Shoney's new owner Royal Capital eyes brand revival: struggling family chain aims to return to 'glory days' after purchase from Lone Star Funds

Nation's Restaurant News,  Jan 15, 2007  by Jack Hayes

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NASHVILLE, TENN. -- Once-dominant family segment player Shoney's is being positioned to rebuild under a new ownership team headed by 28-year foodservice veteran David Davoudpour and the Atlanta-based Royal Capital Corp. group.

On Jan. 1, Shoney's, based here, became a subsidiary of Davoudpour's Royal Hospitality Corp., which acquired the trademark and franchise rights from Dallas-based Lone Star Funds, with plans to close on Shoney's 52 company-owned units by Jan. 31. Royal Hospitality is an affiliate of Royal Capital, which now has real estate and foodservice holdings in more than 20 states.

"My mission and goal are to take Shoney's back to its glory days," said Davoudpour, who became chairman and chief executive of Shoney's through the acquisition. "It is an American tradition. Baby boomers grew up with the brand and love it. It's in people's DNA."

Asked about the tactical and strategic recovery plan, Davoudpour spoke generally, noting that its main elements would be "clean restaurants, friendly staff and healthy food." A formalized plan will unfold following operator meetings over the next two months, he added. "Things happen when you start taking care of employees and franchisees," he said. "I'm a restaurateur--I know what it takes."

During the past decade, Royal Capital's subsidiary Best American Hospitality turned 112 struggling Church's Chicken units in Arizona, California and Texas into top performers in the Church's system, earning Davoudpour consecutive franchisee of the year honors.

Veteran Shoney's operator Bill Emendorfer, who has two units in Athens, Tenn., spoke hopefully about what he called the brand's long-needed transformation. "Shoney's new owner has both passion and experience," Emendorfer said. "There's no doubt he understands the industry, yet the proof is always in the pudding."

The challenge facing Royal is not small, as many family-dining operators have seen their fortunes shrink over the years. According to Nation's Restaurant News' 2006 Top 100 report, sales growth in the family segment was up just slightly more than 3 percent for the year, compared with more than 5.2 percent the prior year. By comparison, sales growth in the bakery-cafe segment was 29.7 percent, up from 28.1 percent the year earlier.

Plagued by declining traffic and shrunken revenue since the mid-1990s, the once-vibrant Shoney's system is operating today with 282 restaurants, 230 of them franchised, in 18 states. Between 1999 and the end of last year, the brand shrank from a peak of nearly 1,200 locations to its current size.

In 2002, then 380-unit Shoney's was taken private, with sister brand Captain D's, in a $273 million cash and debt assumption deal by Lone Star Funds. Last July, Brentwood, Tenn.-based Centrum Equities, a unit of Chicago-based Centrum Properties, acquired Shoney's from Lone Star but scrapped its plan late the following month citing contract violations.

Since the late 2005 resignation of former president Rodger Head, Shoney's has been led by a joint presidency, including chief marketing officer Dan Dahlen, chief operating officer Joe Phraner and chief financial officer Bob Stetson.

Shoney's recent purchase came only weeks after the brand debuted a plan to re-energize its buffet identity and win back morning traffic pirated by breakfast segment competitors, Dahlen said.

Following positive market tests at more than a dozen company and franchised units in the Southeast, Shoney's in December unfolded a breakfast strategy called "Start Here," focused on changing the value perception of its buffet, according to Dahlen and corporate executive chef Todd Stratton.

"We want to be really tight and clear with our breakfast message," Dahlen said. "Every customer and operator who knows Shoney's knows we've had a phenomenal history with the daypart."

Acknowledging that Raleigh, N.C.-based Golden Corral, Lebanon, Tenn.-based Cracker Barrel and Greer, S.C.-based Ryan's have positioned their brands firmly in the weekday and weekend breakfast niches, Dahlen said Shoney's only option now is "to dig in and protect the business."

"Not just our direct rivals, but the whole quick-service segment is banging away with breakfast advertising," Dahlen added. "Everybody knows the daypart is hot. McDonald's does 20 percent of its business and 50 percent of its profit in breakfast."

Veteran Shoney's operators support the company's aim to, as Dahlen explained, "refresh offerings and enhance taste profiles without driving up food cost. We want to recognize breakfast as our major daypart. It drives more than a third of revenue."

"Competition in your best daypart is never good news," Emendorfer said. "It's absolutely necessary that we improve operations and lead with breakfast." However, he said Shoney's also needs a new dinner strategy--one that won't diffuse the energy of other dayparts.