James Original Coney Island Inc.

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James Original Coney Island Inc.

11111 Katy Freeway, Suite 700
Houston, Texas 77079-2117
U.S.A.
Telephone: (713) 932-1500
Fax: (713) 932-0061
Web site: http://www.jamesconeyisland.com

Private Company
Incorporated: 1923
Employees: 475
Sales: $15 million (2005 est.)
NAIC: 722110 Full-Service Restaurants

James Original Coney Island Inc. is a private company that operates a small chain of Houston, Texas, hot dog restaurants called James Coney Island. Only one of the company's 22 stores is located outside of the Houston metropolitan area; it is found in Conroe, Texas, some 40 miles north of the city. For years, James Coney Island has planned on expanding the concept throughout Texas, as well as franchising, but the goal has proven elusive. In Houston, however, James Coney is something of a legend, known for its Coney Island chili hot dogs that rely on specially made wieners and buns. In addition, the stores offer hot dogs in other styles, including Chicago dogs loaded with vegetables, New York–style hot dogs with sauerkraut, and Texas-style chili dogs. Other menu items include Italian sausage, bowls of chili, chili pies, corn dogs, a variety of hamburgers, cheese-steak sandwiches, turkey sandwiches, French fries, baked potatoes, and onion rings. Dessert items include ice cream cones and sundaes, milk shakes, cookies, brownies, pie slices, and apple bites. James Coney Island also hosts birthday parties that are popular with children, and provides catering services, as well.

ORIGINAL STORE OPENS: 1923

James Coney Island was established in Houston by brothers James and Tom Papadakis. The sons of a carpenter, they were born in Greece and immigrated to New York City in 1920 with little more than a third grade education. Before settling in Houston they visited the famous Coney Island, where the hot dog was first introduced around 1870. Credited to Charles Feltman, the handheld treat became a mainstay of the amusement parks that populated the area. Ironically, Coney Island was not the birthplace of the "Coney Island" chili hot dog. Rather, Michigan laid claim to the development of "coney sauce," a beanless chili, and this hot dog variant then spread to other parts of the country, proving to be especially popular in the Midwest. In Coney Island itself, hot dog aficionados preferred their "frankfurters" with mustard and sauerkraut. Around the time the Papadakis brothers paid their visit to Coney Island, the hot dog business had been dominated for decades by Feltman's carts and restaurants, but Feltman's stronghold was being challenged by Nathan Handwerker, a former employee who undercut Feltman's price, selling his hot dogs for just a nickel from a corner location he established in 1916 called Nathan's Famous. By the time of their visit to Coney Island, it was quite likely that it was a Nathan's nickel hot dog that the Papadakis brothers sampled. In any event, when they moved to Houston and decided to start their own hot dog venture, with just $75 in their pockets, they settled on a nickel as the asking price for their dog. The younger brother, Tom, was credited with convincing James to go into the hot dog business, but when it came time to choose a name they flipped a coin. Because James won the toss, the new restaurant took the name James Coney Island. For a salary, they decided to pay themselves $15 a week.

The first James Coney Island eatery was located on the ground floor of the Beatty-West Building in downtown Houston. The Papadakis brothers developed their own wiener recipe and had buns specially baked to hold them. The five-cent hot dogs proved popular with Houstonians, but the brothers did not limit themselves to just selling hot dogs. For 15 cents customers could buy a bowl of secret-recipe chili. Also popular was a sandwich that combined goose liver and Roquefort dressing. But it was the hot dogs that kept the customers coming back, whether they were menial laborers or oil barons. The restaurant was so packed with customers that to supplement the stools, tables, and chairs, the brothers bought tablet-arm school chairs to accommodate the overflow crowd. The old wooden school desks became part of the charm of James Coney Island, and the shabbier the restaurant grew over the years the more beloved it became to Houstonians.

SECOND LOCATION OPENS: 1968

In the 1960s, as the Papadakis brothers grew older, a second generation became involved in the business: Tom's sons, Jimmy and Peter Papadakis, and a brother-in-law, Louis Servos. It was at the urging of the new blood that the founders finally agreed to establish a second James Coney Island. It opened in 1968, located near Houston's Town & Country mall. In that same year, James Papadakis died at the age of 75. His brother was nearing 70 years of age and to make way for the next generation, ownership was transferred in 1971 to the three younger family members, with Jim and Peter Papadakis and Servos each receiving about one-third of the company. Three years later Tom Papadakis died at the age of 76.

The second generation of ownership began opening more James Coney Island restaurants, adding five more in the Houston area over the next seven years. Peter Papadakis left the company in 1982, selling out to the two other family members. Jimmy Papadakis and Servos continued to grow the operation, doubling the size of the chain to 14 by 1988. While the stores did well, the parent company found itself burdened by a heavy amount of debt, the result of ill-chosen business ventures far afield from hot dogs and food service. According to press accounts, the two partners in the early 1980s made investments in foreign car dealerships that did not pan out—due in large part to difficult economic times in Texas as the energy sector suffered a severe downturn—and these were ultimately sold at a loss. Loans taken out to finance the dealerships were backed with Coney Island assets. With sales in the $8.5 million range, the hot dog restaurants simply could not generate enough cash flow to keep up with the interest payments. Not surprisingly, Papadakis and Servos fell out, reportedly disagreeing on how to run the hot dog chain, and at one point Servos was ousted from his managerial post at James Coney Island. He sued Papadakis and in April 1989 was reinstated as co-chief executive of the company. But the financial picture continued to deteriorate, so that by September 1989 the company had no choice but to seek Chapter 11 bankruptcy protection. At the time James Coney Island listed $6 million in assets and $6.8 million in bank debt.

COMPANY PERSPECTIVES

James Coney Island has been serving Houston's favorite Coney since 1923 for one simple reason—They're the best!

The hot dog business itself remained profitable, the highest grossing of the stores posting an impressive $1.4 million in annual sales. So, as the company began to reorganize under Chapter 11 there was no lack of suitors who recognized that the chain possessed untapped potential. The early front-runner was Schlotzsky's LTD., an Austin, Texas-based chain of deli-style sandwich shops that had Houston locations. Schlotzsky's wanted to expand the James Coney Island chain throughout the Southwest, relying on both company-owned and franchised stores, but it was soon nudged aside by a pair of Houston investment groups who made comparable bids. One group headed by Jack Trotter, the former chairman of Allied Bank of Texas and part owner of the Houston Astros and the Astrodome, made it clear that Jimmy Papadakis and Servos would not be retained. A Trotter associate, Tom Hook, told the Houston Business Journal, "Louis and Jimmy were the guys who were running it when everything was put into bankruptcy." The second group of investors expressed confidence in the brothers-in-law and indicated that they would be kept on to run the business. It was their $7.3 million offer that was accepted in 1990. The six-person investment group included a number of prominent Houston food veterans, including Donald Bonham, owner of the Fiesta Mart grocery store chain; restaurateur Irvin Kaplan; Max and Milton Levit, owners of the Grocers Supply wholesale stores; real-estate investor Edwin Freedman; and Ghulam Bombaywala, owner of the Two Pesos Marco's Mexican restaurant chain and other Houston eateries. It was Bombaywala who would serve as the investors' point person, becoming president of SPP Inc., the investor company, while Papadakis and Servos continued to run James Coney Island.

Like the company's other suitors, the new owners of James Coney Island were interested in expanding the chain in the Houston market and beyond. New units were added, leading to an increase in sales in 1991 to the $10 million mark. In 1992 two more stores were added, bringing the total to 18. One of them was located in College Station, Texas, close to the campus of Texas A&M University, representing the chain's first foray outside the Houston market. The chain appeared to have momentum and there was talk of opening several new restaurants each year and franchising the concept. The anticipated expansion did not come to pass, however. In fact, the chain receded in 1993 when the original downtown Houston location was closed after 70 years due to the deteriorating conditions of the Beatty-West Building.

NEW PRESIDENT: 1993

With James Coney Island faltering, Bombaywala brought in fresh management help by hiring 33-year-old Darrin Straughan, the chain's current president. Straughan had actually been seeking a job at James Coney Island for several years. A University of Houston graduate with a degree in accounting, Straughan was working as the head of marketing at the Kettle Restaurant chain in the late 1980s when he became interested, almost obsessed, in fact, with the James Coney Island chain. He began visiting the restaurants on his lunch break to study the operation and take notes, leading to the development of a 50-page business plan on how to modernize James Coney Island, work that he essentially did for his own benefit. While the chain underwent bankruptcy and a change in ownership, Straughan continued to work for Kettle Restaurant but did not lose his interest in James Coney Island. He took note of the changes the new owners had made but was still disappointed with the inconsistent service and the drab structures, telling the Houston Business Journal, "They looked like savings and loans that went out of business and were made into hot dog stands."

In 1991, while on his way home on a business trip, Straughan was seated next to Bombaywala and struck up a conversation about James Coney Island. This led to a six-hour meeting in March 1991, in which Straughan went into detail about his ideas for the chain. Bombaywala did not hire him, but undeterred, Straughan continued to lobby for a job. "He was really persistent and consistent," Bombaywala told the Houston Business Journal. "He called me every month for three years." Finally, in 1994 Bombaywala invited Straughan to lunch and hired him to run James Coney Island. By this time Servos had retired, but Papadakis stayed on, and he soon clashed with the enthusiastic Straughan. "I was the new guy waving my arms, talking like a college football coach, patting everyone on the butt and screaming," he recalled for the Houston Business Journal. "They thought I had brain damage."

Nevertheless, Straughan began making changes in the operation, such as giving a contemporary look to the exterior to one of the restaurants. Papadakis soon retired, giving the new president more of a free hand to operate, but it was an operation beset with numerous problems to solve. One of the units, he discovered as winter arrived, had gone without heat for years. Should customers complain, they were just advised to eat more chili. Straughan took pictures of a multitude of problems—such as the wading pool positioned under a leaky roof—and plastered them on his office wall to keep him mindful of the task ahead. Slowly, he worked to address them all, while convincing the owners to allow him to upgrade uniforms and signage. He also made the difficult decision to close the College Station restaurant in order to focus on solidifying the chain's home base.

KEY DATES

1923:: Brothers James and Tom Papadakis open their first hot dog restaurant in Houston.
1968:: The second James Coney Island location opens.
1971:: The family's second generation assumes ownership.
1989:: The company declares bankruptcy.
1990:: An investor group acquires the chain.
1994:: Darrin Straughan is named president of the company.
2003:: The Austin restaurant is closed.

Never at a loss for energy, Straughan drove from store to store, talking to employees as well as customers, while also delegating greater authority to managers. He flew to Chicago and New York to sample hot dogs in those cities and expanded the menu of James Coney Island to include Chicago-style and New York–style hot dogs. In 1997 he pursued a convenience store concept, opening a pair of units in concert with Exxon, one in Houston and another in San Antonio. The chain also began investing in advertising. As a result of these efforts, James Coney Island began showing increases in same-store sales in the late 1990s.

By the start of the 2000s, James Coney Island was operating in 23 locations in the Houston area. Straughan felt the time was right to expand the chain to other cities in Texas and transform James Coney Island into a regional chain. In September 2000 a restaurant was opened in downtown Austin, but since its clientele was primarily limited to a lunchtime crowd, it failed to do enough business, and in March 2003 it was closed. The five to six new units the chain hoped to open each year had not yet materialized. By the fall of 2006 the chain was still talking about expanding to other Texas markets and making a list of potential franchisees, but whether James Coney Island would ever succeed in breaking outside of the Houston area remained an unanswered question.

Ed Dinger