He wasn’t heading for the neon lights when he missed his exit off Interstate 95, but that’s where Donald L. Perlyn ended up four years ago.
After making a U-turn at Commercial Boulevard and Powerline Road, Perlyn saw what he later learned was Fort Lauderdale’s first Miami Subs restaurant. He pulled in and ordered a gyro and a grilled chicken sandwich.
And while eating among the tropically themed wall murals and colorful neon signs, Perlyn was hooked.
Today he is one of the top executives at Miami Subs Corp., in charge of overseeing the expansion of one of the fast-food industry’s more aggressive upstarts.
“I saw the potential with this thing and went with it,” Perlyn said. “We talk about eventually having 1,000 units around the country and that’s not just hype. We can do it,” Perlyn said.
During the past two years, the Fort Lauderdale company has made no bones about its plan to become a national player in the American restaurant industry.
But it may be too early to tell if the fledgling Miami Subs has bitten off more than it can chew. Analysts say that Miami Subs has the financial capability to carry out its much-hyped expansion plans but question if the chain will be able to hang onto quality control if it grows too fast.
And growing pains are to be expected: The company remains a relatively small chain, with just 103 outlets. And during the past year, Miami Subs’ stock has fallen from a high of $6 and is hovering around $3-$4 a share. And because of its youth, investment in Miami Subs stock still involves a significant risk.
The successes of Miami Subs have come through the failures of others: Ninety-eight percent of the chain’s growth is by the conversion of failed fast-food outlets to Miami Subs.
“We have no doubt benefited from the economic downturn and the glut in the restaurant industry,” Perlyn said.
And Miami Subs is changing as it grows. The company added rotisserie-grilled chicken at its larger restaurants to the subs, hamburgers, gyros, fried shrimp, salads and frozen yogurt already on the menu. The company recently announced the chain will carry the name Miami Subs Grill to better reflect its menu.
Perlyn, 49, seems a jack-of-all-trades at Miami Subs, jumping behind the counter to serve customers before running to a meeting with the company’s investment bankers. Perlyn branched into franchising soon after law school and was an executive with Lum’s and Pizzeria Uno and president of a restaurant franchise company before joining Miami Subs.
“I made the right decision to tie my future to Miami Subs,” he said.
The restaurant business continues to be highly competitive with a high turnover rate, but Miami Subs has as good a chance as anybody to succeed, said Roger Lipton, a restaurant analyst with Ladenburg, Thalmann & Co. in New York.
“They’re a small company, but I would say the toughest part is behind them, and that’s getting established,” Lipton said. “The concept is appealing and without question the food is superior to typical fast-food fare, but the key question is can they continue to deliver that consistently as they expand into other markets?”
For two years, Miami Subs officials have been busy making announcements about deals closed with future franchisees and joint venture partners that translate into the eventual opening of 290 restaurants in 13 states and Mexico.
For now, there are 103 Miami Subs outlets operating in eight states, most of which are in Florida. Sixteen restaurants are company-operated, while 87 are franchised.
“We certainly are continuing to grow at a good, solid pace,” Perlyn said, adding that it wouldn’t make sense to open hundreds of restaurants all at once during the early stages of growth.
“Creating a market presence is one thing, but killing yourself in the process is a whole other story. All of those deals involve a timetable of from three to five years,” he said.
There is a natural lag time between announcing a deal to open restaurants and the actual opening that has to do with finding the right sites, negotiating with landlords and handling zoning questions, he said. In addition, economic issues and the strength of the real estate market in particular markets affect the timing.
“But we’d like to see a good hunk of this chain established over the next few years,” Perlyn said.
As Miami Subs has grown, financial backing has extended beyond the cash and personal loan guarantees originally supplied by Gus Boulis, the founder of a chain of Mr. Submarine shops in Canada who relocated to South Florida and created Miami Subs.
A year ago, Miami Subs merged with QSR Inc., another Boulis-controlled entity, and became a public company with shares traded over NASDAQ.
Boulis and other company managers continue to control 55 percent of the shares. Because the company is at a much earlier stage in its growth than other publicly traded restaurant companies, it presents a higher risk for investors, said Camille E. Humphries, a restaurant analyst with Alex. Brown & Sons, Miami Subs’ Baltimore-based investment banker.
“But at this point the company should have the financial power to fund their growth for the next few years,” Humphries said.
Last fall the company raised $15 million through a private equity offering, the proceeds of which were used to establish a stronger base of company- operated Miami Subs outlets in Houston, Atlanta, Washington, D.C., and Tampa. Those stores are targeted as hubs from which franchisees in the area can receive corporate support, Perlyn said.
The chain recently has had to deal with some unexpected events, namely Hurricane Andrew, which damaged 12 of the 16 Miami Subs outlets in Dade County and closed three restaurants that needed extensive repairs. The storm led to Miami Subs taking an additional loss of $150,000 for fiscal 1992.
Earlier this year, Deloitte & Touche resigned as Miami Subs’ accounting firm, citing a potential conflict of interest involving the company’s chief financial officer. The issue stemmed from the fact that both parties had been involved with the failed Commonwealth Savings in the past, Perlyn said. The company has since retained Peat Marwick Main & Co.
In July, C. Ronald Petty resigned as the company’s president and chief executive officer, citing personal reasons after 18 months with Miami Subs. Two other executives and Miami Subs’ in-house counsel left the company shortly afterward. Perlyn said the resignations were unrelated and “an unfortunate coincidence.”
