If You Can’t Beat ‘Em — Buy ‘Em

Black management group buys 73 Denny's restaurants across the country

These days when Denny’s is in the news and an African American is involved–your first thought is likely, “What did Denny’s go and do now?”
Well, this time it’s good news. Olajuwon Holdings, a Houston-based investment firm, recently closed two deals: one valued at $6 million to purchase 10 Denny’s restaurants in Detroit and the other for $28.7 million for 63 Denny’s (and eight unbranded stores) across 13 states.

For the tarnished company, this transaction represents yet another step toward changing its corporate culture and reinventing itself after losing a $54 million class action lawsuit for racial discrimination in 1993.

“This deal plays a very huge role in our mission to increase diversity in the company,” says Ray Hood-Phillips, chief diversity officer for Denny’s parent company, Advantica Restaurant Group in Spartanburg, South Carolina. “We’ve done a lot of research since the lawsuit happened, and consumers from across the country told us ‘We’ll know Denny’s has changed when we see African American ownership.’”

And slowly, that progress is happening. In the last five years, Denny’s has gone from having one African American-owned restaurant when the lawsuit was settled, to 109.

While Advantica is looking to broaden its diversity base, Olajuwon Holdings CEO Akinola S. Olajuwon says the purchase was simply an ideal business break for his firm. “I was looking for investment opportunities. I looked at a lot of different industries, but I wanted something that I knew would be in demand. And people have to eat,” says Olajuwon, whose brother Hakeem is an NBA all-star.

A former stockbroker with Merrill Lynch, Olajuwon says he was actually unaware of Denny’s race discrimination suits. But he looks at their re-imaging campaign as an added benefit for his firm. “I see it as an advantage because if you’re coming into a company that is looking to change its image, you’re in a good position to work with them and to help prove this is a good company.”

Before this current deal, Olajuwon Holdings already owned five Denny’s in Houston, which earned revenues of $2.5 million in 1997.

While Olajuwon has definitely chosen a strong growth market as cities across the country begin revitalizing urban areas, his largest concern may be growing too rapidly, says Michael H. Seid, managing director of Michael H. Seid & Associates, a franchise advisory firm in West Hartford, Connecticut. Before the second deal was completed, Seid was concerned Olajuwon would “miss out on a great deal of synergy of resources like advertising, trucking and hauling” between operating two separate groups of franchises in Detroit and Houston. But now that his enterprise has grown across 13 states, that may no longer be as serious a concern as Olajuwon can buy and operate in greater bulk and take advantage of some economies of scale.

In Olajuwon’s favor is strong brand identity. Denny’s currently holds a 21% market share for family food chains, according to National Restaurant News, an industry publication that tracks franchise trends. Its closest competitor is Shoney’s, which has a 14% market share.

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