Denny's CMO Shift Spotlights Family Format Challenges


Even during one of the longest serious downturns in history for the restaurant industry, it's not every day that a major chain announces the simultaneous resignations of its CMO and COO.

But that's the case at Denny's, where same-store sales are declining despite a plethora of marketing and new business development initiatives, including the chain's investments this year in a Super Bowl ad and a colossal nationwide breakfast giveaway.

On Monday, Denny's Corp. announced the resignations of EVP/Chief Marketing and Innovation Officer Mark Chmiel, who joined the company in April 2007, and EVP/COO Janis Emplit. A national search to replace them is already underway.

"While we have been making a number of meaningful improvements to our business including enhancing our profitability, reducing our debt and opening new stores, our comp store sales have been a challenge," president/CEO Nelson Marchioli stated in the announcement release. "As the external operating environment remains difficult and the industry increasingly competitive, it is necessary to ensure we have the leadership that can drive sales and the brand forward as it progresses in its transition to a primarily franchise-focused business model."



It's fair to say that Denny's has been notably active on the marketing front even by the frenetic standard that's become more or less de rigueur for restaurant chains since the recession took hold.

This year's $3 million Super Bowl commercial and $5 million Grand Slam breakfast giveaway drove more than two million customers into Denny's 1,600 North American restaurants. They also generated an estimated $50 million in publicity, including coverage by 2,300 local TV stations and 500 newspapers. (Denny's has planned a similar double play around the 2010 game.)

Some of the other initiatives implemented within the last two to three years have included: a well-received fast-casual Fresh Express breakfast platform; a 2008 launch of an "All-nighter" menu and entertainment concept to bring in the young crowd, followed by aggressive extensions (such as "adopting" bands so they'll play in local Denny's after concerts) and marketing of the concept via social media, apps and digital games; adding TV programming in the dining room; a Grand Slam vacation giveaway aimed at incentivizing larger orders; and an expanded menu of healthier offerings for kids.

So why has a chain that has 97% brand awareness within the U.S. (according to May '09 Brand Tracker data) seen comparable-store sales for its franchised units decline by 4.6% in fiscal 2008 and by 1.4%, 4.7% and 7.3% in this fiscal's first three quarters?

The NPD Group does not comment on specific restaurant chains' performance, but NPD restaurant analyst Bonnie Riggs offers some key insights into the challenges faced by family-style restaurants, which include IHOP, Mimi's Café, Marie Callendar, Coco's and other competitors of Denny's.

Family restaurants as a whole -- the largest subgroup within "mid-scale" restaurants (mid-scale comprises formats that are a step above fast-casual and a step below casual dining), "have been in decline for a long while, and that's been exacerbated by the economy," says Briggs.

NPD's ongoing, daily tracking of consumer perceptions and behaviors confirms that the family segment as a group "is not delivering very well" on key customer satisfaction determinants, including "good-tasting food at affordable, reasonable prices," she says.

The data for the year ending this past September, for instance, indicate that family chains' price/value equations are "out of whack," Briggs reports. With average checks of $7.50 for breakfast, $8.43 for lunch and $10.33 for dinner, "the cost disparity between family restaurants and casual dining restaurants isn't that great, and casual dining restaurants offer better atmosphere," she explains.

In addition, family chain concepts have tended to become "tired" over the years, few of the 18- to-34-year-olds who are the heaviest patronizers of restaurants choose family formats, and these restaurants were not a part of the growing-up experience for growing Baby Boomer segments within the population, according to Briggs.

In addition, as restaurant industry data show, fast-casual formats have continued to grab share from other restaurant formats, including family chains.

In short, the question isn't so much why family chains are experiencing flat to declining comparable-store sales, as what they may need to do to address declining market share.

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