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Chain Leaderdave

Dave's Dispatch
Denny’s climbs slowly back to its feet.

June 13, 2006

Last week, financial types jammed Piper Jaffray’s Consumer Conference at the New York Palace Hotel for a chance to hear from the country’s leading restaurant companies like Applebee’s, The Cheesecake Factory, McCormick & Schmick’s and RARE Hospitality.

Then there was Denny’s. The family-dining chain appears to have little or nothing in common with the others. Now 50 years old, it has been saddled with almost insurmountable debt since the late 1980s. Although recently recapitalized, the chain still struggles to fix its balance sheet and, in turn, operations.

Yet its CEO, Nelson Marchioli, a respected industry veteran, sounded confident nonetheless, offering remarks meant, I suppose, to convince investors that the chain still had potential.

He boasted of 10 consecutive quarters of same-store-sales gains and stable margins. What’s more, after years of not growing, Denny’s will open three company restaurants this year; it will remodel 100 or more. By 2007, Marchioli promised, Denny’s will be “in net growth with units.”

It is also selling restaurants to franchisees--or anyone, for that matter. Marchioli said a Florida plastic surgeon recently paid $2 million for a Denny’s property.

Still, time has passed Denny’s by. Fast-feeders have long convinced Americans to eat breakfast elsewhere. Family chains less burdened by debt have remodeled and improved product quality. Some are light years ahead.

“The brand is behind,” Marchioli admitted, adding that without late-night sales, Denny’s volumes ($1.65 million) are below the family-dining average.

Marchioli is attempting to bring averages up--to $1.8 million in 2008--by focusing on value. He didn’t offer price points but did suggest Denny’s was easing up on new menu items. “Product has been used to drive traffic, but now it’s not as effective,” he said.

With core customers whose annual household incomes average $43,000, his new strategy doesn’t seem surprising. “You will see us emphasize value,” he said. But will it be enough to save Denny’s fragile reputation?

A journalist for 20 years, David Farkas is senior editor at Chain Leader. Reach him at .

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