5 & Diner Franchise Corporation

1140 East Greenway Street, Suite 1
Mesa, Arizona 85203
U.S.A.
Telephone: (480) 962-7104
Fax: (480) 962-0159
Web site: http://www.5anddiner.com

Private Company
Incorporated: 1987
Employees: 600
Sales: $25 million (2004 est.)
NAIC: 722110 Full-Service Restaurants

Mesa, Arizona-based 5 & Diner Franchise Corporation operates some 20 freestanding 1950s style, family-friendly diners located in Arizona, California, Florida, Iowa, Nevada, Tennessee, and Virginia. Only the original 5 & Diner is company owned, while the rest are franchise operations. Each unit features stainless-steel counters and classic red acrylic soda-fountain stools, along with a real soda fountain, and dozens of red-and-white vinyl booths with Formica table tops. The restaurants also offer a handful of patio tables. Each booth or counter station comes with a small juke box playing period songs, while larger reconditioned vintage juke boxes are found on the floor. In keeping with the retrospective appeal of 5 & Diner, waitresses wear poodle skirts, bobby socks, and pony tails, with coin changers clipped to their belts. Retro advertising and black-and-white photos of 1950s celebrities—such as Elvis Presley, James Dean, and Marilyn Monroe—grace the walls. On occasion a store will hold a hula hoop contest. Menu items include malts, shakes, and egg creams, along with a dozen signature burgers, such as the Big Bopper Burger and the Blue Moon Burger. The 24-hour diners also offer a wide variety of comfort foods, including meatloaf, sloppy joes, fish and chips, spaghetti, chicken fried steak, and BBQ Ribs. 5 & Diner is a private company headed by its founder Kenneth E. Higginbotham.

Founder Launches Business Career in Mid-1960s

Ken Higginbotham was born and raised in Southern California, where both his mother and father were motorcycle enthusiasts. As a result he grew up around motorcycles and also became involved in go-carts. After high school he attended Portland State University but was soon distracted from his studies because of a sideline business, Wheelsport Distributing, which he launched in 1965 to distribute motorcycle accessories, such as helmets, handlebars, and batteries. It was proving so successful that he decided to drop out of school to focus on it and was able to attract investors in the form of a neighbor, a Xerox salesman, and his friend. With their backing Higginbotham was able to move beyond distribution and begin manufacturing motorcycle parts through California-based KC Manufacturing.

Higginbotham and KC Manufacturing prospered, but Higginbotham eventually grew tired of the business and the Pacific Northwest. In 1978 he decided to move his family to the Southwest, settling in Phoenix, Arizona. Here he worked as a consultant, helping a friend to open a wholesale operation, Amwest Distributing, to sell hardware to cabinet manufacturers. Among other tasks, he set up a warehouse and hired the sales staff, but after the business was up and running Higginbotham grew restless and was on the lookout for a new business opportunity. During the previous 15 years his work had entailed a great deal of travel, and as a result he developed something of an infatuation with restaurants. Most of his favorite places were vintage mom-and-pop diners. He had no experience in the food industry, but felt confident that as a customer he had developed a strong sense of what made a restaurant successful. Higginbotham and a friend from his church, Noel Canland, toyed with the idea of starting a restaurant together, but Canland eventually acquired a Mexican restaurant on his own. Canland's broker, however, helped Higginbotham find his own restaurant to buy: a coffee shop in West Phoenix called Ted's Country Kitchen.

In 1980 Higginbotham bought Ted's, changed its name to K's Family Restaurant (the "K" standing for Ken), and quickly discovered that he had a lot to learn about the food industry. He was used to running a straightforward business, like parts manufacturing, in which you delivered a quality, functional part at a reasonable price and you could expect to be successful. "With a restaurant," he explained in a 2005 interview, "you have to deliver your product to the table, making sure its hot and not cold, at the right price and the right portion. A lot of different elements come into play and you have to rely on a lot of people." Fortunately he was well funded and could afford to learn on the job. Although the business was turning a profit after a couple of months, he estimated it took him about a year to turn over the coffee shop's staff and make a true success out of K's. During that time he worked seven days a week without taking off a single day.

The Original 5 & Diner is Built in 1987

Higginbotham continued to nurture a dream of running a vintage diner. In 1988 he had drawings done of a prototype diner with a 1950s retro look, which he called the Silver Streak, inspired by the 1976 Gene Wilder film of the same name. Higginbotham was not a particular fan of 1950s music or culture so much as he was of the 1950s diner architecture, but music and memorabilia of the era were a natural extension of the look. One day while visiting a restaurant supply house he learned that an area diner, called the 5 & Diner, was being put up for sale. Higginbotham tracked down the listing agent before a prospectus had even been drawn up and made a preemptive bid on the business, which he bought in January 1989. 5 & Diner had opened in June 1987, established by Mr. and Mrs. Pat McGroder and their managing partner Lenny Rosenberg. The partners soon had a falling out, Rosenberg left, and Mrs. McGroder attempted to run the diner on her own but was unsuccessful.

Higginbotham took over a restaurant that had a good location in central Phoenix but a poor reputation in the community. It was an operation with a confused identity. The original plan was to make it a quick service diner, but the owners changed their minds along the way. As a result, 5 & Diner was not properly set up for full service. It was supposed to affect a 1950s image, but the décor was, at best, uninspired and the wait staff uniforms were out of keeping with the concept. Upon taking over, Higginbotham closed down 5 & Diner temporarily to renovate and re-decorate the place. He installed a lunch counter and outfitted the waitresses in poodle skirts from the 1950s. He also upgraded the diner's sparse menu of hamburgers and other sandwiches, essentially transferring the menu from K's to the new operation. In addition, 5 & Diner began serving breakfast for the first time, correcting an obvious misstep of previous ownership, which tried to succeed by serving just lunch and dinner. Higginbotham also inherited a lackadaisical staff with no leadership and as he had done at K's; he began the process of winnowing the chaff from the wheat to build a motivated workforce.

Overcoming a bad reputation with customers took about two years, according to Higginbotham. To bring in business he was not above buttonholing potential customers on the street. Each weekday after the breakfast business began to tail off around 10 o'clock and before the lunch crowd drifted in, he hit the streets, handing out flyers and coupons to drum up business. Better food and better service led to repeat customers, and word of mouth brought in new customers, as 5 & Diner turned around in the early 1990s.

Early on, Higginbotham began to think about franchising 5 & Diner, encouraged in large part by the positive remarks from tourists who visited Phoenix during the winter and asked if a 5 & Diner might be opening in their home towns. Higginbotham hired a franchise attorney and developed a plan, but did not aggressively seek out franchisees. In the early 1990s a local man who had recently sold his Taco Bell restaurants became the first 5 & Diner franchisee, opening a unit in Reno, Nevada. It proved to be a frustrating experience for Higginbotham. The owner failed to take a hands-on approach to the business, showing up late or not at all, spending most of his time, according to Higginbotham, sitting at the lunch counter looking somewhat bored. No matter how much Higginbotham and his staff tried to support the operation, it failed to take root in Reno, and was eventually sold.

Mid-1990s Bring a Return to Franchising

Higginbotham put the franchising effort on hold while the program was refined. Franchising resumed in 1995, but Higginbotham now required franchisees to have at least five years of experience in the restaurant business. The second 5 & Diner franchise opened in Scottsdale, Arizona, with better results than Reno had experienced. Advertising efforts for the 5 & Diner conducted in 1996 led to increased interest from potential franchisees. Around this time 5 & Diner was also the beneficiary of a rebounding economy, which spurred tourism in Arizona and led to strong gains in the foodservice sector. According to Nation's Restaurant in a 1994 article, the Southwest along with the Mountain regions were "one of the last great frontiers for anyone looking for investment or career opportunities in foodservice.… Whether national chain or regional operator, independent restaurant or contract feeder, all are looking to ride the wave of strong local economics, above-average population growth, low unemployment, established tourism industries and low tax bases that made this region arguable the country's hottest restaurant market." In Arizona, the key market was Phoenix, which accounted for almost two-thirds of the state's population. Over the next decade, 5 & Diner built upon its base in Phoenix to open Arizona units in Tempe, Chandler, Mesa, Peoria, and Tucson. The company also franchised restaurants in Temecula, California; Orlando, Florida; Pleasant Hill and Johnston, Iowa; three units in Las Vegas; and single units in Franklin, Tennessee, and Fredericksburg, Virginia. Four of these restaurants were originally company-owned, but they were eventually all turned over to franchisees, in keeping with Higginbotham's belief that each restaurant needed a hands-on owner.

In the late 1990s Higginbotham prepared to take the 5 & Diner concept international, targeting Southeast Asia, where all things American held an appeal, but the collapse of the economy in the region forced him to shelve the plans. There had also been some thought to taking 5 & Diner public to fuel growth, but Higginbotham backed away from the idea, opting instead to add units domestically at a comfortable pace, typically one each year. While there was no rush to expand the chain, Higginbotham also set no limits in terms of size, his goal simply to open as many 5 & Diner as possible. He was also helped by his son, John, who joined the company and took over training and product research and development.

Company Perspectives:

Our concept is more than just a 50's style diner with 12 signature burgers. We are also a family destination, complete with a full menu featuring breakfast, lunch, and dinner.

In the 2000s 5 & Diner made several changes to maintain momentum. From the start the chain had been active in local marketing, but now it hired a dedicated marketing person. The company also reinvented its hamburger, changing every aspect from bun to meat, and developing its line of a dozen signature burgers. As a result, burger sales doubled. Then in 2004 5 & Diner revamped its entire menu, leading to the Phoenix unit winning numerous local awards for its food. After 5 & Diner added no new restaurants in 2003, it geared up for a significant franchising push. The 20th unit opened its doors in 2004, and another four were set to debut in 2005, located in Tulsa, Oklahoma; Sheffield, Ohio; Madison, Wisconsin; and Idaho Falls, Idaho. In a way the Tulsa restaurant brought Higginbotham full circle in his career. Franchisees Larry and Pat Wofford were adding the restaurant to their Harley-Davidson dealership on Route 66, which was being transformed into an entertainment complex selling all things Harley, using the legendary highway as its theme. While Tulsa was experiencing a surge in restaurant starts, the new 5 & Diner was well located, not only adjacent to a growing tourist attraction but well away from Tulsa's 71st Street corridor, home to most of the new restaurants. Close by were more than 2,000 hotel rooms, a number of office complexes, and about 350,000 residents in surrounding neighborhoods, providing plenty of potential customers in addition to out-of-towners drawn to the Route 66 Harley-Davidson dealership.

Higginbotham had several other franchising deals in the works, including a ten-unit agreement in Cleveland, and restaurants in the works in Boston and central New Jersey. He was also looking overseas again, this time exploring the possibility of franchising 5 & Diner in the United Kingdom.

Principal Competitors

The Johnny Rockets Group, Inc.; Shoney's Inc.; The Steak n Shake Company.

Key Dates:

1980:

Ken Higginbotham acquires a Phoenix coffee shop, his first restaurant venture.

1987:

5 & Diner opens in Phoenix.

1989:

Higginbotham acquires 5 & Diner, turning it into a 50s style diner.

1994:

Second company-owned unit opens in Scottsdale.

2000:

Chain totals 17 units, one of which is company-owned.

2004:

The 5 & Diner menu is revamped.

Further Reading

Blossum, Debbie, "Harley Dealership Gears For Expansion," Tulsa World, March 25, 2005.

"The Country's Hottest Restaurant Market," Nation's Restaurant News, February 21, 1994, p. 52.

Mitchell, L.A., "Nostalgia for '50s Feeds Franchise Boom at 5 & Diner," Arizona Business Gazette, December 12, 1996, p. 5.

Perlik, Allison, "All in the Family: Traditional Family-Dining Concepts Still Hold a Warm Place in Americans' Hearts," Restaurants & Institutions, June 1, 2003, p. 61.

—Ed Dinger