Off-premises business has more than doubled since March.
Denny’s ongoing revitalization strategy has been maniacally focused on operating great restaurants through continued improvement to food, service, and atmosphere.
To check the first box, the diner brand is preparing to unveil two new virtual concepts later this year—a strategy utilized by numerous peers in the full-service landscape.
The first is called the Burger Den, which will launch in February. CEO John Miller said the menu includes new varieties using items already in Denny’s pantry. He noted that test results have been favorable and that it’s proven to be highly incremental. More than half of U.S. locations have signed up to participate.
The second virtual brand is known as the Meltdown. It features handcrafted melts with fresh ingredients like one filled with brisket burnt ends, white cheddar, barbecue sauce, and pickles on artisan bread and another made with turkey, bacon, tomatoes, provolone cheese, and an herb spread. Miller said test results for Meltdown have been similarly encouraging, and more than half of domestic locations expect to go live with the new brand in the spring.
In December, U.S. locations earned $9,000 in off-premises sales per restaurant per week—good for an average weekly mix of 41 percent. In March, average weekly off-premises sales were $4,700 and mixed 17 percent. As of December, more than 90 percent of domestic restaurants have third-party delivery. In Q4, roughly 60 percent of online transactions came from the 18-44 age group, and 62 percent of off-premises orders were breakfast plates.
The virtual concepts are one of several moves by Denny’s to fill a white space of opportunity, especially with the continued fallout of the industry in which more than 110,000 restaurants have either closed long-term or permanently.
Since 2011, more than 60 percent of new Denny’s have been conversions, and Miller said the brand’s strong financial position will allow it to take advantage of those additional future opportunities.
“We believe our over-built industry will suffer an unfortunate and meaningful rationalization of seats through the pandemic, largely at the expense of small independent full-service operations,” Miller said during the ICR Conference. “While we do not celebrate this prediction, we believe brands that survive will have an opportunity to gain market share.”
Additionally, Denny’s is looking forward to continuing its Heritage 2.0 prototype, which underwent extensive testing prior to the pandemic. The model was developed based on consumer research and features more attention-grabbing exterior elements, relaxing, neutral colors with vibrant accents, and modernized booths and community tables.
“We believe it’ll be a significant tailwind for our brand for years to come as we relaunch the program on the other side of the pandemic,” Miller said.
In Q4, U.S. same-store sales dropped 33 percent. Comps declined 26 percent in October and 27 percent in November. But because of rising COVID cases and restrictions, same-store sales slid 41 percent in December; domestic comps haven’t been that low since June. On average, 891 dining rooms were open in December, which is the lowest mark since May. For the entire fiscal year, domestic comps plummeted 31.4 percent.
Here’s a look at how same-store sales and the average number of open units trended from April to December:
Open dining rooms
- April: –74 percent, two units
- May: –47 percent, 222 units
- June –33 percent, 1,087 units
- July: –36 percent, 1,244 units
- August: –29 percent, 1,044 units
- September: –24 percent, 1,127 units
- October: –24 percent, 1,289 units
- November: –23 percent, 1,239 units
- December: –26 percent, 891 units
Here’s a look at those same trends, but for closed dining rooms:
Closed dining rooms (off-premises only)
- April: –76 percent, 1,060 units
- May: –69 percent, 938 units
- June –68 percent, 327 units
- July: –55 percent, 237 units
- August: –47 percent, 444 units
- September: –39 percent, 369 units
- October: –33 percent, 207 units
- November: –42 percent, 256 units
- December: –61 percent, 586 units
As of December 30, 435 stores allow 75 percent capacity or social distancing, 346 stores allow 50 to 66 percent capacity, and 78 stores allow 25 to 33 percent capacity. Also, 587 stores are using an off-premises only model, 15 have no restrictions, and 43 are temporarily closed.
Denny’s ended the fiscal year with 1,650 stores—1,585 franchises and 65 company-operated units. The brand closed 73 stores and opened 20 in the fiscal year.
Miller said that with increasing distribution of vaccines, new funds from the Paycheck Protection Program, and ongoing resolve from operators, he’s confident that Denny’s is well-positioned to continue navigating in an effective manner while preparing for future growth.
“I continue to be impressed with how resilient and steadfast our teams are in their commitment to serving our guests,” Miller said in a statement. “Denny’s operators have maintained a dedicated focus on health and safety protocols while embracing innovative solutions such as curbside ordering, outdoor dining where permitted, and testing two new virtual brands in an environment challenged by mandated restrictions.”