Denny’s, one of the many casual dining chains whose sales are suffering in
the recession, needs a few thousand customers like Cory McGrath. On Apr. 7
McGrath, 20, saw a television ad for a Denny’s promotion that was taking
place the next day. The deal: buy one of it famous $5.99 “Grand Slam”breakfasts, and get a free “Grand Slamwich,” a tasty heart attack consisting of
scrambled eggs, sausage, bacon, shaved ham, mayonnaise and American cheese
on potato bread, for a pal .
Sold. The following afternoon, McGrath corralled three of his buddies and
drove 35 miles from his New York City home to the nearest Denny’s, in
Avenel, N.J. They all downed their meals, two of them free, and considered
themselves hooked. “It’s amazing,” McGrath said after jacking up his
cholesterol. “It’s cheap and it’s good.” His one wish That
Denny’s open a restaurant in Queens.
To lure customers in the midst of a recession, Denny’s has turned to a
radical strategy: giving away the store. On February 1, the 56-year-old
company aired a Super Bowl commercial that promised free Grand Slams to
anyone who walked through the door from 6 a.m. to 2 p.m. on Feb. 3.
Denny’s, which is open 24/7, says some two million free meals were served.
Pleased with the buzz and foot traffic the February offer generated, Denny’s
followed up with the two-for-one food sale on April 8. “We had to do
something bold,” says Denny’s CEO Nelson Marchioli. “We said ‘free’ makes a
lot of sense to us in this economy — with all the other offers the consumer
is getting slammed with, we really need to come out and do something that
people will stand up and notice. We need to reacquaint the consumer with
Denny’s.”
The $760 million company, which has over 1,500 locations in the U.S., needs
a spark. The recession has forced diners to flee places like Denny’s, the
Cheesecake Factory, and P.F. Chang’s to either cheaper fast-food joints
or the comfort of home. “For Denny’s, the core consumers are
blue-collar families,” says Anton Brenner, restaurant analyst at Roth
Capital Partners. “They’ve been squeezed very hard.” In the fourth quarter
of 2008, same store sales dropped 6.1%. Sales fell 3.7% for the year, and
the company’s stock price, at $2.14 a share, has dropped 30.5%
over the last 12 months. “It wasn’t a good year for us,” Marchioli admits.
Denny’s isn’t the only eatery giving away food to generate good will, and
hopefully future sales. Cici’s Pizza is scattering one
million pennies in streets around its 650 restaurants. On the back are
stickers offering free meals, free drinks, and buy one, get one free deals.
Tim Hortons, the Canadian coffee and sandwich chain, gave away free
sandwiches in its U.S. locations on April 1. Shops in Great Britain,
Australia, and Spain have experimented with “pay-what-you-want” options on
their menus.
Do these promotions justify the cost At Denny’s, doesn’t giving away
high-margin breakfast meals just drain the bottom line Not so, says CEO
Marchioli. The additional customers buying juice and coffee with their free
breakfast, plus the repeat business the giveaways generate, covers the cost.
“We’ve already paid for the Super Bowl promotion, and then some,” Marchioli
said on Apr. 8, the day of the two-for-one Grand Slam offer. “And today is a
profit-making exercise. For giving it away, do I make less margin Yes. But
I drive new traffic. And in this economy, particularly for Denny’s, it’s
important to drive new traffic. It’s about taking share that we’ve had over
the years, and that we’ve let other people take from us.”
Some analysts, however, say freebies can backfire long-term. “Denny’s is
panicking, pandering and throwing up a Hail Mary and praying it works,”
says Rob Frankel, a brand expert who has consulted for a variety of Fortune
500 global companies. To skeptics like Frankel, if a company gives away a
product, the product must not be that good. “What does it do to the
perceived value of your product when one day you are charging for it, and
the next day you’re giving it away” asks Frankel. “In the long run, Denny’s
is cheapening its brand.”
Even if the giveaways don’t pay off down the road, at least the company is
employing another aggressive plan to expand its brand in tough times.
Denny’s is embracing its history as an after-party haven for young, hungry
drunks . For
years, countless twentysomethings across the country, after a night of
carousing, have suddenly craved a “Grand Slam” — pancakes, eggs, bacon,
sausage, the works — to soak up the alcoholic suds in their stomachs. It’s 3
AM, the bars are closed … let’s go to Denny’s. Not that I, for one, know
any of this from personal experience. “When all of us were 18 to 24, we’d
give up a lot of things when we didn’t have money, but partying wasn’t one
of them,” says Marchioli. “When it comes to disposable income, they might
have less, but let me tell you, their priorities haven’t changed.”
To tap into this base — which the company says it has lost over last decade
— Denny’s has created something called the “Allnighter” program. From 10 p.m.
to 5 a.m., the chain has started playing alternative rock music on the
restaurant soundtrack. Denny’s has now sponsored over 30 emerging bands —they get free meals while on tour — and organized late-night
meet-and-greets, and occasional jam sessions, with the musicians in the
restaurants. The servers wear casual black t-shirts instead of a buttoned-up
uniform. Denny’s also just introduced four new late-night menu items, each
priced between $3 and $4. These include the “Pancake Puppy 12-pack,” a dozen
bite sized hotcakes rolled in cinnamon and sugar, and “Kickin’ Flavor
Wraps,” two tortillas served with chicken strips.
The idea is to serve stuff that groups of amped-up rabble-rousers can share.
Denny’s wants to give the late-night crowd a social experience they can’t
get at the fast-food drive-thrus, which are now staying open later through
the night and eating away at the chain’s graveyard shift revenues. “The
party is not going to stop once you get through those doors,” says Michael
Polydoroff, director of sales, promotions, and licensing at Denny’s.
Denny’s has even instructed its servers to engage the tipsy customers, as
long as they’re not being too disruptive. “We want them to say, ‘looks like
you guys were having some fun tonight — who wants coffee now'” says
Polydoroff. “‘I know where you’re at, I’ve got what you need.'”
The company is marketing its new late-night program directly to young
people, using Facebook, Twitter and other social media channels
to spread the word. Denny’s is well aware that it needs to get younger.
After all, the company is over a half-century old, and famous for attracting
the senior set for 10 a.m. pow-wows over coffee. Saturday Night Live recently
skewered the chain’s reputation with this doozy from “Weekend Update”
comedian Seth Meyers: “The director of Iowa’s Department of Aging said he
will not use the abbreviation ‘DOA,’ since it is also code for “Dead on
Arrival.” Some are suggesting that the Department of Aging go back to its
original name, Denny’s.”
Denny’s deserves credit for mapping out, and executing, these bold, relatively
unique recession-fighting strategies. Sadly, they still might not work. Back
in New Jersey, Pat Blakovich, a dog groomer, had just finished sharing the
two-for-one Grand Slam meal with a friend. She went to Denny’s just for the
promotion, which she saw online the previous day. Blakovich was satisfied.
But she’s probably not coming back anytime soon. “It’s not just here — I
don’t want Denny’s to feel bad,” says Blakovich, 46. “I’m cutting back
everywhere, not going out as much at all. The economy sucks.” Despite the
best efforts of Denny’s, free food and hungry drunks can’t change that one
bit.
