The freebie might sound like a bad idea: giving 2 million meals away means passing up on $14 million in revenue. (At a conservative food cost of 25%, that figures a $3.5 million loss, plus kitchen and waitstaff salaries for the extra influx of customers.) But as Tom Barlow pointed out in WalletPop last February, beverage purchases help offset those costs. Drinks generally are among the highest-profit items on any menu: Every $2 coffee translates into something like $1.70 profit. If 1.5 million of the freeloaders spring for coffee, the revenues will hover around $2.5 million. That would give Denny's a loss of just $1 million or so.
And that's where the publicity machine kicks in. Experts estimate that last year's giveaway generated roughly $50 million through free advertising. When one of America's biggest restaurant chains gives meals away, the media -- ahem -- pay attention.And some media note a few other notes on Denny's P.R. docket. Last summer, the chain revitalized its late-night offerings by creating brands with pop musicians like Jewel and Rascal Flatts to catch the eye of after-hours customers. In another move positioned to an older crowd, Denny's was also designated the only restaurant to serve 7-Eleven's (SVNDY) private-label wine, Yosemite Roads.
Far from being a risky move, Denny's free Grand Slam day has proved very shrewd. Last year, it propelled a short-term 22% uptick in the stock. This year, it's already resulted in a quick 6% improvement. And in the longer run, the move will draw customers into the restaurant, improve public relations, and reacquaint Denny's fans with the chain's offerings. The impact of those trends may be almost immeasurable. It almost makes you wonder why more companies don't give their product away.
