From worst to first - Denny's chain buries racist image

SPARTANBURG, S.C. -- A decade ago, the restaurant chain Denny's was nearly synonymous with racism.

Some of the restaurants were accused of making blacks prepay, not serving them as quickly as whites and sometimes not serving blacks at all. In one case, black Secret Service agents assigned to protect the president said they sat unserved until the whites around them had finished eating.

What resulted was a class-action lawsuit that was settled for $54 million in 1994 and pushed Denny's to make an amazing transformation.

Today, approximately half of Denny's parent company's 46,000 employees are minorities, 11 percent of them black. Thirty-two percent of the supervisory positions are held by minorities, and for two straight years Fortune magazine has named it the "Best Company in America for Minorities."

"You will hear us all say here that that lawsuit was one of the best things to happen to Denny's," said Ray Hood-Phillips, chief diversity officer for Denny's parent Advantica Restaurant Group Inc.

"Although it was a historic low point, I think there were huge opportunities. We had no place to go but up."

$100 million to minority suppliers

As part of the lawsuit settlement, the company agreed to operate under a U.S. Justice Department consent decree and signed a Fair Share diversity pledge with the National Association for the Advancement of Colored People.

Through the agreement, the company increased the dollar amount of contracts with minority suppliers from zero in 1992 to $100 million a year. That accounts for 17 percent of the company's supplier purchases.

Meanwhile, the number of black franchisees has increased from one in 1993 to 64 this year. About 42 percent, or 450, of the company's franchised restaurants are currently owned by minorities.

"Denny's has stepped to the front," said Leighton Hull, a black franchisee who owns 14 Denny's restaurants in California, Hawaii and Indiana.

Much of the credit has been given to Jim Adamson, a former Burger King executive and turnaround specialist who in 1995 was brought in as CEO of Spartanburg-based Advantica.

Adamson set about changing the perception that discrimination was an accepted part of the corporate culture. He did it by making inclusiveness and diversity a part of the way of doing business.

Top-down training

Every employee, from executives to wait staff, received training that emphasized respect for differences among people. Programs were implemented to recruit minority franchisees and managers. And management began to deal honestly with its problems instead of trying to explain them away.

"The way I gauge whether people are serious is what they do at the top -- not what they do with waitresses and cooks, but what they do with the board and the big salary positions," said Darrell Jackson, a black South Carolina state senator who did some public relations work for Advantica during the height of its problems and was approached by Adamson to join the board.

Jackson said he remembers one trip he took to Naples, Fla., with Adamson to help address concerns of residents and the NAACP. Jackson said there were problems at the local restaurant, but that Adamson managed to convince the people that the company would not tolerate discrimination.

"He held off what could have been a public embarrassment," Jackson said. "There were problems, but they realized it was not at the corporate level."

Jackson said that although Adamson has left Advantica -- he's now leading the reorganization of financially troubled Kmart -- the infrastructure is in place to keep Advantica on track. Women and minorities make up almost half the company's senior leadership team.

The next step, Hood-Phillips said, is to broaden the company's reach to include social projects. Advantica plans to donate $1 million a year for human rights or civil rights organizations. This year, the recipient will be the National Civil Rights Museum in Memphis, Tenn.

"This is what leaders do," Hood-Phillips said.

No profits yet

But while Advantica has been successful in dealing with diversity, that success has not yet translated into profits.

The company, which also owns the smaller Coco's and Carrows restaurant chains, still carries a large debt load from a 1989 leveraged buyout that affects its ability to get the most out of its restaurants, said Andrew Ebersole, a securities analyst with KDP Investment Advisors in Montpelier, Vt.

Advantica grew out of the old Trans World Airlines, which was liquidated in 1986. The company, then known as TW Services Inc., owned a contract food service business called Canteen Corp. and Spartan Food Systems, which franchised Hardee's and Quincy's Family Steakhouse restaurants. TW Services bought Denny's and El Pollo Loco restaurant chains in 1987. Two years later, TW Services was bought in a leveraged buyout.

In 1997, the company filed for bankruptcy protection to cut its $2.2 billion debt from the leveraged buyout in half. It emerged from bankruptcy protection in early 1998.

For 2001, the company reported more than $73 million in interest expense related to more than half a billion dollars in long-term debt.

Ebersole said company needs to reduce its debt so it can invest more in its restaurants.

The company reported an $88 million loss last year, compared with a $98 million loss the previous year. Revenues fell to $1.03 billion from $1.16 billion.

But the company cites positive numbers as well.

Minority traffic increased to 61 million visitors in 2000 from 51 million in 1998. And systemwide, which includes franchise revenues, sales last year reached a record $2.23 billion.

Mike Dabney recently stopped in for a bite at a Spartanburg Denny's, almost on a whim.

Like many other blacks, he had avoided the chain for years. But now he said he was willing to give Denny's another chance, and his decision on whether to return would have nothing to do with its past racial problems.

"It depends on how good the pie is," he said.