Diner concept sees silver lining, revs up for growth

Nation's Restaurant News, Dec 1, 2003 by Paul Frumkin

ROCKVILLE, MD. -- After emerging from a disappointing fling with the public marketplace, a newly reinvigorated Silver Diner chain has strengthened unit-level operations and is preparing to kick-start a long-stalled expansion drive.

Silver Diner, a family-style concept that emerged from the retrodiner craze of the mid-1980s, hit turbulent waters in the late 1990s when it expanded too rapidly in an effort to satisfy Wall Street expectations.

But while many of the once trendy diner concepts have fallen by the wayside or closed branches, like Ed Debevic's, the 12-unit Silver Diner now appears to be getting its second wind.

According to Robert Giaimo, president and chief executive, same-store sales of the regional chain--which was taken private in late 2002--rose 10 percent for the month ended Nov. 7 on a year-over-year basis, marking its 26th consecutive month of increases exceeding 7 percent.

As a result, annual average-unit volumes have climbed steadily since late 2001--from $2.6 million to $3.1 million--at the restaurants, which do not exceed 5,000 square feet in size, seat about 150 and generate per-person check averages of about $8.50. Moreover, only about 1 percent of Silver Diner's total sales is derived from the sale of beer and wine.

Silver Diner's systemwide sales for 2003 are expected to hit $36 million, up from $33 million last year.

Commenting on the chain's odyssey over the past six or seven years, Roger Lipton, president of Lipton Financial Services, a New York-based money-management firm, characterized Silver Diner as "a good, profitable private concept" before it went public in 1997.

"But they weren't able to come up with a prototype that was [expandable]," he observed. "They built a lot of stores that didn't perform as they should and were forced to stop, reconfigure and retrain. It's a typical challenge of a rapidly growing concept that was rolled prematurely. They weren't prepared."

But, Lipton added, "now that they're private and comp trends are stronger, it sounds like they're off to a good start."

Giaimo appraises the situation similarly. "We had five restaurants when we went public," he said. "We were under pressure to grow, so we went from five to 10 units in one year. And while that was what Wall Street was looking for, we weren't ready. The systems just weren't in place, and we were not able to deliver in every store. So we put on the brakes."

What followed was a period of nearly zero growth during which management closely examined operations and established ground rules that would allow for more robust future expansion. Giaimo said the focus was on three keys--food, service and ambience. "We're a diner concept, so we decided the menu had to be about authentic American classics--items that define a diner rather than a casual restaurant," he said.

However, Giaimo said he wanted such dishes to have their own Silver Diner twist. As a result, a staple like a hot, open-faced turkey sandwich was transformed into the $9.99 "oven-roasted 'mile-high' turkey dinner served with stuffing, red bliss mashed potatoes, corn, string beans, gravy and a biscuit."

And a classic Reuben sandwich was morphed into an entire menu section of specialty Reuben platters, including a Maryland crabcake Reuben, a roasted turkey Reuben, a Cajun chicken Reuben and a fried-catfish Reuben.

Other classic dinners are the Yankee pot roast, $9.99, and "Big Bowl'" chicken pot pie, $9.49.

"We were looking to brand lines of products that have a diner identification," he said. "We don't want the menu to look like one at Friday's or Ruby Tuesdays or Applebee's."

The chain has kept menu price hikes modest, Giaimo said, noting that they increased 1.3 percent in 2003. During that period, however, the average tab rose 2.5 percent, which he said reflects upselling.

Giaimo and his executive team also focused on developing a style of service they call "contagious friendliness."

"Why do people go to diners?" he asked. "It's about relationships. You know the waitress, and the waitress knows you."

He said servers are encouraged to emphasize their individual personalities. "We're not talking about Ed Debevic's here," he said, referring to the 1950s-style diner chain that was created in the 1980s by restaurant entrepreneurs Lee Cohn and Richard Melman, whose servers play roles. "There's no shtick here."

Silver Diner's emphasis on relationship building between servers and customers helps to generate repeat business, he said, adding, "People are looking for high-touch in a high-tech world."

Giaimo said combined food and labor costs for the chain run slightly under 60 percent and are lower at branches in multiunit areas, like Maryland and Virginia.

Silver Diner's 1950s-style ambience also plays into the "high-touch" model as well, he said. "Silver Diner has booth seating, jukeboxes, chrome and neon--it reminds people of yesterday. People are looking for nostalgia, simpler things, family values, neighborhood things, American things."

Another of Silver Diner's strengths, Giaimo maintained, is its operating-partner system, through which managers who have risen through the ranks are given a 10-percent profit interest in their stores. "They have to go through stages--manager, general manger," he said. "And if they're successful and show good comp-store sales increases, then we make them an operating partner."