Silver Diner eyes partnerships to fuel corporate, unit growth

Nation's Restaurant News, May 5, 1997 by Mark Hamstra

Mark Hamstra

ROCKVILLE, Md. - Silver Diner Development Inc., the eight-unit diner chain based here, is eyeing various 'partnership' possibilities to help the chain grow both at the unit level and at the corporate level as it struggles to achieve profitability.

Having committed to expand beyond its current base in the Baltimore-Washington corridor this fall with a planned restaurant in Cherry Hill, N.J., the chain has set its sights on opening in southern Florida through some type of joint-venture or franchising arrangement. Meanwhile, in an effort to boost sales at the restaurant level, the publicly held company rolled out an owner-operator plan for unit-level managers that would give general managers the option to invest in their restaurant in return for stock options and a percentage of the unit's operating income.

According to the plan, general managers would invest between $12,000 and $25,000 in their restaurant and would receive approximately $10,000 per year in stock options and 7 percent of the restaurant's operating income. Another 3 percent of the operating income would be distributed to the other managers. The stock options would be redeemable after five years, which president Robert Giamo said would encourage managers to commit to their restaurants for at least that long.

'We feel a five-year commitment to a single store is more important to make a unit achieve traditional unit-level sales volumes,' he said.

Silver Diner's restaurants, which offer American family cuisine that Giamo described as 'an update on traditional diner favorites,' are generating annual sales of between $2.3 million and $4 million with such entrees as swordfish, Cajun chicken pasta, hot turkey platters, burgers and sandwiches.

In 1996 the chain garnered total operating income of about $1.21 million on systemwide sales of $16.55 million. Silver Diner lost $1.43 million for the year, however, after losing $1.32 million in the preceding year.

The company has set a goal of $3 million in annual sales per unit, based on a 242-seat prototype with a more upscale design and a 'warmer feel,' according to Giamo. The prototype has been open in four Virginia locations - Tysons Corner, Arlington, Merrifield and Fair Oaks.

The company said the new prototype has reduced pre-opening costs by about 35 percent. To boost takeout sales, some units have added a 'Silver Diner To Go' component, which offers carhop service for patrons who call in their order ahead. The program, supported with a 'dine-in, dine-out' sign on a canopy at the front of the store, has boosted takeout sales by roughly 50 percent, Giamo said.

In Florida the company is considering recruiting either joint-venture partners or area-developer franchisees to build out the concept in that market. 'We're in the exploration phase,' Giamo said. 'We have acquired the sites, and we would consider the right franchise partner if an existing multiunit operator came our way.'

Giamo said the company is eyeing the Florida markets of Kendall and Plantation, among others, for 1998 openings.

'We think for Silver Diner to grow, partnering has always been a part of our destiny,' he said.

Silver Diner last year merged with Food Trends Acquisition Corp., which is owned in part by former Boston Chicken owner George Naddaff, and began trading on the Nasdaq stock exchange.