As states have lifted mandates, Denny’s has responded with 521 reopened dining rooms across 21 states.
Seventy-five percent of those are in Texas, Nevada, Utah, Arizona, and Florida. Units with dining rooms open for a full week have seen a nearly 20 percentage point improvement in same-store sales while maintaining an off-premises business that has increased on average by 105 percent. Of those 521 units, 30 are company-run stores.
“I toured quite a few restaurants [Wednesday]—one of our larger franchisees; a 61-unit franchisee who has operations in Texas and Florida,” said CEO John Miller during the brand’s Q1 earnings call. “And it was just good to see cars on the parking lot. We toured competitors, fast food restaurants, fast casual and then quite a number of Denny’s. And then you could just see the excitement of some of the guests to be able to sit down and be waited on. And it was nice to see the momentum starting to slowly build.”
Denny’s implemented safety measures in anticipation of stores reopening. Miller said the brand is encouraging restaurants to have a dedicated sanitation specialist tasked with disinfecting surfaces after customers leave. The person wears an armband or vest to identify his or her role and leaves a card on a table to let customers know when it’s ready. Denny’s also developed signage to emphasize social distancing, such as floor decals, signs, door clings, banners, yard signs, posters, and table guards.
High-touch surfaces are deep-cleaned with a two-step process—clean and disinfect and then sanitize. Table caddies and condiments were removed from tables and customers are using single-use menus. Employees are required to wear masks and gloves and wash their hands and apply sanitizer every 20 minutes. In addition to workers, vendors and service personnel entering stores must also have their temperature checked. To limit contact between workers and guests, Denny’s is encouraging franchisees to install sanitary shields at each cash register. For added safety, customers have access to sanitizer inside the store.
“With these measures in place, we’re confident that we can deliver the same high-quality food and great experience that Denny’s is known for and to do so in a safe manner,” Miller said. “We will be sharing these enhanced health and safety measures with consumers to provide them with confidence to enjoy a great Denny’s meal in one of our dining rooms where permitted.”
Same-store sales grew 2 percent through January and February, but dropped 19.4 percent in March due to the COVID-19 pandemic. Denny’s finished Q1 down 6.3 percent systemwide. That includes a 9.4 percent decline at corporate units and a 6 percent slip at franchises. First-quarter revenue dropped from $151.4 million in 2019 to $96.7 million this year. In April, same-store sales dropped 76 percent compared to 2019.
Here’s how comps have trended so far in Q2:
- Week ending April 1: –79 percent
- Week ending April 8: –78 percent
- Week ending April 15: –76 percent
- Week ending April 22: –72 percent
- Week ending April 29: –72 percent
- Week ending May 6: –68 percent
Quarter-to-date, Denny’s had 1,698 units—1,631 franchises and 67 company-run units. Eighteen percent of domestic units are closed, including 272 franchised units. Across the globe, 40 international franchised locations are closed, as well.
At stores with dining rooms open for a full week, comps are trending in the 50 percent range. From February to April, off-premises grew from 12 percent of sales to approximately 25 percent. That growth was driven by temporarily waived delivery fees, a new dine-thru curbside service at more than 700 stores, and launched family meal packs.
Takeout accounts for 57 percent, while delivery is grabbing 39 percent. Of the delivery orders, 72 percent originated from the Denny’s website or app while the remaining 28 percent were attributed to third-party delivery providers.
More than 400 stores adopted a pantry program allowing customers to order grocery items along with menu items.
To assist franchisees, Denny’s deferred remodels, royalty fees, and advertising fees for one week, provided abatement of royalty and advertising fees for two weeks, and implemented 12 weeks of rent deferral for locations where it owns the property.
The brand secured abatements or deferrals for 75 percent of the locations where it doesn’t own the property, including situations where the company subleases to franchisees. Denny’s also worked with vendors and franchise lenders to secure financial relief.
Franchisees representing more than 82 percent of U.S. franchised locations have received Paycheck Protection Program loans and an additional 7 percent are awaiting funds.
Miller said that franchisees with temporarily closed stores are cautiously approaching the reopening process. He noted that some may wait for jurisdictions to allow 50 percent capacity or more because of the associated reopening costs.
“Part of it is emotion—a franchisee not knowing they could rely on the PPP or not certain that that would come in,” Miller said. “So there’s some broad array of franchisees, some that have really good balance sheets, but recently made investments in restaurants and maybe sort of capped out or levered to maybe the extent of their credit, but otherwise really good franchisees, but a little more nervous about running out of cash. The liquidity played a role and in some of those—and then some are just really sleepy little areas or some are resort areas that went sleepy really fast. So each has their own varied set of circumstances.”
CFO Robert Verostek said to break even in an off-premises only situation, a restaurant would need roughly $1,500 per day in sales to cover food, labor, and other variable costs. That sales level was exceeded in late April. If dining rooms are open, that number jumps to $2,000 to $2,500 per day because of more staff; it represents about 55 percent of AUVs from U.S. franchised stores in 2019.
To improve financial flexibility, the company previously furloughed more than 25 percent of the corporate office. Later, Denny’s permanently laid off half of those furloughed workers. The chain also significantly reduced restaurant staffing and reduced compensation for management and the board of directors.
In April, the company had a weekly cash burn rate between $1 million and $1.8 million. Verostek said Denny’s hasn’t had any issues with its supply chain thus far.
