By Gregory J. Gilligan

There is a building national business behind that Dominic's Of New York^® food cart in front 0of your neighborhood Lowe's.

Most food carts and hot dog stands are small-scale operations that set up shop at festivals or on downtown streets.  Dominic's Of New York^®, however, has broken the mold.

The company's owners are creating the country's first chain of food carts and doing it from headquarters in Richmond -- not New York.

In a little more than two years, the Dominic's Of New York^® chain has grown from one location in Richmond to 35 locations in six states.  Fifteen more units are expected to open this year.

Sales of the chain's signature Italian sausage sandwiches and Philly cheese steak sandwiches should exceed $7 million this year, up 70 percent from 1996 revenue.  The company expects to post its first profit this year.

Franchised units, which would give Dominic's Of New York^® another growth vehicle, should begin opening later this year or early next year. 

By the end of the decade, there could be 300 Dominic's Of New York^® locations with sales of more than $75 million.

There's even talk of expanding internationally, possibly to Japan.

And Wall Street might get a bite of Dominic's Of New York^®.  The company is considering an initial public offering of its stock in 1999, depending upon market conditions.

The plans for all of this growth are rooted in nothing more elaborate than food carts in front of large retail stores.

"No one else is doing what we are doing," said John Felico, the co-founder, president and chief operating officer of FoodNet Inc., the Richmond-based company that operates the Dominic's Of New York^® chain.

"We're trying to bring a level of sophistication to break ourselves away from a poor image that cart operators often have," he said.

The food cart business is such a small niche in the overall food service industry that the National Café Association does not even track sales figures.

Felico and his partner, Richard K. Kave, have moved Dominic's Of New York^® to a new level for food carts.  The have found a way to operate profitably a large number of carts selling ethnic food year round.

In fact, the owners want to change the terms of the industry they are trying to revolutionize.  They prefer the name "mobile kiosks" to food carts.   "Food carts have such a bad connotation," Felico said.

Jeffrey F. Omohundro, an analyst who follows the café industry for Wheat First Butcher Singer Inc., is impressed with the concept and how FoodNet is executing it.   Dominic's Of New York^®, he said, could be the country's next McDonalds or Wendy's, albeit on a much smaller scale.

"They have brought an entrepreneurial approach to the food cart business," Omohundro said.  "The outlook for growth is quite good.  They have what it takes to get it to the next level.

One of the key factors that impresses Omohundro is the earnings levels of each Dominic's Of New York unit.  Operating profits are a robust 25 percent to 27 percent of sales, high by café industry standards.

"They have very little investment in their kiosks, but they have unit margins that are one-third above what other cafés do," said James Z. Sowers, an assistant vice president of corporate finance at Scott & Stringfellow Inc.  "It is just amazing what they have done."

John W. Vining, vice president for administration at Lowe's Cos. Inc. home improvements chain, is equally impressed.  All but four of the 35 Dominic's Of New York^® locations are at Lowe's stores. 

"Dominic's is the first group we have found that approaches the business from a corporate point of view and has built a business along a corporate standard," Vining said.  "They have a commitment to the business that you don't usually see among mom-and-pop operators."

Dominic's Of New York^® traces its roots to the Italian street festivals of New York City.

For decades, Felico's late father, Dominic, sold Italian sausage sandwiches from a trailer at fairs and festivals.  His grandfather sold Italian candies from a wooden pushcart.

"They went from festival to festival working, but in the wartime, they relaxed for a few months," Felico said.  "My father was kind of living the life of a carney," referring to a carnival worker.

When Felico graduated from high school in 1985, his father let him use a trailer parked in the family's back yard to open a food cart near the repair and maintenance shops at John F. Kennedy International Airport. 

Felico wanted more, though.

He had hopes of expanding, but New York City laws prohibited a street vendor from having more than one permit.

Using an old typewriter and a Polaroid camera, Felico put together a business plan and sent it off to retailers.  He asked them to allow him to put one of his carts in front of their stores.  A store, Felico reasoned, would draw enough customers to make the food cart profitable. Officials at the discount retailer Ames Department Stores, Inc. called Felico saying they were interested.  They were supposed to send Felico some legal information, but he never heard from them again.

In the meantime, a company providing soda vending machines to North Carolina-based Lowe's put Felico in touch with the home improvement retailer.

"That was my lucky break," Felico said.

Lowe's had decided it wanted to provide customers with some sort of food service.   It had tried other food operators, but those experiments failed.

The fast-growing chain allowed Felico to test his food cart concept at some of its stores in Virginia.

Expanded to Hampton Roads by fall

The first unit opened March 17, 1995, at the Lowe's store at 4502 W. Broad St.   More units opened in the Richmond area, and Dominic's Of New York^® had expanded to Lowe's stores in Hampton Roads by that fall.

By October 1996, Lowe's signed an agreement with FoodNet to place Dominic's Of New York^® units in 50 to 60 stores in a year or so.

"They are our preferred food operators," Vining said.

Given the chain's name and its New York roots, Felico admits it is somewhat ironic that the company calls Richmond home.  Shock jock Howard Stern even made some radio commercials for the chain touting its New York connections.

"You don't know the number of people who have told us to take the New York out of our name, or that you can't sell anything associated with New York in the South," Felico said.

The company's offices were set up in Richmond, he said, because the first food carts at Lowe's opened there.

Possibilities appear endless

Felico originally looked at Staunton because it appeared that city was more centrally located in Virginia.  But Richmond proved to be a better hub, he said.

"One day eventually, we will have a location at Times Square in New York," Felico said.  "Then we will truly be Dominic's Of New York^®."

The expansion possibilities for Dominic's Of New York^® appear endless.

The chain can locate at any of the Lowe's stores. 

Examining other venues

The company is examining other venues, including malls and other retailers, besides Lowe's.  The company, for instance, expects to sign an agreement with another retailer in about a year.

"As our concept evolves, we will have a lot of opportunities to do a lot more of these in a lot of different environments," Felico said.

Lowe's isn't the only retailer that has had Dominic's Of New York^® food carts.  A handful of Wal-Mart stores in Hampton Roads had carts until late last year.  Those were removed when those stores were enlarged, and McDonald's and Taco Bell outlets were added.

"When Wal-Mart had their snack bars in those stores, we grossed more than the snack bars," Kave said.

Even before FoodNet Franchising, Inc. decided to offer franchises, it had received a tremendous amount of interest from people requesting information, Felico said.

As the company has grown, Dominic's Of New York^® has changed its menu to satisfy the appetites of a larger customer base.

Italian sausage -- hot or mild -- has been its mainstay since the beginning, but the company has added other products.

To attract more women, for instance, Dominic's Of New York^® added chicken and veggie sandwiches. 

Remembered its heritage

While Dominic's Of New York^® is creating a large chain, its owners have remembered one thing from its heritage as a food cart operator.  Employees working the food carts are important to the success of the business.

"We hire people with personality," said Felico, who trains the employees in a manner similar to the way his father taught him.  He shows workers, for instance, how to toss green peppers and onions on the grill to create an aromatic smoke.

Customers first buy the product because of the aroma and entertainment provided by the employee, Felico said.

Managers can earn a salary and bonuses of up to 22 percent of the kiosk's gross sales.

At one of the chain's locations, there were days when the kiosk was barely doing $78.   Felico moved the cart to a better location without any results.

But once a new manager came on board, sales shot up.  Now the unit is generating about $7,800 in weekly sales.

"That made us realize that it is not the location, but it is the person behind the grill," he said.  "It's the same thing my father taught me."