Denny’s Diner Back to the Future

Joe Cloutier likes the new brand of nostalgia being served up at Denny’sRestaurants. Cloutier’s year-old franchise in Rockport, ME, is buildingstores in the chain’s new diner design, with classic retro features likeglass-block construction and Wurlitzer jukeboxes filled with tunes from the’50s and ’60s. Cloutier built two eateries from the ground up using Denny’stwo-year-old Classic Diner style, and is remodeling four others on a Diner2000 design launched this year.

“Denny’s really needed a new image and, as far as I’m concerned, the dineris the right choice. The diner originated in New England. It’s wellreceived here,” says Cloutier, a former Holiday Inn and Comfort Inn owner.

Diner-style Denny’s outlets owned by Cloutier in such Maine towns as Bangorand Elsworth are producing 15 percent more traffic than thetraditional-design units, he says.

Denny’s, a $1.2 billion nationwide chain, is betting big on the dinerconcept, which is the most visually dramatic evidence of a repositioningthat encompasses everything from food quality to the in-store experience.After remodeling 150 restaurants in the ’50s style this year, the1,700-outlet chain plans a sweeping $500 million facelift. Later this year,another version of Diner 2000 for use in newly built stores will be ready,the company says.

But bricks and mortar alone don’t explain the increased traffic toCloutier’s eateries. The owner employed some aggressive local activities,including a ticket program with local high schools that pledged apercentage of restaurants’ gross sales to graduation events. His tacticswere consistent with Denny’s national marketing efforts targeting familieswith kids and the lucrative Generation X and Y demos.

The chain tapped Dallas-based promo agency Tic Toc in April for kidsmarketing, shifting the business from Strottman International, Irvine, CA.Denny’s named Redondo Beach, CA-based PremiereGroup for product-basedpromotions, menus, and merchandise (once handled by Diamond Group, New YorkCity). In May, the chain launched a new ad campaign by Lowe & Partners/SMS,New York City, featuring a rooster character. The cocky bird, which makeshens swoon, won viewer raves when it first appeared in spots last year.

“The repositioning is driving the resurgence of a great brand in America,”says Denny’s senior vp-marketing Jon Jameson, who was a Host Marriott Corp.executive before joining Denny’s in 1995. “You have to look at every singleelement of the brand. And there hasn’t been one we’ve left unturned.”

The flagship chain of Advantica Restaurant Group, Inc., Spartanburg, SC,Denny’s adopted the diner concept and the tag “America’s Original BreakfastDiner” based on research showing that consumers already considered it morelike a diner than any other chain. “We already owned [the image]. All wehad to do was polish it,” says Jameson.

Clearing the airDenny’s has relied on elbow grease before. A leveraged buyout in 1989 leftthen-owner TW Services with a load of debt and under-performing divisionslike Denny’s sister chain Hardee’s, which was getting clobbered by fastfood competitors.

Shortly after the buyout, Denny’s was rocked by lawsuits alleging racialdiscrimination at its restaurants. In 1994, its parent company – by thenrenamed Flagstar Corp. – agreed to pay more than $50 million to settle aclass-action suit, and began a difficult and sustained battle to counter animage of a company that treated minorities unfairly.

By January 1998, Flagstar completed Chapter 11 bankruptcy reorganization,clipping $1 billion off its debt. Flagstar reemerged as Advantica and shedHardee’s and the Quincy’s Family Steak House chain, collecting $500 millionthat it tucked away to be used for Denny’s makeover.

Under Advantica chairman Jim Adamson and Denny’s ceo John Romandetti – whojoined Denny’s in 1997 after producing sterling results at sister feeder ElPollo Loco – the chain has hammered at the racial-bias issue, in part byhiring minorities and awarding supplier contracts to minority companies.Adamson was named CEO of the Year and Denny’s Corporation of the Year in1996 by the National Association for the Advancement of Colored People, andAdvantica ranked second last year in a Fortune list of the 50 bestcompanies for minorities.

“They have sent a clear message through the system that those days arebehind. And the perception is they have left it behind,” says RestaurantBusiness editor Peter Romeo.

Busting outBoundaries are blurring not only within the family dining segment butbetween quick-service restaurants, casual diners, and family dining.Denny’s is shooting for a clear-cut brand image as a “value leader,” havingdropped its positioning as the low-price leader five years ago, saysJameson.

Tic Toc is offering programs to appeal to kids at different age levels in aWait Buster campaign that keeps kids engaged for the 20 minutes it takesfood to arrive.

“It’s built around the idea of interactivity,” says Tic Toc ceo Mark Mears.”All kids make the transition from fantasy to reality play. But it’shappening faster now and kids want toys with extended-play value.”

A magazine called Kid’s Buzz debuted in May, with features for kids four to12, and is reaching four million kids in the restaurants, says Mears. Withpunch-outs, freelanced feature stories, and a comic strip starring ReddRooster,Kid’s Buzz will be “the glue that holds the whole kids’ programtogether,” says Mears, who is having the magazine audited in order to pitchoutside advertisers.

Denny’s has a 15-month deal with San Francisco-based Primordial that givesthe toy marketer’s Zoob construction toys “$5 million to $6 million inmarketing exposure from sampling and gross impressions,” says Mears.Restaurants began passing out Zoob sample buckets and offering a 17-piecekit for $3.99 in May. Eateries will be “refreshing” the promo along theway, but Mears feels the toys are long-term winners. “We think the momentumbehind Zoob is only going to get stronger,” he says.

Tic Toc is planning a “destination station” program for later in the year.”We will be testing more high-tech interactive elements for the older agesegment,” he says. “We want to make Denny’s the gold standard on how tomarket to families with kids.”

Denny’s is performing the difficult trick of boosting its average checkprice by eliminating the deeply discounted $1.99 Slam breakfasts andgetting guests to order higher ticket items, including lunch and dinner.New comfort food items like meatloaf and hot open-faced sandwiches hikeprofits while supporting Denny’s refocus on family. Branded items such asA-1 Steak Sauce and Butterfingers are part of the menu’s quality upgrade.

The chain’s efforts are helping to fire up family dining, Jameson says. “Ifyou look over the last twelve to eighteen months, people are saying thatfamily dining is becoming an occasion-driven alternative, picked at timesover QSRs,” he says.

Denny’s check average increased four to five percent each quarter in 1998,says analyst John Wlodek of Imperial Capital, Beverly Hills, CA. Same-storesales, meanwhile, have increased four consecutive quarters, including a 3.6percent bump in first quarter ’99.

Franchisees’ activities so far seem to support the view from HQ that ownerswill fall in line behind the rebranding program. Diner 2000 remodels inFlorida, Philadelphia, and Seattle are producing double-digit sales gainsand consumer kudos. “The designs were well received across the board byconsumers of all ages. They saw dramatic improvement in the atmosphere,”says Denny’s spokesperson Debbie Atkins.

Denny’s opened 93 new restaurants in ’98, the most since 1980. Franchiseesopened 72 outlets after a record 77 in 1997.

“A few years ago, the franchisees were up in arms. Now they are puttingmoney into the restaurants and opening new ones. That never used tohappen,” says editor Romeo.

It’s still too soon to say whether this long-standing neighborhood fixturewith the yellow and green signs has scored a slam-dunk – or even a GrandSlam – by adopting the diner style. So far, consumers and franchisees seemto approve.

But QSRs still wear the glow of shareholder earnings and rapid unitexpansion, and family diners – even 24-hour stalwarts like Denny’s – willfind that market-share growth doesn’t come over-easy.