December 2, 2001, Sunday

New York Times

Resuscitating Two Familiar Restaurant Chains

By WARREN STRUGATCH

Last month, Ms. O'Donnell, the television talk-show personality, was chatting on the air with John Travolta and was reminiscing about the restaurants, which served deep-fried battered fish fillets and distinctively chunky fries, accompanied by a squirt of malt vinegar, all served up in a whimsical English-style storefront.

Then, as Jeffrey Bernstein, the president and chief executive of Arthur Treacher's Inc. in Lake Success, tells it, Ms. O'Donnell shattered his hopes for an on-the-air plug. ''Unfortunately, Rosie then said, 'It's a shame you can't get Arthur Treacher's anymore.' ''

Which is not the case, as Mr. Bernstein will be the first to tell you. Mr. Bernstein, a large, good-natured man of 51, seemed more philosophical than angry about the remark, although he said he had asked Ms. O'Donnell to clear up the matter on a future program.

Founded in 1969, Arthur Treacher's Fish & Chips thrived in the 70's and into the 80's as an alternative to the usual burgers, chicken, pizza and hot dogs that make up most fast-food offerings. The seafood chain grew fast -- too fast, perhaps -- and six years ago it was bought by Bruce Galloway, a turnaround specialist and Internet entrepreneur in Manhattan.

Mr. Bernstein (pronounced BURN-steen), a former food broker and executive of the Cooky's Steak Pub chain, was at the time eyeing turnaround opportunities of his own. In June 1998, Mr. Bernstein said he happened to overhear a conversation in bankruptcy court in White Plains between two lawyers who were talking about Pudgie's Famous Chicken. Founded 20 years ago in Bethpage, the Pudgie's chain specialized in skinless fried chicken that was promoted as having 25 percent less fat and cholesterol. After expanding rapidly, the chain found itself undercapitalized and in financial duress. There are now 35 Pudgie's, 25 on Long Island.

''I did my due diligence quickly and bought the chain a couple of days later, for $425,000,'' Mr. Bernstein said. He also took on the company's debt, about $700,000. Last year, Mr. Galloway approached Mr. Bernstein with an idea for a partnership: Arthur Treacher's restaurants would offer Pudgie's items on their menus, and vice versa in a strategy known as co-branding. Last year, the men made a deal and merged the two chains into Arthur Treacher's Inc. under the umbrella of the Digital Creative Development Corporation, Mr. Galloway's investment company.

According to documents filed last December with the Securities and Exchange Commission, Arthur Treacher's Inc. can be split off and turned into a separate company. Mr. Bernstein said that might happen within the next few months.

Meanwhile, he's working on restoring former glory. He doesn't deny that both companies have had problems but said that they are now fundamentally sound businesses.

''Companies run into trouble when the founder is too close to the business and can't make the difficult decisions,'' Mr. Bernstein said. ''When you come in from the outside, it's easier to see what needs to be done, and do it.''

Mr. Bernstein quickly closed about 20 underperforming Arthur Treacher's locations. He culled unpopular items from the menu, then introduced new items, like fried mozzarella sticks and jalapeño poppers, that veered from the chain's English seafood motif but seemed to appeal to younger customers. He changed a number of suppliers and sought to improve communication with store managers and franchisees.

Today, the chain numbers about 100 locations. About a third of them are on Long Island and another third in Ohio, reflecting the company's roots in Youngstown. The remainder are scattered along the East Coast. The chain's products can also be found at about 100 restaurants owned by Nathan's Famous, including its signature hot dog restaurants, as well as at its Kenny Rogers Roasters and Miami Subs outlets. And Arthur Treacher's plans to grow again, starting with an East Coast expansion next year, Mr. Bernstein said.

Thanks to co-branding, Arthur Treacher's is not just seafood and Pudgie's is not just fried chicken. While individual franchisees can choose whether to offer both brands, most chose to offer both. Co-branding, in fact, is about the hottest thing in the fast-food industry today, exemplified by such high-profile national pairings as Taco Bell and Pizza Hut, Dunkin' Donuts and Baskin-Robbins. In recent years co-branding has been behind the revival of a number of restaurants that had fallen from favor. Two among them are Mr. Bernstein's co-branding partners, Kenny Roger's Roasters and Miami Subs, both of which were acquired by Nathan's Famous several years ago.

''You're giving customers more choices,'' said Wayne Norbitz, the president and chief operating officer of Nathan's Famous, based in Westbury. ''More customers will come in your door, and regular customers will come more often, because you're giving them more variety with new menu items. People discover a brand this way, who might not have gone into the restaurant if it were the only sign on the door.''

Indications are that Mr. Bernstein's plan is working. Sales of Arthur Treacher's and Pudgie's products are expected to reach about $40 million during the fiscal year that ends next June 30. ''This year, we're going to turn the corner into profitability,'' he said, but he would not specify by how much.

John Mendola, an advertising executive in Commack, was an original Pudgie's franchisee. Today Mr. Mendola handles Arthur Treacher's local television advertising campaign through his company, Mendola Kiernan Advertising.

''Pudgie's problem was that management expanded too fast,'' Mr. Mendola said. ''They were opening up stores all over the place, in Florida, Texas, Chicago, Cincinnati. They didn't have the controls in place to assure quality. Everything happened too fast, and they lost control of the situation.''

Mr. Mendola said that Pudgie's and Treacher's complement each other well. He said that Pudgie's franchisees find that their customers tend to come in for dinner, and that Arthur Treacher's brings in the lunch crowd.

For Mr. Norbitz, it's the other way around. ''The Nathan's restaurants are traditionally busiest at lunch,'' he said. ''At dinner customers are more likely to order the branded fish products.'' Arthur Treacher's sales still go up on Fridays and during Lent, he said, although not as markedly as in past decades.

Gary L. Herman, an investor who is a director of Arthur Treacher's Inc., contends that the chains are positioned for success in part because Mr. Bernstein has tapped existing, if long neglected, customer bases. ''People remember these products,'' he said. ''People now in their 30's and 40's, they hear 'Arthur Treacher's' and the first thing they say is: 'That's still around? Where can I get it?' ''