Denny’s Plots 150 Closings As Part Of Its Growth Strategy

By Peter Romeo of Restaurant Business Online

Denny’s needs to close about a tenth of its stores before it can fully harness a comprehensive comeback plan that’s yielded encouraging early results, management informed Wall Street during the 71-year-old chain’s investor’s conference Tuesday. 

Executives said they’ve tagged about 150 stores whose weak financial performance is sapping the whole system’s vitality. About half those units will be shut by the end of this year, with the rest slated to fire down their grills for good in 2025. 

“We believe this is absolutely the right thing to do to make our system stronger,” company CEO Kelli Valade said in opening the daylong meeting with investors. 

She spoke after the franchisor reported a 0.1% decrease in same-store sales for the Denny’s brand in the third quarter. Included in the results was an indication that Denny’s franchisees shut 18 units during the period, leaving the 1,590-unit system 53 restaurants smaller than it was at the end of the year-ago quarter.

Valade said the closings were necessary to realize headquarters’ goals of raising Denny’s average annual unit volume to $2.2 million and putting a fresh face on the brand. 

She did not reveal how pricing or traffic levels figured into the quarterly results, though she acknowledged that guest counts were down. “Everyone has lost traffic. Everyone,” Valade commented.

She cited research showing sales for all of family dining are down about 20%, the steepest decline for any major industry segment. 

The presentation from management also touched on how many of the chains in family dining, one of the restaurant business’ oldest sectors, are similarly shutting stores. 

“We’ve contracted most since Covid, that’s a fact,” Valade said.

Steve Dunn, Denny’s chief development officer, said the home office had reviewed every domestic unit of the chain to assess its financial strength. It found that the fifth of the system with the weakest performance was hurting the rest of the system because the stores were often old and located in markets whose consumer dynamics had changed. The decision was made, he said, to prune those stores for the benefit of the survivors.

Valade said the systemwide evaluation also revealed the brand’s “Achilles heel,” a significant variation in the look of units from market to market. 

Dunn indicated the inconsistency and aged look of some stores will be addressed in a comprehensive renovation program called Diner 2.0. It includes several financial incentives for franchisees to make the needed investments, including a grant of $100,000 to operators who opt to update. In exchange for the cash, participants agree to pay what management characterized as a slightly higher royalty fee, though it did not specify how much of an increase there would be.

In addition, management has worked with a third party to create a $25 million loan pool to fund the updates.

Restaurants given a facelift tend to see a $400,000 uplift in sales, according to Dunn. Experience has shown that the rejuvenated stores can expect a sales boost of 6.4% and a traffic upswing of 6.5%.

A signature Denny’s feature that could be dropped from those stores is a requirement that they remain open around the clock. Valade revealed that about 25% of the system has opted not to operate through the night and suggested the chain will not aim for its pre-pandemic goal of every unit being open 24/7.

Executives of the company reviewed their previously disclosed plan for reinvigorating Denny’s operations and sharpening the brand’s appeal to new and lapsed customers. That strategy pivots on value.

Valade revealed that some customers are bringing down their tabs in part by ordering Denny’s kids meals more regularly.

Other executives stressed that virtual concepts will remain a key part of the strategy. Denny’s currently boasts three digital brands: Burger Den, the Meltdown and its newest venture, Banda Burritos, which is now available featured in 1,000 Denny’s units. The three have generated $77 million in sales to date, according to Patty Trevino, the diner chain’s new chief brand officer.

She revealed that Banda Burritos intends to steal a trick from its parent company’s playbook. The venture is currently eying the rollout of a product called the Grand Slam Burrito, a clear reference to Denny’s signature breakfast platter.

Trevino stressed that Denny’s will continue to evolve its menu, not only through additions but by upgrading what’s already on the bill of fare. She noted, for instance, that the company has spent $8 million to improve its bacon.

Keke’s gets some attention

Management focused more on Denny’s young sister brand, Keke’s Breakfast Café, than executives typically have during their quarterly calls with financial analysts.

Same-store sales for the still-regional operation slid 1% during the third quarter, said concept President Dave Schmidt.

He revealed that the concept has been and will continue to be tweaked in preparation for rapid expansion. Development agreements have been signed for 140 stores, off the current base of 61 units. Much of that commitment has come from Denny’s franchisees, Schmidt indicated.