There’s No Such Thing as a “Free Breakfast”

“America, You’re Invited to a Free Grand Slam Breakfast”.

This is how the headline reads on the front of Denny’s homepage.  Not that I frequent their website, and prior to Sunday night I would question how many people ever actually did visit Denny’s website but I bet it’s getting pretty good traffic today.  According to Alertsite, a website performance tracking company, the site was down sporadically in Los Angeles, Seattle, and Denver this morning.  As most people know, Denny’s made a very bold announcement on Sunday night, through the purchase of a Super Bowl ad, inviting the country into its doors for a free Grand Slam breakfast on Tuesday, February 3rd between 6AM – 2PM – at all locations (with the exception of 3 according the their site).

The offer was obviously a hit.  Five of the top 40 Google searches this morning were Denny’s-related.  “Denny’s”  and “Grand Slam” have been trending all day on Twitter’s top search topics.  Too bad Denny’s doesn’t have a Twitter account.  Customers throughout the country have been lining up outside of Denny’s, waiting for extraordinary lengths of time, just for a free breakfast.  Is this a great marketing ploy or perhaps just a sign of the hard economic times?  Would a free Denny’s breakfast have been this valuable last year?  Two years ago?   Either way, that doesn’t really matter to Denny’s. What’s important is that people are coming in the door.  This is what Denny’s and so many other restaurants especially in the full-service, casual-dining segment have struggled with.

What will this free breakfast cost?  Well, Denny’s is estimating that about 2 million people will take advantage of the “free breakfast”, and at $5.99 per plate that would equal about $12 million in potential revenues.  Now, we know that the food cost on the Grand Slam isn’t actually $5.99 but perhaps it’s 25% or $3 million.  Plus, the 45 seconds of Super Bowl airtime was $3 million per 30 seconds or $4.5 million.  Then, there’s extra staff involved and probably some extra training to be able to handle all that volume.  Maybe the total is somewhere around $10 million.

So, who pays for it?  Given that Denny’s is 80% franchised it looks like the franchisees will be bearing the brunt of the food and labor costs.  Perhaps the Super Bowl ads were subsidized by an ad fund, then that too is paid for by franchisees since they fund the ad fund, so to speak.

So the question now is, “How will Denny’s measure their ROI on this investment?”  It’s pretty clear to see what they’re banking on.  Nelson Marchioli, Denny’s Chief Executive, claims that while 93% of adults have been to a Denny’s only 50% return.  They obviously have a customer retention problem. In this January 12th interview with the Miami Herald, Marchiolo says, “I’ve got to get the other half to try us again because we’re not the Denny’s they remember.  Everybody thinks they know Denny’s.  But the fact of the matter, is if you haven’t been to Denny’s in the last three years then you haven’t been to Denny’s.”

Well, there’s no doubt that after today much of that other half will get to know Denny’s again.  Hopefully for Denny’s and it’s franchisees’ sake, it’s not the Denny’s everyone remembers.  That would be one expensive free breakfast.

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