After 76 Years, Friendly's Hits the Skids

Friendly's Ice Cream Corporation, the 76 year-old New England restaurant chain that once had 700 locations, filed for Chapter 11 bankruptcy protection this week.

As part of the filing, Friendly's will enter into a 363 sale process with an affiliate of its current owners, Sun Capital Partners. Simply put, a 363 enables a company to sell its assets, assign leases, and deal with debt separately. The chain has closed 63 under-performing units and has 424 stores operating.

The company claimed the decision to file for bankruptcy protection was a combination of the current economic condition, rents that exceeded current market rates, and increased commodity costs. Certainly these were considerations leading to the courthouse steps, but the erosion of the iconic chain began long before the economy went south and commodity prices skyrocketed.

"We have embarked on an aggressive campaign to enhance restaurant operations, improve the guest experience, strengthen our team and expand the company's successful retail ice cream business," said Harsha Agadi, chairman and CEO of Friendly's. "I am particularly pleased with the 'High Five' campaign which not only provides great meal values but is also revitalizing our brand in the marketplace.

And although Agadi's spin makes for good sound bites, a local resident named Abby Emara did a much better job of summing up the chain's problems during an interview with NPR.

"They kind of look a little rundown," Emara said. "You get a sticky feeling when you go in there. Your elbows stick to the table."

Friendly's may not be able to emerge from Chapter 11 as a formidable competitor in the casual dining segment. Not only have they lost sight of their niche market – ice cream lovers – they never made the necessary adjustments to compete with newer, more hip casual dining contenders.

The fact the chain began 76 years ago certainly made it the leader in the soda fountain segment. And although Friendly's impressively fought a great fight with another New England chain known for ice cream – Howard Johnson's – and won, they never changed their game plan – or their image – to battle the burgers, malts, milk shakes, salads, and breakfasts from IHOP, Denny's, Big Boys, and other friendlier-than-Friendly's concepts.

Friendly's suffers from a common affliction: Living on past performance while not paying attention to new competitors in the marketplace.

It's going to be difficult to reposition the company's 424 locations. Accomplishing the task may be financially impossible even for Sun Capital Partners after analyzing the return on investment in an already overcrowded market segment.

But the lesson here is simple. Pay attention to the competition. Change with the times. Be more creative with your menu than the others. Use quality ingredients. And if you want customer loyalty to stick, clean the tables.