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Restaurant Research's Insight Into Denny's, Applebee's & Popeyes

|Includes:DENN, DIN, Popeyes Louisiana Kitchen, Inc. (PLKI)

Recent Report Summaries
Denny's ($2.2B system-wide sales with 1.8% y/y 2011 growth)
Denny's is showing signs of a turnaround as the second largest family chain (behind IHOP in U.S. sales) after struggling during 2008 - 2010 because of its orientation towards a lower income clientele during an extended period of economic stress and lack of a strong value proposition. System sales posted their first annual increase in 4 years during FYE 2011 with further positive momentum in 2012 which reflects: (1) increasing traction with its America's Diner ad campaign; (2) frequent new product news with LTO menu modules accounting for as much as 10% to 15% of sales; (3) a solid every day value proposition driven by the 2/4/6/8 menu; (4) growing Hispanic business that is benefiting from customized Spanish language commercials; (5) selective price increases; and (6) the completion of its New Day refresher remodeling initiative. The brand still has room to improve as reflected by the lowest AUV in RR's family segment and below average consumer ratings. A longer-term fix may require further menu, image and operational upgrades in order to attract a broader customer base, but this may be difficult to accomplish because of the high level of competition in the casual segment. In any case, it is our opinion that Denny's is moving in the right direction and further benefits from franchisee buy-in that will certainly help over the long haul.

Applebee's ($4.4B system-wide sales with 2.6% y/y 2011 growth)

Applebee's continues to reposition itself as it seeks to evolve from a value player in the crowded casual space to a relevant, neighborhood establishment worthy of repeated visits from local customers with greater disposable income. This is no small task for the largest sit-down chain (by system-wide sales) which was built on providing middle class families with an affordable opportunity to eat out in a real restaurant. This repositioning started with a complete menu overhaul combined with operational quality improvements. Brand management seeks to go further with a fundamental cultural change which will enable Applebee's to truly own its unique neighborhood theme - one which fits nicely with the growing anti-big-box movement that gathers steam in a stressed country where people want to better identify with their local community. While we like that Applebee's has bet the farm on a sensible, transformative re-make, we will have to wait and see how the system executes on this plan.

Popeyes ($1.6B system-wide sales with 2.8% y/y 2011 growth)

Popeyes' repositioning efforts continue to benefit sales, marketing, promotions and operations. While the chain's success can be partially credited with share gains derived from KFC's domestic weakness, recognition is due brand leadership which we believe has done a good job of strategic planning and execution. Brand leadership's success is evident by its ability to expand Popeyes' appeal with creative bone-less menu promotions while maintaining core bone-in chicken sales in urban markets. The result is 3 strategic menu platforms which include value, portability and something Louisiana - a mix with the potential to establish Popeyes as a truly national brand. Corporate incentives and positive franchisee sentiment are also helping to drive needed remodels and new unit growth - acting to complete the virtuous cycle of Popeyes' turnaround. In conclusion, it is our opinion that Popeyes has found the right identity that seems to work well for a fried chicken chain in the 21st century.

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Disclaimer of Liability: Although the information in this report has been obtained from sources Restaurant Research® LLC believes to be reliable, RR does not guarantee its accuracy. The views expressed herein are subject to change without notice and in no case can be considered as an offer or solicitation with regard to the purchase or sales of any securities. Restaurant Research's analyses and opinions are not a guarantee of the future performance of any company or individual franchisee. RR disclaims all liability for any misstatements or omissions that occur in the publication of this report. In making this report available, no client, advisory, fiduciary or professional relationship is implied or established. This report is intended to provide an overview of the restaurant industry, but cannot be used as a substitute for independent investigations and sound business judgment. Copyright 2012.