode. He sold his stake in Miami Subs in 1998 as he moved into gambling ships. He was murdered in 2001 in Fort Lauderdale as he drove home from work, his car coming to rest near a Burger King [“Murder on Miami Road,” September 2003, FloridaTrend.com]. The story played a prominent role in the movie Casino Jack, a 2010 biopic about disgraced lobbyist Jack Abramoff, played by Kevin Spacey. One of Boulis’ killers was convicted in October.

Miami Subs, meanwhile, dissipated under owner Nathan’s Famous. The hot dog purveyor sold the chain in 2007 to a Boca Raton group whose controlling interest was held by Chwatt and his longtime friend and business associate Bob Vogel (no relation to this writer.) Vogel had industry experience as an owner of scores of Burger Kings in the Northeast. Chwatt had run a private investment banking and finance company for years.

In an interview at company headquarters, which, incidentally, isn’t in Miami but in an office building behind a Subway store in suburban Fort Lauderdale, Chwatt is a mix of candor and circumspection. He volunteers metrics on how various menu items perform and says that Miami Subs had, until recently, “the worst hamburger in history. It tasted like a hockey puck, I swear to you.”

Chwatt wouldn’t give his age — about 75 is all he’ll say — and is reticent on how much he’s invested, beyond saying “millions of dollars.” At Miami Subs, Chwatt and Vogel stayed passive investors until 2010, when Chwatt took over management. “Our mantra to the franchisees was renovate, relocate or terminate,” Chwatt says. “We recognized we had an old, tired brand that needed a revitalization.”

One buyer, John Nakis, had cashed out of four Miami Subs stores he owned in 2007 but has joined back up, recently opening a Miami Springs restaurant. “It’s a much tougher market now than it was when we first started,” Nakis says.

As for product, Chwatt kept the menu long and varied — the gyros remain as does the chain’s best seller, chicken wings — added Latin-themed food, brought back the Dom Perignon and is adding craft beers and wine. He’s pushing made-to-order freshness and authenticity. The gyro meat and tzatziki sauce come from a Greek supplier in Chicago, says Frank Baran, vice president of operations, an executive under Boulis whom Chwatt brought back. To solve the burger “puck” problem, Miami Subs switched to fresh Angus beef from frozen. It not only tastes better but also with its higher price point delivers a better profit margin, Baran says.

As work on the turnaround continued, Chwatt was contacted about Pérez. In addition to entertainment industry savvy, Pérez aspires to entrepreneurial success. He has his own Voli vodka line and has sponsorships from Dodge, Fiat and others. To Miami Subs’ benefit, Pérez in earlier days had frequented one of its stores on Miami Beach and wanted a stake. He got a board seat.

Now, Chwatt just has to convince new well-heeled franchise buyers to drop dollars on new stores — a franchise costs $30,000, plus another $237,000 to $428,000 investment to lease space and open a restaurant. The royalty is 6% of gross sales, plus another 4% slice for advertising.

So far, Chwatt says, 119 franchisee stores are in the works internationally, 65 of them in the Middle East and 59 in New Zealand. Only one of the 119 has opened, in Guyana in September. In Latin America, outside Guyana, where Pérez has the rights to sign franchisees, no deals have been announced. The company has announced 58 franchisee stores for Hawaii — the first is set to open in March — but otherwise do-mestic deals have been scant. In Hawaii, Chwatt plans to test eliminating “Subs” from the brand name. Sub sandwiches are just 2% to 3% of sales, and “Subs” perhaps confuses people new to the brand.

Industry pros say a revival will be hard. The fast casual segment is taking market share from quick-service and table-service restaurants, but competition is fierce and other fast-casual chains already have many of the concepts Chwatt says Miami Subs will introduce — counter ordering but delivery to tables, real plates rather than plastic for platters, glassware for beer and wine, fresh ingredients — and have brought out more innovations. “It’s very difficult for brands that have been as large as Miami Subs that have lost their relevance to consumers by shrinking in size,” says Darren Tristano, executive vice president of the Technomic consulting firm. “It may be too little, too late for Miami Subs.”

As for Pérez’s influence, “It’s a lot of buzz marketing, and we’re all going to forget down the road that he’s engaged in it,” Tristano says. “I don’t think it’s meaningful to the brand’s success or failure.”

The revamp will work, Chwatt insists. Franchisees that invested the $200,000 to $300,000 needed to renovate their stores saw sales double, he says.

Chwatt declined to release a copy of Miami Subs’ franchise disclosure document, the disclosure that lays out key information that prospective franchise buyers should know about performance. A copy of the document, obtained by Florida Trend from a document service, shows more modest gains, albeit dating from 2010. In that year, renovated stores had increases of 6% to 42% in gross annual sales. For the 33 stores opened for all of 2011 — renovated or not — stores in the top quartile averaged $1.37 million in gross sales. That puts Miami Subs’ best at only about half the McDonald’s franchise average. Those in Miami Subs bottom quartile averaged $480,299, according to the document.

For 2011, the last year available, the parent franchisor turned a $578,645 profit on $1.9 million in franchisee fees, royalties and other revenue, making Miami Subs a small business. Systemwide, gross sales were only $28.9 million. Chwatt says systemwide gross sales, franchisee sales and the franchisor revenue all are up since 2011.

“When you can take something over with a name like Miami Subs,” says Chwatt, “and then rebrand it, that’s what we’re all about and we’re winning.”