Shoneys Shapes Up

Patricia Hochwarth

TOP 100 CHAIN PROFILE

Pulled from the brink of disaster by new ownership and a take-charge leader,
Shoney’s fights to regain the faith of its historically loyal franchisees and customers.

Shoney’s Shapes Up

Rodger Head doesn’t mince words when describing the recent dark days of Shoney’s. "The brand was terribly mismanaged. It had 12 years of deferred maintenance in its stores. It had seven presidents over that period, each thinking he had the silver bullet to dramatically change the brand.

Shoney’s had never really dealt with the major issues, which were operations and the culture," the disarmingly frank president and c.o.o. continues. "It had strayed from the people business. It had stopped teaching and developing employees and implementing progressive systems."

For example, he marvels, "we’re an operating company, but the training department did not go out to the restaurants, if you can imagine that. They developed so-called training and operational programs, but left it up to the units to execute. Unbelievable!"

Head is refreshingly candid, totally free of the usual corporate spin. His firm leadership, combined with franchisee loyalty and an infusion of new ownership money, are key factors helping the Nashville-based southeastern-focused family-style chain to climb out of a fiscal and psychological morass.

Shoney’s, Inc.’s standing in Technomic’s list of the Top 100 chains slipped a few notches, from 27 in 2001 (including sales of sister concept Captain D’s) to 31 in 2002 (including estimated sales for the Shoney’s brand of $540 million); however, Head reports that fourth-quarter 2003 sales were up and finished the year down "just a little bit" overall, although he declined to give figures.

First period 2004 sales are up, as well. "We’ve got a pretty good little trend developing here, and we’re happy with that, considering the year the country and industry had — not just Shoney’s," says Head.

If there is a silver bullet, it appears to be in the form of Shoney’s purchase in 2002 by Dallas-based Lone Star U.S. Acquisitions, LLC and U.S. Restaurant Properties, which took the company private. Lone Star was a lifesaver. "We were choking on debt, and Lone Star provided funds to put back into the properties," says Head.

It wasn’t always this bleak. For years, Shoney’s was lauded in the industry as one of the best-managed companies in the country under co-founder Ray Danner, who "was fanatical about operational excellence," notes Head. A few years back, Parents magazine ranked Shoney’s Restaurants number two in its survey of best chain family restaurants.

"The biggest thing we’ve done is gone back and identified that Shoney’s is a great brand with a great heritage and a loyal customer following," says Head. The loyalty survived years of customer complaints. "We used to get lots of them," sighs Head. "Cold food, no service, people couldn’t get waited on. ‘Please fix my Shoney’s,’ they’d beg.

"At one time, we had about 1,000 properties, but it was a mismanaged brand," says Head. "We grew without systems, without discipline, and did what so many other brands did that outgrew their management. We did big volume and accumulated a lot of debt in the late ’80s through the mid-’90s." That debt totaled $255 million, and nearly drove the company into bankruptcy.

In the past few years, Shoney’s has closed hundreds of underperforming and mismanaged units, reevaluated corporate standards, and analyzed every operational detail, from the menu and service to marketing and restaurant design.

It’s been a painful process, yet, ultimately, one that will pay off for franchisees, customers and employees, according to the company.

Going private has helped Shoney’s focus on its goals, says Head. "We don’t have to disclose numbers, and it’s in our long-term best interest not to be under the scrutiny of the public eye and have to answer to the Street," he asserts. "As a private company, we can do things we couldn’t do in terms of operating and making changes to our menu: operating practices that may have been viewed as too risky by the previous board."

Shoney’s strengths lie in its tight management team, which boasts a long history with the company, and a core of loyal franchisees who have steadfastly weathered the declining fortune and winds of change, in the hope of coming out stronger and more united in their commitment to the brand.

Frustrated Franchisees

It hasn’t been easy. Disgruntled, frustrated franchisees were ready to walk when more than half of the system was due to renew 20-year contracts. It was an ugly time. "The franchise community was frustrated to the point of anger, with lawsuits flying around," recounts Head.

"It’s been a wild ride," adds long-time Shoney’s franchisee Glen Woodrum, who owns 13 stores in South Carolina, Georgia and North Florida. He saw the danger signs when Shoney’s tried expanding beyond what he calls its "natural borders": the southeast, back in the late 1980s to mid-1990s. For example, "they went into Chicago and opened 21 units at one time. It was a recipe for disaster."

Woodrum credits Head and his franchisee-based sensibility for much of the recovery. Head was a former franchisee of Burger King (Diversive Foods), Rally’s, Papa John’s and Donato’s Pizza. In January 2000, he sold his Donato’s franchise and joined Shoney’s as a consultant at the urging of a friend, former Shoney’s Inc. president and c.e.o. Mike Bodnar (who oversaw both Captain D’s and Shoney’s). Head was named vice president of operations. In March, the c.o.o. departed, and Head was named chief operating officer. "The funny thing is, it wasn’t really what I wanted to do," he says. "I’ve been a franchisee for 15 years, so it had been a while since I’d been in the corporate world. I preferred not to be, but when I got here and got involved in the brand from a consulting standpoint, I started to get very interested in it."

Head put together a franchise advisory group ("A real one. It had been a token to appease these guys.") and they hammered out a new franchise agreement. Woodrum marvels at the concept of corporate and franchisee reps working as a team. "We didn’t get everything we wanted, but we certainly got more than we had in the old document. We were comfortable signing out the next 20 years on it. On the whole, we’re much happier than we were two years ago."

Woodrum has reason to be happy. "Our business has been great," he says. "Even through the bad times, our sales have held up. The good operators are left in the system."

"The franchisees are pretty receptive to just about everything right now," says Head. "They’re excited about new developments, and very supportive of the brand."

Southern Roots

The family-style full-service chain traces its roots to the late 1940s, when entrepreneur Alex Schoenbaum opened his first drive-in restaurant, the Parkette Drive-in, in Charleston, WV. It was the beginning of the heyday of the small town curbside dining culture celebrated in movies like American Graffiti. The menu developed around classics: big burgers, fries and such southern comfort classics as meatloaf and big breakfasts.

"Shoney’s was very much the neighborhood restaurant," says Head. The company went into small towns "that no one else would go into" in Alabama, West Virginia and Tennessee.

Today, the once-sprawling chain has been pared to 325 franchised and corporate locations (about 50:50) in 21 states, serving breakfast, lunch and dinner 364 days a year.

Service is evenly divided among the three dayparts.

Shoney’s signature is its classic breakfast buffet, featuring more than 30 items. At lunch and dinner, all-you-care-to-eat buffets offer meats, fish and seafood, soups, salads, and hot and cold vegetables. The full-service menu is being revamped to reflect changing taste profiles, but remains true to its comfort-fare base. Currently, it features cooked-to-order entrées ranging from chicken, steak, seafood and pasta to its classic burgers and sandwiches. A redesigned kids’ program emphasizes healthy dining choices, with its made-over Shoney’s Bear mascot promoting "The Bear Necessities" of nutrition on the new kids’ menu and activity sheets.

Shoney’s also has beefed up its marketing efforts with new television, radio and outdoor advertising campaigns. Targeting families and middle America, Shoney’s last year tapped blue collar comedian Jeff Foxworthy of "You might be a redneck if…" fame to star in a new ad campaign using the tag "Your food, your choice, your Shoney’s."

Shoney’s doesn’t pretend to be what it isn’t, emphasizes vice president of marketing Denise Horne. "Over the past 10 years, upper management thought we should reposition ourselves, try different things," she says. "Two years ago, we started a branding process because we needed to be clear and focused on who we are."

The result is a return to the company’s roots and reaffirmation of the concept as a "family dining restaurant with good home cooking with a bit of southern flair to it," says Horne. "We’ve got a strong tradition tied to our name and a strong customer following to that tradition."

The chain did, however, identify a unique selling proposition designed to set Shoney’s apart from heavy competition in the family dining segment, particularly from Cracker Barrel, Golden Corral and Applebee’s: Diners have a choice of either buffet or cooked-to-order meals, says Horne.

Moving Forward

The company has designed a new building prototype, to be unveiled this winter in a company-owned store that features the familiar red awnings, big pillars in front, and stone fireplaces inside. Several franchisees are slated to incorporate the new design into existing units and new stores. A renovation program started last year, as well.

The changes bode well for franchise sales, which the company is approaching more prudently now. "We had stopped selling franchises for a few years," says Head. "We needed to get the brand operationally and strategically strong. We had inquiries, but we had to tell them we were not in a position to sell. "That’s not the case anymore."